The Asia-Pacific session saw the eagerly awaited Consumer Price Index from Australia, which missed estimates across all figures by a wide margin. Trimmed Mean CPI printed at 1.7% y/y for Q1, below the 2.0% expected. For the quarter, Trimmed Mean CPI rose only 0.2% versus expectations of 0.5%. Headline CPI printed 1.3% y/y versus expectation of 1.8%. As discussed earlier in the week, this data plays directly into the RBA's monetary policy decisions and this miss has greatly increased chances of an RBA cut at the May 3 meeting, with probabilities jumping to nearly 50% after the release, from close to 10% prior. The last 10 months of RBA statements have clearly outlined the preparedness of the RBA to cut rates if inflation dips. This is why the AUD has been hit very hard across the board post release, with Aussie down 140 pips and remaining near lows. The AUD will likely remain pressured heading into the May 3 meeting.
USDJPY has pulled back 40 pips from NY session highs during Asian trade, with no fundamental data. For those still holding the long USDJPY trade call from last Friday, the risk to the trade will come from the Fed later in the NY session, where a dovish Fed could prompt a manual close or a locking in of profits ahead of the statement release. The trade is in about 100 pips of profit.
Ahead we have Preliminary Q1 GDP from the UK, which could see a move in sterling if we get a deviation.
Our trade call for the Asia-Pacific session, as outlined in the NY session update, was to trade AUDUSD on a deviation on Trimmed Mean CPI, in either direction. As we saw a large negative deviation, a sell stop entry would have been triggered on the downside and would currently be in 110 pips of profit, assuming entry approximately 25 pips below pre-announcement price. A manual entry would be in slightly less profit, having missed the initial drop. Partial profit could be taken at current levels or the position could be held for upcoming support at the 0.70 handle. The risk to the position is a dovish Fed later during the NY session.
Our trade call for the London session is to trade a deviation on UK GDP. Growth is expected at 0.4% for the quarter, with a high of 0.5% and a low of 0.3%. Given yesterday's Brexit poll showing a lead for the 'leave' camp, a negative deviation would provide a better trade.
*New updates to the fundamental section will be left in bold for 24 hours*
USD: CPI for March slightly missed estimates with Core dropping to 2.2% y/y from a prior of 2.3% and for the month, missing estimates at 0.1% versus 0.2% expected. Headline inflation also dropped from prior and missed estimates at 0.9% y/y. Employment figures for March were solid with 215,000 jobs added, a rise of 0.3% in Average Hourly Earnings, and an increase in Participation Rate to 63.0%. Yellen's speech on March 29 was dovish; she stressed caution in raising rates in the context of global risks and lower inflation expectations, this followed a dovish FOMC Statement the week prior.
EUR: A bearish currency fundamentally, however currently trading neutral following upside from Draghi's comments at the March meeting. CPI for March came in as expected for the headline at -0.1% y/y, but beat estimates for the core figure at 1.0% vs expectations of 0.9% and prior of 0.8%. On March 10, the ECB cut all three key interest rates and an increased QE by €20bn per month.
GBP: Fundamentally a slightly bullish currency, however Brexit concerns continued to provide negative sentiment. Average Weekly Earnings for February increased by 1.8%, below expectations of 2.3%, Claimant Count Change also missed expectations, increasing by 6,700 vs an expected decrease of 11,300. For the month of March, Core CPI m/m printed at 0.6%, double the expected 0.3%, and core y/y printed at 1.5% above expectations of 1.3%. Headline CPI also beat market expectations at 0.4% m/m and 0.5% y/y.
AUD: CPI for Q1 missed by a wide margin with Trimmed Mean CPI printing at 1.7% y/y, below expectation of 2.0%. This is well below the RBA's 2% target for inflation and hence greatly increases the chances of a cut at the May 3 meeting. This makes the AUD a bearish currency for now. Employment data for March beat estimates at 26.1K vs expected 18.0K for the Employment Change, whilst the Unemployment rate fell to 5.7% vs expectations of 5.9%.
NZD: Fundamentally a weak currency given the RBNZ's easing bias, however currently seeing upside for the same reasons as the AUD. CPI for Q1 slightly beat estimates at 0.2% q/q versus expectations of 0.1%. Year-over-year CPI matched estimates at 0.4%, well below the RBNZ's target mid-point of 2%. Excluding petrol prices, CPI rose 0.7% y/y.
CAD: A neutral to weakly-bullish currency, with sentiment in lock-step with WTI. Core CPI for the month of March rose 0.7% versus an expectation of 0.3%. This puts year-over-year core inflation at 2.1%. Retail Sales Excluding Automobiles rose 0.2% for February, well above the expected half-percent decline. Solid data from Canada during April has erased any expectation of easing this year, for now.
JPY: Fundamentally a weak currency with chances of further easing. Tokyo CPI Ex-Food & Energy for March was at 0.6% y/y, above expectations of 0.5%. The monthly rise was 0.5%. Nationwide CPI Ex-Food & Energy for February rose 0.8% y/y, above expectations of 0.6%. The BoJ measure remained steady at 1.1% y/y. Daily movements in yen are largely a function of risk sentiment.
CHF: Fundamentally a weak currency, highly correlated with moves in EUR. The franc is fundamentally a weak currency given the SNB's negative interest rates, however it can suddenly rally on safe-haven flows. The SNB regularly recite that the franc is overvalued and they are prepared to intervene to weaken the currency. The franc's direction is difficult to predict due to regular intervention by the SNB.
We will be monitoring levels of support and resistance in unison with any impactful news and the underlying fundamentals in order to find a high probability trade. Support and resistance includes previous highs and lows (horizontal s/r), trendlines, moving averages, fibonacci retracements, daily pivot levels and round numbers. These levels of support and resistance are most effective when there are several of them converging at the same area (confluence).