Fed Chair Yellen maintained the status quo in her remarks yesterday, offering little fresh guidance to investors regarding the Fed’s next move. The Fed chief indicated that the economy is “pretty healthy” and that she expects it to grow at a moderate pace moving forward. Even though she did not discuss the timing of the next hike, or the hot topic of a reduction in the Fed’s balance sheet, she did reiterate that she supports more near-term hikes in general. Given the lack of new information, the reaction in the dollar on these comments was relatively muted. We think that USD traders may now turn their attention to CPI and retail sales data for March, due out on Friday, for updated signals on when the Committee may act next.
USD/JPY traded lower yesterday ahead of Yellen, breaking below the support (now turned into resistance) barrier of 111.00 (R1). The decline continued after the Fed chief’s comments, perhaps aided by some yen safe-haven demand amid reports of rising political tension in the Korean peninsula. During the early European morning Tuesday, the rate looks to be headed for a test near the support obstacle of 110.35 (S1). If the bears prove strong enough to overcome that level, then we may see another test near the 110.00 (S2) zone, marked by the low of the 7th of April.
Today’s highlights:
During the European day, we get the UK CPI data for March. The forecast is for the headline CPI rate to have held steady, while the core rate is expected to have ticked down. We see the risks surrounding the core CPI forecast as skewed to the upside, perhaps for an unchanged rate, given that the nation’s services PMI for the month showed that prices charged by service provides increased at the fastest rate for eight-and-a-half years. In case of a positive surprise in the core figure, GBP could recover some of its recent losses.
GBP/USD rebounded yesterday after finding support near the 1.2370 (S1) level. At the time of writing, the rate looks ready to challenge the 1.2430 (R1) territory as a resistance. Investors could stay near that level waiting for today’s inflation data. If the core CPI rate stays unchanged, it may encourage the bulls to push the battle higher. A clear break above 1.2430 (R1) could pave the way for our next resistance zone at 1.2490 (R2).
We also get Sweden’s CPI data for March. Expectations are for both the headline and the core rates to have declined. Such declines could amplify speculation regarding further easing by the Riksbank, which at its latest policy gathering shifted to a much more dovish tone. The Bank made it clear that there is still a greater probability for the repo rate to be cut rather than raised in the near term, and we think that a notable slowdown in inflation is likely to raise that probability further. Thus, this could bring SEK under renewed selling interest.
From Germany, we get the ZEW survey for April. The forecast is for both the expectations and the current conditions indices to have risen, which could be a first sign that Eurozone’s largest economy entered the second quarter on a solid footing. Although this survey is usually not a major market mover for the euro, improving sentiment among financial experts could cause a modest positive reaction in the DAX. We also get the bloc’s industrial production data for February.
In the US, the NFIB small business optimism index for March, and the JOLTS job openings survey for February are due out.
We have only one speaker on the agenda: Minneapolis Fed President Neel Kashkari.
USD/JPY
Support: 110.35 (S1), 110.00 (S2), 109.70 (S3)
Resistance: 111.00 (R1), 111.60 (R2), 112.20 (R3)
GBP/USD
Support: 1.2370 (S1), 1.2340 (S2), 1.2300 (S3)
Resistance: 1.2430 (R1), 1.2490 (R2), 1.2550 (R3)
