Daily FX Wrap: ECB hawks brought back to earth as Draghi changes nothing. EUR test of 1.0950 falters again. GBP outperforms, but 1.2920 contains Cable. CAD cannot catch a break as Oil slips again. US, Canadian and UK GDP all out tomorrow.

Any hopes that the ECB were going to hint at tweaking their monetary policy were dashed today, despite reports (stories!) that this might be the case in light of the Macron win (in the first round vote in France) on the weekend. Not only did president Draghi reiterate that policy decisions do not account for politics – and again, Macron has won nothing yet – but at the press conference he also echoed comments that there is no need to discuss sequencing, ie hiking rates before the end of QE. Prior to this, he did however cite the positive economic factors feeding through, but the governing council are not convinced that inflation is back on track yet.

The initial positivity sent the lead EUR/USD higher in the initial exchange, pushing the earlier highs, but still the 1.0950 level cannot be breached. That said, the longer term market players will get ‘ahead of the game’, and we sense there is an underlying bid in the single unit, though perhaps at lower levels. 1.0850 held on the dip, and we note strong demand into 1.0750 lower down, which will be tested if the US GDP numbers beat expectations on Friday.

This is the major event risk going into the last day of the month, which will be fraught with real money flow pointing to some potential volatility ahead. Looking at the median forecasts for Q1 GDP stateside, some of the revisions by the major banks suggest this may be a little optimistic, so we have ‘room for movement’, and in in USD/JPY specifically, which has been notably quiet since the dip back from the upper 111.00’s. Strong resistance seen ahead of 112.00, but this will be tested on strong US growth.

Japanese inflation data overnight shows little sign of producing any excitement from the JPY perspective, with sluggish pick up maintaining the accommodative stance which the BoJ are consistently reminding us of. Mar industrial production, unemployment and household spending also due out.

USD/CHF could also see some movement, having seen little volume based on the price action seen, but this is largely down to SNB presence as traders are loathe to get caught in any preemptive EUR based ‘operations’. EUR/CHF is dipping lower again, but nothing anticipated until the low 1.0700’s.

Q1 GDP stats also due out in the UK Friday morning, and in light of the latest gains seen in the Pound, we have a potential profit taking bout as the recent date run has shown activity fading a little. We also have to contend with EU based supply in EUR/GBP, but this will have been transacted in stages through the week. The cross rate has yet to fill the gap from last weekend, but has been eating into this today in the wake of the ECB ‘presser’. Lows seen ahead of 0.8400, but a test under the figure looks likely. EUR/USD has a big figure to go before it closes its respective gap.

GDP data in Canada covers Feb, but the market will be looking for some momentum after Jan’s strong +0.6% read. Working off averages, consensus here is for a more modest +0.1% rise this time around, which may curb some of the CAD weakness which does not seem to be fading in any way. Overnight we saw president Trump taking a more moderate tone on NAFTA and agreeing to negotiate rather than withdraw from the accord, having met with both counterparts Trudeau and Nieto.

However, there are plenty of weak points to the CAD at present, and Oil price is naturally one of them as another drop in WTI and Brent sends the spot rate back above 1.3600 again. Calls for 1.4000 may not look out of place, but local names and longer term specs will find value in CAD at these levels. 1.3675 is still a level we are watching, but through here sees 1.3800-50 next.

Also in the overnight session we have ANZ business confidence and NBNZ activity indices in NZ, with credit data and PPI in Australia. Both the AUD and NZD have lost ground against the greenback in recent sessions, but the pace of losses have been pretty measured as the underlying domestic factors have been unconvincing. As such, moves have been broadly risk and USD based, so we are wary of a potential/partial turnaround in the near term.

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Dollar Index Daily

The 21 and 55 indicate a bearish market though price action shows the market is sideways. Our price is bearish though we are at oversold levels, have been for a while, and price is going to turn up in the near term. Support at MS1 is holding with resistance eyed at MM2 and MPP. Support below MS1 eyed at MM1.

Dollar Index H4

Market is bearish though slowing down and indicating some consolidation or a reversal ahead. Price is bullish. Note the double bottom at WS2. Also note that price has not made a lower low after coming off the 21 EMA. Price needs to make a higher high above WS1 for a reversal to be confirmed. Resistance eyed at WS1 and WPP.

US10Y Daily

Although the 21 is above the 55 note the angle of separation currently indicating a slow, sideways market. Price is bearish though something important to note is that despite our stochastic moving lower our price remains at support. As mentioned in previous posts, this support is quite important with it being the top of the previous range. We have resistance above at the current monthly target though these monthly pivots really have no importance with May's pivots coming out on Sunday. If price starts rallying from this support then that's going to mean Yen and Gold strength. While the market is waiting for fiscal policies out of the Trump administration to revive the reflation trade, the securities market seems doubtful. Take a look at H4.

US10Y H4

Market is sideways after price came off of the head and shoulder neckline. While price is bullish our stoch is moving to overbought levels and we have not made a higher high yet after our double bottom at WS2. Therefore it seems as if price may range for a while until we either break above the resistance at our previous high or below our support at WS2. Support is strong due to it being a zone where Bears take profit and the top of the previous range so unless some fundamental data or news results in bearishness, this is moving higher. Of course it does make sense for us to range between our previous high and our previous low until the market gets the confirmation it needs to determine a direction. I would be very careful of buying Yen pairs or selling Gold and would be on the lookout for reversal patterns at levels of support or resistance where one would expect to see them.

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