Fundamental Outlook at 1400 GMT (EDT + 0400)

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€

The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3375 level and was supported around the $1.3200 figure. The common currency retraced some of its intraweek losses after Greece officially requested financial assistance from the European Union and the International Monetary Fund. The European Commission, European Central Bank, and the Eurogroup reported they are “taking note” of Greece’s request to “activate the financial support mechanism,” adding they “will decide upon the activation of this mechanism.” There is market talk that Greece will receive its first funding tranche before 19 May. The speed with which the European Union agrees to rescue Greece will partially be determined by the speed with which German Chancellor Merkel can push the unpopular bailout through the German legislature. Yesterday, Greece’s debt ratings were downgraded by Moody’s Investor Services. The activation of the financial assistance package for Greece will provide the country with a little bit of financial stability but there is talk that Greece will require well in excess of €100 billion in aid from the international community. Additionally, the euro may still continue to probe new multi-month lows because there is a higher threat that contagion will see Greece’s fiscal problems move to other highly-indebted eurozone countries including Portugal and Spain. G-7 and G-20 officials will discuss sovereign credit risk, exchange rates, Greece, global financial reform, and other key topical issues when they convene this weekend in Washington, D.C. Eurozone February industrial new orders were up 1.5% m/m and 12.2% y/y in data released today. Also, the German April Ifo business climate index rallied to 101.6 from 98.2 while the April Ifo current assessment index improved to 99.3 and the April Ifo expectations index rallied to 101.9. Also, French March consumer spending was up 1.2% m/m and 2.5% y/y. In U.S. news, data released today saw March durable goods orders decline 1.3%, a reversal from the revised prior reading of +1.1%, while the ex-transportation component was up 2.8%, up from the revised prior reading of 1.7%. Also, March new home sales were up 26.9% y/y to an annualized 411,000 units, a multi-decade record-setting pace. Press reports suggest Federal Reserve Chairman Bernanke is not convinced about the timing of asset sales to reduce the Fed’s balance sheet. Euro bids are cited around the US$ 1.3175 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥94.20 level and was supported around the ¥93.30 level. The pair continues to rise as there are increasing signs the U.S. economic recovery is taking root. The Japanese media is reporting Bank of Japan may raise its consumer price index forecast for fiscal year 2011 to near zero per cent growth, up from January’s estimate of -0.2%. Bank of Japan Governor Shirakawa spoke yesterday and reported inflation targets are one cause of asset price bubbles. It is likely that Shirakawa and other BoJ officials will resist the government’s likely call to adopt an inflation target, perhaps as high as 2% per year. Ahead of this weekend’s G-7 and G-20 meetings in Washington, D.C., Shirakawa said exchange rates should not be utilized to resolve trade disputes. Data released in Japan overnight saw the February all-industry activity index decline 2.3% m/m, a reversal from the upwardly revised +3.4% climb in January. The Nikkei 225 stock index lost 0.32% to close at ¥10,914.46. U.S. dollar offers are cited around the ¥96.85 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥125.20 level and was supported around the ¥123.40 level. The British pound moved higher vis-à-vis the yen as sterling tested bids around the ¥144.50 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥87.30 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8274 in the over-the-counter market, up from CNY 6.8264. Attention will be focused on the G-7 and G-20 meetings in Washington, D.C. this weekend to determine how much multilateral pressure there is on China to revalue its yuan currency. Many China-watchers believe China may allow the yuan to appreciate at any time between now and the end of the quarter. Data released in China overnight saw the March leading index decline to 104.98 from the revised prior reading of 105.11.

₤

The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5295 level and was capped around the $1.5400 figure. Data released in the U.K. today saw Q1 gross domestic product up 0.2% q/q and off 0.3% y/y, lower-than-expected on the quarterly basis and stronger-than-expected on the year-over-year basis. Prime Minister Brown will likely note these data suggest the economy is accelerating while his opponents in the 6 May General Election will note that economic growth remains very weak. Many political pundits believe the contest will result in a hung Parliament and some now say the general election is too close to call with Cameron perhaps still holding a slight lead over Brown. Cable bids are cited around the US$ 1.5140 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the £0.8700 figure and was supported around the £0.8605 level.

CHF

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0850 level and was supported around the CHF 1.0745 level. Swiss National Bank Chairman Hildebrand said he is “skeptical” of the International Monetary Fund’s G-20 bank tax proposal. Swiss National Bank and Swiss regulators announced new regulations this week that mandate UBS and Credit Suisse to hold larger amounts of reserves to defend against crisis scenarios. Data released in Switzerland today saw the March trade balance expand to CHF 2.01 billion from the prior reading of CHF 1.29 billion while the April ZEW expectations survey fell back to 53.4 from 53.8. Dealers continue to cite talk that Swiss National Bank may be intervening by bidding the euro/ franc cross higher. U.S. dollar offers are cited around the CHF 1.0920 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.4355 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.6490 level.