Brave New World

The Week Ahead 11/05/2009

News

• CNY: China posted a third month of deflation, with consumer prices falling 1.5% y/y in April. Producer prices fell 6.6% in the same period
• EUR: French industrial production declines 1.4% in March, vs -0.5% consensus. This is fifth month in row that the figure in France has been greater than 1%
• GBP: Lloyds TSB Corporate Markets Business shows the  headline balance of firms expecting brighter trading prospects over the next 12 months rose to +14 % points from -4 in March, the highest level and the first positive reading since November.

Commentary

Following the giddy heights of risk appetite reached towards the end of last week, particularly when it coincided with the results of the stress test and the announcement that over half a million Americans had lost their jobs in April, it was unsurprising that sobriety should return to the market this week. Despite the release of some figures in Australia and the UK suggesting a pick up in business confidence, this morning’s trading has been weighed down by deflationary data from China; in line with expectations and confidently explained away but checking some investor’s views of China being recession proof. The paring back of risk appetite has come at the expense of the Euro and Sterling, which have sold-off against the US Dollar this morning. EURUSD and GBPUSD have both fallen about 100pips from the initial highs. Data out later this week should problems for bulls, leading to a serious of USD positive scenarios, including data on US Retail sales, CPI, and the Trade Balance. Ben Bernanke is due to talk about the results of the stress test, which has been given a remarkably positive welcome by the market thus far. Sterling is likely to experience greater volatility than of late with the release of employment data and the quarterly inflation report.  Similarly the EUR is likely to experience volatility, although this will be mostly due to world risk appetite, as data is light. The 200 day SMA, around the 1.348 level is likely to provide support, 

Trading Strategy

EURUSD: Current Spot- 1.3580 Sell at 1.3500, Target 1.3380, then 1.32

GBPUSD: Current Spot- 1.5112 No current trade but sell at 1.5040, then target 1.4830

USDJPY: Current Spot- 97.86 Sell at current spot, target 96.70. Stop loss at 98.15 (break out of 200 day SMA)