EUR Trading Outlook
EUR/USD The correction off the post-FOMC high continued through Europe & NY trading. Bears pressed EUR/USD below the 200-HMA before a bounce towards 1.0740 took hold into NY's open. The rally was sold though as the USD's recovery proceeded and US bond yields put in substantial gains. Solid bids in the 1.0640/50 zone were filled and the 200-HMA was cleared. EUR/USD shrugged off the rise in EUR/GBP from near 0.7155 towards 0.7235 and HSBC's upping of its end-2016 EUR/USD f/c to 1.10 from 1.05 and continued to slide a bit further. The pre-Fed lows were tested and little bounce was seen. Late in the day the pair sat just above 1.0620. After such a harsh session on March 18, traders now contemplate their next move and look for cues for direction. There is little major data on Friday to dictate any more in either EUR or the USD so it's possible the market holds to a tight range until next week.
USD/JPY The recovery from the post FOMC USD bloodbath got USD/JPY back to 61.8% of the 122.04-119.29 slide by 121 in NorAm trading. There are also USD3.6bln of expiries there Friday. It took most of the NY session, but offers at 121 were finally breached as the majority of Wed's Tsy yield dive was recovered. The next hurdle is the 200-HMA by 121.25 last. It was broken below Wed for the first time since Feb 26, adding to a host of other technical breakdowns that day. Japanese demand for foreign stocks and bonds, mostly US, remains strong, the weekly MOF flow data show, and all else being equal, should limit USD/JPY downside. Wed's 119.29 low was a fleeting breach of the weekly on-close pivot pt & weekly Tenkan at 119.38/34; making them key weekly on-close props. Minutes from the BOJ's Feb meeting are out tonight, but are unlikely to inform beyond what this week's meeting provided. Little US data until next week to charge the Fed debate. More offers at 120.45-65 and into 122.00/04, w stops above the latter peak. EUR/JPY's Wed spike toward the Kijun & 50% of the Feb-Mar slide was erased today. GBP/JPY again flirting w a sub 200-DMA close.
EUR/USD Activity in early NY was limited. The market ignored an early widening of DE-US yield spread and broad based USD weakness as EUR/USD lingered near the 1.0600 area. Late in Europe's morning a large swoon in the USD finally saw EUR/USD come to lift. Short covering brought the pair above the 200-HMA and it hit 1.0670 before pulling back a bit into the Fed. Upon the Fed announcement the pair saw algos whip the pair into a frenzy. A quick dip to 1.0615 reversed in an instant as the message had a dovish lean to it even after 'patient' was removed. EUR/USD then spiked near 1.0740 before dipping near 1.0660. Short covering saw that dip bought and the pair went on to test 1.0800 with subsequent dips from there bought as well as shorts scramble to cover. Bulls remained in control late in the day as the pair broke to new highs and had the 1.0825/55 resistance zone in their sights. The short squeeze may have legs still. Daily RSI has turned from deeply o/s territory and yield spreads have tightened. A break above 1.0855 opens the door to 1.0905/10. If that is cleared there is little resistance until the 1.1035/75 zone.
USD/JPY Importer and spec range-trading bids in the 121.00-10 range were chewed through before the London close, triggering an initial round of sell stops that were followed by more pronounced selling after the FOMC statement & SEPS were released. The daily Tenkan line at 120.97, the Mar 12 pullback low at 120.66 and the 38.2% of the 118.11-122.04 rise at 120.54 were broken below. Yellen's presser helped to stabilize prices, but US interest rates have tumbled, particularly toward the front of the curve and this remains a weight on USD/JPY prices. Key support is at 120.07 from the daily Kijun & 50% of the 118.11-122.04 rise. O/B bearish divergence on weekly charts and a broadly o/b USD are clearly near-term headwinds, though a sustained setback would raise expectations of the BOJ doing QQE3 sooner than the current Oct f/c. EUR/JPY is also working off o/s daily and weekly conditions, today clearing Mar 11 high at 129.95 by the 61.8% of the 131.87-126.92 slide. The broader 50% retracement of the Feb-Mar slide at 131.80 and the daily Kijun there are in the realm, despite lingering concerns regarding Grexit and the pace and effectiveness of ECB QE.
EUR/USD Short covering in Europe had EUR/USD test above 1.0620. A brief dip just before NY's open was bought though and the pair was firm as NY got going. The USD softened a bit on weak housing data and EUR/USD's lift progressed. CTA & reserve manager buying saw the pair take out stops at 1.0625 and 1.0640. The pair hit 1.0651 where it ran into a wall of HF selling. The USD regained its footings and lifted off the lows. EUR/USD slid from the day's high & sat just below 1.0600 late in the day. Traders now focus on the Fed's meeting. the word 'patient' is expected to be removed from the Fed's language. Should they follow through on expectations it's likely EUR/USD will trade heavy as the market will expect rate hikes are surely coming. We might then see EUR/USD break the March 16 low and try to crack the touted 1.0450 barrier..
USD/JPY Reluctance to guess what the Fed will do at Wed's meeting left USD/JPY in a tight range again above 121 importer, spec & pension bids and below last Thur's 121.67 high. Despite a Ldn A.M. pullback in USD-JPY 2-yr yields and N225 futures, USD/JPY found bidders into the 200-HMA by the 121.11 session low. US Housing Starts missed badly, but Permits beat to take some of the sting out of the weather-skewed report; one of many of late. The FOMC is seen removing "patience" from their statement Wed, but also perhaps highlighting "international" risks and the need for data to confirm a rate hike later this year is warranted. The BOJ are seen on hold until Oct, by which time even fudged BOJ CPI f/cs will look too incredible w/o another dose of QQE to goose prices. Weekly USD/JPY techs are a bit top-heavy and this month's high is close to the down TL off the '90-'98 peaks, not to mention the '07 pre-GFC peak at 124.14. GPIF & Trade flows remain supportive, but more of the burden is falling on the Fed now. Shunto results are due out Wed & probably will not quell doubts about the virtuous reflation cycle Abenomics is supposed to bring. Japan Trade data tonight.
EUR/USD Short covering in Europe had the pair test near 1.0650 before pulling back below 1.0600 into NY's open. NY bid the pair up early as shorts bought the dip. The lift got an added boost after US retail sales missed big and prior sales data results saw downward revisions. US bond yields fell and the USD saw a broad based spike down. EUR/USD quickly hit a 1.0684 high but the gains didn't last long. Solid offering interest in the 1.0685/00 zone and talk of sovereign selling saw the pair quickly slip below pre-retail sales levels. The slide deepened in NY's afternoon as bond yields clawed back some losses after a disappointing US 30 year bond auction. EUR/USD slipped just below 1.0600 and lingered nearby heading into the close. There is little major data from either the EZ or US tomorrow so action might remain choppy or be driven by positioning. With the market still well short EUR we might see bears get squeezed further into the weekend and ahead of the Fed next Wednesday.
USD/JPY A broadening divergence between falling USD-JPY 2-yr ylds spreads and rising N225 prices (15-yr hi today) left USD/JPY in a tight daily range inside Thur's, with little net change as we head toward the close. Another round of weak US data, PPI & U of M, kept Tsy yields under wraps, but there was also some risk-off buying of Tsys amid exits from stocks, commodities and higher-beta ccys. The latter boosted the haven yen v the tumbling EUR, as well as commodity/EM currencies. USD/JPY is a tad technically top-heavy on daily charts, but the big action is in the crosses. EUR/JPY is closing the week below several L-T supports in the 127-128 range, with little support until the Jun '13 swing low at 124.94. 38.2% of the '12-'14 uptrend at 128.52 is done and dusted. The 50% retrace of same is at 121.95. GBP/JPY's got little support until this year's 175.45 low. AUD/JPY is being yanked back down toward the Feb-Mar uptrend's 50% Fibo at 91.76 by Wed's 91.75 low. All eyes are now on the FOMC next week to see if "patience' can be removed as US data & inflation cool amid rising financial mkt angst. BOJ meets, but are seen on hold.
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