Morning brief for April 11

Morning brief for April 11

As Steven Tyler’s (Aerosmith) “there’s something wrong with the world today; the light bulb’s getting dimmed; there’s meltdown in the sky” perfectly describes the political and economic environment in which traders have to operate nowadays. There are lots of global tensions in the world with Trump preparing to authorize additional strikes on Syria if its government uses chemical weapons or deploys barrel bombs; US Navy group heading to the western Pacific Ocean to appease worrisome irrepressible North Korea; tightening race for the presidency in France. No wonder, edgy investors rushed into safer assets such as the yen and Treasuries seeking to avoid substantial financial losses.

Yesterday traders got Chair Yellen's comments on the US economic development and future projections of the Fed. Basically, she largely echoed what she had been saying before (gradual tightening, the US unemployment, and inflation rates are consistent with Fed’s expectations), and did not offer any additional information on the timing of the rate hikes, or on the reduction of Fed’s $4.5 trillion balance sheet.

"We think a gradual path of increases in short-term interest rates can get us to where we need to be, but we don’t want to wait too long to have that happen," she said.

EUR/USD edged down to 1.0585 in the Tokyo morning with the pressure building less than two weeks before the first round of French presidential elections. Although pollsters say that Fillon or Macron would defeat Le Pen in the runoff, the outcome of the election is still not evident with many voters going to make up their minds at the last minutes, rising popularity of Melenchon. Technically, there is room for a further downward movement towards the nearest support at 1.0555 (61.8% Fibo level traced from last year low). A break of this hurdle will allow us to target lower levels at 1.0492 (February low). A rise above 1.0620 will be a signal the downward pressure has eased.

USD/JPY dropped to 110.55 overnight. In the early hours of the Asian session, it ticked up to 110.70. The yen has strengthened in the latest sessions on the investors’ risk-averse sentiments triggered by the US strike in Syria. If the US officials signal a more interventionist attitude in the Middle East, we may see additional dips on the USD/JPY technical chart. On the upside, there is a sturdy resistance at 111.15. If it is broken, we would target for a further upsurge to 111.50. Meanwhile, additional drop to the 7th April low (110.10) is not ruled out.  

Oil prices extended their gains on Monday having risen to almost $55.99 after surging five days in a row. Geopolitical tensions took their toll on the oil crude prices, but there were additional tailwinds – an outage at the Libyan largest oil field, the comments from Russia’s energy minister Novak pointing at the country’s intention to extend the OPEC-led oil production cut deal. USD/CAD slumped to 1.3320. On the downside, we see a steady support at 1.3280.

Commodity currencies, such as AUD and NZD, were a bit higher in the course of past sessions. NZD/USD is trading in the tight range of 0.6917/0.6990. Aussie rebounded from its earlier low at 0.7473 and rose above 0.7500. 

The British pound was a gainer in today’s session. It broke the sturdy resistance at 1.2410 (50-day MA). Today’s focus will on the UK inflation data coming out at 11:30 am MT time. The consensus forecast is 2.2% (it’s well above the Bank of England’s inflation target, but a bit lower print compared to the data from the last-month release). A strong headline will allow GBP to rise higher upon the publication; a miss on the data can send the quotes lower.

 

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