Today the 4th time the charmed?

Earnings report by large US banks and potentially higher CPI figure may join forces to take EURUSD finally above 1.60

MAJOR HEADLINES – PREVIOUS SESSION

• UK CPI MoM/YoY (Mar) out at 0.4%/2.5% vs. 0.6%/2.6% expected.
• UK CPI Core YoY (Mar) out at 1.2% vs. 1.3% expected.
• UK RPI MoM/YoY (Mar) out at 0.3%/3.8% vs. 0.5%/3.9% expected.
• GE ZEW Survey Econ. Sentiment (Apr) out at -40.7 vs. -30 expected.
• GE ZEW Survey Curr. Situation (Apr) out at 33.2 vs. 32.8 expected.
• E-Z ZEW Survey Econ. Sentiment (Apr) out at -44.8 vs. -33 expected.
• US PPI MoM/YoY (Mar) 1.1%/6.9% vs. 0.6%/6.2% expected.
• US PPI Core MoM/YoY (Mar) out at 0.2%/2.7% vs. 0.2%/2.8% expected.
• US Empire Manufacturing (Apr) out at 0.6 vs. -17 expected.
• US Net Long-Term TIC Flows (Feb) out at $72.5B vs. $60B expected.
• US ABC Consumer Confidence (Apr 13) out at -39 vs. -34 prior.

THEMES TO WATCH – UPCOMING SESSION
Key Risk Events (All times in GMT)

• JPMorgan Earnings Report (11:00)
• US Mar. CPI Ex Food & Energy (12:30)
• US Mar. Consumer Price Index (12:30)
• US Mar. Housing Starts (12:30)
• US Mar. Building Permits (12:30)
• US DOE & API Crude Oil Inventories (14:30)
• US Fed's Beige Book (18:00)

Market Comments
 

On our weekly outlook last Friday, we referred to the triple top formation in EURUSD and drew attention to this week's key U.S. inflation and housing data in potentially taking the pair above 1.60 level in a fourth attempt to break higher. Following yesterday's overshoot in U.S. PPI, today’s CPI figures come into even greater focus. The rise in the Producer Prices owes mainly to rising energy and food costs and this, in turn, leaves an ample room for an upside surprise for today’s CPI figures. With this morning's above-consensus Euro-Zone CPIs and three of U.S. banks with largest subprime mortgage exposure reporting earnings this week -with Merrill potentially announcing $6-8B further writedowns-, the ingredients for a final break up in EURUSD come together.  

While the key volatility index VIX has somewhat consolidated below the 25 level after the sharp correction lower at the beginning of this month, we are also observing lack of liquidity punishing the market players geared with very large positions. This lack of liquidity rose its ugly head on Monday's trading following the G-7 statement, causing abnormally large and extended moves in especially the emerging market currencies, such as the Czech koruna but also exposing the majors as potential targets. Though EURUSD itself is the most traded pair of all in the FX universe, tight liquidity conditions can also be felt in its recent swings, adding to the above described circumstances that are pushing the pair higher.