Draghi re-assures market’s fears of EZ deflation

Much of the pre-ECB speculation was let down as the ECB in the end engaged in no additional easing measures. Most importantly Draghi managed to reassure the euro bulls that inflation would pick up gradually and he played down the currency strength saying that it was only having a marginal impact on imported inflation.

The EUR/USD rose over 100 pips after opening at 1.3733 on Thursday as it reacted to Draghi’s press conference. Support continued to flow for the euro, and it rose to fresh 2-year highs against the US dollar on Friday, as it hit highs of 1.3915.

US Nonfarm payrolls surprise positively, show resilience

The continued up move for the EUR/USD held even after the release of stronger than expected NFP data. In reality looking at the intraday moves of the EUR/USD, you would note that the initial move immediately after the data was lower, as investors reflected the stronger data. However losses for the euro soon levelled out and in the end the currency pair closed higher when compared to session open that day. The fresh highs made were hit prior to the release of the NFP data last Friday.

The health of the US labour market surprised positively, as news hit the wires that in February the US economy created 175k jobs, a strong rise from the previous month’s 129k and well above the expected 149k indicated by consensus figures.

EUR/USD Weekly outlook: A significant break, at daily close, of 1.3915 (last week’s highs) is bound to pave the way to more bullishness and exposing 1.3956 levels. Beyond this 1.4039 is the next resistance level to watch out for. If price action is unable to pursue beyond this level it will most likely deflate itself and target 1.3790 levels.

Resistance: 1.3956/1.4039 Support: 1.3748/1.3624

Significant swing in Chinese exports pushes investors onto risk-off mode

Early into the Asian session, at week start, more high impact data continued to leave its effect on market sentiment. Over the weekend China had reported a significant drop in Y/Y exports up till February. Exports dropped by -18.1% swinging from a previous +10.6% and widely disappointing expectations of +7.5%. As a result the trade balance for the same period registered a significant deficit.

Japanese data early into Monday’s session also contributed to the investor’s generic risk off mode. Japanese annualized GDP for the 4th quarter slipped to 0.7% from a previously stated 1%. The Japanese yen lost 1.5% to the US dollar throughout last week’s trading, with the USD/JPY pushing to weekly highs of 103.75. At the time of writing the currency pair has mostly maintained 103 levels and is currently trading around 103.25.

Overall against a basket of currencies, and according to the Bloomberg Correlation-Weighted Currency Index (BCWI) the Japanese yen was down -1.69% in the former part of the week, despite the temporary strengthening as the week started. So far, according to the same index, the Japanese yen has shed around 1.80% for the current month.

Early in Tuesday’s session the BoJ also published its monetary policy statement. The Japanese central bank left its easing policy unchanged and reiterated its view on the economic outlook.

USD/JPY Weekly outlook: Downside should find initial resistance at 102.39 even price does not manage to bounce off these levels on the daily time frame expect a steeper move lower with 101.42 as target. A bounce off 102.39 levels could see the pair back to test 104.31 levels

Resistance: 104.31/105.31 Support: 101.75/100.20

GBP eases off recent highs against both the Euro and the USD

According to the BCWI the British pound lost some of its support in the former part of the current week but preserved the gains seen since the start of March. The GBP marked the lowest levels for March so far against both, the USD and the Euro.

Overall the GBP has been enjoying a winning streak topping the largest gains amongst the major currencies throughout these last 12 months – gaining over 12%. The GBP is expected to continue to attract support amid speculation that the Bank of England will increase interest rates sooner than expected.

After that the GBP/USD hit February highs at 1.6822 (levels we had only last seen towards the end of 2009), the currency pair eased lower but nevertheless was supported around 1.66 levels. At the time of writing the price is at 1.6630. The story was very much similar when seen against the single currency as well. After hitting one-year lows at 0.8157 we saw price action bounce higher towards 0.8350. At the time of writing the currency pair is trading at 0.8336.

On Tuesday the BoE Chief, Mark Carney, was testifying in front of UK lawmakers with regards to the allegations of the FX market manipulations. There is currently an internal probe trying to determine whether officials were involved in the manipulation of foreign-exchange markets. These investigations are not new and have been ongoing since last year and have in fact involved a number of global banks.

GBP/USD Weekly outlook: As long as we are below 1.6755 the recent fall to 1.6568 was very much in line with what was expected. For the current week the down move should by now have started to cool down and it is expected to consolidate. To the upside resistance should be in the region of 1.6793-1.6862.

Resistance: 1.6793/1.6862 Support: 1.6550/1.66

Technical Key points: EUR/USD is bullish, target 1.40, key reversal point 1.3550. EUR/GBP is bearish, target 0.8050, key reversal point 0.8470. USD/JPY is neutral. GBP/USD is bullish, target 1.6900, key reversal point 1.6250. USD/CHF is neutral. AUD/USD is neutral. NZD/USD is neutral.

This article has been prepared by Rudolf Muscat, Senior Trader at RTFX Ltd.