20140422

Good morning,

Market activity was relatively quiet as over Easter as expected following closed markets and lack of new information to the market. The situation in Ukraine has on a geo-political not affected the markets so far, although the situation is tense. Overnight, markets were a little lower on Japanese news which disappointed the market (February Leading Economic Index and Coincident Index fell in February), but market focus seems to be on the US recovery which was supported by better-than-expected earnings, leading to a sell-off in the JPY and the Nikkei 225, but a plus on Chinese and Australian markets.

European markets will follow suit in the morning, but the Construction Output at 09GMT could affect sentiment. EUR/USD is in a wedge, currently flirting with the 50-day SMA, where a close below would open up for a test of the 100-da SMA at 1.3720-area. Cable printed new 2014 highs on Thursday at 1.6841, but did not manage to follow through as resistance were met at the Nov 2009 highs.

In the afternoon, US Existing Home Sales for March will take center stage. Expectations are the a small drop to 4.55M vs. 4.60M prior, following a weak momentum in the Pending Home Sales. Should this happen, we could expect a flight to quality, meaning a sell-off in equities and further increases in Fixed Income, which should support the US Dollar positively.

Watch out the the AU CPI for Q1 in the upcoming Asian session, expected unchanged at 0.8 QoQ, but an increase to 3.2% from 2.7% YoY. We could see the Aussie rise on expectations for a strong CPI, but it could be a buy rumour, sell fact scenario, given the recent increase in the pair.