Japan Trade Balance Improves; Nikkei, Shanghai Rally
Swissquote Bank Ltd | Apr 22, 2015 06:55AM ET
Forex News and Events
Risk appetite surged back in Asian trading. A majority of Asian markets were able to ignore mounting Greek concerns and weak US session to end the session higher. The Shanghai Composite rose to 4,384.02 up 2.10% on the back expectations for additional PBoC easing and large volume of retail demand. We remain bullish on China, based not on economic fundamentals, but on the positive effect of stimulus and the new found appreciation of the middle class for share trading. The Nikkei rose above 20,000 up 1.13% (new multi-year high) as Japan reported a better than expected March trade surplus and improved corporate earnings. The unadjusted trade surplus came in at ¥229bn, the first surplus since 2012. Exports surged 8.5% y/y while imports fell -14.5% in March following a -3.6% drop in the previous month. The positive surprise was due to strong exports for autos and electronics, while the cheaper oil price pushed the cost of imports lower. This is a positive sign for the Japanese economy, which has been sluggish since the start of the year. Despite conflicting reports, we believe that the weak JPY is clearly supporting export demand. The Abenomics experiment in competitive devaluations is showing some positive results, particularly in rejuvenating growth. We are not sure that the trade surplus will quickly disappear. Demand for Japanese goods should continue as Europe and China recover (and the US economic soft patch passes). Yet, as long as oil prices remain subdued (which we expect) costly imports will be less appealing then domestic goods. Hence slowing import growth even as the domestic recovery drives demand. Interestingly, with economic bright spots appearing due to the Japanese QE program, we would expected regional players (such as South Korea) to emulate with similar currency debasing activities (but let’s remain PC and not say Currency War). USD/JPY was unresponsive to the rise in the Nikkei. We anticipate a bullish break of 120.05 will trigger a quick move to 120.90.
In Australia, the much anticipated weak inflation report went in the opposite direction. The Q1 headline CPI increased 0.20% q/q (unchanged from prior month) against 0.10% expected, yet annual inflation slowed to 1.3% in line with consensus. AUD/USD surged to 0.7774 from 0.7710 and remains well bid. Traders will be focused on 0.7850 resistance to extended bullish momentum to 0.7940, support can be located at 0.7768 65d MA. Despite the unexpected stability in inflation, we still anticipate the RBA to cut OCR 25bp in May. RBA Governor’s dovish comments indicating that rate hikes remain on the table will not be altered due to a slight uptick. While the strong headwinds from slowing China’s commodity demand, clouds Australia growth outlook.
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It will be another quiet day on the economic calendar. Euro area consumer confidence is expected to rise from -3.7 points to -2.5 in April. This follows yesterdays mixed German ZEW survey that showed current situation rising while future expectations dropped. In Greece, funding risk are increasing and 5yr yields are inching up toward 20% handle. Negotiations between Brussels and Athens remain tense, with a deal ahead of the Eurozone finance minister meeting on April 24th unlikely. There are further rumors that the Greek officials will meet with Gazprom (MCX:GAZP) to discuss a possible pipeline deal to bring Russian gas to Europe through Greece. We believe the risk of a Greek default is significantly elevated with markets only partially pricing the event in. We remain bearish on the Euro and see any EUR/USD rally towards 1.0900 as an opportunity to reload longs. In the UK, we expect the BoE MPC minutes to show no change in the voting configuration with all nine member voting to keep policy unchanged. We are bearish ahead of the UK elections with 1.5048 65d MA capping any further upside move. Finally, US existing home sales is expected to rise 3.1% m/m to 5.03m houses sold. Investors are watching all US data for any signs of further deterioration and indications into the timing of the first Fed hike. USD will continued to consolidate as US yields are unchanged.
The Risk Today
Luc Luyet
EUR/USD is moving broadly sideways since the second half of March. Hourly supports now lie at 1.0660 and 1.0521. An hourly resistance area stands between the 61.8% retracement (1.0839) and 1.0888. A key resistance can be found at 1.1043. In the longer term, the symmetrical triangle favours further weakness towards parity. As a result, we view the recent sideways moves as a pause in an underlying declining trend. A strong resistance stands at 1.1114 (05/03/2015 low). Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support).
GBP/USD mild weakness after Friday's bearish reversal suggests subdued selling pressures. A resistance now lies at 1.5054, while a key resistance area stands between 1.5137 and 1.5166. Hourly supports can be found at 1.4813 (16/04/2015 low) and 1.4701 (15/04/2015 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). A break of the key resistance at 1.5166 (18/03/2015 high) is needed to invalidate this scenario. Another key resistance stands at 1.5552 (26/02/2015 high).
USD/JPY is challenging the hourly resistance at 119.75. Another resistance can be found at 120.84. An hourly support lies at 119.17 (21/04/2015 low), while a key support stands at 118.18. 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 remains close to the key support area between 0.9491 and 0.9450 (see also the 38.2% retracement). Hourly resistances can now be found at 0.9625 and 0.9712 (16/04/2015 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. As a result, the current weakness is seen as a countertrend move. Key supports can be found at 0.9450 (26/02/2015 low, see also the 200-day moving average) and 0.9170 (30/01/2015 low).
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