Our Q2 Outlook, titled The Fragmentation Game is now out.
Today's Saxo Market Call podcast
Today's Global Market Quick Take: Europe from the Saxo Strategy Team
FX Trading focus: USD weakness fades today as yields rebound. JPY was weak and weakened further, in part on crude oil spike. AUD churns before and after RBA. RBNZ on tap.
The US dollar was perched at the key EURUSD resistance in the 1.0930+ area at its highs today on the combination yesterday of lower US treasury yields on a weak ISM Manufacturing report, and the market’s benign assessment of the situation (i.e., risk appetite is still firm) - the most USD-negative combination available. Elsewhere, the USD had already broken sharply lower versus sterling after the well-defined sub-1.2450 pivot gave way this morning. Rather comical that that move unfolded and was extending even as the perma-dovish BoE’s Tenreyro was out this morning talking up the need for easier policy: “In the absence of further counterbalancing cost-push shocks, I judge inflation is likely to fall well below target.” The BoE maintains the most aggressively complacent view on inflation over the next 12-24 months relative to its peers, a big risk for the bank’s credibility.
Alas, yields have rebounded and eased a portion of yesterday’s drop, helping to aggravate the weakness in an already vulnerable JPY as the new Japanese financial year gets underway. The yield factor hasn’t correlated consistently of late with the JPY drop, but the surge in crude oil prices is certainly a JPY-negative on Japan’s total reliance on imported supplies. It’s easy to write it off as unexplainable volatility from which we can draw few conclusions as a new Japanese financial year gets underway, but EURJPY, for example, bears watching as it teases the upper edge of the recent range north of 135.00, just as EURUSD also did today. I suspect we could continue to see erratic JPY moves until we have Kazuo Ueda in action and especially around the first BoJ meeting under his leadership on April 28.
Chart: EURUSD
EURUSD has once again teased the 1.0930 area resistance today, the fourth day running it has done so without engineering a proper break. An extension higher requires the difficult, if possible, combination of weaker US data that continues to deflate Fed rate expectations out the curve but doesn’t trigger weaker risk sentiment. A firming in yields today helped walk the EURUSD back lower today, but bears can’t really build a downside case here until or unless we erase the 1.0800-1.0750 zone on a sudden lurch lower. Either way, difficult to see the action sustained for long in this nervous area between that downside swing area and the 1.1000+ resistance.