EUR remains soft pre-CPI, Weidmann says to not overreact

Market Brief

Weak economic data came out of Japan this Monday. The manufacturing PMI slowed from 55.5 to 53.9 in March, the industrial production contracted from 3.8% to -2.3% m/m, from 10.3% to 6.9% y/y according to February preliminary data. The vehicle production significantly slowed from 14.5% to 7.1% in February. The Nikkei stocks gained 0.90% in Tokyo despite weak data as USDJPY advanced from 102.77 to 102.97, slightly lifting momentum on the upside. Resistance remains solid at 103.00/10 (daily Ichimoku cloud top), if broken should send USDJPY to March high of 103.76. EURJPY recovers above its daily Ichimoku cover (139.65/140.96), the pressures are still on the downside.

EURUSD made a neutral start to the week. Euro-zone’s CPI estimates for March will be released this morning. The expectations remain soft: headline CPI expected to ease to 0.6%, core CPI is seen at 0.8% vs. 1.0% last. ECB’s Weidmann stated on Saturday that the Euro-Zone is not in deflationary spiral and that the central bank shouldn’t overreact. The ECB will gather on Thursday and should keep the rate corridor unchanged. Trend and momentum indicators are comfortably bearish in EURUSD. Option bets are mixed at 1.3700. The next support zone is eyed at 1.3665/78 (Fibo 38.2% on Nov-Dec rally & 100 dma). EURGBP consolidates losses below 0.83000. Friday’s close below 0.82770 suggests the extension of weakness to March lows at 0.82000. Decent option barriers with today expiry should keep the upside safe below 0.83000.

In Australia, the securities inflation in March came in line with expectations, while the private sector credit growth met the market estimates. AUDUSD failed to trade above 0.9259 in Sydney and sold-off to 0.9218. Ahead of us, the RBA meeting (Tue) and Chinese PMI (Tue) will define AUD path this week. Technically, AUDUSD remains in the bullish consolidation zone (above Feb-Mar uptrend channel top). Trend and momentum indicators are positive, with option bids seen at 0.9230 for today’s expiry. The next resistances are eyed at 0.9339 (Fibonacci 61.8% on Nov’13 – Jan’14 pullback) and 0.9499/0.9500 (Fibo 76.4% & psychological level). AUDNZD remains well supported above the 21-dma (currently at 1.0643), the bias remains on the upside, offers at 1.0700/13 (50 dma) are yet to be cleared.

The EM currencies made a bullish start to the week. Despite tense municipal elections in Turkey, the ruling party AKP and its PM Erdogan secured supremacy on Sunday. Lira gains 1.30% versus USD, 1.27% versus EUR (at the time of writing). The relief rally is likely to pull USDTRY to 2.1480/2.1500 January loas.

This Monday, traders focus on German February Retail Sales m/m & y/y, French 4Q (Final) GDP q/q & y/y, Swiss March KOF Leading Indicator, Norwegian Retail Sales w/Auto Fuel m/m, UK February Net Consumer Credit, Net Lending Sec. on Dwellings, Mortgage Approvals, M4 Money Supply m/m & y/y, Euro-Zone March (Prelim) CPI Core y/y & CPI Estimate y/y, Italian March (Prelim) CPI m/m & y/y, Canada January GDP m/m & y/y, US March Chicago Purchasing Manager, US Annual Wholesale Inventory and Sales Revisions Dallas Fed March Manufacturing Activity.