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.
Wake-up call
Chart talk: Major markets technical overview video
- factory orders
- construction PMIs
- policy limitations
- equities slide
- RBA holds
- OIL
- business confidence
- Rosengren
- compelling diversifier
- USDSGD
Suggested reading
- Hedge Costs Soar Against Fall In Pound, D. McCrum, Financial Times (April 4, 2016)
- Japanese Banks’ Overseas Adventure, C. Langner, Bloomberg Gadfly (April 4, 2016)
Chart talk: Technical & fundamental highlights
Choose pair:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.