Outlook:

We get new home sales today, probably in a range of 395,000 to 435,000 with a median around 420,000 (Market News), but new home sales are a tiny fraction of the total, so maybe not much of a mover. Friday is the big day, with initial GDP, probably around 3%. Realistically, the useful data comes from elsewhere, especially the German IFO report tomorrow. A really good chart for the March report in context can be seen at the IFO website (cesifo-group.de). Expectations are not high for any improvement, even if it’s not a terrible disappointment. Then on Friday we have the BoJ policy meeting, with perhaps some bombshells being prepared. The OECD warnings linger, but are not new news. 

At a guess, new fears are wrong that China and the US are failing to get the needed growth to support commodities and equities. The evidence for the failure-to-thrive case is spotty, just a few things. Meanwhile, the evidence for slowdown in Europe, even powerhouse Germany, is not spotty or small. The eurozone is going into the second year of recession and doing it with some peripherals being given extra time to get their houses in order and one of them at a standstill (Italy). The ECB has little faith in rate cutting as a means to boost activity, especially the critical activity of lending to small and medium-sized businesses, but may do it anyway for the confidence effect. One thing the ECB knows is confidence. Ironically, a rate cut that should be euro-negative would probably be a euro-positive on the confidence factor, even factoring in delays in peripheral repayments. The market likes pragmatism. So, with the Fed possibly on hold a little longer because of sub-par US data and the ECB able to cut rates without hurting the euro, what’s the bottom line? A rising euro, along with equities. It’s a dumb outcome but not a new one under the circumstances—we have seen it before. Net-net, we think the current euro dip is a temporary one that will end soon.

SPOTCURRENT POSITIONSIGNAL STRENGHTOPEN DATEOPEN RATEPOSITION GAIN/LOSS
USD/JPY98.69LONG USDWEAK04/05/1396.252.47%
GBP/USD1.5215LONG GBPWEAK03/25/13 1.52060.06%
EURO/USD1.2987LONG EURWEAK04/05/131.29270.46%
EURO/JPY128.18LONG EURSTRONG04/05/13124.423.02%
EURO/GBP0.8533LONG EUROWEAK04/15/130.8534-0.01%
GBP/JPY150.19LONG GBPWEAK04/04/13146.652.41%
USD/CHF0.9404SHORT USDWEAK04/04/130.9402-0.02%
USD/CAD1.0275LONG USDWEAK04/17/131.02310.43%
AUD/USD1.0243SHORT AUDSTRONG04/16/131.03651.18%
AUD/JPY101.11SHORT AUDWEAK04/16/13101.490.37%
USD/MXN12.2927SHORT USDWEAK03/12/1312.53872.00%