- JPY appreciated against all G10, especially GBP, 0.31%
- USD/JPY slipped 0.30%, to 107.85, despite warnings from officials that abrupt movements are undesirable
- We expect USD/JPY to continue slipping with no imminent Fed rate hike on the horizon and as confidence in the BoJ’s ability to stop the yen’s rise continues to dwindle
- EUR/USD held ground at around 1.14 as US treasury yields remained under pressure. Overall, the US yield curve has flattened compared to a month ago as growth and inflation prospect remain weak.
- China: Overall, the trend in inflation remains positive in reaction to several rounds of policy easing
- China’s March’s PPI contracted 4.3%y/y, above median forecast of -4.6% and the previous month’s reading of -4.9%. On a month-over-month basis, the index rose 0.5%. After contracting for more than 2 years, this may suggest that the worst is behind us.
- China: Investors continue to evaluate the probability of a deeper slowing in the Chinese economy making the scope of economic releases this week significant
- USD: Tuesday brings a steady lineup of hawkish Fed speakers which will likely drive USD higher.
- We anticipate that the effect will be a range-bound EURUSD, reversing the bullish trend and targeting 1.1335 range floor
The Japanese yen was buoyed during the Asian session, appreciating against all G10 currencies. The JPY strengthened the most against the GBP, rising 0.31%. USD/JPY slipped 0.30%, to 107.85, despite warnings from officials that abrupt movements are undesirable. Overnight, the pair tested the 107.67 support from April 7. On the downside, the main support lies at 105.23 (low from October 2014), while on the upside a resistance can be found at 114.87 (high from February 16th). Overall, we expect the pair to continue sliding as markets remain doubtful that the Fed will be able to hike rates any time soon while losing confidence in the BoJ’s ability to stop the yen’s rise.
EUR/USD held ground at around 1.14 as US treasury yields remained under pressure. The monetary policy 2-year yields stayed below the 0.70% threshold, after falling more than 30bps since mid-March. The 5-year yields were also under pressure, trading at around 1.15%. Overall, the US yield curve has flattened compared to a month ago as growth and inflation prospect remain weak.
In China, March’s CPI came in below expectations, printing at 2.3%y/y, unchanged from last month but below the market’s expectation of 2.4%. Upon closer investigation, food prices jumped 7.6% while non-food components rose 1%. Overall, the trend in inflation remains positive in reaction to several rounds of policy easing. Finally, March’s PPI contracted 4.3%y/y, above median forecast of -4.6% and the previous month’s reading of -4.9%. On a month-over-month basis, the producer-price index rose 0.5%, after contracting for more than 2 years, suggesting that the worst is behind us. The People’s bank of China set yuan fixing .13% lower to 6.4649 USD/CNY.
Peter Rosenstreich, head of market strategy, Swissquote is watching for a USD reversal: “The USD pattern of weakness continues this week against Asian regional currencies. US 10-year yields have struggled to extend bullish momentum above 1.71% and are looking to retrace back to 1.65% levels. A decline in yields should prompt additional selling pressure on USD. However, IMM data indicates that notional long USD positions are small and well off the November 2015 peak, suggesting that there is room for a fundamental based reversal. Investors continue to evaluate the probability of a deeper slowing in the Chinese economy making the scope of economic releases this week significant. The pace of Chinese CPI slowed more than expected after a solid four month strengthening trend. March CPI fell -0.4% vs. -0.3% m/m exp, 2.3% vs. 2.5% y/y expected indicating that deflationary pressures remain dominant. This prompted Ambrose Evans-Pritchard of the Daily Telegraph to suggest that Beijing risks 'ERM-style' currency crisis as deflation persists in China. Investors will carefully monitor Thursday’s Q1 GDP for direction in risk appetite.
In the US, Tuesday brings a steady lineup of hawkish Fed speakers which will likely drive USD higher. Judging from the recent effects of Fed speeches on market sentiment comments from Harker, Williams and Lacker could easily shift the USD direction by increasing expectations for a June rate hike. San Francisco Fed President Williams’s address will likely be the most important fed communication this week. The hawkish subdivision of the Fed is looking for leadership and Williams is likely to pick up the mantle. Yet not to be outdone Richmond Fed President Lacker remains one of the most hawkish FOMC members and is likely to provide comments critical concerning Chair Yellen (from an inflation fighting and leadership perspective). We anticipate that EURUSD will be range-bound, reversing the bullish trend and targeting 1.1335 range floor.” -----
The Australian dollar was treading water between 0.7525 and 0.7580 and was unable to take advantage of the recovery in commodity prices as traders wonder whether there is still some upside potential from the rally, which started in early 2016. Gold is up 0.86%, silver soared 0.70%, while iron ore future contracted for delivery in September on the Dalian commodity exchange rose 3.73%.
In the equity market, mainland Chinese shares were trading in positive territory after the solid inflation figures. The Shanghai Composite was up 1.68% and the Shenzhen Composite rose 1.95%. In Hong Kong, the Hang Sang was up 0.31%. On the other hand, Japanese equities bore the cost of the yen’s strength, with the Nikkei 225 falling 0.44% and the Topix index sliding 0.61%. Elsewhere, equity returns were mixed. In Europe, equity futures are blinking red on the screen.
Today traders will be watching CPI from Denmark and Norway; current account balance from Turkey; total sight deposits from Switzerland; industrial production from Italy; trade balance from Russia.