• USD reversed earlier losses and is now trading higher against all of its major counterparts except for the JPY. The dollar index rebounded after making new lows for April as sentiment deteriorated. Negative news continued to flow out of Spain, this time with more ratings downgrades and data that confirmed a recession in the Euro zone’s fourth largest economy. Equities are mostly lower with much of Europe in the red while US stock futures are currently pointing to a slightly lower open. UST yields are down across the curve as investors seek safety in Treasuries. The 10-year Treasury yield has currently shed 2.1bp to around 1.914%. On the data front, March personal income and spending rose by 0.4% and 0.3% respectively. The PCE deflator slowed to 2.1% y/y (prior 2.3%) and PCE core accelerated to 2.0% as expected (prior 1.9%). The Chicago PMI for April is due at 0945ET and Dallas Fed manufacturing activity is set for release at 1030ET.
• EUR mostly lower amid ratings downgrades and mixed data. S&P took action on 16 Spanish banks with 11 ratings cuts in addition to placing numerous banks on watch for a cut. Spain GDP in 1Q showed contraction of -0.3% q/q (prior -0.3%) which confirmed a recession in the Euro zone’s fourth largest economy. German retail sales were mixed with slightly lower than expected m/m growth (0.8% vs. exp. 1.0%) while the yearly reading was higher than forecast (2.3% vs. exp. 0.5%) due to revisions. Italian CPI showed higher than expected inflation as did the Euro zone CPI estimate for April which slowed to 2.6% y/y from the prior 2.7% (cons. 2.5%). In Greece, retail sales in Feb. fell -11.1%. Overall, the focus was on the GDP contraction in Spain which does not bode well for the region’s growth. EUR/USD fell from session highs of around 1.3265 to current levels of about 1.3215 where the top of its daily ichimoku cloud currently resides.
• JPY outperforming in the G10 space as Japan is on holiday for the Golden Week. Markets remain skeptical about recent actions of the Bank of Japan and while the bank may consider its actions as powerful easing, the market appears to think otherwise. The yen is higher across the board and USD/JPY is now trading within its weekly cloud and approaching the key 80.00 big figure. The pair is also being helped lower by falling US Treasury yields. Stock markets in Japan are closed for the holiday and there was no economic data of note.
• GBP reached its highest level against the dollar since August after the UK’s Hometrack housing survey showed prices gaining by +0.1% m/m and falling -0.9% y/y. GBP/USD tested the 1.63 figure and has since corrected lower to current levels of around the 1.6240 where the 55-hour SMA comes in. Steady EUR/GBP supply is boosting the sterling as EUR/GBP made new lows today that have not been seen since mid- 2010. In addition, Gilt yields are edging lower and are currently below the 100-day SMA around 2.125% which is also helping to support a stronger pound.
• AUD weak ahead of tonight’s Reserve Bank of Australia (RBA) interest rate decision. Markets are anticipating a cut of at least 25bps with speculation that the bank may do more and cut 50bps. Our outlook is for a cut of 25bps tomorrow and another 25bps in June. AUD/USD is back below the 100-day SMA and sees the 21- and 200-day SMA’s converge around 1.0350/60 as the next key level of support.
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