FTSE -6 points at 7108
DAX -22 points at 11994
CAC -5 points at 4998
Euro Stoxx -7 points at 3413
The US dollar swung higher again, as Federal Reserve’s (Fed) Rosengren said that the Fed should start shrinking its balance sheet ‘earlier’, yet gradually and without interfering with the rate normalization process.
The impact on the US yields have been limited so far, the US 10-year yields sit on the 2.20% support, while the probability of a June rate hike remained below 50% (currently at 47%).
The greenback failed to extend gains in Asia.
The US Secretary of Treasury Mnuchin is due to speak today. Last week, Mnuchin walked against Donald Trump’s view on the ‘US dollar getting too strong’, stated that the strong US dollar is good in the long-term and warned that Donald Trump’s ‘phenomenal’ fiscal expansion plans could be ‘unrealistic’. Hence, his speech could halt the weakness in the US dollar.
In Japan, the trade surplus shrank to 614.7 billion yen in March from 813.4 billion printed a month earlier, slightly better than 608.0 billion expected by analysts. Numbers told us that nearly 5% appreciation in yen against the US dollar didn’t affect the Japanese exports, which unexpectedly advanced from 11.3% to 12.0% (vs. 6.2% expected) in March. However, the surge in imports from 1.2% to 15.8% erased 216.7 billion yen off the trade terms.
The deterioration in the global risk appetite also held Japanese investors back from investing in foreign assets. Japanese sold 796.2 billion yen of bonds and 231.7 billion yen of stocks on the week to April 14th. Despite the stronger yen and lower rates, foreign investors bought 410.5 billion yen worth of Japanese bonds and 415.2 billion yen worth of Japanese stocks.
Although the current cash flows and the soft US yields are not in favour of a significantly softer yen against the US dollar, the USD/JPY tested the 109.00-offers in Tokyo. Nikkei (+0.43%) and Topix (+0.58%) were better bid as well, on softer yen and the encouraging trade data. Still, solid USD/JPY resistance is eyed pre-110.00 mark.
ASX 200 (+0.28%) gained after three consecutive sessions of losses. The AUD/USD rebounded from 0.7490. The negative trend and momentum indicators suggest that the pair could extend losses to 0.7454 (50% level on December – March rise). Tata steel, one of India’s leading steelmakers, stated that the sharp fall in iron prices have in fact brought the market to a ‘more realistic’ long-term range of $60 - $70 a ton.
In the UK, the MPs voted 522 to 13 to approve the snap general election that will take place on June 8th. According to YouGov/Times poll, the UK conservatives would comfortably lead the election by 48%, versus 24% for the opposing Labour Party. Given that a stronger support for Theresa May is interpreted as an eventually ‘softer Brexit’, the early polls are supportive of the GBP-bulls.
The Bank of England (BoE) Governor Mark Carney is due to speak in Washington later in the day. He is not expected to comment on the latest political developments, yet if he does, he could give a shake to the pound before Friday’s retail sales data. Given that a smoother Brexit would have a lighter impact on the UK’s economy, the BoE could be in a position to concentrate on the UK’s rising inflation sooner rather than later. The latter reasoning would be GBP-positive.
Although the GBP/USD is correcting on the downside, partially due to the swinging mood in the USD, it could be just a matter of time before the GBP/USD challenges the 1.30 mark. The next critical target stands at 1.3043, the major 38.2% retrace on post-Brexit sell-off, if surpassed, would suggest a mid-term bullish reversal for the pound. Support to the actual positive trend is eyed at 1.2717 and 1.2600 (minor 23.6% and major 38.2% retrace on March – April surge).
Sharp appreciation in the pound has taken its toll on the FTSE stocks. The FTSE 100 closed at the session low of 7114.36p yesterday and is expected to open slightly softer in London. The 100-day moving average (7200p) has been broken for the first time since December. The next key support is eyed at 7088p (major 38.2% retracement). Below this level, the mid-term trend should reverse to bearish and the negative reversal could encourage a further slide to the 7000p mark.
Finally, the stronger bearish momentum in the EUR/GBP suggest that the cross could test the 0.8232 (major 61.8% retracement on post-Brexit surge) on the downside. Whether the move could extend toward the 0.80 mark will depend on the first tour of the French election due on April 23rd. A renewed euro appetite on Monday could compromise a further advance to 0.80 in the short-term.
Please click here to read our French Election Special Report.
Quick glance at technicals on LCG Trader:
GBP/USD intraday: caution. Short positions below 1.2810 (pivot) with targets at 1.2765 and 1.2735 in extension. Above 1.2810, upside potential to 1.2860 and 1.2905
GBP/JPY intraday: continuation of the rebound. Long positions above 138.85 with targets at 139.75 and 140.15 in extension. Below 138.85, downside potential to 138.35 and 137.80, The RSI shows upside momentum.
Dow Jones intraday: downside prevails. Short positions below 20380.00 (pivot) wit targets at 20280.00 and 20250.00 in extension. Above 20380.00, upside potential to 20415.00 and 20455.00. The RSI shows downside momentum.