eFXplus DATA

Citi discusses the latest batch of UK data this week and sees a scope for the BoE's August meeting to be more live if the recent pattern of robust data holds up.

"UK employment gains a healthy 179k in the 3 months to February, roughly in line with expectations (consensus 181k) with the unemployment rate unchanged at 3.9% (versus BoE’s natural rate of unemployment at 4.25%). Average weekly earnings for February comes out in-line at 3.5% while excluding bonus payments, the growth rate edges down to an in –line from 3.5% to 3.4% and still on a steady uptrend – driving up parts of inflation where employment plays a key role," Citi notes. 

"Citi analysts see domestic inflationary pressures building in the UK, citing strong wage growth driving up prices where the share of labor cost in production cost is high (account for 20% of UK CPI). The fresh Brexit extension (to October 31) does allow for some breathing space but if data holds up, then the August BoE meeting might be more ‘live’ than the market currently anticipates,"Citi adds. 

• USD/JPY slipped o/n amid on pre-holiday, post poor EZ PMI derisking
• Dip to 111.76 was reversed by stellar US sales data nL1N2200J6
• Weak US PMIs limited the sales data rebound to near 112 nL1N2200OT
• Watching key 10-year Tsy yield props by 2.54% as USD/JPY base
• 2.624% Fib hurdle may be key to USD/JPY 112+ breakout nL1N2200SP
• Stops above pre-December breakdown range lows by 112.23-30

AUD/USD's recent attempts to reclaim its 200-DMA boosted bulls' hopes that a long-term bottom was forming, but today's U.S. data nL1N21Z0OU suggests that may be a premature assumption nL1N2200GD.
Indeed, the upbeat data suggests the U.S. economy remains robust.
Eurodollar and fed funds futures prices reacted negatively and now suggest lowered odds for Fed rate cuts.
As a result, AUD/USD reversed below its 10-DMA and the daily RSI turned down giving short-term techs a bearish tilt.
That said, a sustained AUD/USD drop appears unlikely given solid Australian March employment results nL3N2200K4, which have likely further confounded the RBA's view on the economy.
While Australian 3-month bank bills rates still suggest an RBA cut is due, odds have not increased after the jobs data.
Thus, investors will likely continue to ponder future rate paths for both the Fed and the RBA, which could serve to hamstring AUD/USD price action until new risk factors emerge.
One of those risks could be the April 23 release of Q1 Australian inflation data.
Forecasts call for inflation to deteriorate from Q4's result, so an upside surprise could trigger a run through 0.7205/10, targeting the January and December highs.

MUFG Research discusses USD/JPY outlook and maintains a neutral bias, expecting the pair to trade in a 110.50-113 range in the near-term.

"USDJPY has risen slightly. Japanese investors were net sellers of securities by JPY1.6 trillion the first week of April, primarily to take gains on foreign bonds. The second week of April, they turned slight net buyers, by JPY95.8 billion. They are expected to rebuild their portfolios by the third week of April and are expected to be quiet the last week of the month ahead of the 10-day Golden Week holidays," MUFG notes. 

"With yen short positions at the CFTC growing, there have been yen buying flows, and the trading range for USDJPY has been narrowing. Over the near term, there are no big indicators coming up, and with the BoJ not expected to make any policy changes next week, USDJPY will probably remain in a narrow trading range. The market does not seem to have factored in speculation of BoJ monetary easing, but JPY could rally a little after the April meeting ends," MUFG adds. 

In the wake of much better-than expected U.S. retail sales data nLLAIFEFLO, potential for a USD/JPY breakout above 112 is building.
But ahead of a long holiday weekend, with Treasury yields not rebounding much and large 112 option expiries today, USD/JPY longs may have to wait until next week to see the topside of the recent consolidation overwhelmed.
To get that breakout, the pair needs a daily close above 112.08, 76.4 percent of the 114.55-104.10 slide, and to clear November and December swing lows in the 112.23-30 range.
These are the key ingredients for a run up to the 114.00s, where rallies have been failing over the last two years.
In any event, the 1.6% U.S. sales surge and 1% control group jump, along with another sub-200k jobless claims reading, is lifting the dollar broadly.
The sales data will send Q1 GDP estimates upward again and make the markets less concerned about the U.S. economy's ability to recover from a weak winter performance amid a global slowdown.
Better-than-expected Chinese data have helped the global growth and risk outlook a bit, even if soft EU PMI data nL5N2201Y9 and North Korea missile testing nL3N21Z4K2 are diminishing that impulse.

 CIBC Research discusses its reaction to today's US and Canadian retail sales reports for the month of March.

"Americans opened their wallets by more than expected in March, as retail sales grew by 1.6%. That was bolstered by a rise in receipts at the pump, reflecting higher gas prices, along with a rise in auto sales. The control group grew by an impressive 1% following a disappointing previous month. That leaves the annualized three month average of core sales at a decent 2.6%, helped by March's rise in sales, which is indicative of a healthy rebound in consumption. While we still expect real consumer spending to decelerate over the remainder of the year, rising wages and a strong labor market should provide ammunition for continued spending," CIBC notes. 

"Canadians have been reluctant shoppers of late, but were willing to brave cold February weather to finally go out and spend more, even if most of that was to cover higher prices rather than actually load up on goods. Sales rose a headline grabbing 0.8%, twice expectations, and were up 0.6% excluding autos. But the underlying story is not nearly as positive. For one, in real terms sales were up a mediocre 0.2%, and still at lower levels than were reached in the first half of 2018 (although up 1.7% from the prior February). As well, ex auto sales were revised down for January, to -0.6% (wiping out a 0.1% gain previously reported) with the headline revised down a tick to -0.4%. In sum, while this was "better than expected" and will help offset weaker factory activity in terms of February GDP, it wasn't really all that strong a signal for consumer activity," CIBC adds. 

Societe Generale Research discusses EUR/USD outlook, and still sees a scope for limited near-term gains on short-covering. 

"The euro is cheap for good reason (little growth, negative rates) and the dollar is expensive for equally good reason (higher rates and more growth). While the G2 currencies are locked in place, central bankers are making sure that a repeat of 2008 is delayed and supporting global asset prices more than global growth. That's going to end (badly) in due course but for now, using negative-rate currencies to fund longs in (slightly) higher-yielding ones continues to pay dividends," SocGen notes. 

"The planet is long USD. The FX market is now long the US dollar across the board, and dormant volatility makes the space seem threateningly quiet. Speculators have amassed their biggest EUR shorts since 2016, suggesting imminent short covering, but leading to a bounce of only limited amplitude. AUD and CHF have reached more structural short levels, but positions are more stable. The timing of a positioning-driven bounce is thus more challenging to establish, but it should be more meaningful when it happens," SocGen adds. 

• AUD/USD eyes 0.7153 (Wednesday's low) after extending south from 0.7200
• 0.7200 was Asia high following Aussie employment data beat nL3N2200K4
• USD strength precedes raft of U.S. data at 1230GMT, including retail sales
• Retail sales f/c +0.9 pct. Beat could further depress AUD/USD to 0.7140
• 0.7140 was Tuesday's low, after dovish RBA minutes nL3N21Y0PR
• Wednesday's high was 0.7206, after strong China data nL3N21Z0OK

• USD/JPY bulls need a close above a key Fibo to tighten grip nL1N22006K
• USD/JPY trades 111.77-112.06 (EBS) range, EUR/JPY sees a 126.57-125.72 dive
• Some longs taking opportunity to pare longs pre-Easter
• For week ending Apr 9: IMM cash position of $8.04 billion nL1N21X0LY
• EBS flow data since Apr 9 shows even more longs may have been established
• NK conduct 1st weapons test since failure of Kim-Trump summit nL3N21Z4K2

• EUR/USD falls to 1.1265 after worse than expected German mfg PMI number
• 44.5 vs 45.0 f/c nS8N1XB053. 1.1265 is the lowest level this week
• 1.1293-1.1304 was early Europe range (pre-German PMIs). 1.1263 = 21DMA
• French mfg PMI was also softer than expected, 49.6 vs 50.0 f/c nS8N1XB052
• In contrast, German and French service PMIs were both better than expected
• 1.1250 (Apr 11 low) and 1.1230 (Apr 10 low) are support points below 1.1263

• EUR/USD ticks up to 1.1304 before French/German PMIs at 0715GMT/0730GMT
• See: nL1N21Z067. 1.1290-1.1301 was the Asian session range nL1N22004G
• PMI beats could spur fresh test of 1.1324 (last Friday's two-week+ high)
• EUR/USD revisited 1.1324 in early European trade on Wednesday
• Bull targets beyond include 1.1347 (100DMA/61.8 pct of 1.1448-1.1183)
• Big 1.1300, 1.1320/25 and 1.1350 option expiries for the NY cut nL1N22005X

European and U.S. inflation expectations have diverged a lot this year, and with their interest rate gap already wide, EUR/USD is likely to fall further.
The five-year, five-year inflation swap for the euro zone, a popular measure of inflation expectations, has plummeted; the swap for the United States has rallied.
There looks to be strong correlation between expectations and EUR/USD, and since the rate gap has rarely been greater, that correlation may have a bigger impact.
The divergence in expectations is one of the biggest and quickest moves seen in the last five years, but in the first quarter of 2019 EUR/USD has seen one of its quietest periods ever.
Either traders are ignoring the move altogether or are unaware of it.
The latter seems more likely, and when traders wake up they're likely to lean harder on EUR/USD.

• EUR/USD traded in a 1.1290/1.1301 during a quiet Asian morning
• Pair stuck in familiar range, as option strikes contain
• EZ Flash PMI may see some price action heading before holidays
• Resistance at double-top at 1.1324 and 61.8 fibo at 1.1347
• Support at 10-day MA at 1.1273 and 21-day MA at 1,1264

EUR/USD: A NY close above 1.1330 would suggest EUR is ready to tackle 1.1400.

The strong 1.1330 resistance first indicated on Monday (15 Apr, spot at 1.1300) remains ‘unchallenged’ as EUR eased off after touching 1.1324 during London hours. As highlighted earlier yesterday, EUR has to “start cracking and move above 1.1330 soon (say within these few days) or a prolonged consolidation around current levels would lead to a rapid loss in momentum”. In other words, while we continue to hold the view that “a NY close above 1.1330 would suggest EUR is ready to tackle 1.1400”, the prospect for such a scenario has diminished after yesterday’s price action. On the downside, a break of the 1.1255 ‘key support’ (level previously at 1.1240) would suggest that the current upward pressure has eased.

GBP/USD: GBP is expected to continue to trade sideways. No change in view from yesterday, see reproduced update below.

After trading in a quiet manner for several days, GBP slipped and closed lower by -0.39% (NY close of 1.3048). While downward pressure has ticked up, it is too soon to expect a sustained decline. From the perspective of several weeks, we continue to view the current price action in GBP as part of a sideway-trading phase (we have held the same view for about 2 weeks now). That said, the slight uptick in downward pressure suggests GBP could drift lower and probe the bottom of the expected 1.2950/1.3200 range within the next few days. At this stage, the prospect for a sustained drop below 1.2950 is not high.

AUD/USD: AUD strength could extend to 0.7210.

We have held the same view since Monday (15 Apr, spot at 0.7170) wherein the strength in AUD “could extend to 0.7210”. AUD came within a few pips of this level as it touched 0.7206 yesterday (17 Apr) before easing off quickly to end the day little changed at 0.7179 (note that AUD has closed little changed for the past 4 days). While we continue to hold the view that “0.7210 is a rather critical resistance and a clear break of this level would suggest AUD is ready to move even higher in the coming weeks”, the lackluster price action suggests that the odds for a sustained rise above 0.7210 are not high. That said, only a break of the 0.7130 ‘key support’ (level was at 0.7115 yesterday) would suggest that a short-term top is in place. Looking ahead, a clear break of 0.7210 would shift the focus to 0.7260 followed by the year-to-date high at 0.7296.

NZD/USD: Negative phase has been ‘revived’; NZD is expected to move below 0.6660. No change in view from yesterday, see reproduced update below.

We highlighted on Monday (15 Apr, spot at 0.6770) that “while our 0.6785 ‘key resistance’ is still intact, the price action suggests that the risk of a short-term bottom has increased”. We added, “meanwhile, NZD could attempt to move towards 0.6700 but the odds for such a move have diminished considerably”. The ‘key resistance’ remains intact as NZD nose-dived this morning (after the release of weaker than expected NZ inflation data) and sliced through 0.6700 (low of 0.6668 at the time of writing). The low of 0.6668 is not far above a relatively strong 0.6660 support but below 0.6660, the next significant support level is about another 70 pips lower at 0.6591 (the year-todate low in early-Jan when USD/JPY was hit by a ‘flash crash’). All in, the price action this morning suggests that the ‘negative phase’ that started 3 weeks ago (27 Mar, spot at 0.6830, after RBNZ hint of a possible rate cut) has been ‘revived’. Oversold short-term indicators suggest NZD could consolidate for a few days first but as long as the 0.6785 ‘key resistance’ remains intact, NZD is expected to move below 0.6660. Further weakness to 0.6591 is not ruled out but at this stage, the odds are not that high.

USD/JPY: USD is expected to trade with a positive bias but 112.60 could be out of reach. No change of view from yesterday, see reproduced update below.

USD had another quiet day and traded within a tight range before ending the day largely unchanged (NY close of 111.99, -0.03%). For now, we continue to hold the same as on Monday (15 Apr) wherein USD “is expected to trade with a positive bias but 112.60 could be out of reach”. All in, we expect USD to trade with a positive bias and only a break of the 111.40 ‘key support’ (level was at 111.20 previously) would suggest that the current ‘positive phase’ in USD has ended.

The AUD/USD has failed around 0.7200 for the second straight day despite unambiguously good news.
China growth data came in better than expected on Wednesday and augers well for key commodities, emerging markets and global growth nL3N21Z0IO.
In the past a strong beat on China data would have sent the AUD/USD trending higher.
Today the Australian employment data broadly exceeded forecasts nAZN0QDS00, just two days after the RBA minutes implied they would only consider easing policy if the unemployment rate started trending higher nL3N21Y0QX. After a brief spike to 0.7200, the AUD/USD is settling around 0.7270-75 – exactly where it started the week.
Either the market has it wrong and the AUD/USD is a screaming buy, or the lack of upside on good news is setting the AUD/USD up for a large fall once the news flow turns negative.
With option vols near record lows, the stage is being set for a significant breakout, but it might not come for a while.
Perhaps the best strategy is to play the 0.7000-0.7300 range and go with the direction of the inevitable break of that range.

• Closed a shade softer after yesterday's inflation miss nL5N21Z2G4
• Polls suggest Farage's Brexit party will dominate EU elections nL5N21Z4AB
• This is bad news for those working towards a soft Brexit, and likely GBP
• Daily charts show momentum studies, 5, 10 & 21 DMAs heading lower
• Negative setup targets 1.2971 200 DMA, a base in Apr and on the close in Mar
• Resistance at 1.3091/98, the well tested 21 DMA and TL from the March high

• Touch firmer after closing +0.2%, supported by yesterday's strong China data
• Close EU/China trade links - EUR sensitive to the Chinese economic outlook
• 1.1225 1.9B, 1.1300 1.2B, 1.1320/25 2.3B, and 1.1350 1.1B close strikes
• Neutral momentum studies, 5, 10 & 21 DMAs conflict - little short term bias
• Major resistance - last week's 1.1324 top, which also capped in early London
• Support starts at 1.1273 10 DMA and 1.1270, 38.2% of the April climb

• USD/JPY struggles to rally past resistance at 112.08-13 as sellers line up
• Rally to 112.17, a fresh 2019 high, on Thurs fails on lack of follow-through
• Failure to move higher despite risk-positive news a warning sign for bulls
• Downside protected as global growth pessimism wanes nL5N21Z19Q
• Global PMIs and US retail sales Thursday key; sizable 112.00 expiries too
• Weekly close above 200-WMA @ 111.99 strengthens uptrend; support 111.60

Nordea Research discusses EUR outlook and promotes long EUR/CHF exposure as an alternative expression to play a EUR rebound to long EUR/USD (see here).

"Another way to play the EUR positive bet could be against the CHF, as a potential stabilization in Euro area key figures (even at low levels) should limit the appetite for Euro area doom and gloom hedges in CHF. Positioning wise both JPY and CHF are though already out of fashion among investors," Nordea argues. 

"We have earlier argued how a stabilization of Euro area PMIs is a prerequisite for the EUR/USD rebound, and therefore those of a very short-term persuasion may decide to wait until after the April PMI release on Thursday to buy EUR/USD. Our month/month PMI model is still not hinting a bounce (yet)," Nordea adds. 

• Pair gives up some gains from Asia as bond yield gains erode
• German 10-year bund yield slips back below +0.10% ahead of EZ PMIs
• EUR/USD slips below 55-DMA and nears daily cloud base late in the day
• Techs bullish; RSIs rise, pair above 10-&21-DMAs, consolidation takes hold
• If PMI mfg components are upbeat EZ yields & EUR/USD likely rally
• EUR/USD break of March 25 high puts the 200-DMA & March high in play