Euro Steady after French Election Debate, Markets Calm after Another North Korea Missile Test

The forex markets are pretty steady in Asian session today. Commodity currencies remain generally soft on mild risk aversion. Traders are cautious ahead of the meeting between US President Donald Trump and China President Xi Jinping. Yet, they are calm in spite of the news that North Korea fired another ballistic missile. Euro is also staying in range after French presidential election TV debate. Yen pares back some gains after treasury yields stabilized but more upside is still favored. In other markets, both gold and WTI crude oil extended recent rally but momentum is not too strong so far.

Le Pen targeted in chaotic TV debate

Eleven candidate joined the marathon French presidential election debate overnight. In a somewhat chaotic situation, far right candidate Marine Le Pen seemed to be the most targeted by the others. Front runner centrist Emmanuel Macron criticized that Le Pen’s proposal of reverting to franc was a "reduction in French people’s spending power". Conservative François Fillon criticized that Le Pen had no economic plan other than Frexit. Meanwhile, Socialist Benoit Hamon accused Le Pen of benefiting from Isis terrorists.

According to an Elabe poll, 25% said leftist Jean-Luc Melenchon was the most convincing performer in the debate. Fillon got 15% followed by Le Pen’s 11%. An OpinionWay poll had Macron, Macron and Fillon tied at 18% and Le Pen at 11%.

North Korea fired another missile ahead of Trump-Xi meeting

It’s reported the North Korea fired another ballistic missile into waters off its east coast into the sea of Japan. That came just before the summit between China President Xi Jinping and US President Donald Trump. The US department of state responded by said that "the United States has spoken enough about North Korea. We have no further comment".

North Korea is believed to be one of the top issues at the two-day meeting between Xi and Trump. And Trump has also said that China should use its "great influence" to resolve the issue of North Korea. And, Trump said that "if China is not going to solve North Korea, we will".

Richmond Fed president Lacker abruptly quit

Richmond Fed President Jeffery Lacker abruptly resigned yesterday as he disclosed confidential information to a Wall Street analyst of Medley Global Advisors back in 2012. Lacker said in a statement that he "crossed the line". He admitted that when the Medley analyst brought up confidential information, he "should have declined to comment and perhaps have ended the phone call". Early information regarding Fed’s quantitative easing program was passed to the analysts and gave her clients an unfair advantage.

Lacker’s lawyer said that the investigation was complete and there was no charge on Lacker. Fed’s Office of Inspector General also said that investigation was now complete too.

On the data front…

UK BRC shop price index dropped -0.8%. UK PMI services will be a main focus in European session while Eurozone will release PMI services final. From US, ISM non-manufacturing composite and FOMC minutes will be released.

CAD/JPY heading to 80.18

CAD/JPY is one of the biggest losers for the week despite rise in oil price. WTI crude oil extended recent rally overnight and strength carries on in Asian session, hitting as high as 51.36. But that provides little support to the Loonie. Commodity currencies are generally lower this week ahead of the meeting between US Trump and China Xi, as well as non-farm payroll report from US. Yield and stocks stabilized but will face the first test of ADP employment today.

Technically, the fall from 88.90 is clearly corrective looking, especially in comparison to the rise from 74.80 to 88.90. But at this point, it’s likely that such correction will go deeper to 61.8% retracement of 74.80 to 88.90 at 80.18. This will be the favored case as long as 84.19 near term resistance holds.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 117.62; (P) 117.99; (R1) 118.55; More…

EUR/JPY recovered after forming a temporary low at 117.42 and intraday bias is turned neutral first. Some consolidations would be seen but upside should be limited by 119.31 support turned resistance and bring another decline. Current development suggests that medium term rise from 109.20 has completed at 124.08 already. Below 117.42 will target 61.8% retracement of 109.20 to 124.08 at 114.88 next. Nonetheless, sustained break of 119.31 will turn focus back to 120.43 resistance instead.

In the bigger picture, the firm break of 38.2% retracement of 109.20 to 124.08 at 118.39 indicates that medium term rise from 109.20 is completed at 124.08. That’s well below 126.09 key support turned resistance. Also, EUR/JPY failed to sustain above 55 week EMA. Deeper decline would now be seen back to 109.20 low. Overall, the down trend from 149.76 (2014 high) is not completed yet. Break of 109.20 will resume such down trend towards 94.11 low. In any case, break of 126.09 is needed needed to confirm medium term reversal.

Economic Indicators Update