Saxo Bank

Disappointing Japanese data, but the BoJ's Outlook report should be more of more importance. USDJPY staying above 119.05, next upside level to look for 120.00.

MAJOR HEADLINES – PREVIOUS SESSION

All eyes on today US GDP

GDP Q1 for the US is expected at 1.8%, which seems to be set relatively low. Our own index of US economic weekly indicators show strength now seen since the beginning of 2000. So we believe the surprise reading should be to the upside. A break below 1.3575 should spark a short term downside correction, but bull trend remain intact. For the upside stops are rumored above 1.3670, which would likely confirm a test of 1.3700+ in the short term. We will look to play both sides of the market if data deviates more 0.4% to either side.

Notes from this week.

Notes/comments from BoE

UK: It looks like there's a lot of debate among BoE MPC members on the state of the housing market. For instance, Sentance comments that the strength of the housing market is a signal of strong demand in the sector. Barker, meanwhile, said low interest rates and a lack of supply was driving prices.

UK: Besley considers the rapid growth in M4 as a cause for concern. He is one of the members most sympathetic to the link between money and inflation.

UK: Here's a big change of view on the BoE MPC - super-dove Blanchflower says he agrees with super-hawk Besley that the growth of money supply is a cause of concern.

BoE's Tucker and Bean say relationship between money and CPI is not tight, but rapid money supply is not to be ignored.

BoE governor King had to be hawkish to a certain degree in his comments to the TSC, given the current inflation situation. It was hence no surprise to see comments on the lines of: determined to bring CPI back to target, must look at inflation expectations.  However, he did not cause any need for panic - energy prices are expected to fall back.  Important to look through the fog.

Notes from ECB comments:

ECB's Garganas joins Constancio in his observation of the euro's strength. Garganas suggests that the stronger euro may weaken the case for further rate hikes. Note - there are a number of big issues to consider here.  First, it's not the actual level of the euro that has bothered the ECB in the past, it's the steepness of its move. Second, at the moment this isn't so much euro strength as dollar weakness - that's a change from the last time the euro was pushing up (look at EURGBP for instance). Third, Garganas's comments exactly sum up the current situation at the ECB - the governing council is deeply divided. This kind of comment from Garganas is something that's likely to be heard a fair bit in the next few weeks. The ECB's council is split. It is likely to be difficult to read the ECB's intentions from here as the two sides play out their arguments in the press and across the news wires. The upside for the wires is that there's going to be plenty of opportunities for 'sources said' type stories. 

Notes on the strength seen in the JPY overnight:

JPY gains across the board after S&P lifted Japan's debt rating one level to AA from AA-, the first increase by the company since 1975. USDJPY falls from 119.01 to 118.20's in Asia. Key support still remains at 117.60 if further downside acceleration is to be seen. This is a step in the right direction for a stronger JPY, but as we have said all along its going to take more supporting fundamental data to change the longer term present uptrend. Though we will look to sell USDJPY below 117.60 which would give scope for a test of 116.00-50 in the short run, but still not enough to make us JPY bulls looking 1-2 months ahead. 

Notes on today's data from the UK:

UK March M4 money supply firm at +1.0% mom and +12.8% yoy  from Feb's +0.9% mom and 12.7% yoy.  The market had been expecting a gain of 0.8% in the month and 12.5% in the year.

The British Bankers' Association reported underlying mortgage lending up GBP5.1 bln in March, the same as Feb's rate.  Looking through the details and total sterling lending dropped to GBP2.302 bln in March from GBP12.952 bln in feb.  That reduction was largey due to a GBP8.379 bln mortgage securitisation.  More interesting was the GBP84 mln repayment of credit card debt.

From a technical standpoint today's break of 1.9990 brings the short-term bearish bias back, but we still think the pair is decent buy above the 1.9860 zone which is 50% retracement (from 1.9592 - 2.0133), fro a leg higher and a test of the highs from last week.