Yen Demand Overshadows RBA Event Risk

Next 24 hours: USDJPY Sinks Below 110 Barrier

Today’s report: Yen Demand Overshadows RBA Event Risk

Although the big Tuesday event risk was the RBA rate decision, it's the Yen that has been getting most of the attention, with USDJPY contemplating the establishment below the recent multi-month low and fresh assault on the critical psychological barrier at 110.00 further down.

Download complete report as PDF

Wake-up call

Chart talk: Major markets technical overview video

Chart talk: Technical & fundamental highlights

EURUSD – technical overview

The market remains well supported on dips, breaking to fresh 2016 highs. But overall, the broader downtrend remains intact and with the price now trading up towards 1.1500, there is risk for another topside failure and bearish reversal. Look for additional upside to remain well capped below 1.1500 on a daily close basis, while ultimately, only back above 1.1709 would force a shift in the structure. A daily close below 1.1358 will help to strengthen this outlook and alleviate immediate topside pressure.

Screen Shot 2016-04-05 at 6.12.01 AM

  • R2 1.1495 – 15Oct high – Very Strong
  • R1 1.1438 – 31Mar/2016 high – Medium
  • S1 1.1358 – 4Apr low – Medium
  • S2 1.1284 –30Mar low – Strong

EURUSD – fundamental overview

A softer round of Eurozone data on Monday, highlighted by Sentix investor confidence and PPI. This kept the Euro well offered into rallies, while comments from Fed Rosengren that the market may be too pessimistic on the Fed’s normalisation path, further contributed to price action, ultimately resulting in a lower close. Looking ahead, key standouts on Tuesday’s calendar come in the form of German factory orders, Eurozone retail sales, Eurozone services PMIs, US ISM non-manufacturing, US JOLTS job openings and the US trade balance.

GBPUSD – technical overview

The recovery rally out from a recent 7 year low has stalled out ahead of key resistance at 1.4668, potentially setting the stage for the next major lower top and bearish resumption. A daily close below 1.4053 will strengthen this outlook and expose a retest of 1.3836, which guards against the multi-year base at 1.3500 further down. Back above 1.4668 would be required to take the immediate pressure off the downside.

Screen Shot 2016-04-05 at 6.12.19 AM

  • R2 1.4372 – 1Apr high – Strong
  • R1 1.4322 – 4Apr high – Medium
  • S1 1.4191 – 4Apr low  – Medium
  • S2 1.4171 – 1Apr low – Strong

GBPUSD – fundamental overview

The Pound was better bid in Monday trade, with nothing much out there attributed to the price action other than a slightly better than expected UK construction PMI print and some more broad based selling of the US Dollar. But overall, with Brexit risk in the background and broader sentiment looking shaky, Cable rallies continue to be well capped, with the greater risk for the next big move to the downside. Looking ahead, we get UK services PMIs, US ISM non-manufacturing, US JOLTS job openings and the US trade balance.

USDJPY – technical overview

This latest break below the previous multi-month low from March is a significant development, as it potentially warns of a fresh downside extension and measured move into the 106.00s following a period of multi-day bearish consolidation. At this point, a daily close below 110.67 would be required to strengthen this prospect, though any rallies in the interim should be very well capped ahead of 113.00. Ultimately, only back above 115.00 would force a shift in the structure and take the pressure off the downside.

Screen Shot 2016-04-05 at 10.00.42 AM

  • R2 111.80 – 4Apr high – Strong
  • R1 111.35 – 5Apr high – Medium
  • S1 110.30 – 5Apr/2016 low – Medium
  • S2 110.00 – Psychological – Strong

USDJPY – fundamental overview

Renewed downside pressure in equity markets, a pullback in commodities and some less than dovish comments from BOJ Kuroda have all contributed to this latest slide in the major pair, with USDJPY contemplating fresh weakness to challenge the major psychological barrier at 110.00 in the sessions ahead. Kurd was out saying that although it was possible to move further into negative rates if needed, monetary policy couldn’t solve all economic issues. Looking ahead, the key standouts for the remainder of the day come in the form of US ISM non-manufacturing, US JOLTS job openings and the US trade balance.

EURCHF – technical overview

The latest round of setbacks from fresh multi-month highs at 1.1200 have been well supported, with the broader outlook still highly constructive. Look for any additional weakness in the sessions ahead to continue to be supported above 1.0800, in favour of a higher low and the next major upside extension through 1.1200, towards 1.1500 further up. Only a close below 1.0715 would delay the outlook.

Screen Shot 2016-04-05 at 6.12.58 AM

  • R2 1.1024 – 17Feb high – Strong
  • R1 1.1000 – Psychological – Medium
  • S1 1.0875 – 23Mar low – Medium
  • S2 1.0810 – 29Feb/2016 low – Strong

EURCHF – fundamental overview

Economic data out of Switzerland has been better of late, as reflected through last week’s Swiss trade balance and KoF leading indicator, and there could be signs of an alleviation of intense deflationary pressures. And yet, with the Franc still deemed to be well overvalued, the SNB remains committed to its current policy strategy of intervention and negative rates. The SNB’s job has been a lot easier of late, with the EURCHF rate stable despite more ECB stimulus and accommodations elsewhere, and this should give the central bank the flexibility it needs to keep from making any additional easing moves. But the global backdrop is still shaky and any signs of an intensification of downside pressure on equities, could invite unwanted CHF appreciation, something the SNB needs to continue to closely monitor.

AUDUSD – technical overview

An impressive run for this pair over the past several days, with gains extending to fresh 2016 highs. However, the run is starting to look a little stretched and there is risk for a pullback and potential bearish resumption. Still, a break back below 0.7477 would be required to strengthen this outlook and take the immediate pressure off the topside.

Screen Shot 2016-04-05 at 6.13.14 AM

  • R2 0.7678 – 4Apr high – Strong
  • R1 0.7608 – 5Apr high – Medium
  • S1 0.7510 – 29Mar low – Medium
  • S2 0.7477 – 24Mar low – Strong

AUDUSD – fundamental overview

As was widely expected, the RBA held steady on rates at 2.0%, leaving the door open for additional cuts if needed. Overall, not too much in the way of any surprises, with the central bank maintaining a balanced and relatively upbeat tone. There had been some traders positioning for a more dovish decision in light of recent data, and failure to deliver on the front, resulted in some profit taking on shorts post event risk. Looking ahead,  the key standouts for the remainder of the day come in the form of US ISM non-manufacturing, US JOLTS job openings and the US trade balance.

USDCAD – technical overview

Signs of a potential bottom after the market stalled ahead of the critical October base at 1.2832. The market will need to establish back above 1.3296 to strengthen this outlook and accelerate gains, setting up a possible double bottom and bullish resumption. But while the market holds below 1.3296, a deeper drop to test the October 2015 base at 1.2832 should not be ruled out.

Screen Shot 2016-04-05 at 6.13.26 AM

  • R2 1.3167 – 28Mar low – Strong
  • R1 1.3147 – 1Apr high – Medium
  • S1 1.2969 – 1Apr low – Medium
  • S2 1.2858 – 31Mar/2016 low– Strong

USDCAD – fundamental overview

We are starting to see renewed downside pressure in the Loonie following a period of intense strength off the near 13 year low from January. It seems the latest pullback in the price of OIL and downside pressure in risk markets are the primary drivers of the reversal. Looking ahead, Governor Poloz is scheduled to make a speech, though with the central banker speaking on the topic of which famous Canadian woman to put on a bank note, we shouldn’t expected any volatility on that front. There is no Canada economic data of note and the focus will be on US ISM non-manufacturing, US JOLTS job openings and the US trade balance.

NZDUSD – technical overview

Despite gains over the past several days, the market still remains confined to a broader downtrend with rallies continuing to be very well capped ahead of the key psychological barrier at 0.7000. However, a break back below 0.6668 will be required to strengthen the outlook and expose fresh declines towards next key support at 0.6546 further down. Ultimately, only a weekly close above 0.7000 compromises the bearish outlook.

Screen Shot 2016-04-05 at 6.13.41 AM

  • R2 0.6904 – 4Apr high – Strong
  • R1 0.6835 – 5Apr high – Medium
  • S1 0.6736 – 28Mar high – Medium
  • S2 0.6668 – 28Mar low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar had initially been weighed down in sympathy with Monday Aussie weakness following softer Aussie retail sales, but has since found additional offers on equities and commodities weakness and softer local data. Earlier today, NZIER business confidence saw a sharp pullback from the previous print, while NZIER also added that while it expected another rate cut in June, the risks were building for a preemptive cut in April to help stimulate the economy. Looking ahead, keep an eye on sentiment flow and commodities price action, while US data should not be overlooked, which features ISM non-manufacturing, JOLTS job openings and the trade balance.

US SPX 500 – technical overview

This latest multi-day rally is classified as corrective, with any additional upside expected to be well capped below 2100 on a weekly close basis in favour of the next major downside extension below 1800 and towards a measured move at 1500 further down. Ultimately, only a weekly close back above 2100 will delay the bearish outlook.

Screen Shot 2016-04-05 at 7.13.04 AM

  • R2 2083.00 – 29Dec high – Strong
  • R1 2080.00 – 4Apr/2016 high – Medium
  • S1 2021.00 –24Mar low – Strong
  • S2 2004.00 – 15Mar low – Medium

US SPX 500 – fundamental overview

This latest slide in commodities and sudden downturn in risk sentiment has been weighing on stocks into Tuesday, with many investors looking to square up longs now that the Yellen dovishness has been priced in. Certainly the Fed Rosengren comment warning that the market may be too pessimistic with its Fed rate hike outlook, has done nothing to help stocks. The Yen is also back on the bid and threatening a push to fresh 2016 highs, and any upside on the front, could put additional stress on an already stretched equity market rally off he February lows. Looking ahead, the key standouts on the calendar come from ISM non-manufacturing, JOLTS job openings and the trade balance.

GOLD (SPOT) – technical overview

The market continues to show signs of a major structural shift, with the impressive recovery from the multi-year low in late 2015 at 1046, extending above the critical October 2015 peak at 1191. From here, any setbacks should be well supported ahead of 1191, in favour of a higher low and the next major upside extension to medium-term resistance at 1307. Ultimately, only a weekly close back below 1191 would delay the newly adopted constructive outlook.

Screen Shot 2016-04-05 at 6.14.01 AM

  • R2 1283.50 – 10Mar/2016 high – Strong
  • R1 1244.10 – 30Mar high – Medium
  • S1 1208.35 – 28Mar low – Medium
  • S2 1191.50 – Previous Resistance – Very Strong

GOLD (SPOT) – fundamental overview

GOLD has been very well supported in recent dips, with the yellow metal finding solid demand in 2016 on the back of fears over the limitations of exhausted monetary policy and broad based currency weakness. But it has been this latest sell-off in the Buck, following dovish Yellen speak that has kept the market supported. Still overall, whether the US Dollar is bid or not is becoming less relevant, with risk sentiment likely to be the primary driver. Any weakness on this front will continue to bolster the yellow metal.

Feature – technical overview

USDSGD is finally poised to turn back up after a period of intense correction. Overall, the structure remains constructive, with the most recent dip well supported into the 78.6% fib retrace off the 2015-2016 low to high move at 1.3425. Look for the market to find a meaningful base in the 1.3400s ahead of the next major upside extension. Ultimately, only a weekly close below 1.3400 would compromise the outlook.

Screen Shot 2016-04-05 at 6.14.11 AM

  • R2 1.3600 – Figure – Medium
  • R1 1.3583 – 30Mar high – Medium
  • S1 1.3425 – 78.6% Fib Retrace – Strong
  • S2 1.3412 – 31Mar/2016 low – Strong

Feature – fundamental overview

Singapore manufacturing is still in contraction mode (9th straight month), well below the 50 boom/bust level, while Asian equities have come back under pressure into Tuesday, something that is weighing more heavily on correlated currencies like the Singapore Dollar. Throw in a pullback in commodities prices and warnings from Fed Rosengren that the market might be too dovish with its Fed rate hike assessment, and there is risk for additional weakness in the emerging market currency in the sessions ahead.

Peformance chart: Five day performance v. US dollar

Screen Shot 2016-04-05 at 6.52.51 AM

Suggested reading

Any opinions, news, research, analyses, prices or other information ("information") contained on this Blog, constitutes marketing communication and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Further, the information contained within this Blog does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of, or solicitation for, a transaction in any financial instrument. LMAX Group has not verified the accuracy or basis-in-fact of any claim or statement made by any third parties as comments for every Blog entry.

LMAX Group will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. No representation or warranty is given as to the accuracy or completeness of the above information. While the produced information was obtained from sources deemed to be reliable, LMAX Group does not provide any guarantees about the reliability of such sources. Consequently any person acting on it does so entirely at his or her own risk. It is not a place to slander, use unacceptable language or to promote LMAX Group or any other FX and CFD provider and any such postings, excessive or unjust comments and attacks will not be allowed and will be removed from the site immediately.