RBA To Stay On Hold And Reiterate Dovish Stance, AUD Extends Losses, EUR Stabilises

News and Events:

RBA to stay on hold and reiterate dovish stance

The Reserve Bank of Australia is widely expected to hold the Cash Rate Target unchanged at a record 1.50% tomorrow morning at its monthly meeting. At its previous meeting, the Central Bank did not miss the opportunity to emphasise that the pick-up in inflation was mostly due to improving commodity prices. It also said that underlying inflation is expected to rise at a much slower pace during 2017.

Tomorrow’s statement will mostly be a cut-and-paste as Governor Lowe is determined to maintain a dovish stance to avoid any appreciation of the Australian Dollar, which would undermine the ongoing economic adjustment from the post-mining investment boom.

AUD/USD has continued to trade at the top of its yearly range at around 0.76-0.77. We believe that the downside adjustment in iron ore prices (futures for delivery at Qingdao port have fallen -15% since mid-February as port inventories reach extreme levels) is one factor in shifting the risk to the downside in AUD/USD. This comes together with rising uncertainties about the global demand outlook amid President Trump’s inability to pass reforms.

However, given the uncertainty generated by the Trump situation, long USD is not our favourite play. Therefore, we prefer to play a short AUD position against its closest neighbour, the New Zealand Dollar, as we believe the NZD has room for further appreciation.

French Elections: Markets wait for impact of first round

There are only three weeks remaining until the first round of the French Elections. We know that whatever may happen in those last few weeks, declarations from candidates may still have an impact on the markets. This is why Mélenchon and Macron are refusing a debate. Francois Fillon has not renounced, despite being considered out of the race in February, and we may see him increasing again in polls. His chance of a final victory is still alive.

Regarding Emmanuel Macron, many socialists are now supporting him. What should we believe from that? We believe that their endorsement is less in a desire to counter the National Front, but rather to participate in the likely new presidential majority.

The markets are still betting on a Macron victory but we assume his inexperience is going to be tough to overcome against his major competitors. The markets seem calm and the first round is going to provide us with a decent gauge.

Today’s Key Issues (time in GMT):

• Mar CPI MoM, exp 0,63%, last 0,81% TRY / 07:00
• Mar CPI YoY, exp 10,70%, last 10,13% TRY / 07:00
• Mar CPI Core Index YoY, exp 8,80%, last 8,56% TRY / 07:00
• Mar PPI MoM, exp -0,02%, last 1,26% TRY / 07:00
• Mar PPI YoY, exp 14,92%, last 15,36% TRY / 07:00
• Mar Manufacturing PMI, exp 52,8, last 52,6, rev 53 NOK / 07:00
• Mar Markit/ISO Turkey PMI Mfg, exp 49,8, last 49,7 TRY / 07:00
• Mar Markit Spain Manufacturing PMI, exp 54,7, last 54,8 EUR / 07:15
• Feb Retail Sales Real YoY, last -1,40%, rev -1,20% CHF / 07:15
• Mar PMI Manufacturing, exp 58, last 57,8 CHF / 07:30
• Mar Markit/ADACI Italy Manufacturing PMI, exp 55,1, last 55 EUR / 07:45
• Mar F Markit France Manufacturing PMI, exp 53,4, last 53,4 EUR / 07:50
• Mar F Markit/BME Germany Manufacturing PMI, exp 58,3, last 58,3 EUR / 07:55
• Mar F Markit Eurozone Manufacturing PMI, exp 56,2, last 56,2 EUR / 08:00
• mars.31 Total Sight Deposits CHF, last 560.1b CHF / 08:00
• mars.31 Domestic Sight Deposits CHF, last 476.3b CHF / 08:00
• Feb P Unemployment Rate, exp 11,90%, last 11,90%, rev 11,80% EUR / 08:00
• Mar Markit UK PMI Manufacturing SA, exp 55, last 54,6, rev 54,5 GBP / 08:30
• Feb PPI MoM, exp 0,10%, last 0,70%, rev 1,10% EUR / 09:00
• Feb PPI YoY, exp 4,20%, last 3,50%, rev 3,90% EUR / 09:00
• Mar Danish PMI Survey, last 57,3, rev 57,2 DKK / 09:00
• Mar Barclays Manufacturing PMI, exp 51,8, last 52,5 ZAR / 09:00
• Feb Unemployment Rate, exp 9,50%, last 9,60% EUR / 09:00
• mars.31 FGV CPI IPC-S, exp 0,47%, last 0,39% BRL / 11:00
• Feb MLI Leading Indicator MoM, last 0,60% CAD / 11:00
• Central Bank Weekly Economists Survey (Table) BRL / 11:25
• Mar Markit Brazil PMI Manufacturing, last 46,9 BRL / 13:00
• Mar Markit Canada Manufacturing PMI, last 54,7 CAD / 13:30
• Mar F Markit US Manufacturing PMI, exp 53,5, last 53,4 USD / 13:45
• mars.31 Bloomberg Nanos Confidence, last 58,5 CAD / 14:00
• Mar ISM Manufacturing, exp 57,2, last 57,7 USD / 14:00
• Mar ISM Prices Paid, exp 66, last 68 USD / 14:00
• Mar ISM New Orders, last 65,1 USD / 14:00
• Mar ISM Employment, last 54,2 USD / 14:00
• Feb Construction Spending MoM, exp 1,00%, last -1,00% USD / 14:00
• 1Q Business Outlook Future Sales, last 26 CAD / 14:30
• 1Q BoC Senior Loan Officer Survey, last -2,6 CAD / 14:30
• Fed’s Dudley Speaks at Press Briefing in New York USD / 14:30
• Mar New Car Registrations YoY, last 6,17% EUR / 16:00
• Apr 2 Trade Balance Weekly, last $1602m BRL / 18:00
• Fed’s Harker Speaks in Philadelphia on Fintech USD / 19:00
• Richmond Fed President Lacker Speaks (Event Cancelled) USD / 21:00

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 1.0652 (31/03/2017 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 increase again after the pair exited short-term uptrend channel. 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 1.2771 (06/12/2016 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 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.