Weekly FX Wrap: A busy week for USD data next week, culminating in the payrolls release on Friday. A new financial year for Japan. UK finally triggers Article 50 to get the negotiations under way. CAD gets another boost.

Plenty of meat on the bone next week as USD traders have a host of data releases to work through, culminating in the March non farm payrolls release on Friday. On Monday, we get a precursor to this from the ISM manufacturing PMIs, as the employment index offers a strong correlation, perhaps more so than the ADP private jobs survey midweek. Also on Wednesday are the ISM non manufacturing PMIs, but the FOMC minutes later that evening will be in focus also.

Through the past week, we have had a steady flow of Fed speakers highlighting their expectations on the rate hike profile for this year, maintaining a base case scenario for at least one more move, though consensus lies with 2 (more). As such the key 10yr Treasury yield found support comfortably ahead of 2.30%, which helped pre 110.00 bids hold up USD/JPY for a tentative move back to circa 112.00. That said, the Fed’s Chair Yellen has consistently highlighted data dependency throughout her communications, so next week will determine whether yields will push back to the highs seen this year.

Adding pressure on the JPY will be a new financial year in Japan, but divestment flow usually takes a few weeks to get going again. We will be watching the crosses as a result, but the ever resilient equity markets will have a big say. In Japan, Monday’s Tankan survey forecasts look for moderate improvement across the board, but even though we saw industrial production improve significantly on Friday, inflation remains soft to say the least.

In Europe, it was reassuring to see ECB officials reiterating the accommodative policy stance was here to stay for now, as we had another situation developing where the market was getting ahead of itself, and market rates potentially threatening the roots of recovery in the single currency region. This was fully justified by the latest inflation numbers in Germany as well as the EU as a whole! Much calm is required given the political event risks ahead, and as a result, the EUR/USD move to (just above) 1.0900 was swiftly curtailed to see us back in more familiar territory on a 1.06 handle. On the ‘other side’, talk of parity has faded fast despite the prospect of widening yield differentials. Data-wise, EU wide PMIs are the standout release, but German trade and industrial production also noteworthy.

All things Brexit will continue to run the rule over the Pound next week, though it looks very much like the heavy short positioning has been trimmed to some degree, with Cable demand at 1.2400 stand out after the latest pull-back from 1.2600+. In EUR/GBP, resistance ahead of 0.8800 (to 0.8550) is tempered by strong demand ahead of 0.8400, and there has been little to suggest either limit will be tested aggressively in the immediate aftermath of triggering Article 50. Early Friday saw the final Q4 GDP reading revised down a touch to 1.9% y/y, but we are still getting mixed reports on business investment, which will naturally be affected by the negotiations ahead. Let’s get passed settling the exit payment first! Data focus is stacked up at the back end of the week, when manufacturing and trade figures fall due.

In the commodity currencies, the CAD has been ‘restrained’ (relatively speaking) by a cautious BoC, who clearly remain wary of global risks as well as benign inflation. The latter may be true given last week’s data, but given strong Q4 GDP and a very healthy shift in part time jobs to full time, the better than expected Jan growth stats were not too much of a surprise, with the economic follow through from the US also to factor in. We cannot ignore the rise in Oil prices, where WTI has tentatively reclaimed USD50.00, and even though OPEC members are still awaiting the pass through of the current programme of production cuts into inventory levels, the market will need some reassurances that an extension is on the table at least. This looks to be the major risk factor for CAD, as the domestic data is clearly starting to show strength. The Canadian jobs report also out on Friday.

In Australia, we have the only central bank event of the week, where the RBA are widely expected to keep rates on hold for a host of reasons, not least of all levels of household debt tempered against concerns over a housing bubble. Monetary policy is constrained as a result, despite hawks arguing on the basis of steady growth and inflation, as well as the turn in mining investment.

Copper and iron ore have had a choppy time of it lately (China stockpiles in focus), but we note a resilient tone in the AUD being tested every time we test into the upper 0.7600’s, but strong gains seen against the NZD have been standout where we are looking at a potential return to 1.1000 if not higher. Chinese Caixin manufacturing PMIs on Monday will be a key driver of AUD from the underlying commodities perspective, with trade data released just before the RBA decision.

NZD may have been given a temporary boost by Moody’s endorsement of economic resilience in NZ last week, but the latest business confidence indices have been slipping lately, as have growth rates. We have the GDT auction on Tuesday. NZD/USD looks comfortable close to the 0.7000 level for now. Finally, heavy losses in the ZAR look set to continue after South Africa’s president Zuma sacked a number of his cabinet, including his Finance Minister Gordhan. USD/ZAR started the week off at circa 12.40, spiking through 13.00 as Gordhan was recalled from an international conference, and after speculation of a reshuffle eventually materialised, we eventually went on to print highs at 13.60. 14.00 is now a conservative target higher up, as Zuma draws condemnation nationwide, including from within the ANC.

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Dollar Index Daily

Market is sideways and price is bullish. Profit taking from MM1 drove price up just short of the MPP target with price closing at the 50% fib. The green zone is the fib of the bullish move. I am going to pay attention to new monthly pivots and any confluence with this support zone and bullish entry zones for the month. Further resistance eyed at the 61.8% and 78.6% fib.

Dollar Index H4

Market is starting a bullish trend. Price is becoming bearish. With price being at the weekly bull target (after having moved off the weekly bear target) I expect some profit taking into Monday's trade. Support is eyed at the 38.2% and 61.8% fib of the bullish move as well as the 21 EMA. I will be paying attention to new weekly pivot points and any confluence with support and bullish entry zones for the week.

US10Y Daily

Market is sideways. Price is bearish. Top of the range eyed MR1. Bottom of the range eyed at last month's MS1 and MM1.

USD10Y H4

Market is sideways. Price is bullish. Price closed at the bearish trend line on Friday and in the red resistance zone that highlights the top of the range on this chart. Support zones highlighted in green and resistance zones highlighted in pink. Price action on this chart indicates that price is going to move up to the top of the range. I will be paying attention to the new weekly pivot points and confluence of bear zones with last week's WR1 and WR2.

2 thoughts on “Weekly FX Wrap 27 – 31 March”

  1. Damith says:

    Great work Ryan – i can see the time and effort you have put into this post good effort and thanks
    Damith

    1. Agostinho Santos says:

      Again great work Ryan you have the inspiration. 5 Starts

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