London Forex Report: Downbeat economic data reinforced expectations for very measured Fed rate hikes this year, denting market sentiments and overshadowing hawkish comments from Fed member Rosengren that the Fed will likely raise rates earlier than expected as economic risks are subsiding. Durable goods orders fell at a bigger than expected pace of 3.0% MoM in February, due to a hefty fall in capital spending that signaled continued reluctance among businesses to spend amid prevailing economic uncertainties. In line with this but contrary to the upticks in nationwide and regional manufacturing prints, factory orders also took a turn and fell 1.7% MoM. USD strengthened as risk-off sentiment in the markets dampened bids for European and commodity majors. The USD Index however, ended 0.11% lower at 94.51 after sliding through the European and US sessions amid rallies by major components JPY, GBP and SEK.
EUR/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: EUR/USD confined in a narrow range on Monday, back and forth around the 1.1400 handle. Eurozone unemployment retreated in February to the lowest since 2011, continuing its slow decline as the economy grows at a modest pace. The rate dropped to 10.3% from 10.4% in January, matching the expectations. While the unemployment rate in the currency bloc has been almost continuously above 10% for more than six years, national figures point to a divide in the region. In Germany, the jobless rate held at 4.3%, according to Eurostat.
Technical: Price achieved the symmetry swing objective at 1.1420, printing a height of 1.1438 before pulling back below the figure. Intraday support is sited at 1.1330; failure here opens pivotal 1.1220 support.
Interbank Flows: Bids 1.1330 stops below. Offers 1.1450 stops above.
Retail Sentiment: Bearish
Trading Take-away: Long
GBP/USD
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish
Fundamental: In the UK, construction PMI was unchanged at 54.2 in March, matching the 10-month low in Feb amid drag in the residential construction category. Slower pace of expansion in the home building sector means that the UK property market will continue to face shortages of housing supply, posting upside pressure to property prices and dampening impact of cooling measures by the government.
Technical: Intraday support is sited at 1.4170 ahead of 1.4050 pivotal support to set the platform to test the topside of the broader 1.45/1.40 range. A failure to hold 1.4050 opens a retest of year to date lows at 1.38 ahead of 1.37 weekly swing objective.
Interbank Flows: Bids 1.4050 stops below. Offers 1.45 stops above.
Retail Sentiment: Bullish
Trading Take-away: Sidelines
USD/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: USD/JPY slipped from high of 111.79 to its current level of 111.03, just above the 111.00 handle. As the USD weakened by the worse-than-expected February US factory data, USD/JPY dropped to a new low which has not been seen since mid-March. The incoming Fed minutes may give the grounds to determine the new range for USD/JPY.
Technical: Continue to play the broader range of 110/114 with the range lows at 110.60/40 the key support pivot. A breach of the range is required to help define the next directional play.
Interbank Flows: Bids 110 offers below. Offers 114 stops above
Retail Sentiment: Bullish
Trading Take-away: Short
EUR/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: Domestic sentiment in Japan and the Nikkei giving back the 16K level had consequences for the EUR/JPY, with the cross now testing the 126 handle. Interbank reports suggest positioning in the spot market is quite light below the 126 handle, primarily because of fears of some form of intervention/jawboning down here (as experienced previously) in the USD/JPY.
Technical: Symmetry swing resistance at 128.15 stalls the upside advance on the initial test. Failure at 126.50 suggests false upside break and opens retest of 123. 125.60 is the near-term symmetry support objective.
Interbank Flows: Bids 125.50 stops below. Offers 128 stops above.
Retail Sentiment: Bullish
Trading Take-away: Short
AUD/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish
Fundamental: AUD has been heavy for the last 24 hours, with risk aversion creeping into the markets on the back of WTI tracking lower and Nikkei this morning underperforming. A worsening trade balance out of Australia this morning saw more supply for the pair, but the RBA rate decision put a floor under the fall.
Technical: Only a close below .7550 threatens the near-term bullish bias. While this level supports intraday, expect a grind higher to test .7770.
Interbank Flows: Bids .7550 stops below. Offers .7750 stops above
Retail Sentiment: Bearish
Trading Take-away: Long
USD/CAD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: CAD weakened against the USD as oil fell on doubts a deal will be reached to cut output, though the currency traded in a narrow range as the market braced for trade and employment figures later in the week. The currency consolidated recent strength while stronger than expected economic growth in January further dented expectations for a Bank of Canada rate cut. Oil prices dipped as traders believed chances that top exporters will agree to reign-in overproduction seemed to disappear.
Technical: Retest of recent lows in the 1.2920s set a potential double-bottom base as intraday price pierced lower to test structural support sited at 1.2830/50, which attracted decent bids. As this area supports we have the potential to set a base for a broader correction, with 1.33 as an initial upside objective.
Interbank Flows: Bids 1.2850 stops below. Offers 1.3150 stops above
Retail Sentiment: Neutral
Trading Take-away: Neutral
