Sterling Outlook (5th April 2007)

The BoE MPC will deliver its monthly base rate verdict at 11:00GMT today. The verdict is touted as being 50/50 re: a 25bp hike/no change. Some knee-jerk selling of the pound may ensue if the base rate is held at 5.25% although the fact that a 25bp hike is priced in for this quarter might encourage sterling dip buying interest and limit losses.

1.9730 defines the intra-day low, plumbed after the 08:30GMT disclosure of disappointing UK industrial and manufacturing production data. Bids are tipped at 1.9715/20, with some stops pegged sub-1.9715. Additional demand is noted at 1.9700, 1.9680 and 1.9660, with further stops flagged below 1.9650. Sell interest at 1.9770/75 kept a lid on GBP/USD pre-UK IP data.

Further offers are noted at 1.9785/90, 1.9800, 1.9820/25 and 1.9840/45. A 1.9800 option strike rolls off at today's 14:00GMT NY cut. Exotic barriers are tipped at 1.9850, 1.9900, 1.9975, 2.0000, 2.0025, 2.0050, 2.0075, 2.0100 and 2.0200+. US weekly jobless claims are due at 12:30GMT. Forecast: 315k. March's US NFP number is due tomorrow. Forecast: 120k.

Yen Outlook (5th April 2007)

USD/JPY and the JPY crosses traded a little way from their recent highs. Many players locked in profits and others pared positions ahead of the Easter holidays this weekend. USD/JPY struggled to trade above 118.90, with offers lowered to 119.00 and heavy gamma related interest between 118.50 and 119.00 today. Talk from Asia was that offers re-set from 119.00 are in a few yards, eclipsing whatever stops there are above 119.10, 119.25 and option barriers at 119.50.

Some light stops are eyed below 118.50 and 118.35 but bidding interest is seen trailing down to 118.20 and then 118.00, below which more stops are tipped. Japanese investors remain dip buyers and this encouraged some speculative interest, although amounts were not that heavy. EUR/JPY also struggled to regain 159.00, yet remained in a narrow range amid investor activity on dips.

The afternoon session should remain quiet due to a limited data schedule and pre-holiday position squaring. The broadly softer JPY should influence price action, although both USD/JPY and EUR/JPY are under threat on increased profit taking and liquidation towards the London close.

Euro Outlook (5th April 2007)

Ahead of the 4-day Easter break and European traders see a quiet afternoon session in the makings but with US Employment data looming, due tomorrow, there will no doubt be the need for position altering. However, tomorrow many shops will be fielding skeleton crews to cover all eventualities.

EUR/USD traded in the 1.3360's for the most part in the European morning, with option related and other assorted buyers propping the early dip to 1.3355. Further option expiries are noted at 1.3350 intraday with exotic 1.3250/3450 and 1.1500/3500 DNT"s also set to mature at the NY cut at 14:00 GMT. Looking ahead, weekly jobless numbers (12:30 GMT) will hold extra importance while the 16:00 GMT release of the February Chicago Fed Manf. data is the only event-risk on the calendar.

EUR/USD dealers note stops below 1.3350 (circa-1.3340) while central bank buyers are tipped should a towards the 1.3330/35 area be witnessed while on the topside supply trails from 1.3380 back to 1.3400 with stops seen above 1.3405. Sentiment remains cautiously bullish ahead of the ECB verdict due next Thursday.

EUR/USD: Retail Sales Rebound, C/B Sales Noted Into 1.3370/75

Euro Zone Retail Sales rebounded in February but given the revisions to the previous data the headlines still look a little on the weak side. On the month the rise of 0.3% comes against the expectations for a +0.5% headline, however, when you add into the equation the revision to -0.8% from -1.0% the weakness looks slightly compounded.

On an annualized basis the +1.2% looks close to the consensus +1.1% expected but the previous -0.1% headline was converted +1.1% reading. The Euro looks to have taken the release in its stride and EUR/USD still trades in the 1.3350's with offers into 1.3360 capping the topside. Yet dealers remain wary of going long near the highs as central bank sellers are rumored to be looking for a rally towards the 1.3370/75 area.

USD/CHF: Pullback Aided By Fresh EUR/CHF Session Lows

Spot eased back to 1.22 support after filling decent bids in the 1.2210/15 area. However, the European pullback has been exacerbated by the Euro cross also printing fresh session lows. As EUR/CHF is sold back below 1.6285 the Dollar pair has been forced to break back into the 1.21's with bids in the 1.2190 stalling the initial drop. Stops are noted below 1.2185 so should the momentum hold then a return towards 1.2160/70 could loom. Stops in EUR/CHF are noted below 1.6275 and should the orders here be triggered then a run back towards 1.6265 and 1.6250 could be looked for in the cross.

EUR/USD: EZ PMI May Help 1.3350 Break Fail

Euro Zone RBS/NTC service sector PMI numbers have failed inspire further Euro gains after the headline fell from 57.5 in February to 57.4 in March. Ahead of the release and EUR/USD traded as high as 1.3358 as dealers remained upbeat over the 57.6 forecasts. In the wake of this slight disappointment and spot now pivots the 1.3350 mark with worries building that retail sales, due at 09:00 GMT, could depress the price back to the European lows.

Swiss Outlook (4th April 2007)

USD/CHF was carried aloft by renewed risk appetites early in Q2. CHF funded carry trades were all the rage today as stock markets around the globe rallied, helped in part by signs of life in the US housing market. US equities jumped around 1% and EUR/CHF surged to a fresh all-time high of 1.6299.

Talk of 1.6300 barriers as well as supra-national sales of EUR/CHF helped stall the gains ahead of the figure. USD/CHF was aided by profit-taking on EUR/USD and GBP positions from quite overbought levels. The rally came close to Friday's 1.2240 highs before stalling, topping out at 1.2233. Particularly helpful to the carry trade was this morning's ultra-low Swiss CPI figures.

Year-over-year CPI rose a scant 0.2%, suggesting the SNB can continue to slowly take away the abnormally accommodative levels of liquidity in the markets. A break of the 1.2240 area targets a test of the 200-day moving average at 1.2270 ahead. 1.2190/00 is first support on dips with more at 1.2170. Small stops are scattered below each of those levels. Non-manufacturing ISM figures are due out Wednesday, seen up to 56.0 from 54.3.

Sterling Outlook (4th April 2007)

The GBP/USD opened in Asia around 1.9740/45 after falling sharply from 1.9820 during the Lon/NY session on the back of profit taking and a broadly higher USD led by USD/JPY. There was talk in early Asia of a few stops below 1.9725 and they were triggered when high-yielding currencies fell across the board led by a steep pullback in the AUD/USD in the wake of the RBA decision to keep rates on hold.

The RBA decision spooked a few GBP longs anticipating a BOE hike on Thursday and the GBP/USD eased to 1.9717. The GBP/USD quickly recovered and settled between 1.9730/45 when Japanese investors bought AUD/JPY and GBP/JPY. The EUR/GBP edged higher today after key support around 0.6740/45 held yesterday's move lower. The cross opened at 0.6751 traded up to 0.6759 before settling around 0.6755.

There was no reaction from the KPMG report showing strong wage growth, which bolsters the case for a rate rise. The GBP remains underpinned by carry trade demand, but the 1.98-plus level should prove difficult resistance ahead of the BOE decision. Traders look for the GBP/USD to trade between 1.9650/1.9850 ahead of Thursday's decision.

Yen Outlook (4th April 2007)

USD/JPY and other JPY pairs sold off a bit early on the back of Japanese exporters sales and profit-taking. USD/JPY backed away again after trading around 118.95 early. It fell to the 118.70 level, just shy of the 100-day moving average at 118.68 today. Bids are seen down to 118.60, 118.61 the New York low. Light stops are seen below but more bids are seen towards the London low of 118.20.

Larger stops are eyed below 118.10. Topside, offers remain in place ahead of presumed option barriers at 119.00. A mix of stops and offers are seen just above up to 119.20. More offers again are eyed from 119.30 to more barriers tipped at 119.50. A break above 119.00 in USD/JPY could be only a matter of time. Japanese investment interest is seen strong below with talk of buys from investment trusts, pension funds and even semi-governmental entities.

Flows from the latter are seen especially heavy after the end-April/early May Golden Week period. EUR/JPY traded similarly in a 158.10-65 range. AUD/JPY was on of the largest losers early on the RBA's decision to hold its cash rate at 6.25%. It traded down to 95.85 or so before bouncing.

Euro Outlook (4th April 2007)

The EUR/USD opened in Asia around 1.3325 after falling during the US session on rising US yields and longs paring back after yet another failed rally. There was talk in early Asia of a few stops below 1.3315 and the EUR/USD edged lower to 1.3318 before good buying from US names emerged.

The EUR/USD edged above hourly resistance at 1.3335 to a high of 1.3343 before settling either side of 1.3340 for the balance of the very quiet session. All of Asia"s attention was focused on the high-yield currencies after the RBA surprised some by not hiking rates. The EUR/USD remained sidelined in a 1.3318/43 range with little volume changing hands. The EUR/USD appears to be range-bound for the balance of this holiday affected week.

There is good buying interest ahead of 1.3285 and traders suspect that central bank buying will be around on any extended dips. Sellers are lined up between 1.3350/70 now that the EUR/USD has frustrated by failing at lower highs all week. EZ services PMI and Retail Sales are out later today followed by US non-manufacturing ISM and Factory Orders.

EUR/USD: 1.3350 Bids Help Prop

Bids into the 1.3350 mark have stalled further EUR/USD weakness but spot could continue to probe lower ahead of the NorAm open. 1.3351 marks the session and intraday low but London dealers suggest that while 1.3350 holds the downside should remain intact.

USD/CHF: Rally Targets 1.22 Re-Test - EUR/CHF Eyes 1.6290/6300

Spot has worked back into the 1.2190's and bulls and various short-term funds now look for a re-test of the 1.2200 area on further Dollar strength. Any break into the 1.22"s will see 1.2240 come into view. However, the recent news that the KoF has upgraded their growth projections should help the Franc offset further weakness. The institute has revised their 2007 forecasts from 2.1% to 2.4% with their outlook for 2008 most dramatically altered, 2.5% from the previous 1.5%.

1.6284 has printed amid the EUR/CHF move higher in Europe but offers into the 1.6291 failed high from February 22nd are now eyed to stall further strength. The KoF news should help aid some degree of stalling into the highs but further stabs higher cannot be discounted. On the options front, gamma related sellers are reported to trail back to the 1.6300 mark with more barriers seen into the 1.6500 region.

On the technical front, any full retracement back to the 1.6291 mark will return the onus to the topside. Should the price manage to break into the 1.63's then the key 50% Fibo above at 1.6318 will come into view. This represents the move down from the synthetic high, from 1992 & 1993, at 1.8234 to the 2001 low at 1.4403.

GBP/USD: Weighed Down by Profit-Taking on Long Positions

A bout of profit-taking on long positions is being blamed for cable's drop to intra-day lows circa 1.9750. 10-week highs just shy of 1.9825 were notched in early European trade, as the pound continued to benefit from the risk that another 25bp UK base rate hike to 5.5% might be delivered this Thursday.

Sub-1.9750 demand is noted at 1.9740 and 1.9720/25. The latter orders are located just ahead of 1.9718, last Friday's high. Some sell stops are tipped below 1.9700. Monday's Asian session peak was 1.9698. On the geopolitical front: a slated news conference with Iranian President Ahmadinejad has been postponed until tomorrow (Reuters).

The news conference postponement follows a senior Tehran official's comment that Britain and Iran should be able to end the stand-off over the capture of 15 Royal Navy personnel by negotiating (BBC website).

EUR/USD: Little In EZ PPI To Trouble Ranges, US Data Eyed

Euro Zone February PPI data came in near expectation and this should leave spot little troubled ahead of the North American open. On the month the data was expected at +0.3% but on an annualized basis the forecast was for +2.8%. As a result, the headline +2.9% is slightly higher than many had forecast but well within tolerance levels given the upward revision to the January numbers (+2.9% to +3.1%).

EUR/USD continues to trade just shy of the 1.3370's having failed to clear 1.3380 amid the earlier stab higher. Bids into the low 1.3360's should prop the price from further weakness and while 1.3350 support remains intact the focus is likely to remain on the topside going forward. US Pending Home Sales numbers, for February, are set for release into NorAm trading and many dealers now see this release as the key short-term risk to the Dollar.

NEWS: Saudis Call For Steps To Achieve Objective Of Money Union

Speaking at the Gulf meeting of central bankers the Saudi CB Governor has said that the main task of Gulf central banker meeting was to agree the mechanism for monetary union by 2010. The Governor called for "concrete steps to achieve the objective of monetary union.

Swiss Outlook (3rd April 2007)

USD/CHF held north of recent lows in the 1.2085 area today, finding buyers on dips to 1.2120/25. Demand for EUR/CHF as the new quarter got underway helped keep the Swissy relatively offered across the board today. The market took one quick shot to the downside after ISM came in soft at 50.9 in March but prices soon rebounded, ending the afternoon near 1.2150.

Elsewhere, the SNB's Hildebrand told local newspaper Tages-Anzeiger that Swiss monetary policy is "probably still expansive" and interest rates may have to rise further to keep future inflation in check. The Fed's Poole did not say US policy was expansive but did suggest several more rate hikes may be needed if inflation does not begin to fall. He favors core PCE around 1.5%, give or take 50 bp, well below recent reading of 2.4%.

The market continues to entirely ignore hawkish Fed speak but could be rudely wakened if payrolls rise near the top of the range of forecasts. Several have forecasts well above 200k. Geopolitics is playing a minor role in the fortunes of the Swissy. Iran stressed today it is looking for a diplomatic solution to the present crisis with the UK.

Sterling Outlook (3rd April 2007)

A bout of profit-taking on long positions has been blamed for cable's drop to intra-day lows circa 1.9750, from early Europe 10-week highs just shy of 1.9825. The latter highs were notched after the sating of sell orders at 1.9800, as the pound continued to benefit from the risk that another 25bp UK base rate hike to 5.5% might be delivered this Thursday.

Sub-1.9750 demand is noted at 1.9740 and 1.9720/25. The latter orders are located pre-1.9718, last Friday's high. Some stops are tipped below 1.9700. Exotic option barriers are located at 1.9850, 1.9900, 1.9975, 1.9995, 2.0000, 2.0025, 2.0050, 2.0075, 2.0100 and 2.0200+. Today's key US event risk is the 14:00GMT disclosure of February's pending home sales index.

Forecast: 108.2, from 108.7. This week's key US event risk is the Good Friday publication of March's US employment report. NFP Forecast: 120/130k. Unemployment rate forecast: 4.6%. March's UK service sector PMI will be unveiled at 08:30GMT tomorrow. A rise to 57.5, from 57.4 in February, is forecast.

Yen Outlook (3rd April 2007)

USD/JPY and other JPY pairs did little again today in Asia. The initial bias was up with USD/JPY trading up from 117.75 or so to the 117.90 level, only to come off later on offers ahead of 118.00. The Tokyo fix saw a balance in supply and demand and USD/JPY held for most of the morning in a 117.75-85 range. A tick up to 118.00 was seen later as specs eyed topside stops.

However, offers around this level, at 118.20 and ahead of presumed option barriers at 118.50 look heavy enough to stymie further tests up despite the talk of stops above each of these levels. Bids are seen heavy from 117.50 and trail down to 117.20 and 117.00 with light stops eyed below each of these levels as well. JPY cross were mostly bid.

EUR/JPY traded up early with USD/JPY from 157.35 or so to 157.75. It edged back later. GBP/JPY, AUD/JPY and NZD/JPY were bid up early on continuing carry trade demand, eclipsing overnight highs. Holidays taken by European players, some extending into next week, look to favoring interest rate plays. This is especially the case with AUD and GBP ahead of interest rate decisions tomorrow and Thursday.

Euro Outlook (3rd April 2007)

The EUR/USD opened in Asia around 1.3365 after once again failing above 1.3380 during the US session. The Asian session was a non-event for the EUR/USD with the pairing dormant in a 1.3363/75 range. There was talk of very good buying interest between 1.3340/50 while sellers were lined up between 1.3380/90 to keep prices hemmed in. EUR/JPY traded between 157.35/75 for most of the Asian session with traders reporting only light flows throughout.

The EUR/USD is sidelined as heading into the holiday period with the action confined to yield plays that are benefiting the GBP, AUD and NZD at the expense of the JPY. The market appears to be fairly sanguine regarding the looming trade tiff between the US and China even though some analysts are warning that an escalation could have negative implications on the USD and result in the EUR/USD accelerating higher at some stage.

Instead the market remains focused on central bank expectations. The data out of the US is suggesting that inflation pressures are severe enough to keep the Fed from cutting rates and this is limiting the upside for the EUR/USD. EZ PPI is out today.

EUR/USD: Following in GBP's Wide Wake

The rampaging pound is helping drag EUR/USD along in its wake as dealers price in the real risk of a UK rate hike this week. China/US trade war jitters continue to underpin the EUR as well with the single currency the likely winner in any Chinese move to diversify reserves.

European PMIs leveled off last month but are plenty strong to keep the ECB in a hawkish mood. Offers are seen in the 1.3375/80 area with more toward 1.3400/10. Stops are eyed above 1.3410 but sellers are noted ahead of 1.3450 barriers. EUR/USD trades at 1.3377.