FOMC Minutes And ADP Employment In Focus, Oil Prices Rise

News and Events:

US Dollar subject to downside risk heading into FOMC minutes

Most currency pairs have been trading sideways so far this week as investors remained reluctant to choose sides between Dollar bears or bulls. Obviously against this backdrop of uncertainties, the Japanese Yen took the best of the situation and extended gains as it returned below the 111 threshold. Investors will however slowly get out of the rut as a few pieces of key economic data are due for release before Friday, as well as the minutes of the March FOMC meeting.

The ADP job report is due for release at GMT 12:15 today. The market is expecting a much lower reading compared to February, when the pace of hiring exploded and printed at 298k versus 187k median forecast. For March, the market is expecting a reading closer to 185k. On our side, we believe that there is a substantial chance that February’s reading will be revised downwards. Over the last few months, the Federal Reserve has been slowly shifting its communication, putting less emphasis on the headline unemployment rate and the pace of job creation, but rather stressing developments in the underemployment rate and core inflation.

Today’s job report, just as Friday’s NFPs, will therefore have little impact on the course of the USD. On the other hand, March’s FOMC minutes that are due for release at GMT 18:00 could matter. Especially in the event of a dovish surprise which would eventually weigh on the greenback. The risk is definitely a downwards shift for the USD as we head into the minutes.

French Elections: Mélenchon risk to single currency is underestimated

The second debate of the French Presidential Election was broadcast yesterday, during which the 11 candidates had the chance to expose their views on many different topics. Emmanuel Macron was widely expected to win and he was hardly attacked by the other candidates. No candidate performed badly and so it was very hard to find a winner.

In the markets, we can see the CAC 40 is improving more slowly than the Euro Stoxx 50. We try to measure investors’ fear and we believe banks’ stocks price are a good proxy for that. It is clear that their volatility is increasing.

Currency-wise, we do not see the single currency improving should Macron or Francois Fillon get elected. There is also a growing risk for the single currency as we believe Jean-Luc Mélenchon’s chance of winning is underestimated. His performances in the debates are always one of the most accomplished, if not the best. And his “Plan B” is that in the case of negotiation failure, he would not hesitate to ask for a Frexit referendum. So we now assume that Euro downside risks are not anymore only due to Marine Le Pen.

Oil-linked FX gets a boost

Oil prices rallied to a one-month high as expectations increased ahead of today’s EIA inventories reports. There are clear signs that U.S inventories have fallen from record high levels. WTI crude today has reached $51.50 in early European trading on tightening supplies speculation. Improving US consumer health has seen a deeper draw on gasoline stockpiles. Gasoline supplies fell 3.7 million barrels while distillates stockpiles dropped 2.5 million barrels last week. In addition, potential supply disruptions in Libya and an unscheduled production outage in the North Sea provide further support for higher crude prices.

Crude bullish sentiment has given oil-linked FX a boost. Global storage inventories have been a overhang to higher prices. As glut is substantially reduced, crude prices can move higher. Mexican Peso (MXN) and Ruble (RUB) have led the gainers on the Emerging Markets side. Oil and gas stocks were the second best sector in equities. We are constructive on the complete crude trade since global economic conditions (improvement in trade and manufacturing) are driving additional crude demand. OPEC capped production limits by 1.2 million barrels and any extension (unlikely to end in May) might have seemed trivial at the time. However, with global fundamentals strengthening and heading to the summer driving season every barrel counts.

Today’s Key Issues (time in GMT):

• Bank of Russia Governor Speaks at Moscow Exchange Forum
• RUB / 07:00Mar Standard Bank South Africa PMI, last 50,5 ZAR / 07:15
• Mar Markit Spain Services PMI, exp 57,4, last 57,7 EUR / 07:15
• Mar Markit Spain Composite PMI, exp 57, last 57 EUR / 07:15
• Feb Industrial Production MoM, exp 0,10%, last 2,00%, rev 3,30% SEK / 07:30
• Feb Industrial Production NSA YoY, exp 1,80%, last 1,30%, rev 4,30% SEK / 07:30
• Feb Industrial Orders MoM, last -2,60%, rev -3,30% SEK / 07:30
• Feb Industrial Orders NSA YoY, last 0,00%, rev 0,50% SEK / 07:30
• Feb Service Production MoM SA, exp -1,00%, last 1,10%, rev 0,90% SEK / 07:30
• Feb Service Production YoY WDA, last 7,70%, rev 6,80% SEK / 07:30
• RBA’s Heath Bloomberg Panel Participation AUD / 07:30
• Mar Markit/ADACI Italy Services PMI, exp 54,3, last 54,1 EUR / 07:45
• Mar Markit/ADACI Italy Composite PMI, exp 54,9, last 54,8 EUR / 07:45
• Mar F Markit France Services PMI, exp 58,5, last 58,5 EUR / 07:50
• Mar F Markit France Composite PMI, exp 57,6, last 57,6 EUR / 07:50
• Mar F Markit Germany Services PMI, exp 55,6, last 55,6 EUR / 07:55
• Mar F Markit/BME Germany Composite PMI, exp 57, last 57 EUR / 07:55
• Mar F Markit Eurozone Services PMI, exp 56,5, last 56,5 EUR / 08:00
• Mar F Markit Eurozone Composite PMI, exp 56,7, last 56,7 EUR / 08:00
• Mar New Car Registrations YoY, last -0,30% GBP / 08:00
• Spain Reserves EUR / 08:00
• Istat Releases the Monthly Economic Note EUR / 08:00
• Mar Markit/CIPS UK Services PMI, exp 53,4, last 53,3 GBP / 08:30
• Mar Markit/CIPS UK Composite PMI, exp 53,8, last 53,8 GBP / 08:30
• Mar Official Reserves Changes, last $360m GBP / 08:30
• 4Q Unit Labor Costs YoY, exp 2,00%, last 2,30%, rev 2,50% GBP / 08:30
• Mar SACCI Business Confidence, last 95,5 ZAR / 09:30
• mars.31 MBA Mortgage Applications, last -0,80% USD / 11:00
• Mar Markit Brazil PMI Composite, last 46,6 BRL / 12:00
• Mar Markit Brazil PMI Services, last 46,4 BRL / 12:00
• Mar ADP Employment Change, exp 185k, last 298k USD / 12:15
• BOE Policy Maker Gertjan Vlieghe Speaks in London GBP / 12:30
• Apr 3 CPI WoW, last 0,00% RUB / 13:00Apr 3 CPI Weekly YTD, last 1,00% RUB / 13:00
• Mar F Markit US Services PMI, exp 53,1, last 52,9 USD / 13:45
• Mar F Markit US Composite PMI, last 53,2 USD / 13:45
• Mar ISM Non-Manf. Composite, exp 57, last 57,6 USD / 14:00
• mars.31 DOE U.S. Crude Oil Inventories, exp -150k, last 867k USD / 14:30
• mars.31 DOE Cushing OK Crude Inventory, exp 125k, last -220k USD / 14:30
• Mar Commodity Price Index YoY, last -9,91% BRL / 15:30
• Mar Commodity Price Index MoM, last -2,37% BRL / 15:30
• Currency Flows Weekly BRL / 15:30
• mars.15 FOMC Meeting Minutes USD / 18:00
• Mar CPI YTD, exp 1,00%, last 0,80% RUB / 22:00
• Mar CPI MoM, exp 0,20%, last 0,20% RUB / 22:00
• Mar CPI YoY, exp 4,30%, last 4,60% RUB / 22:00
• Mar CPI Core MoM, exp 0,20%, last 0,20% RUB / 22:00
• Mar CPI Core YoY, exp 4,60%, last 5,00%, rev 5,00% RUB / 22:00
• 1Q Consumer Confidence Index, last -18 RUB / 22:00

The Risk Today:

EUR/USD is getting lower despite ongoing consolidation. The pair is heading lower since the pair failed to hold above former resistance given at 1.0874 (08/12/2017 high). Hourly support can be found at 1.0643 (03/04/2017 low). 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 have faded abruptly. Hourly resistance is located at 1.2615 (27/03/2017 high) while hourly support can be found at 1.2324 (03/17/2017 low). Expected to show continued strengthening towards resistance at 1.2775 (06/12/2016 high) if support area around 1.24 stands. 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 is given at 112.20 (31/03/2017 high). Stronger 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. 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.