Summary: Upbeat Chinese exports, a less-than-expected fall in Eurozone Industrial Production, and solid US earnings boosted risk assets and weighed on the US Dollar. The Euro extended its rise to close above 1.13 (1.1303), near 3-week highs. Traders attributed part of the Euro’s climb to anticipated currency demand due to a large commercial EUR/JPY purchase. Reuters reported that Japan’s Mitsubishi UFJ Financial Group plans to purchase the aviation financing arm of Germany’s DZ Bank, according to FX traders. The Australian Dollar outperformed, jumping 0.62% to 0.7172, its highest finish since February 27. China’s trade data showed a rebound in exports last month which offset weaker imports. USD/JPY rose to 112.09 for the first time since March 5, settling at 111.99, up 0.3%. The Kiwi rallied 0.47% to 0.6763 (0.6730 Friday).
A solid start to the US earnings season boosted Wall Street stocks. The S&P 500 rose 0.7% to 2,909.00 (2,890 Friday). The US 10-year bond yield climbed 7 basis points to 2.57%.
Eurozone Industrial Production in March slipped 0.2% against a forecast drop of 0.5%. US Preliminary University of Michigan Consumer Sentiment missed at 96.9 against an expected 98.1.
- EUR/USD – the Euro resumed its rally climbing to 1.13237 before easing to 1.1302 at the New York close. It was the first close above 1.1300 since March 25.
- USD/JPY – The Dollar rallied against the Yen to 112.093 before easing to 111.99. USD/JPY was boosted by the anticipated commercial transaction which would involve a EUR/JPY purchase. Increased risk appetite and a higher US 10-year bond yield also helped.
- AUD/USD – The Aussie jumped to 0.71922, highs not seen since late February before easing to close at 0.7175 in New York. Upbeat Chinese trade data and the market’s current appetite for risk are shaking a lot of the Aussie bears.
On the Lookout: Markets start off today with limited data releases ahead of the Easter shortened week with heavy data releases mid-week. Today sees US Empire State Manufacturing Index while FOMC member and Chicago Fed President Charles Evans speaks in a CNBC Squawk Box TV interview. Tuesday starts off with the minutes of the RBA’S March Monetary Policy meeting. This is followed by the UK Average Weekly Earnings, Unemployment rate and Claimant Count Change data as well as Germany’s ZEW Economic Sentiment Index. US Capacity Utilisation and Industrial Production data for March round off the data releases. Wednesday sees China’s trifecta of Industrial Production, Retail Sales and Fixed Asset Investment as well as Q1 2019 GDP. The UK and Canada report their Headline and Core CPI data for last month. On Thursday we start off with Australia’s March Employment report, Euro-area and Eurozone Flash Manufacturing and Services data, UK, Canada and US Headline and Core Retail Sales data, as well as US Flash Manufacturing and Services PMI as well as Philadelphia Fed Manufacturing Index. Most financial centres will be closed on Friday to commemorate Good Friday.
Trading Perspective: Expect the Dollar to trade within ranges against its Rivals, albeit slightly weaker. The higher US bond yields were not matched by rises from its rivals. The US 10-year bond yield rose a whopping 7 basis points to 2.57%. Germany’s 10-year Bund Yield was up 4 basis points to 0.05%. UK 10-year Gilts yielded 1.21% from 1.15%. Japan’s 10-year JGB yield closed flat at -0.06%.
This should give the Greenback support. Market positioning still favoured the Greenback, particularly against the Euro and JPY. Net short Euro and JPY bets increased while shorts against the Pound and Australian Dollar were trimmed, according to the latest Commitment of Traders CFTC report for the week ended 9 April. On other fronts, US trade officials have signalled that a trade deal between the US and China is near. Immediate Brexit risks have been pushed back and this benefits the Pound. Politically, the IMF has voiced its concern regarding President Trump’s attempts to politicise the Fed. With liquidity expected to dry up as we approach the Easter weekend, there could be some fireworks in the making… finally.
- EUR/USD – The Euro has shifted its range higher after repeated downside tests failed. Speculative EUR shorts continue to grow. The latest COT report (week ended 9 April) saw speculative EUR short bets increase to -EUR 102,200 bets from the previous week’s -EUR 99,200. EUR/USD has immediate resistance at 1.1325 followed by 1.1350. Immediate support can be found at 1.1275 and then 1.1250, which is strong. A break above 1.1350 could see the Euro accelerate toward 1.1400. The 1.1250 level should hold and see the EUR/USD shift higher. Likely range today 1.1285-1.1335. Prefer to buy dips.
- USD/JPY – The Dollar rallied to 112.09 before easing to settle around 112.00. The 7-point climb in the US 10-year yield and increased risk appetite will support USD/JPY. For now. The latest Commitment of Traders report saw an increase in JPY shorts to -JPY 71,500 bets from the previous week’s -JPY 62,700. The Yen is the second largest shorted currency against the US Dollar. Immediate resistance lies at 112.25 followed by 112.50. Immediate support can be found at 111.70 and 111.30. Look for a likely trading range of 111.70-112.20 today. Prefer to sell rallies.
- AUD/USD – The Aussie’s rally has been impressive, boosted by the overall weaker Greenback, healthy risk appetite and higher iron ore prices. For almost two months the Aussie couldn’t take a trick and was depressed with many calling for a break of 0.70 US cents. AUD/USD has immediate resistance at 0.7200 followed by 0.7250. Immediate support can be found at 0.7150 and 0.7120. The latest COT report (week ended April 9) saw speculative Aussie shorts trimmed to -AUD 54,400 from –AUD 55,700. Prefer to buy dips with a likely range today of 0.7160-0.7210.
- USD/DXY – The Dollar Index slipped to close at 96.85, down 0.32%. The immediate support at 96.70/80 is strong and should hold initial attempts. Immediate resistance can be found at 97.00 and 97.30. The big resistance level is 97.50 which was failed to break decisively in recent weeks.
Have a good week ahead all, happy trading.