Weekly Outlook: 2015, April 19 - 26

GBP/JPY Technical Analysis: Aiming Above 178.00 Figure

Talking Points:

• GBP/JPY Technical Strategy: Flat
• Support: 177.26, 175.77, 174.87
• Resistance: 178.74, 179.94, 181.14

The British Pound rose for a fourth consecutive day against the Japanese Yen, with prices now eyeing resistance above the 178.00 figure. Near-term resistance is at 178.74, the 38.2% Fibonacci retracement, with a break above that on a daily closing basis exposing the 50% level at 179.94. Alternatively, a turn below the 23.6% Fib at 177.26 clears the way for a challenge of the 175.77-176.35 area (triple bottom, 14.6% retracement).

Attachment 12836

We see the overall GBPJPY trend as favoring the downside after last week’s break of the 12-month uptrend set from February 2014 lows. With that in mind, we will opt against entering long and treat on-coming gains as corrective, looking for the move to offer a selling opportunity once upside momentum is exhausted.


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Inflation data in New Zealand and Australia, Poloz and Stevens’ speeches, German ZEW Economic Sentiment and German Ifo Business Climate, US Unemployment Claims and Durable Goods Orders are the highlights of this week. Here is an outlook on the top events on Forex calendar.

Last week, US data disappointed with weaker than expected housing and employment data as well as soft retail sales. Jobless claims rose 12,000 to 294K, building permits came reached 1.04 million while forecasted 1.08 million and housing starts hardly recovered with 0.93 million. Retail sales registered a 0.9% increase, below the 1.1% rise predicted and Core sales gained 0.4% far below the0.7% expected. However, the Philadelphia Fed Manufacturing Index surprised with 7.5 points vs. 5 in the previous months exceeding forecasts for a 6.5 points reading. Will the US data stabilize this week?

1. New Zealand Inflation data: Sunday, 23:45. Consumer prices in New Zealand declined by 0.2% in the fourth quarter of 2014, amid lower oil and vegetables prices. This was the first decline since the fourth quarter of 2012. Analysts expected rates to remain unchanged and expected an annual growth of 0.9% rather than the 0.8% reported. However, international air fares edged up 7.3%, while domestic air fares expanded 8.3%. Housing costs were also a positive contributor to inflation in the December quarter. Consumer prices are expected to decline once more by 0.2%.
2. Stephen Poloz speaks: Monday, 15:05. BOC Governor Stephen Poloz is scheduled to speak in New York. Poloz may talk about the central bank’s decision to keep its key overnight lending rate unchanged and about his bright forecast for Canadian growth despite the current slowdown forced by the oil price collapse.
3. Glenn Stevens speaks: Monday, 17:30. RBA Governor Glenn Stevens is expected to speak in New York. He may refer to The RBA’s decision to leave the cash rate unchanged at 2.25%, despite talks of a rate cut.
4. Eurozone German ZEW Economic Sentiment: Tuesday, 10:00. German investors’ sentiment remained positive in March, climbing for the fifth time to 54.8 from 53 in February amid rising domestic demand. However concerns about Greece and Ukraine clouded future outlook. Analysts expected a higher figure but predict optimism will grow in the coming months after the fog, surrounding Greece and Ukraine, clears. Investors sentiment is expected to rise to 56.
5. Australian inflation data: Wednesday, 2:30. Australian inflation in the last quarter of 2014, rose 0.2% following 0.5% rise reported in Q3. The reading was below expectations reflecting lower prices for transport, due to the ongoing decline in oil prices, as well as for healthcare. Falling fuel prices are the main cause for the tame inflation in the fourth quarter. But Core inflation a more precise measure posted a 0.7% gain reaching an annual 2.3% just above the bottom of the RBA’s 2-3% target range. CPI is forecasted to gain 0.1%.
6. US Unemployment Claims: Thursday, 13:30. The number of Americans filing initial claims for unemployment aid increased by 12,000 to 294,000, rising for the second straight week. However, the number of jobless workers is still low. The four-week average, edged up by 250 to 282,750, nearly the same as in the prior week. The total number of Americans seeking aid declined to 2.27 million, the lowest in more than 14 years. The number of claims is expected to reach 90,000 this week.
7. Eurogroup Meetings: Friday. The Eurogroup meetings attended by Finance Ministers from the euro area will be crucial for Greece. Unless a funding agreement is reached, Greece will not get the third aid program from the ECB, resulting in a default. Athens has not received bailout aid since August last year and has been hard pressed to cover payments amid a cash crunch, resorting to measures such as borrowing from state entities to tide it over.
8. Eurozone German Ifo Business Climate: Friday, 9:00. German Ifo business climate edged up to 107.9 in March from 106.8 in February, beating forecast for 107.3. Optimism about current conditions rose as well as six months outlook. Strong growth and low oil prices boosted domestic demand. Ifo economists believe expansion will continue in the coming months.
9. US Core Durable Goods Orders: Friday, 13:30. Orders for long lasting goods declined in February by 1.4% contrary to forecast of 0.3% gain. Meanwhile, core orders fell 0.4% posting the fifth straight monthly decline. The weak figures suggest softening in domestic demand despite growth in employment. However, economists expect growth will increase in the coming months.

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Fundamental Forecast for Dollar: Bearish

• The USDollar suffered its second largest weekly decline in a year this past week, but conviction was uneven
• Inflation and Fed talk offered a little more traction for USD selling, but key risk in 1Q GDP and FOMC is further out

Attachment 12876

The Dow Jones FXCM Dollar Index (ticker = USDollar) dropped 1.1 percent this past week while the ICE Dollar Index tumbled 1.8 percent. That represents the second worst week for the even-weighted measure (USDollar) in 12 months and the second worst performance for the EURUSD-heavy gauge in 22 months. Have speculators over-reached on this advantaged currency? The recent stumble after two months of consolidation alongside speculative positioning suggests that may be the case. However, as market participants weigh the impetus for correction against the tangible fundamental appeal the currency holds over the longer-term; progress will lean heavily on meaningful catalysts to motivate a counter-trend move. And, this week’s docket will struggle for the high profile drivers while the period after is overstocked with redefining updates.

From a fundamental perspective, it is important to establish the longer-term position for the Greenback. Treasury Secretary Jack Lew at the G-20 noted the United States’ economic dominance when he remarked that it was not ‘sufficient’ that the US be the lone driver of global growth. That bodes well for investor returns (and thereby capital inflow) alongside the first-mover advantage the Fed seems to be taking with its relatively hawkish monetary policy standing. Furthermore, in the event of a global financial slump; the Dollar will likely revert back to its ‘haven’ status – after a certain intensity is reached. Medium to long-term, the currency looks well positioned to advance further. Yet, that doesn’t preclude it to interim corrections.

A ‘correction’ is what lurks for the Greenback. Nine-months of steady climb in the most rapid move since the early 1980’s mixes both fundamental reasoning and speculative exuberance. It is the faction that participated to take advantage of momemtum rather than hold positions to realize long-term developments that pose the currency short-term risk. It is difficult to establish exactly how much excess could be worked off, but positioning measures can act as a proxy. The CFTC’s Commitment of Traders (COT) report this past week showed a continued reversal from the record net-long exposure set in January. Now at its lowest level since the end of December, there is still plenty of room for moderation as we’ve only seen a 13 percent retreat from the bullish shift that began in 2012.

The most capable driver for the Dollar in its long and short-term course is monetary policy. This past Friday, a range of inflation measures bolstered the persistent doubt of near-term FOMC rate hikes. The headline CPI reading for March slipped back into negative territory (-0.1 percent), a real average weekly earnings figure retreated from its series high to a 2.2 percent clip and price forecasts from the University of Michigan confidence survey posted sharp declines. Caveats of robust core measures and the general trend of the wage numbers factor in, but viability of a near-term hike is certainly diminished. According to Fed Fund futures, the first hike is once again not fully priced in until January 2016.

Moderated rate expectations reinforced by tepid data, but it’s capability as a fundamental driver is diminished considering the time frame yields imply and the persistent buoyancy of the Dollar – a rate hike may come later but it is still a hike among QE programs. Sentiment may simply tip out of favor for the Greenback and pull it lower, but the most effective means would by through key event risk to focus the selling effort. For the coming week’s docket, there is limited high-profile event risk to hit all traders’ radars. And, marking a meaningful distraction, there are very high profile events in the following week (FOMC decision and GDP amongst others).

As we keep an eye on the evoluation of rate speculation, it will also be important to monitor risk trends. While extreme risk aversion would eventually buoy the USD, the aspect of its meteroric rise based in growth and interest rate expectaitons can be tripped up in initial phases of a speculative retreat.

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Fundamental Forecast for Yen: Neutral

• The Weekly Volume Report: Dollar Trying To Turn?
• Build in US Dollar Buying Points to USDJPY Declines

Attachment 12877

The fundamental event risks lined up for the final full-week of April may heighten the appeal of the Yen and spark a further decline in USD/JPY as the Japanese economy gets on a firmer footing.

With Japan expected to post a trade surplus for the first time since June 2012, prospects for a stronger recovery in 2015 may encourage the Bank of Japan (BoJ) to retain a wait-and-see approach at the April 30 interest rate decision as Governor Haruhiko Kuroda remains confident in achieving the 2% inflation target over the policy horizon. In turn, Japanese officials may continue scale back their verbal intervention on the local currency, and the bearish sentiment surrounding the Yen may continue to diminish over the near to medium-term as the central bank turns increasingly upbeat on the economy.

In contrast, the recent weakness in the U.S. may further dent expectations for a Fed rate hike in June, and another series of weaker-than-expected data prints may spark a larger correction in the greenback as interest rate expectations get pushed back. Despite expectations for a 0.6% rebound in U.S. Durable Goods, it seems as though lower energy prices are failing to drive private-sector consumption amid the ongoing weakness in retail spending, and another unexpected decline in demand for large-ticket items may trigger a larger correction in the greenback as it drags on the outlook for growth and inflation. In turn, we may see a growing number of Fed officials show a greater willingness to retain the zero-interest rate policy beyond mid-2015 at the April 29 meeting.

With that said, the improving terms of trade for Japan paired with the ongoing slack in the U.S. economy may prompt a further decline in USD/JPY, and the pair may continue to give back the rebound from March (118.32) amid the shift in the policy outlook.

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Fundamental Forecast for British Pound: Bullish

• Aggressive shift in forex crowd sentiment favors further British Pound strength
• A sharp build in volumes suggests GBP reactions near $1.5150 may prove pivotal

Attachment 12878

Impressive UK employment data helped push the British Pound sharply higher versus the US Dollar and other major counterparts, and the recent reversal in fortunes leaves us in favor of continued GBP gains through the foreseeable future.

The FX market is a question of relative performance, and the fact that US economic data and interest rate expectations have been notably better than their UK equivalents helps explain why the British Pound/US Dollar exchange rate recently fell to five-year lows. Yet things have turned for the US currency as a recent tumble in domestic yields have left it at a lesser advantage versus the British Pound and others. The difference between UK and US 2-year government bond yields now stands near its smallest since November, 2014, and the GBP/USD exchange rate has moved higher in kind.

Traders will look to upcoming Bank of England Monetary Policy Committee minutes to drive moves in UK interest rates, while a relatively empty US economic calendar suggests broader market volatility may slow through the coming week. The key question is whether recent improvements in UK economic data will be enough to force the Bank of England into action sooner than currently expected.

Headline UK Consumer Price Index inflation printed at exactly 0.0 percent through March—well-below the BoE target of 2.0 percent. This fact in itself suggests the central bank will be in no rush to raise rates through the foreseeable future. And yet recent employment numbers show domestic unemployment has fallen to seven-year lows, while broader consumption and economic activity data points to strong growth through 2015. All else remaining equal, the improvement in the data should have been enough to send the British Pound even higher.

The critical point remains that political uncertainty surrounding UK elections on May 7 have hurt the British Pound against major counterparts. Derivatives markets show that GBP/USD volatility prices/expectations trade near multi-year highs given clear indecision in UK electoral poll figures. Ultimately, however, fears over post-election political disarray may be overdone. And indeed further improvements in economic data and interest rate expectations could fuel a larger British Pound recovery versus the US Dollar and other major FX counterparts.

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Fundamental Forecast for Australian Dollar: Neutral

• Australian Dollar Looks to Core CPI Data to Drive RBA Policy Speculation
• Soft Chinese PMI Figures May Cap Aussie Gains Amid Spillover Concerns

Attachment 12879

The Australian Dollar is on pace to produce the first series of back-to-back weekly gains in three months. The currency shrugged off losses sustained early in the week on the back of disappointing Chinese trade figures following an impressively strong March jobs report. The decidedly upbeat outcome weighed against RBA interest rate cut speculation. Traders now price in a 58 percent probability of a 25bps cut at next month’s central bank policy meeting, down from 78 percent at the start of the week.

Looking ahead, first-quarter CPI figures will continue to inform investors’ RBA outlook. The benchmark year-on-year inflation rate is expected to decline to 1.3 percent, the lowest in almost three years. As with many of its G10 counterparts however, the RBA has been reluctant to fight short-term price growth weakness. Policymakers have argued that downside pressure will dissipate with rebasing as the impact of last year’s sharp drop in energy costs is unwound, leaving medium-term trends targeted by central banks intact.

With that in mind, traders will probably focus on the “trimmed mean” CPI measure, a metric that aims to strip out up- and down-side price growth volatility extremes to get at the core inflation trend. This is expected to hold at 2.2 percent, unchanged from the fourth quarter. That would mark a break from disinflation seen in the second half of 2014, which may further reinforce perceptions that the RBA is in no hurry to top up stimulus and boost the Australian unit.

Chinese news-flow represents another significant inflection point. The Aussie overlooked dismal industrial production figures from the East Asian giant last week, with the release seemingly overshadowed by a concurrently published first-quarter GDP report that printed in line with forecasts. The week ahead will bring a timelier measure of the business cycle in Australia’s top export market via the flash estimate of April’s HSBC Manufacturing PMI measure. Accelerated contraction in factory-sector activity is expected, which may cap the Aussie’s upside potential.

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Fundamental Forecast for Gold: Neutral

• Gold In No-Man’s Land
• Gold Attempts a Recovery, SPX 500 Eyeing February Peak

Attachment 12885

Gold prices are softer for a second consecutive week with the precious metal off nearly 0.27% to trade at $1204 ahead of the New York close on Friday. Price action has been uninspiring over the past few sessions despite broader volatility in equity markets, with S&P posting its largest single-day decline since March 25th.

The March US Consumer Price Index (CPI) released on Friday was mixed with the headline year-on-year print showing a contraction of 0.1% while the core rate increased from 1.7& to 1.8% y/y. The data offered little assistance to the battered greenback with the dollar trading heavier against all of its major counterparts heading into the close of the week. Gold looks to close the week within the initial weekly opening range with prices continuing to contract after failing to breach above the March highs earlier in the month.

Economic data will be light next week with US Durable Goods Orders on Friday highlighting the docket. Aside from the ongoing political uncertainty in Europe, traders will be closely eyeing the greenback with the Dow Jones FXCM U.S. Dollar Index (Tickers:USDOLLAR) now at risk for a correction lower after breaking below multi-month slope support. The broader picture for gold remains bearish as expectations for a Fed interest rate hike this year continue to weigh on demand for non-yielding assets. However, the Fed now runs the risk of further delaying its first interest rate hike in nearly a decade as growing geopolitical concerns, strength in the dollar and soft inflation continue to limit the central bank’s scope to begin the normalization cycle. As such gold may continue to see a reprieve with the momentum profile suggesting more upside may be on the cards before the resumption of the broader down trend.

From a technical standpoint, the near-term outlook remains clouded as the monthly range continues to compress. Key support rests at 1173/77 and we will reserve this threshold as our medium-term bullish invalidation level. Interim resistance is eyed at 1214 (April high day close) backed by the 50% retracement of the 2014 range / 200-day moving average at 1225/29. Key resistance stands at 1245/48 with a breach above targeting objectives into 1300. That said, we’ll be looking for a break of the monthly opening range to validate our near-term bias with the broader outlook weighted to the topside while above 1173.

the source

Attachment 12910

The EUR/USD soared to a near term high at 1.0808 after the release of inflation data and strong comments from Mario Draghi on Thursday. USD outlook has become more balanced which is likely to drive near‐term USD weakness but over the medium term the USD should still be supported. The DXY USD index is flirting with a break below its 50‐day MA, a level it hasn’t traded through since July, accordingly technically the USD index is shifting and a close below here today would be important. The fundamental side has likely caught up to the data surprises, which have continued to be disappointing for the US.

The euro is stronger, having rallied back above 1.08 and moving towards its 50‐day MA. Fundamental data was essentially as expected with inflation in line with the flash estimate. Greece continues to be a core focus, with April 24th’s Euro‐Area meetings particularly important. German and French yields continue to fall, driving an increased focus on the risks around bond scarcity for the ECB QE program.

Attachment 12911

Data released this week showed the Eurozone is fighting its way out of deflation, as prices rose for the second month straight, easing fears it could enter into a prolonged period of price falls. The single currency area’s annual inflation rate rose to -0.1 per cent in March, up from -0.3 per cent a month earlier, according to its official statistics agency. This was in line with analysts’ expectations.

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GBP/JPY dropped to as low as 174.85 last week but couldn't sustain below 175.49 support and recovered. Initial bias is turned neutral first. Near term outlook will stay bearish as long as 179.28 resistance holds. Below 174.86 will extend the fall fro 189.70 and target 168.10 key support level. However,decisive break of 179.28 will indicate near term reversal and will turn bias to back to the upside for 184.99 resistance instead.

Attachment 12914

In the bigger picture, the up trend from 116.83 lost much medium term momentum with bearish divergence condition seen in weekly MACD. Medium term top could be around the corner, if not formed. Break of 168.01 support will confirm this bearish case and bring deeper correction. Though, as long as 168.01 holds, the up trend could still extend to 61.8% retracement of 251.09 to 116.83 at 199.80, which is close to 200 psychological level.

Attachment 12915

Attachment 12916

Attachment 12917

In the longer term picture, the up trend from 116.83 long term bottom is still in progress. Current rise could likely at lease have a test on 61.8% retracement of 251.09 to 116.83 at 199.80 in medium term. Break of 168.01 will bring deeper correction first.

the source

Great Thanks 1Finance for in-detailed review.

Regards,
Jag

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.

Attachment 12925

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

Attachment 12938

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.

Attachment 12956

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.

Attachment 12979

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.

Attachment 12979

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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.

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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.

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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.

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