German/ Eurozone flash PMIs Overview
Amongst the Euro area economies, the German and the composite Eurozone PMI reports hold more relevance, in terms of its impact on the European currency and the related markets as well.
The forecast for the Eurozone flash manufacturing PMI shows 49.5 for March vs. 49.3 seen in the previous month. The Eurozone services sector PMI is seen coming in at 52.7 in the reported month versus 52.8 last.
The flash manufacturing PMI for Germany is seen arriving at 48.0 in March, a tad firmer from February’s 47.6 final print while the index for the services sector is expected to tick lower to 54.8 this month versus 55.3 seen in the previous month.
How could they affect EUR/USD?
Upbeat manufacturing PMI readings could help the EUR/USD pair regain 1.1400 (round number). Above which the upside momentum could gain traction, with eyes set on 1.1437/50 (Mar 21 and 22 high). A sustained break above the last could open doors for a test of 1.1479 (200-DMA/ daily classic R2).
On the flip side, if the readings miss the consensus forecasts, the spot could stall the recovery momentum and turn south in a bid to test the 1.1355 (50-DMA), below which the next supports are placed at 1.1300 (key support) and 1.1274 (Feb 19 low).
Eurozone: Focus on PMIs data – TDS
EUR/USD Forecast: Rejected near 50% Fibo. level; set to resume the previous bearish trend?
EUR futures: consolidation likely near term
About German/ Eurozone flash PMIs
The Manufacturing Purchasing Managers Index (PMI) released by the Markit Economics captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the manufacturing PMI is an important indicator of business conditions and the overall economic condition in the Euro Zone. Usually, a result above 50 signals is bullish for the EUR, whereas a result below 50 is seen as bearish.
The German Chambers of Commerce is out with its response on the 2-weeks Brexit deadline extensions agreed by the European Union (EU) late-Thursday.
The German body noted that Brexit delay doesn’t solve the UK PM May’s problem.
• Renewed US-China trade tensions weigh on Aussie and seemed to cap the up-move.
• The USD fails to capitalize on the overnight bounce and helped limit the downside.
After yesterday's sharp pull-back from three-week tops, the AUD/USD pair now seems to have stabilized and was seen oscillating in a narrow trading band around the 0.7100 handle.
The pair stalled its recent positive momentum and witnessed an intraday retracement slide of over 70-pips on Thursday. With investors looking past an ultra-dovish FOMC, a goodish US Dollar rebound from the lowest level since early February turned out to be one of the key factors prompting some fresh selling at higher levels.
This coupled with resurfacing US-China trade tensions, which largely offset Thursday's unexpected dip in the Aussie unemployment rate, further drove flows away from the China-proxy Australian Dollar and collaborated the pair's overnight retracement slide of over 70-pips.
Meanwhile, the greenback failed to capitalize on the previous session's goodish up-move and helped limit further downside, albeit a modest drop in the Aussie flash manufacturing PMI, coming at 52.0 for March vs. 52.9 previous, failed to provide any meaningful impetus and led to a subdued/range-bound price action on Friday.
In absence of any major market moving economic releases, the USD price dynamics and any fresh trade-related headlines might act as key determinants of the pair's momentum on the last trading day of the week.
Technical levels to watch
A follow-through retracement below the 0.7085 horizontal zone is likely to accelerate the slide towards weekly lows, around the 0.7055 region, below which the pair might turn vulnerable to aim back towards challenging the key 0.70 psychological mark. On the flip side, the 0.7125-30 region now seems to act as an immediate resistance, which if cleared might lift the pair back towards the 0.7165-70 region en-route the 0.7200 round figure mark.
- The pair edges higher to the 1.1380 region on Friday.
- The greenback extends the sideline theme so far.
- Advanced manufacturing/services PMIs next of relevance.
The shared currency seems to have resumed the upside on Friday and is now lifting EUR/USD to the 1.1380 zone, or daily highs.
EUR/USD looks to PMIs, Brexit
The pair manages to reverse part of yesterday’s moderate pullback in response to some recovery in the buck following the dovish message at the FOMC meeting on the previous day.
Today’s uptick in spot comes along a better mood in the risk-associated universe in spite of less auspicious news on the US-China trade front, as the ongoing trade dispute could extend more than expected according to Trump’s latest comments.
In addition, EUR keeps following the events around the Brexit negotiations, where EU leaders agreed to extend the deadline to May 22 if the UK Parliament passes May’s plan next week. On a different outcome, the EU will allow a shorter delay, until April 12.
Later in the session, EUR is expected to remain under the microscope in light of the publication of preliminary manufacturing and services PMIs in core Euroland for the current month. Today’s releases have gained importance amidst the ongoing slowdown in the region.
Across the ocean, Markit will also release its advanced manufacturing/services gauges along with results from the housing sector and the speech by Atlanta Fed Chief R.Bostic.
What to look for around EUR
Market participants have left behind the recent and renewed dovish stance from the ECB, focusing instead on the broad risk-appetite trends and USD-dynamics as the main drivers of the price action. Looking to the broader picture, the performance of the economy in the region should remain in centre stage along with prospects of re-assessment of the ECB’s monetary policy. In this regard, it is worth mentioning that investors keep pricing in the first rate hike by the central bank at some point in H2 2020. On the political front, headwinds are expected to emerge in light of the upcoming EU parliamentary elections, where the focus of attention will be on the potential increase of the populist option among voters.
EUR/USD levels to watch
At the moment, the pair is up 0.05% at 1.1378 and a breakout of 1.1448 (high Mar.20) would target 1.1478 (200-day SMA) en route to 1.1514 (high Jan.31). On the downside, the immediate support aligns at 1.1364 (55-day SMA) seconded by 1.1328 (21-day SMA) and finally 1.1234 (low Feb.15).
Analysts at TD Securities are expecting the CBR to keep the Key Rate to stay on hold at 7.75% in Russia.
“The CBR will be fairly happy with developments since the 8 February Board meeting. The impact of the VAT hikes that came at the start of this year has not been as bad as the CBR feared and USDRUB is down about 2.6%, making it one of the better performing EM currencies over this period.”
“On the FX side, we expect little immediate response or some modest move up in USDRUB if the press statement or the press conference strike a more dovish tone, but that is not our expectation.”
FX option expiries for Mar 22 NY cut at 10:00 Eastern Time, via DTCC, can be found below.
- EUR/USD: EUR amounts
- 1.1300 619m
- 1.1350 846m
- 1.1400 2.3bn
- 1.1425 895m
- GBP/USD: GBP amounts
- 1.3200 395m
- USD/JPY: USD amounts
- 110.00 829m
- 110.30 605m
- 110.40 840m
- 110.50 1.1bn
- 110.65 950m
- 110.90 1.3bn
- 110.95 570m
- 111.00 1.4bn
- 111.05 359m
- 111.75 2.0bn
- AUD/USD: AUD amounts
- 0.7050 765m
- 0.7075 518m
- 0.7110 602m
CME Group’s advanced figures for GBP futures noted open interest rose by almost 4.4K contracts on Thursday from the previous day. In the same line, volume rose for the second session in a row, this time by more than 39K contracts.
GBP/USD supported around 1.3000
Choppy trade prevails around Cable pari passu with increasing uncertainty around the Brexit negotiations. Yesterday’s rebound from the 1.3000 region was in tandem with rising open interest and volume, adding to the view that this area still represents a solid contention.
Preliminary figures for EUR futures markets noted investors scaled back their open interest positions by nearly 7.9K contracts on Thursday from Wednesday’s final 493,906 contracts, according to CME Group. On the other hand, volume increased by almost 26.5K contracts.
EUR/USD appears sidelined below 1.1400
The upside momentum in EUR/USD has eased somewhat in past hours in tandem with decreasing open interest while volume kept ticking higher. That said, the recent inability to hold the trade above the 1.1400 handle prompts some consolidation around current levels.
Analysts at Danske Bank point out that today the euro area March flash PMIs are released, where they are expecting some stabilisation in the manufacturing index with an expected print of 49.1.
“We see services PMI continuing to rebound to 53.1 due to solid domestic demand. Today also brings German PMI; improving activity in Germany's industry will be an important ingredient for the euro area growth rebound we still expect to take shape in Q2.”
“After the EU27's decision to grant a very short unconditional extension of Brexit, we will follow closely the response from leading UK politicians today and over the weekend ahead of next week's decisions in the House of Commons.”
“In the US, we get Markit PMIs (preliminary) for March, which will be particularly interesting on the back of this week's Fed meeting, where the central bank signalled concern about the momentum in the US economy. We still think Markit manufacturing PMI will stabilise, so we expect the manufacturing index to come in at 54, up from 53.”
Despite the risk-off action in the Asian equity markets, the higher-yielding currencies – the Kiwi and the pound emerged the top performers in the Asian session this Friday. The Cable managed to keep its recovery mode intact after the European Union (EU) agreed to give May two weeks’ Brexit extension. The Kiwi rallied likely on repositioning ahead of the RBNZ monetary policy decision next week. Meanwhile, the Aussie stalled its recovery and fell back in the red near 0.7100 levels amid fresh worries over China anti-dumping duties and the US sanctions on North Korea. The safe-haven Yen benefited from risk-aversion, having limited the USD/JPY post-FOMC recovery near 110.90 region.
On the commodities front, both crude benchmarks traded modestly flat, with bias leaning towards the downside while gold prices on Comex consolidated the previous drop below the 1310 level amid negative Treasury yields and US dollar.
Main Topics in Asia
Brexit summit EU leaders could agree two-tier approach to Brexit delay – RTRS citing diplomatic sources
EU’s Tusk: unanimously agrees on it’s response to UK’s requests
EU’s Tusk: if UK has not decided by April 12th, long extension will become impossible
EU’s Juncker: long extension would be until the very end
UK PM May welcomes council approval of assurances on backstop
US imposes first new North Korea sanctions since failed Hanoi summit - Reuters
North Korea demands the US to remove weapons from Guam and Hawaii – Dong-A Ilbo
Gold Technical Analysis: Demand ahead of rising channel support leaves bias neutral/bullish
China to impose temporary antidumping measures on some products
WTI Technical Analysis: Rising wedge potential scenarios
Asian stocks remain subdued amid Brexit, trade worries
Key Focus Ahead
Today’s EUR macro calendar remains a busy one, with a raft of Euro area flash manufacturing and services PMI releases dropping in from 0815 GMT onwards. Among them, the French, German and the entire bloc’s reports will be closely eyed for a fresh take on the Eurozone’s economic health. Also, of note remains the Eurozone current account data that will be reported at 0900 GMT. The speeches by the ECB Governing Council members De Guindos and Mersch will also grab attention at 0815 GMT and 1015 GMT respectively. At 1200 GMT, the GBP traders will await the BOE quarterly economic bulletin while the Brexit-related development will continue to drive the sentiment around the pound.
The NA session also has plenty of event risks to offer, including the Canadian retail sales and CPI figures slated for release at 1230 GMT, followed by Markit flash manufacturing and services PMI readings due at 1345 GMT. At 1400 GMT, the US existing homes sales data will be published alongside the wholesale inventories report. Next of relevance remains the Baker Hughes US oil rigs count data that will drop in at 1700 GMT, an hour ahead of the US monthly budget statement release.
EUR/USD looks to regain 1.1400 ahead of Eurozone PMIs
The EUR lacks the recovery momentum, as the bulls turn cautious heading into the flash manufacturing and services PMI releases from across the Euro area economies due later on from 0815 GMT onwards.
GBP/USD: Recovery underway towards 1.3190/1.3260, Brexit developments in spotlight
The GBP/USD pair has been on a recovery mode since Thursday-end as EU leaders finally agreed over the Brexit deadline extension with the two-factor system giving unconditional stretch till April 12. Though, uncertainty over the Brexit still remains on cards …
EMU Purchasing Managers' Indexes: Trend intact
The manufacturing PMI is projected to rise to 49.5in March from 49.3. The service sector PMI is predicted to drop to 52.7 from 52.8 in February. The composite index will gain 52.0 from 51.9. The EMU economy has been slowing for more than a year.
Dollar U-Turns, GBP Crashes Will the Reversal Last?
We're looking at the strong possibility of an emergency EU summit next week that will prolong the uncertainty and take GBP/USD well below 1.30.
Canada: Headline CPI to rise 0.4% m/m in February - Barclays
The Barclays Research Team offers a sneak peek at what to expect from Friday’s Canadian inflation report due on the cards at 1230 GMT.
Sean Callow, senior currency strategist at Westpac, notes that during the week, US Federal Reserve chairman Jay Powell surprised by delivering a dramatic shift on monetary policy guidance, helping US stocks to fresh 5 month highs.
“After raising rates four times in 2018, global markets had expected to see a fairly sharp twist in guidance at the FOMC meeting this week.”
“But the FOMC still managed to deliver a dovish surprise. In the Dec 2018 projections, 11 of 17 members projected either 2 or 3 rate hikes over 2019, with a median of 2 hikes. The median is now for no hikes at all in 2019 and just 1 by end-2021. That’s down from 3 in December.”
“Global markets were clearly surprised by the outcome, with officials cutting their forecast for US growth, abandoning projections for rate rises this year and a surprisingly abrupt end to the process of offloading their bond holdings by September this year.”
“US 10 year Treasury bond yields traded below 2.5% for the first time since January 2018, the S&P 500 hit highs since October 2018 and the US dollar slipped from 20 month highs.”
Analysts at TD Securities point out that in the Eurozone, flash PMIs for March are released and are going to be the key economic release for today’s session.
“We are in line with the market expecting a relatively flat reading of 48.0 for the German Manufacturing PMI (mkt: 48.0), while the French Services PMI rises to 50.5 (mkt: 50.6). The turn in German data should come soon, but March's data flow will be mixed at best.”
- Supply-cuts, oil inventories counter pessimism at the global trade system.
- Baker Hughes data will be next to watch.
WTI trades near $60.00 during early Friday. The energy benchmark failed to sustain its rise past-$60.00 and has been trading with the low around $59.30 as doubts over economic growth amid trade tensions grab investor attention. Looking forward, the US Baker Hughes oil rig count could offer fresh directions to the price moves.
Depleting inventory levels join supply cuts from the OPEC+ alliance in order to help the oil prices portray recent upward trajectory. Whereas the US sanctions over Venezuela and Iran act as an additional force to the upside. However, concerns for a trade deal between the US and China, coupled with weakness in manufacturing global PMIs, challenge the WTI strength.
The US policymakers have off-late been tough over China and the BBC report signal the US President Donald Trump pushing White House lawmakers to demand double or triple imports from China in order to have a successful trade deal.
China, on the other hand, has confirmed Beijing visit of the US leaders but is still unclear when China’s President Xi Jinping will confront Mr. Trump for the final deal. Furthermore, the dragon nation recently levied temporary anti-dumping duties on the certain goods of the EU, Japan, Indonesia and South Korea. The news report increased pessimism surrounding macro trade system that has already damaged the global economy and likely crude demand as well.
The weekly release of Baker Hughes oil rig count is a closely watched energy indicator as it conveys the active number of rigs from the US, indicating supply counts in-turn. During the week ended on March 15, the US oil rigs stood at 833.
WTI Technical Analysis
While $60.30 acts as immediate resistance, a successful break of $61.00 becomes necessary for WTI to aim for 61.8% Fibonacci retracement of the October – December 2018 sell-off around $ 63.60/70.
On the downside, $59.00, $58.20 and $57.90 can entertain short-term sellers before pleasing them with a 50-day simple moving average (SMA) around $55.30.
- The index exchanges gains with losses around 96.30.
- Yields of the US 10-year note met support near 2.50%.
- Advanced manufacturing/services PMIs, New Home Sales on the docket.
The greenback, in terms of the US Dollar Index (DXY), is alternating gains with losses at the end of the week around the 96.30 region.
US Dollar Index looks to data, trade
After bottoming out in the 95.80/75 region following the FOMC meeting on Wednesday, the index managed to regain some composure and retake the key barrier at 96.00 the figure and beyond.
In the meantime, markets’ appetite for riskier assets eased somewhat in past hours in response to increased uncertainty surrounding Brexit and after President Trump hinted at the likelihood that US-China trade dispute could linger for longer.
In the data space today, preliminary manufacturing/services PMIs gauges by Markit are due later in the day along with New Home Sales and the speech by Atlanta Fed R.Bostic (non voter, dovish).
What to look for around USD
The greenback left behind recent Fed-induced lows although it is expected to remain in centre stage while investors keep adjusting their views to the renewed dovish stance from the Fed. In light of the heightened patient stance from the Fed, traders will now scrutinize every piece of incoming data, particularly regarding the inflation performance. Fresh jitters from the US-China trade front could, however, put a floor to the buck’s decline in the near/medium term.
US Dollar Index relevant levels
At the moment, the pair is retreating 0.04% at 96.31 and a break below 95.74 (low Mar.20) would open the door for 95.16 (low Jan.31) and then 95.03 (2019 low Jan.10). On the upside, the next hurdle emerges at 96.58 (21-day SMA) seconded by 97.37 (high Feb.15) and finally 97.71 (2019 high Mar.7).
Rabobank analysts point out that as per expectations, the Bank of England MPC kept rates unchanged at 0.75% and the vote was unanimous.
“The forward guidance was left untouched as well. The MPC still judges that a tightening of monetary policy at a gradual pace and to a limited extent would be appropriate, if the economy develops in line with the projections as set out in February.”
“These projections are based on a smooth transition towards a new trading relationship with the European Union. Given the huge uncertainties surrounding both the nature and the timing of Brexit, these need to be updated once clarity emerges.”
“Significant parts of the minutes were devoted to Brexit and its effects on business investment.”
“The implied probability of a rate hike before the end of the year has dropped even further, but this is primarily related to yesterday’s FOMC decision.”
“The market is rightly questioning whether the BoE dares to go against the Fed. We expect the MPC to sit tight for a while and forecast no rate hikes for the remainder of this year.”
- GBP/JPY is trading near 145.50 before the UK markets open on Friday.
- The quote recently took a U-turn from 5-week long ascending trend-line and may rise to 145.90 ahead of aiming the 23.6% Fibonacci retracement of mid-January to March upside, at 146.15.
- Should the pair manage to clear 146.15, 147.00 and an immediate downward sloping trend-line at 147.70 could lure buyers.
- Also, pair’s sustained rise past-147.70 can help it aim for 148.90, 149.00 and 61.8% Fibonacci expansion (FE) level near 150.00.
- Alternatively, pair’s break of adjacent support and a consecutive slide beneath 144.70 becomes pre-requisite for sellers to slip in while looking for 143.70.
- In a case where prices keep declining under 143.70, 50% Fibonacci retracement level of 143.00, followed by 142.45 and 141.70, can please bears.
GBP/JPY 4-Hour chart
Dominick Stephens, chief economist at Westpac, suggests that the RBNZ is likely to repeat the key messages from February, including “OCR on hold through 2019 and 2020” and “the next move could be up or down.”
“The details of the statement will also be similar to February, emphasising global risks and a positive domestic outlook.”
“Recent developments have been in line with RBNZ expectations, so there is no reason for the RBNZ to change stance.”
“The impending move to a Monetary Policy Committee is another reason for the RBNZ to avoid rocking the boat right now.”
“Markets would be surprised by an unchanged statement from the RBNZ. Swap rates and the exchange rate would rise a bit.”
ANZ analysts are having doubts that the Australian employers can continue to hire at the recent strong pace, due to the softer economic signals of the last past two months.
“Australia’s unemployment rate dipped in February to 4.9%, its lowest since 2011. That and another drop in the labour underutilisation rate are providing most households with some financial security. But strong jobs growth hasn’t translated to higher wages growth, and consumer sentiment has fallen this year. Lowered borrowing capacity, high levels of debt and falling housing prices are having a dampening impact.”
“We doubt that Australian employers can continue to hire at the recent strong pace, given the softer economic signals of the last past two months. That doesn’t mean there won’t be more jobs growth and a lower unemployment rate, but annual employment growth of 2-3% seems unsustainable.”
“The RBA’s March Board meeting minutes noted the inconsistency of improvement in the labour market and the apparent slowing of output growth in the second half of 2018. It will want to be sure which indicator is telling the full story before acting. That is why we continue to think rates will remain on hold, unless the labour market shows sudden weakness.”
Asian stocks seesawed on Friday responding to Thursday’s upbeat data from the US, latest optimism surrounding Brexit and doubts over the US-China trade deal. Buyers followed Wall street gains lead by technology leaders like Apple but sellers doubted the trade peace between the world’s two largest economies.
Reuters reported that the MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3% during early Friday with Japan’s Nikkie losing 0.2% as Tokyo re-opened after a day’s holiday.
S&P 500 and Nasdaq both hit five-month high whereas India’s BSE Sensex is up 0.5% with Shanghai Composite index and Hong Kong’s Hang Seng losing nearly 0.8% and 0.5% respectively.
Philadelphia Fed Manufacturing survey for March and weekly initial jobless claims were the headline figures that pleased bulls recently while a report that the EU is ready for unconditional Brexit deadline extension till April 12 and then to May 22 boosted sentiment further. On the other hand, China’s announcement of temporary anti-dumping duties on certain products of the EU, Indonesia, Japan and South Korea damaged the optimism. Increasing the doubts were Japan’s lesser than expected Flash manufacturing PMI and the CNBC’s report that the US President wants China to double or triple goods imports.
Moving forward, PMI numbers from the EU and the US would join Canadian retail sales and CPI in order to offer active trading day.
- Bulls-bears tug of war amid risk-aversion, weaker US dollar.
- Focus on EMU Purchasing Managers' Indexes: Trend intact
- Next of relevance remains trade developments, US Markit PMIs and existing home sales data.
Following the sharp overnight rebound from near 1.1340 troughs, the EUR/USD pair entered a phase of consolidation in the Asian trades around the 1.1370 region, as the bears guard the 1.1385 topside barrier as we progress towards the European opening bells.
The pair appears to lack direction at the press time, although the downside remains cushioned near 1.1360 levels amid subdued trading activity seen around the US dollar, as the USD bears fight for control, despite risk-off trade in the Asian equities. A fresh round of risk-aversion hit Asia on the reports that China imposed temporary antidumping measures on some products from the European Union (EU), Japan, South Korea and Indonesia.
Meanwhile, the EUR lacks the recovery momentum, as the bulls turn cautious heading into the flash manufacturing and services PMI releases from across the Euro area economies due later on from 0815 GMT onwards. The weakening Eurozone economy continues to remain the main concern for the EUR markets amid ongoing Brexit uncertainty.
“For the EU the data is critical, as concerns about slowing economic growth have limited advances for several months already. The manufacturing index is seen bouncing a bit, to 49.5, still in contraction territory, while the services index is forecasted to result at 52.7, slightly below the previous 52.8. For the US, forecasts are a bit more encouraging. The US will also release February Existing Home Sales seen u 2.2% MoM,” FXStreet’s Chief Analyst Valeria Bednarik notes.
EUR/USD Technical Levels
Haresh Menghani, Editor at FXStreet, notes:
"A sustained weakness back below the 1.1335-30 horizontal zone will further reinforce the expectations and prompt some fresh technical selling, dragging the pair back towards challenging the 1.1300 handle. A follow-through selling has the potential to extend the downfall further towards 1.1260-55 intermediate support en-route the 1.1200 round figure mark.
On the flip side, the 1.1400 handle now seems to act as an immediate resistance but the key barrier remains near the 50% Fibonacci level, around mid-1.1400s, above which the pair seems all set to surpass the very important 200-day SMA resistance, around the 1.1480 region, and aim towards reclaiming the key 1.1500 psychological mark."
According to the Westpac-McDermott Miller Regional Economic Confidence survey, New Zealand’s regional economic confidence deteriorated in the March 2019 quarter, with eight of eleven regions recording a fall, contrasting to the previous quarter where all regions had posted gains.
“The biggest falls in confidence were in Auckland, Nelson/Marlborough/West Coast, and Canterbury.”
“Auckland is by far the most pessimistic region in the country.”
“The only regions to report improved household confidence were fast growing Waikato and the Bay of Plenty, which is the most confident region in the country.”
“Recent outperformers on the east coast of the North Island and the southern part of the South Island all experienced sharp drops in confidence as their overheating economies showed signs of cooling.”
Sharon Zollner, chief economist at ANZ, suggests that they are expecting the RBNZ will likely leave the OCR unchanged at 1.75% at its Official Cash Rate Review next Wednesday at 2pm.
“The RBNZ will reaffirm the next move “could be up or down”. We’re content to be picking “down”.”
“Since the February MPS, the main data has been that Q4 GDP surprised the RBNZ on the downside again, at 0.6% q/q versus RBNZ expectations of 0.8%. However, the details were decent so the ‘news’ element is pretty limited.”
“The local economy has slowed, and downside global growth risks are accumulating; the RBNZ will continue to acknowledge as much – as they did in February. However, there is a lot more data to flow under the bridge. Our call for an OCR cut in November is based on a steady accumulation of small disappointments, rather than a dramatic turn for the worse.”
“To the extent that the RBNZ cares more about capacity stretch than GDP growth per se, the next QSBO supply-side read (2 April) and labour market data (1 May) will be particularly important for setting direction. In the meantime, the market is currently pricing around 50% odds of a 25bp cut by November, and 80% by March next year. We doubt the RBNZ will have much beef with that.”
- Brexit deadline extension has its own challenges for the UK PM Theresa May.
- The quote needs to cross 1.3190 and 1.3260 resistances in order to justify its bounce off 1.3000 round-figure.
The British Pound (GBP) is taking the bids near 1.3140 versus the US Dollar (USD) ahead of London open on Friday. The GBP/USD pair has been on a recovery mode since Thursday-end as EU leaders finally agreed over the Brexit deadline extension with the two-factor system giving unconditional stretch till April 12. Though, uncertainty over the Brexit still remains on cards as the UK PM Theresa May has to jostle with the British parliament soon. Also directing the immediate trade sentiment will be second-tier data from the US.
The EU lawmakers agreed to shift the Brexit deadline off from March 29 during late-Thursday. The news report triggered the GBP/USD pair’s U-turn from 1.3000 round-figure and has been pleasing buyers off-late as the USD is likely witnessing profit-booking after yesterday’s overall advances.
In spite of getting unconditional deadline extension till April 12, PM May has to convince lawmakers at home to support her plan in the parliament’s voting sometimes next week in order to grab the May 22 data for the Britain to leave the EU. Having been defeated twice at home, it would become tough for PM May to persuade British politicians for her third Brexit plan considering the fact that it won’t be too different from the previous one.
Other than Brexit uncertainty, US data could also play their role in directing near-term trade sentiment. Among them, the current month Markit composite purchasing manager index (PMI) and February month existing home sales could gain market attention.
The US Markit PMI composite could soften to 55.2 from 55.5 but likely increase in existing home sales to 5.10M over 4.94M earlier might favor the greenback.
GBP/USD Technical Analysis
While a descending trend-line joining highs since March 19 offers immediate resistance around 1.3190, a week-long resistance-line at 1.3260 could limit the pair’s further advances.
On the downside, eleven-week old ascending trend-line and 50-day simple moving average (SMA) around 1.3060/65, near to recent low at 1.3000 round-figure, can please sellers ahead of questioning their strength by 200-day SMA figure of 1.2980.
In the view of the Barclays analysts, the Reserve Bank of New Zealand (RBNZ) is likely to disappoint the hawks by hinting towards a looser monetary policy next week.
“We think the argument for looser policy is building and the RBNZ may struggle to maintain its neutral policy tone at its 27 March meeting, encouraging markets to price further easing and sell NZD before then.
The output gap likely became negative in H2 18 and headline (1.9% y/y) and core inflation (1.7%) sit below the 2% midpoint of the RBNZ's 1-3% inflation target band.
We are skeptical of the RBNZ's view that New Zealand activity will pick up sufficiently (i.e., to 3% y/y) such that an increasingly positive output gap offsets concern that falling headline inflation (likely to bottom at 1.2% y/y in Q3) will lower already-subdued inflation expectations (one-year ahead expectations were 1.8% y/y in Q1).”
Reuters reports that late on Thursday, the US imposed sanctions on two Chinese shipping companies it says helped North Korea evade sanctions over its nuclear weapons program.
These are the first sanctions imposed by the US following the failed meeting between the US President Trump and the North Korean leader Kim Jong-Un held last month in Hanoi.
The US Treasury Secretary Steven Mnuchin said in a statement: “The United States and our like-minded partners remain committed to achieving the final, fully verified denuclearization of North Korea and believe that the full implementation of North Korea-related U.N. Security Council resolutions is crucial to a successful outcome”.
“Treasury will continue to enforce our sanctions, and we are making it explicitly clear that shipping companies employing deceptive tactics to mask illicit trade with North Korea expose themselves to great risk,” he added.
- Brexit news couldn’t please bulls for long as North Korea, China triggered risk off.
- The US data and the UK PM’s ability to progress over Brexit remains in highlight.
USD/JPY failed to extend yesterday’s pullback beyond 111.00 as the quote dropped to the lows near 110.60 around early Asian session on Friday. Return of Japanese traders after a holiday met renewed risk aversion wave. Investors may now focus on risk events like Brexit and political pessimism surrounding the US, North Korea and China, coupled with the US data, in order to determine near-term trade moves.
Early Friday, news that the EU agreed to postpone the Brexit deadline off from 29 March and triggered some risk-on moves; though, news that North Korea has asked the US to remove its weapons from Hawaii and Guam led the balance.
Following that, news that China announced anti-dumping duties over certain products from the EU, Japan, South Korea and Indonesia further leveled out the risk-off and pleased USD/JPY sellers.
It should also be noted that JPY traders gave little importance to Japan’s national core consumer price index (CPI) measures published earlier as Finance Minister Taro Aso said the economy is on a moderate recovery mode.
Other than EU and US leaders’ response to the North Korean and Chin’s recent actions, Brexit worries could continue directing immediate risk sentiment as the UK PM Theresa May is still to get British parliament approval for her third proposal in order to avail deadline extension till May 22.
On the data side, the US Markit PMIs and existing home sales figures should be observed closely for predicting immediate moves. While expected weakness in the composite PMI may favor USD/JPY sellers, likely improvement in housing market stat could challenge the present mood.
USD/JPY Technical Analysis
50-day simple moving average (SMA) and an upward sloping trendline stretched since January 04 highlights the importance of 110.40/30 area for USD/JPY traders. A break of which can trigger the pair’s drop to 110.00 and 109.80.
Alternatively, 100-day SMA level of 111.30 and 200-day SMA level near 111.50 can confine the pair’s immediate upside, clearing which 112.00 can lure bulls.
- NZD/USD is on bids around 0.6890 during early Friday.
- The quote took a U-turn from nine-month-old descending trend-line on Thursday but is still above previous resistance turned support figure of 0.6860, making it capable of aiming a break over 0.6890 for one more time.
- In doing so, 0.6940 and 0.6970 can please buyers ahead of challenging them with 0.7000 round-figure.
- If at all Kiwi optimists surpass 0.7000 mark, 0.7060 can be their next target.
- Meanwhile, a downside break of 0.6860 might not hesitate visiting 0.6825 and 61.8% Fibonacci retracement of June – October decline, at 0.6815, but 100-day simple moving average (SMA) level of 0.6800 could limit further south-run.
- During the pair’s extended downturn past-0.6800, 0.6790 and 0.6770 can entertain sellers ahead of highlighting the 0.6740-35 support confluence that comprises 200-day SMA, five-month-old ascending trend-line and 50% Fibonacci retracement.
- Assuming the pair’s slid under 0.6735, bears can recall 0.6705 and 0.6650 on the chart.
NZD/USD daily chart
The Barclays Research Team offers a sneak peek at what to expect from Friday’s Canadian inflation report due on the cards at 1230 GMT.
“We forecast headline CPI to have increased 0.4% m/m in February (1.3% y/y), driven by mildly higher gasoline prices and Q1 seasonality.
We expect core inflation to shift mildly lower in the coming months before slowly recovering toward 2% by year-end.
The BoC remains in wait-and-see mode and will need to see an improvement in inflationary pressures before resuming tightening.”
- Risk-off amid fresh trade worries, downbeat Aussie data weigh negatively
- Focus on US economic release, risk sentiment for the next moves.
AUD/USD is on a steady decline so far this Asian session on Friday, now struggling around the 0.71 handle, having hit fresh session lows at 0.7095 some minutes ago.
The overnight bounce in the Aussie faded at 0.7120 and from the Aussie witnessed a fresh leg lower, despite the renewed US dollar selling across the board, as the Australian flash manufacturing PMI dropped to 52.0 vs. 52.9 previous.
Moreover, a renewed risk-aversion wave gripped the Asian markets amid latest US-North Korea issue while the report that China is said to impose temporary antidumping measures on some products from the European Union (EU), Japan, South Korea and Indonesia further dented the risk sentiment, with the higher-yielding Treasury yields continuing to remain in the red following the Fed’s outright dovishness.
Attention now turns towards the US macro news due later on Friday, including Markit manufacturing and services PMI reports, existing home sales and wholesale inventories, for fresh trading impetus. In the meantime, the USD dynamics and risk trends will continue to have a major bearing on the spot, as markets keep an eye on fresh trade-related developments.
AUD/USD Technical Levels
USD/CHF daily chart
- The USD/CHF pair trades near 0.9930 at the early Asian session on Friday.
- The quote recently bounced off the 38.2% Fibonacci retracement of its September – November 2018 upside but is struggling around 200-day simple moving average (SMA) level of 0.9920.
- Should the pair successfully cross 0.9920, 0.9960 can act as immediate resistance ahead of highlighting 0.9990 confluence comprising 50-day SMA and 23.6% Fibonacci.
- During the pair’s additional rise above 0.9990, 1.000 round-figure and support-turned-resistance line around 1.0020 can challenge buyers targeting 1.0055.
- On the downside break of 0.9900 Fibonacci figure, 0.9855, 0.9800 and 0.9780 could please sellers before challenging them with 61.8% Fibonacci retracement level of 0.9765.
- Additionally, 0.9700 and 0.9640 might become Bears’ favorites after 0.9765.
USD/CHF 4-Hour chart
- Short-term descending trend-line can offer intermediate resistance around 0.9980 between 0.9960 and 0.9990.
- 0.9820 may act as a buffer between 0.9855 and 0.9800.
USD/CHF hourly chart
- Recent highs around 0.9945 could provide the closest resistance to the pair.
- Also, 61.8% Fibonacci expansion of moves from March 20, at 0.9875, might become adjacent support past-0.9900.
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