Forex - Shift In Global View on Weak GDP Figures

Forex News and Events: The release of German GDP on Friday, which showed a contraction of -3.8% q/q, took the wind out of the EUR and the “Green Shoots” theory. Pundits over the weekend, such as Times columnist Anatole Kaletsky, described the data as "arguably the most catastrophic economic statistics produced by any official institution in the capitalist world since 1945". We see such comments as overdone, but it does highlight the fact that a near term recovery is not just around the corner as many had hoped and the ECB needs to step up their efforts in supporting the Eurozone economy. While some optimist economists took the number as a signal German has hit the bottom, it also suggests that 2009 growth estimates are over optimistic. Participants should expect that the current forecast have overshot current conditions and should expect some level of correction. In other news, GM has reportedly sent letters to 1100 dealers telling them to shut their doors permanently. Just another signal that suggests the automaker will end up in chapter 11 and add to the worries over the US unemployment rate. There are auxiliary signals of profit taking in the market this morning, after stocks closed in negative territory again on Friday and Asian stocks followed suit this morning. On a final note the SNB has yet to comment or take credit (in our view) for Friday massive rally in EURCHF. The JPY has been the primary recipient of the decline in risk appetite. Both EURJPY and AUDJPY have sent out bearish engulfing signals and are looking to test trendline support at 127.35 and 69.60. While today is very light on economic data, in days to come we will see an increasing emphasis on data releases. Markets remain uncertain about the economic future and brunt by false data breakouts; we should expect increased volatility around data.

Today's Key Issues (time in GMT): 09:00 EUR ECB's Weber speaks at an event in Dusseldorf 09:00 EUR Trade balance, bn (sa) Mar -4.0 prior 17:00 USD NAHB housing market, index May 16 exp, 14 prior 19:30 MXN Industrial production, % y/y Mar -8.3 exp, -13.2 prior 22:10 AUD RBA Governor Stevens speaks

The Risk Today: EurUsd Market consolidates after broad moves on Friday which saw the greenback gain against the Euro as risk aversion creeps back into play. Initial support (today’s lows) at 1.3426 allows for further weakness towards 1.3245, via 1.3343. On the upside a retracement to the 38.20% level at 1.3498 is still possible. A firm push above this level sets the tone for a constructive bull towards 1.3550 (neckline mid point) and 1.3669. GbpUsd slowing of the Sterling bulls might only be a momentary lapse in strength, continual testing of highs not to be discounted with initial resistance at 1.5291, but crucial test comes in at 1.5354 (highest since 8th Jan 2009). Soft support comes in at 1.5123, with a strong support at 1.5063, which would confirm building momentum for the downside and aim for 1.4957. UsdJpy Pair breaks all retracement resistances this morning and prepares to test May 14th high at 96.20, which sets the tone for 96.70 then 97.21 (161.80% retracement level). Dollar is gaining across the board but yen dynamic seems to be erratic, initial (soft) support at 95.66 will trigger stops at 95.37 (50.00% retracement on this morning’s move) – which will start to eye pre-weekend levels of 94.84. UsdChf Friday’s supposed SNB intervention saw the Swiss currency fall short of its 1.1000 stops and bounce sharply rising 2-figures throughout the day. Support comes in at 1.1217, crucial level at 1.1169 allows for further declines towards 1.1119. On the upside we see resistance at 1.1249 with a cap for the day at 1.1338.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.3669 1.5500 97.21 1.1338 1.3550 1.5354 96.70 1.1279 1.3498 1.5291 96.20 1.1217 1.3460 1.5240 95.75 1.1238 1.3426 1.5123 95.66 1.1217 1.3470 1.5063 95.37 1.1169 1.3343 1.4957 95.84 1.1119 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot