Risk-off hits equities, EUR strengthens

Market Brief

The US equities traded aggressively down in New York. The S&P500 dropped 2.10%, Dow Jones lost 1.62%, while Nasdaq slid 3.10%. Asian equities took over the bearish sentiment. The Nikkei stocks fell sharp from 14,027.80 to 13,885.11 at Tokyo opening and closed this Friday 2.38% lower. The Nikkei share average hit the 6-month low. Hang Seng and Shanghai’s Composite retreated 0.63% and 0.09% at the time of writing. China CPI accelerated 2.4% in March as expected (vs. 2.0% in Feb), while the producer prices contracted at the faster pace of -2.3% (vs. -2.0% in Feb).

USD/JPY dipped down to 101.33 (week low & Feb-Mar up-trending channel floor) and bounced back towards 102.00 as Europe walked in. The post-BoJ bearish momentum strengthens while the BoJ minutes showed that the economic recovery and prices move in line with BoJ’s expectations. Released overnight, the domestic corporate good prices improved on m/m basis from -0.2% to 0.0% in March; the CGPI y/y retreated from 1.8% to 1.7%. USD/JPY is likely to close the week below its daily Ichimoku cloud cover (102.37-103.10). Option bets are negatively skewed pre-102.00, more option related offers trail below 101.50 for today’s expiry. EUR/JPY rallied to 141.56 in European opening. Given the EUR strength, we see support building at the daily cloud cover (140.65/104.96).

EUR/USD extends gains to 1.3900 regardless of discussions around a potential QE. Markets fully price out the easing threats from the ECB; any action is priced in as highly unlikely in the foreseeable future. The bullish momentum strengthens on EUR/USD, reinforced by stronger appetite for EZ peripheral bonds. The next key support stands at 1.3967 (March 13th high). EUR/GBP tests the 50-dma (0.82840) on the upside. Trend and momentum indicators are less bearish, a close above the 21-dma (0.83091) suggests further gains. The key resistance is placed at 0.83650 (Jul’13- Mar’14 downtrend top).

The overall risk-off pulled Antipodeans lower overnight. AUD/USD fell to 0.9363. Decent option bids are to keep the downside safe above 0.9300 this Friday. NZD/USD retreated to 0.8624, the bullish momentum fully failed to gain pace. Light option bids are placed at 0.8655 to expiry pre-weekend, more support should jump in the game at 21-dma (0.8607).

Else, the BoE kept the bank rate stable at the historical low of 0.50% and the asset purchases target stable at GBP 375bn as widely expected. The FX markets showed little reaction to BoE decision. GBP/USD eased below 1.6800 from 1.6820 (slightly lower than yearly high of 1.6823 as of Mar 17th).

Moody’s revised down Turkey’s government bond rating from Baa3 stable to negative.

This Friday, the release of Euro-zone inflation reports continues with German and Spanish March Final CPI m/m & y/y. Traders also watch French February Current Account Balance, Norwegian 1Q Existing Home Sales q/q, UK February Construction Output SA m/m & y/y, US March PPI m/m & y/y and University of Michigan’s April (Prelim) Confidence Index.