Daily Report

Euro Sees Renewed Selling, British Pound Resilience to be Tested by UK CPI

Typography

Some selling pressure is seen in Euro in Asian session as the common currency is dipping through Monday's low against Yen and Sterling. French election in April and May is the main focus for the common currency for now. But it should be noted that instead of political uncertainties, Euro's current selloff is more due to adjustments on ECB expectations. That is, there is little chance for ECB to raise interest rate soon in spite of the "hawkish twist" back in March. There are talks that Euro could be given a lift after French election but that would likely be just temporary. The situation of the British Pound is indeed quite different as Sterling has survived news of Brexit and stayed firm. BoE outlook is the main support for the Pound as Kristin Forbes voted for a rate hike back in March. And that was accompanied by stronger than expected February headline inflation reading. UK CPI release today will be importantly to decide whether Sterling can hold on to its resilience.

ECB Draghi: 2016 was a good year

ECB President Mario Draghi said in the central bank's annual report that 2016 "ended with the economy on its firmest footing since the crisis," even though the year began "shrouded in economic uncertainty". The report noted that the scaling back of asset purchase from EUR 80b per month to EUR 60b "reflected the success of our actions earlier in the year: growing confidence in the euro area economy and disappearing deflation risks". However, overall, the Eurozone economy's recovery is still dependent on massive support from the central bank. And the report also reiterated the calls on governments' effort on fiscal reforms.

Fed Yellen: Policy stance closer to neutral

Dollar fails to extend last week's rally while stocks and yields also lost some momentum. Fed chair Janet Yellen said yesterday that the central bank has shifted its focus the economy is closing to the targets of inflation and employment. She said that before, Fed had to "press down on the gas pedal trying to give the economy all of the oomph that we possibly could." But now, Fed is trying to "give it some gas, but not so much that we're pushing down hard on the accelerator." And, the "appropriate stance of policy" is now closer to "neutral". But she also emphasized not be to "ahead" nor "behind" the curve. Or, Fed would be in a position to "have to raise rates rapidly, which could conceivably cause a recession".

Australia business conditions improved, confidence dropped

Australia NAB business confidence rose 5 pts to 14 in March, hitting the highest level since the global financial crisis. But business confidence dropped 1 pt to 6. NAB noted that "the bounce in business conditions this month came as a bit of a surprise, especially the big improvement in Queensland in light of the likely disruptions from Cyclone Debbie in late March." And, "one possibility is that 'Debbie' is having the unexpected effect of overstating conditions in March given that the cyclone coincided with a lower response rate from firms in Northern Queensland.". But overall, "conditions have improved almost across the board to levels that suggest a strong economy in the near term."

On the data front...

UK BRC retail sales monitor dropped -1.0% yoy in March. Australia NAB business confidence dropped to 6 in March. UK inflation data will be a main focus for today as CPI, RPI and PPI will be released. Germany will release ZEW economic sentiment while Eurozone will release industrial production. No important economic release is scheduled for US session.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8520; (P) 0.8536; (R1) 0.8549; More...

EUR/GBP dips mildly today but stays above 0.8483 temporary low. Intraday bias remains neutral at this point. As noted before, decline from 0.8786 could be developing into the third leg of the whole corrective pattern from 0.9304. And hence, deeper fall is expected ahead. On the downside, break of 0.8483 will turn bias to the downside for 0.8402 support first. Decisive break there should confirm our bearish view and target 0.8303 and below. As fall from 0.9304 is viewed as a corrective move, we'd expect strong support at 0.8116/20 cluster support to contain downside and bring rebound. On the upside, above 0.8604 minor resistance will delay the bearish case. That is, one more recovery will be seen to complete a five wave triangle pattern fro 0.8303 before completion.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. Such decline is likely ready to resume and should make a new low below 0.8303. At this point, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside. Rise from 0.6935 (2015 low) will resume at a later stage to 0.9799 (2008 high). However, sustained break of 0.8116 could bring deeper decline to next key support level at 0.7564 before the correction completes.

EUR/GBP 4 Hours Chart

EUR/GBP Daily Chart

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:01 GBP BRC Retail Sales Monitor Y/Y Mar -1.00% -0.50% -0.40%
1:30 AUD NAB Business Confidence Mar 6 7
6:00 JPY Machine Tool Orders Y/Y Mar P 9.10%
8:30 GBP CPI M/M Mar 0.30% 0.70%
8:30 GBP CPI Y/Y Mar 2.30% 2.30%
8:30 GBP Core CPI Y/Y Mar 1.90% 2.00%
8:30 GBP RPI M/M Mar 0.40% 1.10%
8:30 GBP RPI Y/Y Mar 3.20% 3.20%
8:30 GBP PPI Input M/M Mar -0.10% -0.40%
8:30 GBP PPI Input Y/Y Mar 17.00% 19.10%
8:30 GBP PPI Output M/M Mar 0.10% 0.20%
8:30 GBP PPI Output Y/Y Mar 3.40% 3.70%
8:30 GBP PPI Output Core M/M Mar 0.20% 0.00%
8:30 GBP PPI Output Core Y/Y Mar 2.50% 2.40%
8:30 GBP House Price Index Y/Y Feb 6.10% 6.20%
9:00 EUR Eurozone Industrial Production M/M Feb 0.10% 0.90%
9:00 EUR German ZEW (Economic Sentiment) Apr 14.8 12.8
9:00 EUR German ZEW (Current Situation) Apr 77.5 77.3
9:00 EUR Eurozone ZEW (Economic Sentiment) Apr 25 25.6