A cagey session in FX; too tight to call a theme, but EUR resilience notable

NZD gives back CPI led gains through AUD cross rate. CAD still pressured – CPI tomorrow. Key UK retail sales could hurt GBP recovery.

Another cagey session in FX today where directional conviction was at a premium.  Across the board, we saw players struggling to push for extended levels, though later in the day we saw the USD index pushing higher again to give the lead JPY rate a modest lift into the mid 109.00’s.  However, the market is struggling for traction here, with a mix of risk sentiment and softening USD data prompting sellers to fade (some of this) strength.  The Philly Fed manufacturing index also came in weak to make for a consistent run of data misses out of the US in the past week or so, with the new orders index falling significantly along with business conditions. PMIs tomorrow from Markit, but ISM not out until next week.  Existing home sales also due.

More significant data releases to look out for elsewhere on Friday, and nowhere more so than the UK where the key retail sales for March are expected to fall back after Feb’s strong numbers. The BRC last week reported some notable weakness, to there is a risk that the data may undershoot expectations of a modest 0.2% drop on the month.  GBP is already retreating from its highs in the wake of the post-election (announcement) rally, which eventually saw Cable tipping 1.2900, but 1.2920 resistance held firm.  On the downside, many agree that only a breach back below 1.2600 would negate the near-term uptrend have pushed up into a ‘higher’ range.

EUR/GBP however, is once again showing its resilient nature, and this is in light of the upcoming election risk in France. The lack of risk premium priced into the single currency would suggest local traders are confident that one of Macron or Fillon will eventually win, but we only need the presence of Le Pen (less so Melenchon) in the second round to spark a fresh sell-off.  For now however, the GBP cross rate has found support ahead of 0.8300, while EUR/USD looks reluctant to return to the lower 1.0700’s to keep EUR/JPY supported in the mid 117.00’s for now.  EU-wide PMIs will have a marginal impact in tomorrow’s trading as politics rules for now.

USD/JPY continues to find demand into the low 108.00’s, as traders continue to position off the 107.00-108.00 support zone.  We see limited scope for a breakout here near term, but the risk remains to the downside due to the current risk overhang – largely from the latest murmurings from North Korea.  That said, it looks unlikely that US yields can fall much further, irrespective of the disappointment surrounding the Trump administration’s plans for fiscal stimulus, so the near-term stalemate continues to play out.   110.00 should be heavy in the meantime.

Little of note ahead in the overnight session to affect the AUD or NZD, so technical dynamics are likely to drive trade.  AUD/NZD hit a notable bank of support ahead of 1.0617, and the subsequent upturn through 1.0700 could be indicative of a base, but we need to clear 1.0850 higher up to confirm this.

For the CAD, key inflation data for March is the immediate focus, but there has been little relief for the Loonie despite the stabilization in Oil prices.  The market continues to push for 1.3500, with the prospect of stripping stops through here, but we continue to highlight strong resistance near/from 1.3600.