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EUR/USD: Towards Key Trendline Following The Historic Pattern While some technicals suggest the USD may pause here, the overall decline in volatility, caused by better global data - notably from China - is a headwind to the USD now...
The EURUSD?I hear many concerned that Draghi will be worried about currency strength, but with retail sales and IP strong recently, core inflation firming again, Brent oil rising, FX correlation with 5Y5Y moving in favour, EM FX performing …I don’t think it they care about the EURUSD level as much. But the Market does the caring, already pricing an around 7bp rate cut from ECB within a year.
The EUR/USD is moving to my target trend (1.1540ish), once above – nothing can stop it from a move toward 1.18-1.19. Because…history rhymes.
https://www.efxnews.com/story/32472/eurusd-towards-key-trendline-following-historic-pattern-nordea
USD/JPY: Eyes Key 111 Support; What's Next? The Japanese yen held a firm tone versus the dollar Monday, with dollar-yen nearing key support around Y111.00, despite inflation data released earlier suggesting scope for new Bank of Japan easing action at the conclusion of its two-day meeting on April 28.
Earlier in the day, the BOJ released the outlook for inflation as measured by the consumer price index (excluding the effect of tax changes) among companies polled in its quarterly Tankan survey for March.
Firms revised down their one-year inflation forecast to and 0.8% increase, down from 1.0% in December and 1.2% in September for the third straight quarterly downward revision.
The three-year forecast was lowered for the fourth consecutive drop to a 1.1% increase in March from 1.3% in December, 1.4% in September and 1.5% in June. The five-year forecast was revised down for the third consecutive quarter to plus 1.2% from 1.4% three months earlier and 1.5% in September.
"The worsening of inflation expectations alone isn't a decisive factor that would warrant additional easing policy but it is an unfavorable element for the BOJ and policymakers will carefully examine the results in addition to other upcoming economic data at the April meeting," noted MNI's Hiroshi Inoue.
The central bank will then release its medium-term outlook for economic growth and inflation rates until fiscal 2018 (which ends March 2019) at the meeting, he said.
"The focus is whether the BOJ again pushes back the estimated timing of achieving the 2% target from 'around the first half of fiscal 2017,'" Inoue said. See MNI Main Wire story at 7:16 a.m. ET for details.
Dollar-yen was trading at Y111.17 Monday afternoon, on the low side of a Y111.12 to Y111.80 range.
The Bank of Japan left policy unchanged at the March 15th meeting, with the central bank preferring to allow the market to further digest its adoption in late January of "Quantitative and Qualitative Monetary Easing with a Negative Interest rate."
QQENIRP failed to have the desired effect of underpinning Japanese stocks and weakening the yen.
Indeed, dollar-yen fell to a low of Y110.99 on February 11, less than two week's after the BOJ's announcement in January.
On two occasions subsequently, the pair has rallied to levels over Y114, only to decline and retest the Y111 mark.
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Cautious On EUR/USD and USD/CHF; Go With USD/JPY Downtrend Technical FX traders should be cautious in following EUR/USD to the upside and USD/CHF to the downside, and instead they might consider chasing the downside trend in USD/JPY, advises Deutsche Bank based on the latest data from its technical scorecard.
"EUR/USD tops the technical scorecard in G10 space. The currency pair is highly trending with VHF at 88th percentile and is breaking new ground to the topside at 98th percentile. Though it has smooth price action in terms of realized and implied volatility metrics, the pair is highly stretched in terms of the RSI measure, suggesting caution in chasing the trend.
Alongside this, USD/CHF has similar characteristics signaling caution.
USD/JPY may be a better choice, with decent trendiness and relatively less stretched price action (to the downside)," DB notes.
UOB have 5 key levels to watch in FX pairs
United Overseas Bank is out with their latest weekly look at the Forex market
EUR/USD: Neutral: Likely in a broad 1.1330/1.1495 range.
We have held a neutral view for more than 2 weeks and there are no signs that the current consolidation phase is about to end soon.
In other words, we continue to expect this pair to trade between 1.1330 and 1.1495 for now.
GBP/USD: Neutral: Still neutral but downside risk has increased.
The downside risk is still intact but GBP has to break clearly below the major 1.4000 support before further sustained weakness can be expected.
Only a move back above 1.4190/95 would indicate that the downward pressure has eased.
AUD/USD: Neutral: Pull-back could extend lower to 0.7475/80.
Despite the strong short-term rebound end of last week, we still think the current pull-back from the late March high of 0.7723 has room to extend lower to test 0.7475/80 (at this stage, a sustained move below this level is not expected).
The strong resistance at 0.7635 is likely strong enough to cap any further short-term recovery, at least for the next 1 to 2 days.
NZD/USD: Neutral: In a broad 0.6720/0.6930 range.
There is not much to add as we continue to hold a neutral NZD view and expect this pair to trade in a broad 0.6720/0.6930 range.
USD/JPY: Bearish: Next significant support at 106.50.
As indicated last Friday, the next significant support for USD is much further down at 106.50. In view of the rapid and extended sharp drop recently, we feel that the odds for a move to 106.50 are not high.
That said, the outlook for USD/JPY is still bearish as long as the pair stays below 109.60.
Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY
EUR/USD: Neutral: Likely in a broad 1.1330/1.1495 range.
We have held a neutral view for more than 2 weeks and there are no signs that the current consolidation phase is about to end soon.
In other words, we continue to expect this pair to trade between 1.1330 and 1.1495 for now.
GBP/USD: Neutral: Still neutral but downside risk has increased.
The downside risk is still intact but GBP has to break clearly below the major 1.4000 support before further sustained weakness can be expected.
Only a move back above 1.4190/95 would indicate that the downward pressure has eased.
AUD/USD: Neutral: Pull-back could extend lower to 0.7475/80.
Despite the strong short-term rebound end of last week, we still think the current pull-back from the late March high of 0.7723 has room to extend lower to test 0.7475/80 (at this stage, a sustained move below this level is not expected).
The strong resistance at 0.7635 is likely strong enough to cap any further short-term recovery, at least for the next 1 to 2 days.
NZD/USD: Neutral: In a broad 0.6720/0.6930 range.
There is not much to add as we continue to hold a neutral NZD view and expect this pair to trade in a broad 0.6720/0.6930 range.
USD/JPY: Bearish: Next significant support at 106.50.
As indicated last Friday, the next significant support for USD is much further down at 106.50. In view of the rapid and extended sharp drop recently, we feel that the odds for a move to 106.50 are not high.
That said, the outlook for USD/JPY is still bearish as long as the pair stays below 109.60.
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USD Is Cheap Relative To Rate Spreads, But Is It A Buy? The most striking feature of the latest USD sell-off is that it is not accompanied by any significant adjustment in the market’s Fed rate-hike expectations.
This is partly because, even after the latest revision lower of median rate expectations in March, the Fed dotplot remains above the rate path implied by the OIS or Eurodollar markets.
In other words, Yellen brought the Fed rate view a step closer to the dovish market view while the latter remained little changed. We further note that the latest sell-off in the USD TWI is in excess of our measures of the relative central bank policy outlook – the spread between the US 2Y rate and the average G9 2Y rate (Figure 5). As also shown, the latest divergence follows a protracted period of fairly close correlation between the two series, suggesting that the USD rally in recent years did not necessarily run ahead of the US rate differential with the rest of the G10.
One alternative explanation for the USD underperformance in recent weeks focuses on the decline in the US real yields relative to the rest of G10.
In Figure 6, we look at USD TWI and the spread between the real US 10Y yield and the average 10Y G9 yield. That spread has dropped sharply recently and seems to point to a persistent downside risk for USD, especially if – as some clients seem to expect – the Fed slips further behind the curve. That said, the historic relationship between the two series is not as close as in Figure 5. In addition, we suspect that a drop in US real yields should not necessarily encourage persistent outflows from the UST market. Indeed, recent data from the Investment Company Institute suggests that US mutual funds have been reducing their exposure to global bonds (eg, Bunds, OATs and JGBs) while building their exposure to USTs. We think that the flows indicate that ultra-low and falling government bond yields abroad are driving investors into USD-denominated FI assets, despite the apparent drop in US real yields.
We remain USD bulls over the long term. We expect that the improvement in US fundamentals should ultimately push US inflation closer to the Fed’s target and beyond, leading to further tightening in Fed policy in H216. That said, we recognise that the near-term outlook for the currency remains fraught with uncertainty, especially if, as we believe, market risk-aversion rears its ugly head yet again.
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FX Trades To Play As Markets Are Back In Party Mood The Doha non-agreement is forgotten and probably, within the oil producers’ club, forgiven...The oil market’s willingness to get back to business as usual has been greeted by a loud cry of ‘Party On, Dudes’ in equity markets
I’m itching to be long USD/JPY in this climate, needing only a little help from higher Treasury yields to unlock the door. But I’ve been scratched by this trade and confidence is low. So I’ll watch for now. EUR/JPY bouncing would really help, but that probably requires EUR/USD to look a little less sprightly.
After yesterday’s reverses, the currencies we like are in better shape today. Along with short in SGD/INR, we still like shorts in EUR/RUB, in GBP/NOK and longs in AUD/NZD. Short USD/CAD has more room to go too.
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, USD/JPY EUR/USD: Bearish: Diminished odds for further down-move.
EUR touched a high of 1.1386 yesterday, holding just below the stop-loss for our bearish view at 1.1395.
Despite the sharp drop from 1.1386, this pair has to crack the major 1.1230 support before a move towards our 1.1145 target can be expected. In the meanwhile, stop-loss remains unchanged at 1.1395 (to be adjusted only upon a breach of 1.1230).
GBP/USD: Neutral: Daily close above 1.4455/60 would shift outlook to bullish.
As indicated yesterday, despite the rapidly improving momentum, GBP has to close above 1.4455/60 before further sustained up-move can be expected. The sharp overnight pull-back has clearly dented the upward momentum but another attempt to move above 1.4455/60 cannot be ruled out just yet.
Only a move back below 1.4240 would indicate that the short-term upward pressure has eased.
AUD/USD: Bullish: Target a move to 0.7850.
There is no change to our bullish as we continue to expect the current AUD strength to move to 0.7850 (break above this level would shift the focus to 0.7935).
Stop-loss remains unchanged at 0.7660 even though 0.7700 is likely strong enough to hold any short-term pull-back.
USD/JPY: Neutral: In a broad 107.65/110.00 range.
The sharp and rapid drop in USD that started from 113.80 (29 March) is showing signs of slowing down. Attempts to move below 108.00 were thwarted by the strong 107.60/65 support and the downward pressure has eased with the recovery from the low. Daily MACD is showing bullish divergence and has crossed into positive territory as of yesterday.
All these point to USD is trying to form a base for a move higher. However, USD has to break above the major and key 110.65 resistance (low in midMarch & falling trend-line) to indicate that a short-term low is in place (110.00 is already a strong resistance).
Overall, this pair is expected to remain underpinned unless there is a move back below 108.50 within the next several days.
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The Case For The Divergence Trade Strengthens - Goldman Sachs In the early post-crisis years, a wide variety of monetary policy models—including different versions of the Taylor rule and the “optimal control” approach popularized by then-Vice Chair Janet Yellen—signaled that Fed officials would need to keep US monetary policy extremely easy for much longer than generally expected.
Now, those same models suggest that rates will need to rise significantly more than currently discounted in the bond market.
Similar models currently suggest that the European Central Bank and the Bank of Japan may need to go beyond the easing steps taken to date, as core inflation is still well below the target and—at least in the case of Europe—unemployment is still very high. This message is strongest using an optimal control approach but it comes through even under more conventional Taylor rules.
The conclusion that the economic fundamentals point to tighter policy in the US and easier policy in Europe and Japan strengthens further once we consider financial conditions.
The US economy has sustained above-trend job growth in recent quarters despite an estimated negative “FCI impulse” on GDP growth of more than 1 percentage point. The recent FCI easing implies that this drag will end soon, which points to a pickup in growth at a time when the economy is closing in on full employment.
In contrast, the FCI impulse in the Euro area and Japan is turning more negative on the back of the recent currency appreciation. This strengthens the conclusion from our Taylor rule/optimal control analysis that central banks in these economies may need to ease policy further, starting perhaps as early as next week in the case of the BoJ.
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Pound and euro take advantage of softer US durable goods GBPUSD cracks 1.4600 while the EURUSD takes out 1.1300 The durables were soft but not an outright collapse. We've seen much worse over the prior months.
It looks like both the pound and euro were looking for an excuse to run higher as these numbers are not a game changer for the Fed or anything else.
GBPUSD will want to hold 1.4600 now or face undoing all the good work. 1.4580 will be first support, followed by 1.4560/65.
EURUSD will want to hold on to its big figure too. 1.1260/70 is the main support.
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