USDJPY shied away from its first go at the psychologically important 100, where options barriers and the like also probably abound. Meanwhile, GBPUSD is back to a key support area important for the near-term trading scenarios.

The market may get a bit more cautious from here in the shortest term on the JPY trade, wondering when traders have become over-positioned in the near term and especially when official rhetorical intervention will begin to make is presence felt. Europe and Germany in particular are likely to begin to complain more loudly from here if EURJPY exceeds 130, and possibly even I it doesn’t. And I suspect China is preparing a comprehensive response to the situation – one it will be ready to mobilize in the coming months with little notice – if/when it feels that the Yen weakening is damaging for its own economic prospects. As I have said before recently, this JPY weakening move will not remain a one-way street.

Overnight, the USD was weak as it seems to have dipped back into risk-on/risk-off mode after the recent string of weak US data. US stock indices were back within striking distance of recent highs and Asian markets were also buoyant. China’s low CPI number was likely cause for some relief in Asia as well. The 2.1% YoY rate of inflation is not far from last year’s lows below 2.0%. Producer prices have been negative since early last year. Is this a sign of weak demand?

Chart: GBPUSD

GBPUSD consolidated a bit yesterday after two days of squeezing higher on the heels of the BoE meeting and the weak US employment figures. The sell-off has taken the pair back to the 1.5250/70 zone of support that was key overhead resistance previously. The action will likely take its cue from the UK production figures up this morning. A significant move back into the lower zone possibly sets up a test of the multi-year lows, while a survival of support for now could see the pair realizing the full potential of the corrective pattern around 1.5470. In general, it’s still about picking entry points for fresh shorts.

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Note another giant trade surplus number out of Germany after the smaller surplus number in January. Meanwhile, France posted an ugly trade deficit on declining exports. The EU imbalances show fewer signs of evening out than they need to. For now, the peripheral spreads are very quiescent in Spain and Italy, though Portugal’s are wider lately due to the uncertainty over whether a second bailout request is on the way. Yesterday, Berlusconi claimed that Bersani was finally open to a meeting (presumably with the intent of forming a broad coalition between his PdL and Bersani’s PD and avoid the prospect of another election). No date has been set and one wonders if they can reach any kind of accord as the rhetoric has been harsh.

Looking ahead

The calendar is heavily populated today, but there are few major data points of note – note the group of Fed speakers out later today. Those with time on their hands should also note that the Boston Fed is hosting a conference on April 12-13 at which the theme will be “Fulfilling the full employment mandate”. Noted doves Rosengren of the Boston Fed and Evans of the Chicago Fed. Other attendees include former outspoken BoE dove Blanchflower and a Riksbank deputy governor. We can look here for the kinds of blueprints that may be in place in the event the Fed dovish contingent stays in power and the US recovery fails to blossom from here.

Economic Data Highlights

UK Mar. BRC Sales Like-for-Like out at +1.9% YoY vs. +1.0% expected and +2.7% in Feb.
UK Mar. RICS House Price Balance out at -1% vs. -5% expected and -7% in Feb.
New Zealand Mar. QV House Prices rose +6.5% YoY vs. +6.3% in Feb.
Australia Mar. NAB Business Conditions out at -7 vs. -3 in Feb.
Australia Mar. NAB Business Confidence out at 2 vs. 1 in Feb
China Mar. Consumer Price Index out at +2.1% YoY vs. +2.5% expected and +3.2% in Feb.
China Mar. Producer Price Index out at -1.9% YoY as expected and vs. -1.6% in Feb.
Germany Feb. Trade Balance out at +16.8B vs. +15.0B expected and +13.6B in Jan.
Japan Mar. Preliminary Machine Tool Orders out at -21.6% YoY vs. -21.5% in Feb.
France Feb. Trade Balance out at -6011M vs. -5445M expected and -5653M in JAn.

Upcoming Economic Calendar Highlights (all times GMT)

  • Switzerland Mar. CPI (0715)
  • UK Feb. Industrial and Manufacturing Production (0830)
  • UK Feb. Visible Trade Balance (0830)
  • Sweden Riksbank’s Ingves to testify to parliament (0830)
  • US Mar. NFIB Small Business Optimism (1130)
  • Canada Mar. Housing Starts (1215)
  • Canada Mar. Building Permits (1230)
  • US Fed’s Lacker to Speak (1330)
  • UK Mar. NIESR GDP Estimate (1400)
  • US Fed’s Lockhart and Kocherlakota to Speak (from 1700)
  • UK BoE’s Haldane to Speak at US Conference (1900)
  • US Weekly API and Crude Oil Inventories (2030)
  • New Zealand Mar. Credit Card Spending (2245)
  • Australia Apr. Westpac Consumer Confidence (0030)
  • China Mar. Trade Balance (0200)