Euro and Franc Strong in Mixed Markets, Dollar Await FOMC Minutes

Euro and Swiss Franc are currently the strongest ones for the week, but overall markets are relatively mixed. The rise in Euro owes a large part to Sterling’s pull back, as well as Dollar’s weakness for now. While overall risk sentiments are positive, there is no clear strength in commodity currencies. Yen is not soft neither. A focus is now on FOMC minutes, but they would likely just repeat the message that inflation this year is transitory. Also, recent rise in yields is just reflecting improving outlook. Yet, Fed’s ultra loose monetary policy is here to stay for a long time.

Technically, a focus now is whether Euro could sustain the current rebound into a trend reversal. Levels to watch include 1.1988 resistance in EUR/USD, 0.8644 resistance in EUR/GBP and 1.4972 resistance in EUR/CAD. At the same time, Sterling could also be turning into a near term correction, as the fortunate against Euro reverses. Break of 1.2769 support in GBP/CHF would suggest the start of such near term correction too.

In Asia, currently, Nikkei is up 0.18%. Hong Kong HSI is down -0.79%. China Shanghai SSE is down -0.55%. Singapore Strait Times is down -0.14%. Japan 10-year JGB yield is down -0.0108 at 0.1000. Overnight, DOW dropped -0.29%. S&P 500 dropped -0.10%. NASDAQ dropped -0.05%. 10-year yield dropped -0.064 to 1.656.

Euro turning around, a look at EUR/CAD, EUR/GBP and EUR/USD

Euro seems to building up the technical conditions for a broad-based, sustainable rebound. EUR/USD, EUR/GBP and EUR/CAD had reversed most of the losses of last two weeks, after rather brief downside breakouts. Attention would now be on whether these pairs could break through some near term resistance levels to confirm the turnaround.

Loss of downside momentum is clear in the bullish convergence condition in 4 hour MACD in EUR/CAD. It could have made a short term bottom at 1.4723, just ahead of 161.8% projection of 1.5798 to 1.5313 from 1.5783 at 1.4707. Firm break of 1.4792 resistance should indicate that EUR/CAD is possibly the whole fall from 1.5978. There is prospect of stronger rebound towards 1.5313 support turned resistance in this case.

Similarly, loss of downside momentum is clear in EUR/GBP too, as seen in daily and 4 hour MACD. A shot term bottom might be formed at 0.8470, just ahead of 100% projection of 0.9499 to 0.8670 from 0.9291 at 0.8462. Break of 0.8644 resistance should bring stronger rebound towards 0.8861 support turned resistance.

As for EUR/USD, a short term bottom was formed at 1.1703, just ahead of 38.2% retracement of 1.0635 to 1.2348 at 1.1694, on bullish convergence condition in 4 hour MACD. Break of 1.1988 resistance will add to the case that whole correction from 1.2348 has completed. Further rally would then be seen to 1.2242 resistance for confirmation.

ECB Wunsch: Our fiscal response was more efficient

ECB Governing Council member Pierre Wunsch said monetary stimulus is “never a piece of cake”. He added, “I can’t promise that when we can start discussing an exit — and I hope we can within a reasonable time frame — that it’s going to be completely smooth.”

Wunsch also said EU’s combination of national and combined fiscal measures has been “appropriate”. Fiscal support is “much more focused than in the U.S. We’ve taken timely, temporary and targeted measures,” he said. “We have automatic stabilizers in Europe that they don’t have in the U.S. So in a way our fiscal response was more efficient.”

Australia AiG construction rose to 61.8, record high

Australia AiG Performance of Construction rose 4.4 pts to 61.8 in March, hitting a record high. Also, the indexes for new orders, employment and supplier deliveries all hit record highs.

HIA Economist, Angela Lillicrap, said: “Activity is being driven to new heights by a combination of the HomeBuilder program, record low interest rates and shifts in population away from apartments and capital cities towards detached housing and regional areas. The record volume of work will see home building absorb workers from across the economy in 2021 and into 2022. The outlook for multi-units, unfortunately, will remain poor in the absence of overseas migrants, students and tourists.”

Looking ahead

Eurozone and UK will release PMI services final today. Canada will release trade balance and Ivey PMI. US will release trade balance, and FOMC minutes.

USD/JPY Daily Outlook

Daily Pivots: (S1) 109.42; (P) 109.99; (R1) 110.30; More…

USD/JPY is staying in consolidation from 110.95 and intraday bias remains neutral first. Overall outlook will remain bullish as long as 108.40 support holds. On the upside, break of 110.95 will resume the whole rise from 102.58, for 111.71/112.22 resistance zone next. However, firm break of 108.40 will indicate that deeper correction is underway for 55 day EMA (now at 107.61) and possibly below.

In the bigger picture, current development suggests that the corrective down trend from 118.65 (Dec 2016) has completed at 101.18. Firm break of 112.22 resistance should confirms this bullish case. A medium term up trend could then has started for 100% projection of 101.18 to 111.71 from 102.58 at 113.11 and then 161.8% projection at 119.61. Rejection by 111.71, however, will keep medium term outlook neutral first.

Economic Indicators Update