Equities Green After Easter Break, USD And Yields Fall
Ipek Ozkardeskaya | Apr 07, 2015 07:35AM ET
With the timing of Fed rate hikes getting pushed out, equity markets taken on a bullish tone. US stock futures are pointing to a higher open and US 10-yr yield were flat at 1.895%. The risk appetite was help with news that that Greece has assured the IMF they would not missed a €450mn debt payment on Thursday April 9th. This has lowered the fear that Greece might become the first development nation to ever default on an IMF loan. Greek Finance Minister Varoufakis met with IMF Managing Director Lagarde to discuss the repayment. We remain significant uneasy with the developments in Greece and will stay vigilant till the “money is in the bank”. We also anticipated substantial volatility emulating from Greece with large payments coming due. In the European session, March euro area composite PMI to be unrevised from the flash read of 54.1 (slight upside risk) and German PMI steady at 55.3. Italian PMI composite should rise to 52.5. Spanish PMI composite was revised sharply higher to 57.3 from 56.5. Overall further evidence that there is a marginal recovery occurring in Europe. UK PMI services should rise from 56.7 to 57.0 in March. EUR/USD was able to break above channel top at 1.0883 yet failure again to clear 1.1052 resistance should neutralize any bullish tone and retest support base at 1.0570.
Elsewhere, following the US disappointing NFP read NY Fed President William Dudley reiterated Yellen message that interest rates will remain low and path “shallow” even after the Fed begin its hiking cycle. Dudley stated that the timing of rate hikes “will be data dependent and remains uncertain because the future evolution of the economy cannot be fully anticipated.” Traders will be back to data watching as JOLTS is expected to rise in January to 5.0M, keeping the key ratio of vacancies to unemployed workers at 0.56. Periphery's composite PMIs are likely to recover with the services sector leading the improvement. There looks to be little this week that will reverse the recent USD bearishness following the disappointing NFP read (don’t expected any help from fed speakers or FOMC minutes). Investors are now reexamining past soft data for indications of a broader US slowdown rather than merely a soft patch. Q4 2014 US data saw robust acceleration so it’s normal due, to cyclical nature of economic data, to see a soft patch. As weakness from Q1 filters in to the US data, there will be increasing calls for no hike in 2015, generating a deeper correction in USD. We see this week as the continuation of this early bearish USD trend. EM and high yielding currencies verse the USD remains the best short-term play. However, we anticipate that the US economy will pick back up at the beginning of the summer and retrenching September timing of the first rate hike, so traders shouldn’t dig in to deep (plus weak data and Greek risk could deter resilient risk seeking).
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AUD was the big mover in the Asian session as the RBA surprised markets by not cutting the cash rate. The central banks kept the rate at 2.25% record low after stating an new easing cycle in February. This was the second pause (March and April) despite most analyst expecting a rate cut. However, the dovish RBA intensely signaled that rate cut was still on the table. The RBA stated that “further easing of policy may be appropriate over the period ahead and the board will continue to assess the case for such action at forthcoming meetings”. Interestingly, a better than anticipated retail sales which came in at 0.7% verse 0.4% expected, quickly saw probability of a rate cut going from 77% to 69%. AUD/USD was basing around the 0.7580 ahead of the RBA decision. The stronger retail sales read pushed sellers out of the way, bringing the pair to 0.7623 before the no decision sent AUD/USD to 0.7712 session highs. Near term target is located at 0.7740 resistance before resistance at 55d MA and Fibo level at 0.7785. That said, with commodity prices remaining low (only somewhat offset by weaker AUD) and macro prudent measures somewhat controlling the white hot Australian housing markets failing to cool activity, we suspect at rate cut to 2.00% will come in May. Also supportive is the fact that the Fed is likely to delay any rate hike till September as US data acceleration hits a spring soft patch, allowing USD ultra-long positions to be unwound. In the midterm look for further depreciation in the AUD/USD to retest 0.7580 then 0.7533 support.
Luc Luyet
EUR/USD EUR/USD has improved. However, the key resistance area between 1.1043 and 1.1114 remains intact. Hourly supports now lie at 1.0864 (03/04/2015 low) and 1.0713. In the longer term, the symmetrical triangle favours further weakness towards parity. As a result, any strength is likely to be temporary in nature. Strong resistances stand at 1.1114 (05/03/2015 low) and 1.1534 (03/02/2015 high). Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support).
GBP/USD GBP/USD has broken the hourly support at 1.4872, validating a short-term base formation. However, the key resistance at 1.4994 remains intact. Hourly supports stand at 1.4872 (see also the rising trendline) and 1.4811 (03/04/2015 low). In the longer-term, the break of the strong support at 1.4814 opens the way for further medium-term weakness towards the strong support at 1.4231 (20/05/2010 low). Another strong support stands at 1.3503 (23/01/2009 low). A key resistance can be found at 1.5552 (26/02/2015 high).
USD/JPY USD/JPY has potentially posted a higher low at 118.72 compared to its 26 March low. Monitor the resistance implied by the declining trendline (around 119.98). Another hourly resistance stands at 120.37. Hourly supports can be found at 119.44 (intraday low) and 118.72. • A long-term bullish bias is favoured as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 124.14 (22/06/2007 high) is favoured. A key support can be found at 118.18 (16/02/2015 low), whereas a key resistance stands at 121.85 (see also the long-term declining channel).
USD/CHF USD/CHF remains weak. However, the key support area between 0.9491 and 0.9450 remains intact. Hourly resistances can now be found at 0.9610 (03/04/2015 high) and 0.9757 (31/03/2015 high). In the longer-term, the bullish momentum in USD/CHF has resumed after the decline linked to the removal of the EUR/CHF floor. A test of the strong resistance at 1.0240 is likely. A key support can be found at 0.9450 (26/02/2015 low, see also the 200-day moving average).
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