Friday ended last week’s trading with an interesting twist as JPY crosses pulled sharply back higher, creating a number of bullish reversal patterns, though unfortunately still within recent ranges in most of the key JPY crosses. Fifteenth reminder that today is the last day of the quarter and the last day of the Japanese financial year. We have clear ranges in place in the most important USDJPY pair, meaning that we can start the year with a clean slate and follow the break-outs as they develop. Again, we formerly had a bearish pattern set-up in USDJPY, but as the pair never followed through lower, the long period of range trading neutralised that bearish development and the chart is far more neutral. Weak Japanese data overnight is raising the odds of more policy impulses from the Bank of Japan/Japanese government sooner rather than later.
Looking ahead
We’ve got a good set-up of data points today for this week’s European Central Bank meeting in the form of the latest Eurozone CPI estimate. The euro didn’t follow through lower after a brief sell-off on the release of a lower-than-expected Spanish CPI reading on Friday, but it is clear we can’t ignore weaker inflation data in the Eurozone as this is the most obvious trigger for ECB policy easing. The ECB’s/Bundesbank’s Jens Weidman was out strongly challenging the risks of deflation, suggesting that most of the low inflation measures were from weak food and energy prices.
Still, despite recent ECB rhetoric around the edges pointing toward an aggressive policy response if inflation measures deteriorate further, Mario Draghi’s overall sanguine comments suggest to me that an actual ECB move lies at least another meeting or two beyond this week’s meeting. In the EURUSD equation, this suggests to me that it is strong US data that needs to do the heavy lifting if we are to see EURUSD follow through lower in the near term.
Chart: EURUSD
EURUSD tried to reverse on Friday after breaking 1.3750 support, but didn’t quite manage a convincing bounce so we remain in limbo ahead of the onslaught of event risks this week, which will likely either drive it to 1.3900 or 1.3600 or lower, depending on the strength of the US data and ECB guidance. The last five ECB meeting days are highlighted. Every single one of them has been the start of a rally — even after the November meeting’s surprise cut — which saw a knee-jerk sell-off that yielded to a long rally sequence.
In North American hours today, we have Canada’s January GDP and the US March Chicago PMI. Janet Yellen is also out speaking. Other “highlights of the highlights” this week – consult the financial calendar for a comprehensive list:
Tuesday
- Japan (tonight) – quarterly Tankan surveys – very interesting, but not very timely…why haven’t they made these monthly?
- RBA (tonight) – the RBA is clearly happy with its interest rate policy but still not entirely happy with the current exchange rate. No strong expectations, though I would look for an AUDUSD pivot this week back to the downside, or at least show signs of reversing.
- UK Mar. Manufacturing PMI – important to keep EURGBP on the defensive
- US Mar. ISM Manufacturing – market looking for a strong bounce and the US dollar needs it.
Wednesday
- US Mar. ADP payrolls – good luck with a takeaway from this one.
Thursday
- ECB – Draghi may be more careful to not appear too sanguine/complacent at this meeting relative to the last one, otherwise few expectations unless we get a huge negative surprise in inflation reading today.
- US Mar. ISM Non-manufacturing – this is the one I am most interested in after the weak Feb. reading that established a clear falling trend.
Friday
- US Mar. Non-farm payrolls and unemployment rate – consensus looking for just under plus 200,000 and a dip back to 6.6% percent on the rate.
Economic data highlights
- New Zealand Feb. Building Permits out at -1.7% MoM vs. +2.0% expected
- Japan Mar. Markit/JMMA Manufacturing PMI out at 53.9 vs. 55.5 in Feb.
- Japan Feb. Preliminary Industrial Production out at -2.3% MoM and +6.9% YoY vs. +0.3%/+9.9% expected, respectively, and vs. +10.3% YoY in Jan.
- New Zealand Mar. ANZ Activity Outlook/Business Confidence out at 58.2/67.3 vs. 58.5/70.8 in Feb.
Upcoming Economic Calendar Highlights (all times GMT)
- Norway Feb. Retail Sales (0800)
- UK Feb. Mortgage Approvals (0830)
- Eurozone Mar. CPI Estimate (0900)
- Canada Jan. GDP (1230)
- UK Bank of England’s Bailey to Speak (1310)
- US Mar. Chicago PMI (1345)
- US Fed’s Yellen to Speak (1355)
- Australia Mar. AiG Performance of Manufacturing Index (2230)
- Japan Q1 Tankan Surveys (2350)
- China Mar. Final HSBC China Manufacturing PMI (0145)
- Australia RBA Cash Target (0330)