Daily FX Wrap: Risk aversion takes hold as JPY demand picks up. AUD also targeted while CAD gains also arrested. GBP still fighting back, not necessarily on CPI beat. EUR pushing higher through 1.0600 on risk aversion flow.

Another day of risk aversion, but by no means panic stations just yet compared to (not too) recent episodes. Fresh into the new Japanese fiscal year, JPY (re)divestment has yet to take hold, so this may well be having an impact of the scale and pace of repatriation flow we are used to seeing in times of geopolitical tension and risk off. The latest escalation of sabre rattling between the US and North Korea is cause for ‘repositioning’ at the very least, and to this end, we see USD/JPY vulnerable ahead of 110.00, with notable stops through the figure and 109.50 in the line of fire. Plenty of fresh demand mixed in here, but sellers will have the upper hand – initially – through 110.00.

As such, the market focus on data is a little distracted, and this in spite of Chinese inflation numbers out overnight, while in Japan, core machinery orders, PPI and unemployment are all on tap in the Asian session ahead.

The AUD is likely to remain on the backfoot accordingly, and only managing a tentative reclaim of the 0.7500 handle. Westpac consumer confidence overnight will be largely overlooked as traders await the key employment release on Thursday. Losses elsewhere were temporarily contained against NZD only, but further downside returned once Wall Street reflected the nervousness in the market. Fresh lows seen vs the JPY (naturally) while we have dipped below parity vs the CAD.

Fast forward to the North American session and it is all eyes on the BoC rate decision, but no change in policy expected. However, governor Poloz – who speaks later in the day – and Co have been pretty cautious in their accompanying statements of late, but they will be hard pressed to gloss over the much improved domestic growth and payrolls data of late. USD/CAD in the meantime has rejected the upper 1.3400’s, but on the downside has stalled ahead of 1.3300 with buyers coming in here on the negative risk correlation.

Onto Europe, and little on the continent to note, but in the UK we have the key employment report, which is ever more under scrutiny given the ‘harmful’ effects of exchange rate led inflation. In the overnight session on Tuesday, we saw the BRC retail sales monitor slip under the radar, but showing a larger miss than the -0.5% expected year on year to March, recording -1.0%. Headline CPI today came in at a slightly higher than expected +0.4% in March, but catching the eye were the much higher than expected PPI/input prices which hurts the manufacturing sector. Wednesday data relates to Feb, with average earnings ex bonus seen moderating from 2.3% to 2.1%. No change in the unemployment rate expected, while the
claimant count is seen falling by 3k. Cable found some support at 1.2370 on Monday, but along with EUR/GBP maintains a tight range as traders here await the mood of the Brexit negotiations ahead. Weak numbers tomorrow will naturally see another adjustment lower.

For the EUR, it is hard to see any meaningful recovery ahead of the French elections, and for all the adjustments seen in the polls (given the performance of said polls in the UK referendum and US elections), nervousness will continue to weigh on the single unit for now. With risk aversion at hand, EUR/JPY has been targeted in the early part of the week, with 117.00 relinquished, but with the lead spot rate looking overstretched in the 1.0570-80 area, there has been a staggered move back above 1.0600. Pre 1.0650 and 1.0700 levels seem to be harbouring good selling interest by the intra-day market, which in these thin markets looks to be working for now.

Nothing on the US data run to faze the FX markets Wednesday, with broader risk sentiment set to dominate for now.

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Dollar Index Daily

Market is sideways. Price is currently rolling over. Price came off of MM3 giving Bears a target of MM1 though support is eyed at MPP, in the fib zone and at MM2. Further resistance eyed at MR1. The stochastic indicates further Dollar weakness for the next seven days though we have quite a lot of support below us. H4 gives us a clearer picture.

Dollar Index H4

Market is bullish though note that price has broken through the 21 and is currently coming off the 55. Price is bearish with the stoch approaching oversold levels. With price coming off of WM3 the bearish target for the week is WM1. Support eyed at MPP/ WS1 with the fibzones matching that of the daily chart. Should price break below the 38.2% fib, according to price action, the next level of support is eyed at the 50% fib/ WS2. Note that the Dollar is not bearish yet as price has not yet made a lower low on this time frame. A break below the 38.2% fib would indicate a change in trend.

US10Y Daily

Market is sideways. Price is sideways. Price came off of support at MM3/ the top of the previous range which was identified in yesterday's post and has found resistance at the top of the range/ MR1. Should the top of the range be respected and price move lower we will see the Yen pairs give back some of their losses. Note that the Yen pairs are currently at their weekly targets so traders may look to take profits with it being so early in the week and Friday being a banking holiday.

USDJPY H4

Market sideways. Price is bullish and moving into overbought levels. MR1 coincides with WR1. The bullish target for the week is WM4 as identified in yesterday's post. Support eyed at WPP though one would need to pay attention to the H1 chart as the market is currently trending on that time frame.

US10Y H1

Market is bullish. Price is bullish. Note the sequence of higher highs since the double bottom formed at the start of the week. Support eyed at WM3/ DR2 and then further down at DM4. Due to price currently trending we are expecting to see further higher highs and higher lows until a reversal pattern forms. With price being at the top of the range this would be an ideal price for a reversal pattern to form unless price breaks out to the upside and reaches the weekly target. As long as the US10Y continues its bullish trend we will continue trading in risk off conditions. A reversal will of course bring Yen weakness into the market which would bode well for a counter-trend trade on the Yen pairs at their weekly bearish target.

2 thoughts on “Daily FX Wrap 11 April”

  1. nuno cabruja says:

    thank you mr Gandalf

    1. Ryan Gandalf van Jaarsveld says:

      Pleasure bud

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