[DanRath]

Canada
March retail sales (Friday) should eke out another gain as they normalize from their Q4 / early Q1 freefall. Bias: USD/CAD has now fallen about 15 big figures from its highs. Some analysts have generally been averse to CAD given its lack of yield and the distrust of the rally in commodity prices (i.e. primarily Chinese inventory building) so some feel that the risk-reward in being short USD/CAD here is less compelling than ever. There is a strong risk of some pullback in risk given are extremely stretched. USD/CAD bounced several days ago precisely off a major support level at 1.1460 suggesting the currency remains trapped in a very wide rough 1.15-1.30. Some see value in being long USD/CAD here for a quick run up to 1.20.

Europe
The moves last week look to be overextended and part of this move positioning related. The world economy looks to have slowed (at present) from its pace of macro decline but that does not necessitate an immediate nor a strong recovery. Householders still have further to de-leverage and as Bank of England’s King implied yesterday, core forecasts have less value at present than the balance of risks. For this week in Europe, the balance of risks and event risk happens to be the lack of data to drive markets. The only data of note in Euro land is CPI. This puts the moves squarely in the shadow of the US Dollar. Unemployment and trade balance are expected to be released in Sweden and Norway, respectively. Bias: The market is following the US Dollar moves and relative financial information. On the latter, interest rate differentials suggest that EUR should be lower, risk indicators are not reflected in GBP and EUR moves to the same extent as the AUD and NZD, and equity market gains (and the correlation to the USD moves) have been eroded. Credit spreads and bond spreads overall are mixed (of primary concern to the BoE and increasing concern to the ECB). Short term drivers of currency markets are mixed and consequently price moves look fickle. Thus the neutral on GBP bias for this week and in the short term 1.5150 and 1.5000 look to be areas of support. But bias on EUR/USD points down; traders anticipate that the EZ CPI outturn next week will contribute to the market perception that the ECB has further to go in its easing cycle. In the Scandies both the Riksbank and the Norges bank are looking for a lower currency yet in both cases the currencies are moving against them. Data due for release market expects will highlight the weaker economies but won’t be enough to push NOK/SEK out of its 1 .18 – 1.22 range.

Australia
The data calendar is reasonably quiet over the course of the next week. Tuesday though will be a key focus with the RBA governor due to speak, along with the Treasury Secretary. Also out on Tuesday is the RBA board minutes from the meeting earlier this month. On Wednesday the consumer sentiment number is out along with Q1 wages data. Bias: Next week’s local events are unlikely to influence the AUD a great deal. The currency’s fortunes continue be driven by global risk appetite and some market indicators suggest we are close to a near term peak in terms of positive sentiment. Hence some would argue that the A$ has further downside in the near term, particularly if the 0.7500¢ level gives way. Technically there would be little to stop the AUD falling back to the 0.7330/40 level if this eventuates. The critical issue will be to what degree investors use the dip in the AUD to establish more medium term long positions. It’s unlikely the green shoots phenomenon is over just yet, although the rate of improvement is likely to slow in coming weeks. Traders expect to see good support for the A$ on dips back to the 0.7200/0.7300¢ region.

New Zealand
The week’s highlight, and main local event risk, is retail sales for Q1 and March (Friday). A bounce for the month is expected, driven by lower prices, but quarterly movement remains well negative. Thursday’s credit card spending will give guidance for April sales. Q1 PPI (Monday) has less impact these days, inflation far from the radar screen in this environment. Bias: The price action in NZD last week suggests a multi-week top was formed at 0.6130 on Monday. As long as that resistance level holds, traders favor a weak NZD outlook this week. A longer term move below 0.5500 would argue for a more severe selloff, eventually below the 0.49 March low. The RBNZ yesterday stated its preference for (and belief of) a much lower NZD and analysts believe monetary policy will continue to be a strong drag on the currency.

Japan
Decent week of data with machinery orders and CGPI tomorrow, consumer confidence and stores sales Monday, final IP Tuesday, GDP Wednesday and BoJ Thursday. To be sure, GDP will dominate. And there seems little doubt that the report will tell us that Japan was in its darkest spot in the first quarter and the recovery from that point will be very slow. Beyond that we see little on the local agenda to change views, though worth watching the DPJ leadership election process this weekend given the ‘stated’ position that Japan would look to off-load currency risks on the foreign debt it buys. Bias: If risk has been so bid and the world such an improved place, why could EUR/JPY simply not crack through the 135 plus region (and USD/JPY 100 for that matter)? Stick with the short EUR/JPY bias for another week and hold the flat USD/JPY given current levels.