| 5/6/2008
2:53 PM: EUR/$..1.5530 $/JPY..104.64 GBP/$..1.9732
$/CHF..1.0494 AUD/$..0.9496 $/CAD..1.0025
USD Slips, Central Banks
Eyed
The greenback continues to give back last week’s
gains, falling just shy of the 1.56-level and
104 against the yen. The dollar remains under
pressure amid soaring oil prices, with crude oil
surging to another record above $122 per barrel
and fresh calls oil to reach $150 to $200 barrel
over the next two years.
Markets will turn to US economic data on Wednesday,
which consist of Q1 labor costs, preliminary Q1
productivity and pending home sales.
Sterling Recoups Losses
The sterling recovered from its earlier losses
bouncing from 1.9638 to climb above the 1.97-level.
The catalyst for the initial sell-off was a softer
than expected UK services PMI report, in which
consensus estimates called for a decline to 51.6
from 52.10 in March, instead falling to 50.4.
With the UK economy continuing to struggle we
look for the Bank of England to maintain its easing
bias with a 25-basis point rate cut in June. We
expect the BoE will leave interest rates unchanged
when it announces its policy decision on Thursday.
In the coming session, economic reports from
the UK will see March industrial output and manufacturing
output. The March industrial output is expected
to decline by 0.1% versus an increase of 0.3%
a month earlier, while the annualized figure is
estimated to slip to 0.8% versus 1.3% in the previous
year. Manufacturing output is expected to be flat
in March compared with a 0.4% reading a month
earlier and ease to 1.2% versus 1.9% in the previous
year.
Cable holds steady near the 1.9730-level with
resistance seen at 1.9760 and 1.98. Additional
ceilings are seen at 1.9850, followed by 1.99
and 1.9940. On the downside, support is seen at
1.97, backed by 1.9650 and 1.9620. Subsequent
floors will emerge at 1.96, followed by 1.9560
and 1.9530.
Euro Support over Hawkish Expectations
The euro edged higher near the 1.56-level ahead
of a key ECB monetary policy meeting this week.
The ECB is not seen changing interest rates but
is however, expected to maintain its hawkish bias
on Eurozone inflationary pressure. The hawkish
rhetoric is a sharp contrast to the policy stances
in the US and UK, and will likely support the
euro over the coming months.
Eurozone data include March retail sales and
Germany industrial orders. Eurozone retail sales
in March are seen improving to 0.2%, reversing
a 0.5% decline in February, while declining by
0.6% compared with a 0.2% drop a year earlier.
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