Mid-Day Report

Markets Stabilizing, Dollar Recovers but Stays Weak against Europeans

Typography

Markets are stabilizing from yesterday's sharp volatility. Major European indices are trading in tight range with DAX and CAC holding mild gains at the time of writing. US indices also open nearly flat and are bounded in tight range. In the currency markets, Dollar recovers broadly today but is staying deep in red against European majors for the week. Commodity currencies remain broadly weak too. Sterling remains the strongest major currency this week even though it's paring some gains against Dollar and other Europeans. In other markets, Gold is trading lower by at it continues to struggle to find buying to push through 1300 handle. WTI crude oil is also staying in consolidation.

EC Juncker: Real Brexit negotiation will start after UK election

President of European Commission Jean-Claude Juncker had some "real talks" with UK Prime Minister Theresa May after the latter announced to call for a snap election in June. And Juncker's spokesman Margaritis Schinas said that Juncker considers that "the real political negotiations on article 50 with the United Kingdom will start after the elections foreseen for the 8th of June." Meanwhile, the EC sees UK election as a "domestic issue" and "will not intervene". European Council President Donald Tusk's spokesman said that "the UK elections do not change our EU27 plans." And, "we expect to have the Brexit guidelines adopted by the European Council on 29 April and following that the Brexit negotiating directives ready on 22 May. This will allow the EU27 to start negotiations."

May surprised the world by making a U-turn to announce that she will seek parliamentary approval to bring forward the election scheduled for May 2020 to June 8 this year. She explained that "because Brexit isn't just about the letter that says we want to leave, it's about negotiating the deal, about getting the right deal from Europe." And, "the public want us to deliver on leaving the European Union and they want us to build that stronger Britain for the future beyond leaving the European Union." It's generally expected that May will get over two-third of support from the parliament for the snap election.

ECB paper: Unconventional tools will remain in central banks' toolkits

In a paper titled Necessity as the mother of invention: monetary policy after the crisis, ECB noted that central banks in the world will have "broader mandates" in the future. Also, central banks will use "macro-prudential tools more widely" and communicate more than before the global financial crisis. The expected noted that most unconventional tools will remain in "central banks' toolkits. And that's "in particular because central bank governors who gain experience with a particular tool are considerably more likely to assess that tool positively" Separately, ECB governing council member, and Estonian central bank head Ardo Hansson said that the central bank will need more economic data before starting to consider change in its monetary policies.

Released from Eurozone, CPI was finalized at 0.8% mom, 1.5% yoy in March. Core CPI was finalized at 0.7% yoy. Both were unrevised. Eurozone trade surplus widened to EUR 19.2b in February.

Macron remains favorite to win French election

In France, centrist Emmanuel Macron remains the favorite to win the presidential election. According to a poll of 11601 people for Le Monde newspaper, Macron and far-right Marine Le Pen will come out of the first round of the election this Sunday as the leader. Support for Le Pen for the first round dropped 2.5% to 22.5%. Support for Macron for the first round. dropped 2% to 23.0. While there would be surprises, there should be enough safety margin, comparing to support for far-left Jean-Luc Melenchon (19.0%) and conservative Francois Fillon (19.5%).

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 108.09; (P) 108.65; (R1) 109.00; More....

USD/JPY recovers mildly but stays in consolidation above 108.12 temporary low, below 110.10 resistance. Intraday bias stays neutral with bearish near term outlook. Rise from 98.97 is finished at 118.65 and fall from there would extend. On the downside, break of 108.12 will target 61.8% retracement of 98.97 to 118.65 at 106.48. Sustained break there will pave the way back to 98.97 low. Nonetheless, break of 110.10 will be the first sign of near term bottoming and turn bias back to the upside for 112.19 resistance instead.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. Current development suggests that it's not completed yet and is extending. In case of deeper decline, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
00:30 AUD Westpac Leading Index M/M Mar 0.10% -0.10%
09:00 EUR Eurozone Trade Balance (EUR) Feb 19.2B 18.6B 15.7B
09:00 EUR Eurozone CPI M/M Mar 0.80% 0.40% 0.40%
09:00 EUR Eurozone CPI Y/Y Mar F 1.50% 1.50% 1.50%
09:00 EUR Eurozone CPI - Core Y/Y Mar F 0.70% 0.70% 0.70%
14:30 USD Crude Oil Inventories -2.2M
18:00 USD Federal Beige Book