Euro testing its support boundary

Economics

This week will be quiet with regard to US economic data. Business sentiment from Empire manufacturing and the Philadelphia Fed are expected to have held their ground in May.

In Europe we expect the German ZEW business sentiment for May to bottom out. Eurozone headline inflation for April should be confirmed at 2% yoy.

In Japan we expect preliminary Q1 GDP growth to slowed down slightly as net exports and fixed investment growth gave back some ground. We do not see any change in the Bank of Japan's monetary policy, as deflation has not yet ended.

Foreign exchange

The euro is testing the support boundary of its long term uptrend channel again at 1.1750/1.1730 level. As long as this support holds, the odds would be in favour of a rise with 1.2180 as first and 1.2400 as next candidate resistance levels.

Below 1.1730 on the other hand, the outlook would turn further bearish to 1.1380. The dollar/yen price is testing resistance at 115.00. A break through this level is needed to make the outlook further bullish to 118.00.

The dollar should remain above 112.35 now to keep the pressure on the upside and to avoid a deeper correction back to 110.00.

Fixed Income

Yields in the US and in Europe were quite stable over the past week. We expect no major moves this week in the US In Europe, the German ZEW business sentiment for May and a possible upward revision of the March industrial production is not expected to drive the bond market either.

Equities

Last week, a huge brick of booming oil prices was added to the wall o worry. The earnings season, that turned out to be impressive, is slowly coming to an end.

We still feel comfortable with our strategic gradual move from high betas and cyclicals into defensives. From a technical point of view we reached important support levels in both the S&P and DJ EurStoxx.