Forex News and Events:
__________________
The EUR continues to be helped by recent risk-appetite, supported by equity market rallies and declining VIX and growing credibility to the ‘green shoots’ theory. In addition, as the market discounts the probability of a “black swan” event in the financial sector, the flight to safety trades becomes less relevant. With focus being put back on the Fed’s massively bloated balance sheet, timing of recovery and clean break of 200d ma, we expect traders are looking to build long position in the EUR. Comments by Bernanke and Trichet have added to the growing optimism surrounding the global recovery. Bernanke attempted to talk up the USD yesterday, stating that "the USD will be strong because the US economy is strong". On the comment both EUR and GBP sold off dropping to intraday lows but then quickly recovering, as trader focused/ believing the “US economy is strong portion” of more than the rational of a strong USD. In addition, Bernanke acknowledged the market's uncertainty with the bank stress test results, yet argued that overall the tests serve a significant purpose of reducing uncertainty in the markets and boosting confidence in the financial system.
Jean-Claude Trichet commented yesterday that the global downturn had bottomed with some large economies already on the path to recovery. Overnight, UK released the RICS house price balance, which showed the slowest decline since Jan 2008 at -59.9 vs last month's reading of -72.1. UK BRC retail sales monitor was also positive at 4.6 % y/y, the largest jump since April 2006. With liquidity conditions improving in Sterling and positive economic readings, the GBP traded up to 1.5294 against the USD. With risk appetite improving, risk-correlated assets have seen a large rally in the past few weeks and look to continue to outperform. Specifically, we see EM Asia as a beneficiary, as a large improvement in terms of trade will provide the currencies with a tangible fundamental rational for buying.
Speaking of Asia, China's exports fell on an annual basis by much more than we and the market expected, down -22.6% y/y in April vs. -15.3% exp. after -17.1% in March. After the initial disappointment a closer look into the details suggests that the underlying momentum is still supportive of the global recovery.
