High-yield EM reverse gains, EUR advances reticently

Market Brief

Nothing much has happened in the FX markets overnight. In Tokyo, USD/JPY and JPY crosses were sluggish. The fiscal year end demand in yen, combined to softer US yields continue weighing on the JPY-complex. As targeted, the US/DJPY steps in the Ichimoku daily cloud (118.20/75). As the negative momentum gains traction, we expect the downside limited at 117.93/118.20 area before the CPI data due tomorrow. Option barriers trail below 119.50/120.00. The softening in inflationary pressures and the 11th straight month contraction in household spending is now expected to push the inflation to negative territories, according to the BoJ. Soft CPI could revive the BoJ-doves, even though the monetary expansion alone has led to no viable outcome over the past two years of Abenomics. EUR/JPY trades comfortably above the conversion line (129.36), subject to EUR-risk.

The German consumer confidence has improved in April according to GfK. EUR/USD stagnates just below the 1.1000/43 (psychological level / Mar 18th post-FOMC reaction high). Even if Greece and the EU have not come to a bailout agreement, the markets currently price out the possibility of “Graccident”. Traders should stand ready for a relief rally after weeks of uncertainty on the Greek deal; such bullish boost should have the potential to temporary push the EUR/USD higher. Break above 1.1043 (last week high) will shift the next resistances to 1.1280 (Fib 76.4% on Feb-Mar sell-off), then 1.1534 (Feb 3rd high). In the mid-run however, the divergence between the ECB and the Fed keeps the bias on the downside, with the parity being still the key target.

GBP/USD makes a fresh bullish attempt as Europe walks in this morning. According to latest polls, the Conservatives and Labour Party are both at 35% support (ITV/Daily Mail Poll). As the MACD turns from negative to neutral on GBP/USD daily chart, the offers pre-1.50 need to be cleared for fresh bull signal. For weeks ahead, the pre-election volatilities and uncertainties will still keep the GBP trading negatively skewed. EUR/GBP continues testing the 50-dma / Fib 38.2% resistance at 0.73693/935 area, if broken should pave the way toward the daily cloud cover (0.74922/0.76774).

USD/TRY, USD/BRL and USD/ZAR reverse gains amid the surprise contraction in US durable goods orders hammered the risk appetite on global markets. The SARB announces interest rate today and is expected to maintain the key rate unchanged at 5.75%. Although the improvement in the inflation is being curbed by the significant ZAR depreciation, we see no immediate impact on SARB’s policy outlook. The cautious Fed fortunately buys some time for the SARB before proceeding with higher rates. The slowdown in South Africa’s manufacturing and mining production, combined to tighter fiscal discipline, justifies a stable rate outlook before the Fed’s first move. With softer Fed however, the supply zone at 12.50+ is the next challenge. USD/ZAR outperformed the majority of its EM peers since the beginning of the week, levels below Fibonacci 50% on Feb-Mar rally (11.8913) are still seen as fragile. The key short term support is seen at 2.7415/2.75 Fibonacci 38.2% and 50-dma).

Today, traders watch German April GfK Consumer Confidence, French 4Q (Final) GDP q/q & y/y, Spanish January House Mortgage Approvals and Total Mortgage Lending y/y, Swedish February PPI m/m & y/y, Norwegian January Unemployment Rate, Euro-zone February M3 Money Supply y/y, UK February Retail Sales m/m & y/y, UK March CBI Reported Sales, Us March 21st Initial Jobless & March 14th Continuing Claims, US March (Prelim) Services and Composite PMI, Kansas City Fed’s Manufacturing Activity in March.