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Opening Comment 05.04

Opening Comment 05.04

2010-05-04 05:36:00
Joel Kruger, Technical Strategist
The commodity bloc currencies have benefited greatly from the improved sentiment, while also finding some additional relative bids on gold and oil rallies to fresh multi-month highs. Meanwhile, the Euro continues to underperform on lingering uncertainty over the upsized Greek aid deal. Pimco’s El-Erian has not helped to bolster any confidence in the Euro, with the bond fund CEO warning that the latest package will not mark the end of the Greek debt crisis. The WSJ has also knocked the credibility of the latest rescue package after publishing an article that headlines that the Eur110B bailout funds will not be enough to cover Greece’s costs.  
The key event risk for the day has come and gone in the form of the RBA interest rate decision. While the central bank indeed did hike rates by 25bps to 4.50% as was widely expected, the accompanying statement was not as well received by hawks, with the RBA suggesting that it will now look to pause after rates for most borrowers were now expected to be around average levels. The Australian Dollar has had a hard time trying to establish itself above 0.9300 against the buck, and given the latest balanced statement from the central bank, we could start to see some major profit taking in a market that has been aggressively bought over the past several months. Adding to the risks for some selling in the higher yielding antipodean are the ongoing fears over the contagion impact of the Eurozone debt crisis, and a Chinese economy which continues on its tightening path
Elsewhere, price action in Usd/Jpy has been generating attention, with the Yen exposed potentially on two fronts. While the improvement in the global equity markets has opened some fresh Yen selling, it now appears that there may be another driver of the relative weakness in the single currency. A report from S&P suggesting that Japan “faces growing urgency to slash its deficit in order to stave off a sovereign ratings downgrade,” has been seen as the prime driver of the relative Yen weakness on Tuesday, with Usd/Jpy surging to fresh 2010 highs above 94.75. Japanese markets have been closed for Golden Week, and this has also helped to add to the volatility picture here. Key barriers by 95.00/95.50 are now expected to be taken out over the coming sessions. 
Looking ahead, UK data kicks things off for the European session, with mortgage approvals (50.0k expected), consumer credit (0.5B expected), net lending (1.6B expected), and M4 money supply all due at 8:30GMT. Eurozone producer prices (0.8% expected) then follow and round things out at 9:00GMT. US equity futures and commodity prices are tracking marginally lower on the day thus far. 

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com 

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