US Data And French Election In Focus

News and Events:

Markets to refocus on hard data and monetary policy

It has been a quiet week so far as volatility in the FX market remains desperately low, despite lingering political uncertainty. Over the last few days, the USD has been particularly resilient, especially after Trump’s health-care reform setback. The single currency completely erased last week’s gains dipping below the 1.07 threshold amid building political pressure in Europe, mostly due to Brexit and the upcoming French elections. However, we have the feeling that the Trump trade is coming to an end and the market now needs a new driver. Equity gains have begun to stall recently, while the greenback has been unable to reach higher ground. We believe that the market will slowly start focusing again on monetary policy and economic data.

US price data is due for release later today. The Fed’s favourite measure of inflation, the core PCE, is expected to have held steady at 1.7%y/y in February, while the headline measure, which includes the most volatile components, is expected to have risen from 1.9% to 2.1%. Personal income and spending are also anticipated to have stabilised at 0.4%m/m and 0.2%m/m respectively. Next week will be a busy one in the US as a fresh batch of key data is due for publication, with notably the March job report, FOMC minutes, factory and durable goods orders and ISM. The market is still positioned for two rate hikes from the Fed this year, suggesting that risk is mostly on the downside as we are approach the release of the FOMC minutes.

Japan shows signs of steady improvement

Economic data released for Japan continues to support steady improvements. Japan’s CPI for February posted a 0.3% y/y gain as expected, while industrial product surged 2.0% m/m – well above the expected figure of 1.2%. However, housing starts fell 2.6% y/y following a 12.8% rise prior, posting the first decline in eight months. Next week will bring the BoJ Tankan report into focus. Weaker JPY and strong global trade growth should allow sentiment, specifically in manufacturing to improve. Given the inflation backdrop, we anticipate further strengthening in corporate inflation expectations which should influence the BoJ’s monetary policy strategy. Despite BoJ commitment to ultra-extreme accommodating measures, improvement in the economics suggests tightening in 2018. Given the lack of responsiveness from US yields, we remain short USDJPY heading into next week. USDJPY 21d MA at 112.83 should provide resistance for a corrective decline to 108.80. Watch EURJPY for a deeper bearish move towards 118.55.

French Elections: Macron clear favourite in race for French presidency

Both in polls and the financial markets, Macron seems to be the clear favourite for the Élysée Palace with markets currently pricing a probability in excess of 67%. However, for now, the euro still remains weak against the dollar with further possibility for upside. Drawing comparisons with the US elections, we would do well to recall that Clinton had an estimated win of over 80%. However, we are extremely sceptical of these polls and believe that the Le Pen vote should not be underestimated, especially when we factor in the clear bias regarding this candidate.

Zooming in on markets, the 10-year French yield has risen above 0.90%, yet rates are still holding around a one-month low, while the 10-year spread France vs Germany is back above 60 basis points.

Markets are demonstrably confident that Macron will win and French rates are clearly trending lower. This is partly due to the nature of the elections. Many socialists from the government (including former Prime Minister, Manuel Valls) are now supporting Macron. This is why we believe that what is called the “Republican Front” i.e. an alliance of all forces against the National Front represents the best possible strategy for French leftists. Macron is now racing towards the presidency and the markets are reflecting this. Of course, this perception could create epic turmoil in the event of a Le Pen victory. Yet, as we have seen in the past, political turmoil can be very temporary and central banks would quickly return to being the main drivers of asset pricing.

Today’s Key Issues (time in GMT):

• 4Q F GDP SA QoQ, last 0,20% DKK / 07:00
• 4Q F GDP SA YoY, last 1,90% DKK / 07:00
• Feb Unemployment Rate Gross Rate, exp 4,20%, last 4,20% DKK / 07:00
• Feb Unemployment Rate SA, last 3,30% DKK / 07:00
• Feb Trade Balance, exp -3.70b, last -4.31b, rev -4.33b TRY / 07:00
• Feb Retail Sales YoY, last -0,10% EUR / 07:00
• Feb Retail Sales SA YoY, exp 0,90%, last 0,10% EUR / 07:00
• 4Q GDP YoY, exp 1,90%, last -1,80%, rev -1,30% TRY / 07:00
• Mar Unemployment Change (000’s), exp -10k, last -14k, rev -15k EUR / 07:55
• Mar Unemployment Claims Rate SA, exp 5,90%, last 5,90% EUR / 07:55
• Jan Current Account Balance, last 3.4b, rev 3.6b EUR / 08:00
• Apr Norges Bank Daily FX Purchases, exp -850m, last -850m NOK / 08:00
• mars.24 Money Supply Narrow Def, last 8.93t RUB / 08:00
• Mar Unemployment Rate, exp 3,00%, last 3,10% NOK / 08:00
• Bank of Italy Annual Shareholder Meeting EUR / 08:00
• 4Q Current Account Balance, exp -16.0b, last -25.5b, rev -25.7b GBP / 08:30
• 4Q F GDP QoQ, exp 0,70%, last 0,70% GBP / 08:30
• 4Q F GDP YoY, exp 2,00%, last 2,00% GBP / 08:30
• Jan Index of Services MoM, exp 0,20%, last 0,20% GBP / 08:30
• Jan Index of Services 3M/3M, exp 0,70%, last 0,80% GBP / 08:30
• 4Q F Total Business Investment QoQ, exp -1,00%, last -1,00% GBP / 08:30
• 4Q F Total Business Investment YoY, exp -0,90%, last -0,90% GBP / 08:30
• ECB’s Benoit Coeure Speaks in Brussels EUR / 09:00
• Mar P CPI NIC incl. tobacco MoM, exp 0,10%, last 0,30%, rev 0,40% EUR / 09:00
• Mar P CPI NIC incl. tobacco YoY, exp 1,50%, last 1,50%, rev 1,60% EUR / 09:00
• Mar P CPI EU Harmonized MoM, exp 2,10%, last 0,20% EUR / 09:00
• Mar P CPI EU Harmonized YoY, exp 1,60%, last 1,60% EUR / 09:00
• Mar CPI Estimate YoY, exp 1,80%, last 2,00% EUR / 09:00
• Mar A CPI Core YoY, exp 0,80%, last 0,90% EUR / 09:00
• ECB’s Ignazio Angeloni Speaks in Bologna, Italy EUR / 09:50
• Feb PPI MoM, last 1,10% EUR / 10:00
• Feb PPI YoY, last 2,80% EUR / 10:00
• Feb Fiscal Deficit INR Crore, last 62942 INR / 11:00
• Jan Economic Activity MoM, exp -0,20%, last -0,26% BRL / 11:30
• Jan Economic Activity YoY, exp -0,50%, last -1,82% BRL / 11:30
• Feb Trade Balance Rand, exp 1.6b, last -10.8b ZAR / 12:00
• Feb National Unemployment Rate, exp 13,10%, last 12,60% BRL / 12:00
• Jan GDP MoM, exp 0,30%, last 0,30% CAD / 12:30
• Feb Personal Income, exp 0,40%, last 0,40% USD / 12:30
• Jan GDP YoY, exp 1,90%, last 2,00% CAD / 12:30
• Feb Personal Spending, exp 0,20%, last 0,20% USD / 12:30
• Feb Real Personal Spending, exp 0,10%, last -0,30% USD / 12:30
• Feb PCE Deflator MoM, exp 0,10%, last 0,40% USD / 12:30
• Feb PCE Deflator YoY, exp 2,10%, last 1,90% USD / 12:30
• Feb PCE Core MoM, exp 0,20%, last 0,30% USD / 12:30
• Feb PCE Core YoY, exp 1,70%, last 1,70% USD / 12:30
• 4Q F Current Account Balance, last 7800m RUB / 13:00
• Fed’s Dudley Speaks to Mike McKee in Bloomberg TV Interview USD / 13:00
• Feb Primary Budget Balance, exp -21.2b, last 36.7b BRL / 13:30
• Feb Nominal Budget Balance, exp -55.8b, last 0.3b BRL / 13:30
• Feb Net Debt % GDP, exp 47,10%, last 46,40% BRL / 13:30
• Mar Chicago Purchasing Manager, exp 56,9, last 57,4 USD / 13:45
• Fed’s Kashkari Answers Questions at Banking Conference USD / 14:00
• Mar F U. of Mich. Sentiment, exp 97,6, last 97,6 USD / 14:00
• Mar F U. of Mich. Current Conditions, last 114,5 USD / 14:00
• Mar F U. of Mich. Expectations, last 86,7 USD / 14:00
• Mar F U. of Mich. 1 Yr Inflation, last 2,40% USD / 14:00
• Mar F U. of Mich. 5-10 Yr Inflation, last 2,20% USD / 14:00
• Fed’s Bullard Speaking in New York USD / 14:30
• BOE’s Andy Haldane speaks in San Francisco GBP / 21:00

The Risk Today:

EUR/USD is getting lower. The pair is heading lower since the pair failed to hold above former resistance given at 1.0874 (08/12/2017 high). Hourly support given at 1.0719 (21/03/2017 low) has been broken. Stronger support can be found at 1.0493 (22/02/2017 low). The short-term technical structure indicates further weakness.. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD’s bullish pressures increase again after the pair exited short-term uptrend channel. Hourly resistance is located at 1.2615 (27/03/2017 high). Hourly support is given at 1.2324 (03/17/2017 low). Expected to show strengthening towards resistance at 1.2771 (05/10/2016 high). The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY‘s bearish pressures are fading. Hourly resistance can be located at 113.57 (16/03/2017 high) while support is given at 110.11 (27/03/2017 low). We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USD/CHF is strengthening. Hourly support is given at 0.9814 (27/03/2017 low). Key resistance can be found at a distance at 1.0344 (15/12/2016 high). Expected to show further consolidating below parity. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.