THEMES TO WATCH – UPCOMING SESSION

US Apr. Preliminary University of Michigan Confidence (1400)
US Fed's Bernanke to Speak (1630)
EuroZone ECB's Trichet to Speak in Tokyo (Sat 0330)
US Fed's Kohn, Dudley, Stern and Lockhart to speak in Nashville (Saturday)
UK Apr. Rightmove House Prices (Sun 2301)
Australia Q1 PPI (Mon 0130)
Japan BoJ's Shirakawa to Speak (Mon 0600)
Market Comment:
SNB president Roth was out again speaking in defense of the central bank's use of direct intervention in the currency market to maintain a weak franc and to keep deflation from taking hold in the Swiss economy. He promised to continue to "pursue this strategy" (buying currencies) "for as long as the risk remains". The market read Roth's message loud and clear and EURCHF jumped more than 100 pips higher. If we ignore the fundamental fact of the SNB's potential presence in the market and the nervousness it generates and look at EURCHF based on pure technicals, it seems the pair may be ready for a move higher to test those post-intervention highs around 1.5450.
CAD has been on a tear of late, with USDCAD challenging the symbolic 1.2000 level yesterday before finding support and the likes of EURCAD tumbling more than 1000 pips in recent weeks. The trajectory of CAD reaches a possible inflection point at next Tuesday's Bank of Canada meeting. There may be enough uncertainty ahead of this meeting on the BoC's QE intentions (everyone assumes the bank keeps the lowly 0.50% rate unchanged) to generate further consolidation here in CAD strength. Somewhat supportive for CAD was the higher than expected reading on core inflation, which doesn't seem to be showing any threat of deflation just yet. The larger drive in CAD strength of late is more likely related to risk appetite in general and the China buying commodities theme that has also boosted AUD in recent weeks. Watch not only equities, but also the likes of copper (and of course oil) for support on any AUD or CAD trade decision.
Recent Nobel prize laureate Paul Krugman is out with a piece in the NY Times with a simple, if convincing editorial describing why he thinks the "green shoots" and glimmers of hope" that politicians (and the market itself, it seems) are touting are not particularly green nor glimmering. He lists four points that are certainly worth consideration. We have touched on two of these before: his points 2 and 4. Point 2 is that "Some of the good news isn't convincing" and he particularly focuses on banks here. Today, Citibank, a laughable extreme case of a credit bubble-bloated failed enterprise, announcing huge profits for the first quarter today. Equity and risk optimists need to focus more on consumer demand and real companies' bottom lines rather than the state of play in creative accounting at banks. Point 4 is that "even when it's over, it won't be over". This refers to the lagging rise in unemployment, which will continue to rise even after the economy stabilizes if we are to use previous recessions as models.
Krugman's two other important points are first: "Things are still getting worse." Everyone is touting the decline in the "second derivative" (that the worsening is decelerating). Since dismal scientists' favorite exercise is playing connect the dots and projecting those dots in the future, this probably has many hoping for a smoother transition to better and better news. The fact remains that things are bad and getting worse. Finally, Krugman points out that "There may be other shoes yet to drop". For this point, Krugman mentions the implosion in commercial real estate and consumer-related debt. This is a very key point that goes to the heart of the whole situation. Yes, maybe the massive expansions of the Fed's balance sheet are stabilizing the financial sector enough for them to cobble together positive "earnings" reports, but the consumer's position seems to be worsening by the day and the real economy continues to suffer mightily. As long as the demand function in the economy continues to suffer, credit availability and financial stability are irrelevant. After all, the possibility looms that the last eighteen month's upheaval has triggered a permanent behavior change as old assumptions about ever rising home equity and stock prices have been permanently shattered. As Krugman aptly ends his article: Don't count your recoveries before they're hatched."
EURUSD closed below that 100-day moving average and could be set for further declines, especially, as usual, if risk appetite finally begins to wane, as the potential further risks in the EuroZone far outweigh those in the US. The 1.3100/50 area is now the key resistance.