Euro Rejects 1.13, Bears Remain in Control

On a fundamental basis, there is very little reason to be bullish euros. The economy is weakening, German Bundesbank President Jens Weidmann warned last week that growth in the Eurozone's largest economy could slow materially in 2019, the US is threatening the EU with hefty tariffs and the German-US 10 year yield spread is falling deeper into negative territory. Even though the ZEW surveyed shows concerns about the region's outlook fading, softer German industrial production leaves them worried about current conditions. Technically, EUR/USD's rejection 1.13 followed by lower highs and lower lows is a sign of weakness and the pair's failure to close above the 50-day SMA for the third day in a row signals a potential move below to 1.12. There's no question that the bears remain in control but in a holiday week like this one, fake outs are more likely than breakouts. Tomorrow's EZ trade and inflation reports could surprise to the upside, lending support to the single currency and keeping the pair firmly within its 1.1250-1.1325 trading range. At the same time, tomorrow's US trade balance and Beige Book reports could help more than hurt the US dollar.

After breaking out last week, we've seen very little movement in USD/JPY. Today's rally in stocks and recovery in Treasury yields should have pushed the pair higher but it stayed in a narrow 20 pip range. The lack of movement is partially tied to the fact that there is a $1.1 billion option with a 112 strike expiring tomorrow. Once the option expires, we should see a bigger move in the currency. The recent improvement in manufacturing activity is positive for tomorrow's trade balance report and the Beige Book could focus on recovery after citing shutdown related weakness in March.

The weakness in sterling today is surprising considering the relatively good employment report. Wage growth was right in line with expectations in February and revised higher for January. Jobless claims increased but employment rose 179K to a new record high. The ILO unemployment rate held steady at 3.9%, its lowest level in nearly 45 years. Tomorrow's consumer price report should support the currency as the robustness of wage growth, uptick in commodity prices and rise in shop prices all point to higher inflation.

Commodity currencies will also be in focus for the next 24 hours with Chinese data and New Zealand's first quarter consumer prices report scheduled for release.Starting with NZD, dairy prices increased for the fifth auction in a row. This combined with the general rise in commodity prices signals stronger price pressures in the first quarter. NZD/USD has struggled to extend its gains after stabilizing above the 200-day SMA. Economists are looking for CPI to rise by 0.3% and if the increase meets or exceeds that, we could see NZD/USD squeeze up to 68 cents. China's GDP report is also important - growth is expected to have slowed further in the first quarter and it will be interesting to see how this affects currencies. Last night's dovish RBA minutes failed to have a lasting impact on the Australian dollar. The central bank discussed the various scenarios under which a rate cut would be necessary - this led to an initial decline in AUD/USD but the pair came roaring back during the NY session. If Chinese GDP growth surprises to the upside, we may even see the pair hit a new 1 month high.

Canada's inflation and trade balance report, which will be released tomorrow could also take USD/CAD out of its exceedingly tight trading range. Since the beginning of the month, the pair has been trapped between 1.3280 and 1.34. Despite lower international securities transactions and a contraction in manufacturing sales, USD/CAD slipped as oil prices headed higher. Given the recent improvement in the IVEY PMI index, the risk is to the upside for both CPI and trade. However even if the numbers are good, the positive impact on the Canadian dollar may be short lived given the Bank of Canada's dovishness.