FX Market looking as indecisive as ever as illiquid market looks for direction. US FOMC minutes on tap this evening.

CAD remains on a weak footing despite large crude oil rally. EURCHF and EURJPY at important resistance levels.

MAJOR HEADLINES – PREVIOUS SESSION
Overnight developments:

• US Feb. Consumer Credit out at 5.2B vs. 5.9B expected and a revised 10.3B for Jan.
• New Zealand Q1 NZIER Business Opinion Survey fell to -64 from -26 in Q4
• Australia Mar. NAB Business Confidence fell to -4 from -2 in Feb.

THEMES TO WATCH – UPCOMING SESSION
Key event risks today (all times GMT):

• UK Mar. HBOS House Prices (0700)
• Canada Mar. Housing Starts (1215)
• US Feb. Pending Home Sales (1400)
• US Fed Releases Minutes from March 18 FOMC meeting (1800)
• US Weekly ABC Consumer Confidence (2100)
• UK Mar. Nationwide Consumer Confidence (0001)
• Australia Apr. Westpac Consumer Confidence (0030)
• Japan BoJ to announce Target Rate
• Japan BoJ Monthly Report (0600)

Market Comments

The action overnight confirms word we are hearing that FX conditions are extremely illiquid: EURUSD jumped half a percent in the early Asian session on no identifiable news story or event, only to fade for most of the remainder of the session into the pre-European hours. Treacherous trading conditions may continue, therefore, especially if we reach new lows in the USD. We can find almost nothing that offers a new spin on the situation in yesterday's session as most currencies ranged around without conviction. One notable exception was AUD, which strengthened yesterday on a sharp rally in gold and resilient equity markets. The Aussie eased lower again overnight, however, as one of the major business confidence surveys for Australia notched a new low since 2001. As we have pointed out, the yield curve in Australia has begun steepening as the market expects economic conditions there to cool in coming months. EURAUD had a look at new 2-week lows yesterday, but this move was rejected overnight. AUDUSD broke above 0.9250 resistance, but is still at the near exact midpoint of the recent 0.9000 - 0.9500 range.

We have felt at times in recent days that we stood at a key inflection point, either looking for a renewed bout of risk aversion or one more extension of the equity rally. But since the huge April 1 rally in equity, we've seen little momentum to make a case for either scenario as the short term picture remains indecisive. We do note that a couple of key levels have arrived in two of our risk barometers: EURCHF closed right at its 55-day SMA and EURJPY is having a look at its 200-day SMA. Will markets pivot here or commit directionally soon, or do we just get a continuation of this choppy activity? The USD Index has consolidated in a near perfect triangle of indecision since bottoming out in mid-March. Can we have a sign what markets want to do soon, please?

On a big-picture, structural basis, we reviewed the correlation of economic cycles using central bank rates and unemployment measures as a basis of comparison and still like the idea of an eventual recoupling of the major economies as they have always tended to move in tack with one another, if often with long delays. So we must remind ourselves of the potential, for example, for downside disappointment from the EuroZone relative to the US, which already has very low expectations and the USD seems to be finding less punishment on bad news. The EuroZone numbers have been frustratingly resilient for the recoupling view, alas. Also, with ECB mouthpieces so ever-vigilant on inflation and crude oil rallying here, EUR sellers may be hard to come by in the shortest term ahead of Thursday's ECB rate announcement and press conference, in which Trichet will likely maintain the inflation focus. 1.5800 and 1.5500 look like the short term triggers for EURUSD.
 
CAD is back on a weak footing despite the huge rally in oil prices yesterday - still the USDCAD technical outlook remains rangebound in the rather large range of 0.9700 to 1.0300 around the parity level.

Chart: GBPUSD
It would seem that GBPUSD must make a directional decision soon as it runs out of space to maneuver between the descending trendline and the flatline support at the 1.9730 area. Note also the recent importance of the 55-day SMA (red line), which was close to yesterday's lows.