The Asia-Pacific session was again very light on economic data. Japanese Flash Manufacturing PMI missed estimates at 48, however the Tertiary Industry Activity Index slightly beat expectations at -0.1%. Both data points are very low impact.
The yen weakened suddenly in recent trade as reports emerge that the BoJ are considering negative rates for its lending program for financial institutions. USDJPY rallied nearly 85 pips in 15 minutes to pop above the 110 handle. Yen pairs are likely to be supported heading into next week's BoJ meeting.
Our trade call is to buy USDJPY with a stop below the lows at 107.65 and hold the position into next week's key risk events from the Fed and BoJ. Before entering, traders must accept the risk of holding a short JPY position over the weekend, where any unexpected major risk-off event could see yen pairs gap lower on Monday.
*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: 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%. The RBA statement released April 5 did not add much new information to the AUD story; the currency remains neutral as the RBA remains on hold and are prepared to ease further if necessary.
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 currency with sentiment in lock-step with WTI. March Unemployment fell to 7.1% from February's 7.3%.
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).