FX Update: Hey, USD bears – where are the fresh sellers?

• USDJPY, EURUSD presently 'in limbo'

• EUR fundamentals appear bearish

• AUD wavering at the heights

Count on the Bundesbank's Jens Weidmann to rain on everything that looks like more policy easing, as over the weekend he criticised the idea of helicopter money and even expressed a lack of enthusiasm for the European Central Bank's current policy mix.

The European Union will struggle to survive its core/peripheral dynamic if Germany continues to insist on a policy of restraint. The destruction of German savings, in the form of peripheral sovereign and other debt, are the only route to the other side of what ails Europe, whether that is achieved through helicopter money or by peripheral default.

This week is holiday-shortened for the US and for Europe, with Easter-related holidays at the end of the week. The focus will be on whether the initial reaction to last week’s dovish Federal Open Market Committee shocker sees any follow-through.

We expressed our initial shock and the reasons behind the Fed’s move with last Thursday’s FX Update, but on Friday we were already pondering whether there would be any further follow-through, a stance we maintain – i.e., we are scepticalregarding said follow-through while recognising that the technical reversals that would prove the point have yet to unfold on the various USD charts.

So let’s put it this way – we’re in limbo in the likes of USDJPY as long as we’re between 111.00 and perhaps 112.50 and in EURUSD between 1.1150 and 1.1350. We start leaning in favour of USD strength if the USD rallies through these levels. And even if we do see follow on USD weakness from here, it will most likely be against the riskier currencies.

Chart: EURUSD

EURUSD was boosted on the ECB by the signal that rate cuts may have come to an end (or at least that minus 0.50% is likely the lower bound if we’re not already there) and on the dovish Fed last week.

So far we’ve failed to take out the previous 1.1376 highs or even the descending trendline, as the last six rally attempts in this pair have failed. But technically, we don’t have a strong reversal argument until we’re cutting back down through the majority of at least the post-FOMC reaction – let’s call it the 1.1150/75 area.

The G10 rundown

USD – If the greenback remains stable here and even starts to pull back higher, it offers strong support for bulls, because the Fed emptied all chambers against the dollar last week.

EUR – What does the euro have to recommend it in this environment? Celebration that easy ECB policy isn’t going to get easier? We’re not convinced, but need a better technical hook for bears to latch onto.

JPY – USDJPY has failed to follow through and close below 111.00. Remains in limbo between there and 112.25/50.

GBP – GBPUSD passively following the tactical action in other major USD pairs. We maintain that the outlook for cable is lower as long as we’re below 1.4670 and 1.4500 has so far proven an important psychological resistance.

CHF – Not cutting much of a profile. All of the strong risk sentiment is helping to relieve any upside pressure from the lack of Swiss National Bank developments last week.

AUD – Interesting to note that latest surge to new highs is not holding well, which begins to sharpen the argument for divergent momentum. Also – might the Reserve Bank of Australia's Edey and/or Stevens lean against the recent currency strength in appearances tonight?

CAD – The recent extension lower in USDCAD looks excessive – let’s see if the action stabilises around 1.3000 or even if we can retake 1.3250 as a sign of a more profound turnaround. As with AUDUSD, we have signs of divergent momentum if we steer clear of recent lows.

NZD – The chopfest in NZDUSD continues as latest surge is getting pushed back into the range, though not yet deeply enough yet to call a reversal. AUDNZD rally has been sidelined, but remains a potential story.

SEK – We generally suspect an eventual test of the Riksbank’s intent to intervene with eventual pressure on sub-9.20 levels as long as risk appetite avoids new pronounced weakness.

NOK – Suffering in early trading this week as oil prices decline. EURNOK is caught in a no-man’s land between 9.30 and 9.50/55.

Upcoming Economic Calendar Highlights (all times GMT)

• Eurozone ECB’s Constancio to Speak (0930)

• UK Mar. CBI Trends in Total Orders and Selling Prices (1100)

• UK BoE’s Forbes Speech (1100)

• US Feb. Existing Home Sales (1400)

• US Fed’s Lockhart to Speak (1640)

• Australia Q4 House Price Index (0030)

• Australia RBA’s Edey to Speak (0045)

• Japan Mar. Preliminary Nikkei Manufacturing PMI (0200)

• Australia RBA’s Stevens to Speak (0515)

— Edited by Michael McKenna