Weekly Outlook: 2015, April 19 - 26

The dollar was lower against the euro for a fourth consecutive session on Friday as expectations for higher U.S. interest rates waned, despite data showing an uptick in inflation in March.

EUR/USD was up 0.43% to 1.0807 in late trade and ended the week with gains of 1.89%.

The dollar shrugged off data on Friday showing that U.S. consumer prices were higher for a second successive month in March.

The Labor Department reported that the consumer price index edged up 0.2% last month, matching a similar gain in February. On a year-over-year basis, consumer prices dipped 0.1% in March after remaining flat in February.

Core consumer prices, which exclude food and energy costs increased 0.2% in March for an annual increase of 1.8%, the largest since October.

The report came after data earlier in the week showed that U.S. retail sales for March came in below expectations. Another report, showing a larger-than-forecast drop in industrial output pointed to a slowdown the first quarter.

The string of weak data added to the view that the Federal Reserve could push back hiking interest rates until late 2015 from midyear.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was last down to 97.62 late Friday. The index ended the week down 1.9%.

The single currency gained in spite of concerns that Athens is no closer to reaching an agreement on economic reforms for bailout funds with its creditors, fuelling fears that Greece could be forced out of the euro zone.

Earlier in the week European Central Bank President Mario Draghi said the bank expects to fully implement its trillion-euro quantitative easing program. He also played down concerns that the asset purchase program will struggle to find enough euro zone bonds to buy.

In the week ahead, investors will be looking ahead to reports on the U.S. housing sector and data on durable goods orders for further indications on the strength of the recovery.

In the euro zone, Tuesday’s ZEW report on German economic sentiment and Thursday’s reports on private sector activity will be in focus.

Tuesday, April 21

• In the euro zone, the ZEW Institute is to report on German economic sentiment.

Wednesday, April 22

• The U.S. is to release data on existing home sales.

Thursday, April 23

• The euro zone is to release survey data on private sector economic activity, while Spain is to release its employment report.
• Later Thursday, the U.S. is to report in initial jobless claims and new home sales.

Friday, April 24

• In the euro zone, the Ifo Institute is to report on German business climate.
• The U.S. is to round up the week with a report on durable goods orders.

the source

The New Zealand dollar rallied to a three-month high against its U.S. counterpart on Friday, as investors increased bets that the Federal Reserve will hold off on raising interest rates until later this year after a recent run of soft economic data dampened optimism on the recovery.

AUD/USD hit 0.7741 on Friday, the pair's strongest level since January 20, before subsequently consolidating at 0.7688 by close of trade on Friday, up 0.21% for the day.

For the week, the pair climbed 1.94% as a recent string of disappointing data fuelled concerns over the strength of the U.S. economy and sparked speculation that the Fed could delay hiking interest rates until late 2015, instead of tightening midyear.

The Labor Department reported Friday that U.S. inflation edged up 0.2% last month, matching a similar gain in February. On a year-over-year basis, consumer prices dipped 0.1% in March after remaining flat in February.

Core consumer prices, which exclude food and energy costs increased 0.2% in March for an annual increase of 1.8%, the largest since October.

The report came after data earlier in the week showed that U.S. retail sales for March came in below expectations. Another report, showing a larger-than-forecast drop in industrial output pointed to a slowdown the first quarter.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell 0.27% on Friday to hit 97.62 by close of trade. The index ended the week down 1.9%.

In the week ahead, investors will be looking ahead to reports on the U.S. housing sector and data on durable goods orders for further indications on the strength of the recovery.

Market players are also looking ahead to New Zealand inflation data due on Monday.

Monday, April 20

• New Zealand is to release data on consumer price inflation.

Wednesday, April 22

• The U.S. is to release data on existing home sales.

Thursday, April 23

• China is to release private sector data on manufacturing activity. The Asian nation is New Zealand's second largest trade partner.
• Later Thursday, the U.S. is to report in initial jobless claims and new home sales.

Friday, April 24

• The U.S. is to round up the week with a report on durable goods orders.

the source

The dollar fell against the yen for a sixth consecutive session on Friday after data showing an uptick in U.S. consumer prices failed to offset concerns that recent signs of economic weakness could prompt a delay in interest rate hikes.

USD/JPY hit three-week lows of 118.57 and ended at 118.93 late Friday. The pair ended the week down 1.06%.

The dollar shrugged off data on Friday showing that U.S. consumer prices were higher for a second straight month in March.

The Labor Department reported that the consumer price index edged up 0.2% last month, matching a similar gain in February. On a year-over-year basis, consumer prices dipped 0.1% in March after remaining flat in February.

Core consumer prices, which exclude food and energy costs increased 0.2% in March for an annual increase of 1.8%, the largest since October.

The report came after data earlier in the week showed that U.S. retail sales for March came in below expectations. Another report, showing a larger-than-forecast drop in industrial output last month pointed to a slowdown in growth in the first quarter.

The string of weak data added to the view that the Federal Reserve could push back hiking interest rates until late 2015 from midyear.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was last down to 97.62 late Friday. The index ended the week down 1.9%.

Elsewhere, the yen was lower against the euro, which was boosted by gains against the softer dollar, with EUR/JPY up 0.28% to 128.43 at the close.

The single currency gained ground in spite of concerns that Athens is no closer to reaching an agreement on economic reforms for bailout funds with its creditors, fuelling fears that Greece could be forced out of the euro zone.

In the week ahead, investors will be looking ahead to reports on the U.S. housing sector and data on durable goods orders for further indications on the strength of the recovery. Trade data from Japan will also be closely watched.

Wednesday, April 22

• Japan is to publish data on the trade balance.
• Later in the day, the U.S. is to release data on existing home sales.

Thursday, April 23

• The U.S. is to report in initial jobless claims and new home sales.

Friday, April 24

• The U.S. is to round up the week with a report on durable goods orders.

the source

Fundamental Forecast for Euro: Neutral
- The ECB press conference initially invited limited volatility, but EURUSD eventually settled higher.
- The bearish technical formation in the USDOLLAR Index portends to a stronger EURUSD.

The Euro treaded water last week, losing ground against half of its major counterparts and gaining a bit more against the other three. The worst performance came against the Swiss Franc (EURCHF -0.91%), while the best performance came against the US Dollar (EURUSD +1.87%). In a week ripe with strife – be it on the political front, with more debt bantering with Greece, or on the monetary front, in the form of the European Central Bank’s third policy meeting of the year – the Euro fared reasonably well, all things considered.

With respect to the ECB meeting, President Mario Draghi has made it quite clear that market-borne talk of the QE program being tapered ahead of its projected September 2016 finale are premature at best, and misguided at worst. Before asset purchases cease, the ECB needs to see a stabilization in both actualized and expected inflation, which haven’t happened yet: core inflation resides at a mere +0.6% y/y; and the 5y5y inflation swaps closed the week at 1.693%, right at the four-week/20-day average of 1.678%. ‘Taper talk’ probably becomes more realistic once core inflation crosses the +1.2% y/y threshold, or if the 5y5y inflation swaps move above 1.800%.

For now, the Euro remains a weak buy against a basket of its major counterparts due to its deflating yield appeal and further crystallization as a funding currency. The Euro has lost and continues to lose its appeal as a growth currency as the differential between the short-end and the long-end of the yield curve (in Germany the 2s10s spread fell to 0.347% on Friday from 0.638% on January 1) decreases; and its appeal as a funding currency increases as rates towards the long-end drop into negative territory (German yields out to 9-years are negative).

The drop in sovereign yields decreases the demand for Euros. With nominal yields falling and inflation expectations holding stable (and even slightly rising), real returns on fixed income investments are decreasing; in turn, this fuels demand for higher yielding/riskier EUR-denominated assets like equities; or forces Euro-Zone-based investors to look outside the region for opportunity – which means capital needs to be converted from Euros into foreign currencies. This is the “portfolio balancing channel” effect that ECB President Mario Draghi has been discussing since the beginning of the year.

The Euro’s appeal, therefore, is rooted in the oversized short position currently in the market, which at least in context of EURUSD, could help propel covering in the very near-term (as was seen again this past week). As of March 14, there were 212.3K net-short contracts held by speculators in the futures market, off from 215.3K a week earlier (and down from the 226.6K seen during the week ended March 31, 2015). Otherwise, market participants are viewing the drop in Euro-Zone yields as a sign that the ECB will keep rates for an extended period of time, well-beyond the projected September 2016 finsih for its QE program: the Morgan Stanley ‘months to first rate hike’ index currently resides at 56.5, suggesting a December 2019 or January 2020 rate hike at the earliest.

the source

D1 price is on primary bearish breakdown which is started today on open daily bar:

• the price is crossing 16.05 support level
• Sinkou Span A line (which is the virtual border between the primary bullish and the primary bearish on H1/H4/D1/W1/MN charts) was crossed by the price on close D1 bar for the reversal of the price movement to the bearish market condition
• Chinkou Span line of Ichimoku indicator is showing next good breakdown possibilities in the near future for this or near week
• nearest support level is 16.05
• nearest resistance levels are 16.62 and 16.88

While Bank of America Merrill Lynch didn't expect the USD Index DXY to remain within its recent corrective range trade (currently consolidating between 99.92 & 96.58), BofA now thinks that this longer than anticipated consolidation has done no damage to the larger bull trend.

"Absent a sustained break off 96.58/95.94 we look for a bullish resolution towards 103.85 (Triangle objective) ahead of 106.00 (long term upside target)," BofA argues.

It is a slightly different story for GBP/USD, according to BofA, as the setup here is for a more directional correction higher.

"In the sessions ahead we look for a push to 7m channel resistance at 1.5232 ahead of swing targets at 1.5350 and potentially beyond before the long term downtrend resumes for a push towards 1.35/1.40 (secular range lows), BofA projects.

Turning to EUR/USD, BofA advises bulls to watch the 55d average around 1.0992.

"While we remain long term EUR/USD bears, targeting 1.0283/1.000, in the near term the pair is stuck in a choppy corrective range between 1.0462 (Mar-16 low) and the 55d avg (now 1.0992)," BofA notes.

"Bulls need a sustained break of the 55d to point to a greater correction than anticipated, exposing the 1.1261/1.1534 February congestion zone," BofA advises

the source

EUR/GBP is resuming its larger downtrend, following the break of 0.7174/0.7166, notes Bank of America Merrill Lynch.
"We look for a test and break of the Mar-11 low at 0.7014, ahead of the 0.6900/0.6800 region. Bounces should not exceed the Apr-19 high at 0.7245," BofA projects.

Turning to EUR/USD, BofA notes that while the 1.0500-1.1000 range is still intact, its correction is turning increasingly in a 'Triangular' pattern.
A Triangular Correction, according to BofA, is a range defined by two contracting trendlines.
"This is one of our favorite patterns and should provide an excellent opportunity to go short for a move toward 1.0000 once the pattern completes," BofA argues.
"For now, stay patient. Gains should not exceed the 55d at 1.0967, while a break of 1.1053 points to a larger correction than anticipated," BofA advises.

the source

In a special note to clients today, Goldman Sachs updates its outlook on EUR/USD and USD/JPY noticing that the latest messages form the ECB and BoJ seem to be 'lost in translation'. The following are the key points in GS' note along with its latest forecasts for EUR/USD and USD/JPY.

1- "When central banks are implementing QE – as the ECB and Bank of Japan clearly are – they deliver two basic messages. First, they comment on whether the current pace of asset purchases is still appropriate and, when it isn’t, they provide more accommodation, as the BoJ did in October. Second, because QE is controversial, they sing the praises of asset purchases, pointing to rising inflation expectations and an improving growth picture," GS argues.

2- "We think this is what happened towards the end of the ECB press conference on Apr. 15, when President Draghi made favorable comments on the inflation and growth picture. The market heard exit, but in our view this is a clear case of “lost in translation." GS adds.

3- "After all, President Draghi earlier in the press conference argued forcefully that focus on early exit is premature and that having this debate now is like “quitting a marathon after 1k.” Our European economists continue to expect “full implementation” of ECB QE, meaning an unchanged pace of asset purchases through at least Sep. 2016. This is key to our view that a cyclical recovery in the Euro zone is not a force for EUR/USD higher," GS clarifies.

4- "There was more “lost in translation” in Governor Kuroda’s speech on Apr. 19. The market picked up headlines that “the underlying trend of inflation has improved markedly,” but the more important message in the speech, in our opinion, is that low inflation momentum is threatening to pull inflation expectations lower (Exhibit 4), which will then set the stage for additional monetary easing," GS notes.

5 "Our Japan Chief Economist forecasts additional stimulus for July by way of duration extension of JGB purchases (akin to "Operation Twist" in the US). Given how small speculative long $/JPY positioning now is, we think there is room for the market to catch up with real story in Japan, which is that another round of monetary easing is coming," GS adds.

GS targets EUR/USD at 1.00 in 6-months and USD/JPY at 125 over the same end of period.

the source