EURUSD reversed back higher yesterday – but what is the quality of the reversal when we’re near the 1.3000 “magnet”? BoJ team is now in place – they better get down to business right away if the JPY is to avoid consolidation.
GBP squeeze – just a flash in the pan?
GBPUSD squeezed higher yesterday after it managed to work above the technically and psychologically significant 1.5000 level. Helping the action was the BoE’s King denying that there was any intention to weaken sterling. (What was not said was: the fundamentals of the situation are doing a very nice job at the moment, thank you very much. From here, GBPUSD has plenty of room to consolidate to at least 1.5250/1.5300, but if the USD is more broadly weak, that could stretch even higher – the 0.382 Fibo of the steep and large wave from above 1.6300 doesn’t come in until 1.5423. Still, there is an interesting area around 1.5200 that is the important hurdle in the nearest term, and It’s still all about finding entry levels for strategic shorts.
Three BoJ amigos now confirmed
The BoJ trio of nominees is now signed, sealed and delivered as Japan’s upper house has now also approved the nominees – who must now quickly get down to the business of satisfying stratospheric expectations for the expansion of money printing to reinvigorate the Japanese economy. I agree with the jaundiced view of their prospects: they may manage to twist the market’s arm enough to weaken the JPY longer term and bring back inflation, but the overall effects are likely to be negative interest rates, and a confiscation of private savings to help bring down the public debt load. If global demand remains weak, which Is suspect it will, the “competitiveness“ of the weaker JPY will fail to deliver the hoped for boost to exports. Also – in the nearer term, we have the risk that this is a garden variety carry trade that could see the JPY viciously stronger if global markets lurch back into risk aversion mode. The JPY could be set for one last climax push lower if Kuroda follows up all the noise with an emergency meeting ahead of the regularly scheduled early April meeting.
Thought of the day – EURUSD and the overall USD rally
The EURUSD reversal yesterday was a tough one for bears to take, as it represents a technical rejection of the break lower until proven otherwise. I dislike looking at technical factors when we are trading near one of the “magnetic” round figures, especially this 1.30 level, which has proven so sticky in the past. As well, the volatility of the reversal was somewhat weak – so let’s see. The bears still need a move back below 1.2950 to get a “reversal of the reversal” scenario to gain traction.
The other thing – in the 10,000-foot view – that bothers me is the idea that the USD should be strong due to a robust US-led recovery. While I think that the US economy should fare better than elsewhere, I’m looking more for excess weakness elsewhere rather than notable strength per se in the US. And even if we have moved away from knee-jerk risk on/risk off, the USD rally in my minds sits poorly with AUD spiking higher and asset markets continuing to push higher, too. So – yes – US outperformance, but only in an overall context of an “ugliness pageant” – that’s when the broader USD outperformance should kick in.
Looking ahead
We’ve got Euro Zone CPI on the blocks, with the first of the major regional US manufacturing surveys up later (Empire survey), together with February CPI (core CPI has been sticky near 2.0%, a minor uptick of interest if we start edging higher toward 2.5% in coming months, which will add to the Fed “risk of accommodation unwinding” story.
And as the EURUSD tries to push back above the 1.3000 mark, it’s hard to see any clarity emerging on the Italian political front. The prospects for a new government forming look poor and a new election for the summer looks like the most likely scenario, which prolongs the uncertainty and begins to edge into the German campaign season, where a new anti-EU Alternative für Deutschland party may be hiving off from the CDU/CSU which will make the situation extremely interesting. MISH posted excellent coverage of this yesterday.
Economic Data Highlights
- New Zealand Feb. Busines NX PMI out at 56.3 vs. 55.2 in Jan.
- New Zealand Mar. ANZ Consumer Confidence out at 114.8 vs. 121.0 in Feb.
- Switzerland Feb. Producer and Import Prices out at +0.1% MoM and +0.1% YoY vs. +0.3%/+0.3% expected, respectively and vs. +0.8% YoY in Jan.
- Norway Feb. Trade Balance (0900)
- Euro Zone Feb. CPI (1000)
- US Mar. Empire Manufacturing (1230)
- US Feb. Consumer Price Index (1230)
- US Jan. Total Net TIC Flows (1300)
- Canada Feb. Existing Home Sales (1300)
- US Feb. Industrial Production and Capacity Utilization (1315)
- US Mar. University of Michigan Confidence (1355)
- US Fed’s Fisher to speak on Too Big to Fail (Sat 1515)
- New Zealand Q1 Westpac Consumer Confidence (Sun 2100)
- New Zealand Feb. Performance of Services Index (Sun 2130)
- UK Mar. Rightmove House Prices (Mon 0001)
- China Feb. Property Prices (0130)