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The Japanese yen has lost ground in the Wednesday session. In the North American session, USD/JPY is trading at 111.20. On the release front, US ADP Employment Change soared to 263 thousand, crushing the forecast of 184 thousand. The news was less positive in the services sector, as ISM Non-Manufacturing PMI dropped to 55.2, short of the forecast of 57.0 points. Later in the day, the Federal Reserve will release the minutes of its March policy meeting. There are no Japanese events on the schedule. On Thursday, the US releases the weekly unemployment claims report.

The Japanese economy has shown improvement in recent months, as the manufacturing and export numbers are pointing higher. At the same time, domestic consumption remains soft and inflation levels remain well below the BoJ's target of 2.0% percent. The BoJ's preferred inflation indicator, BoJ Core CPI, remains weak and dipped to 0.1 percent. With such low inflation levels, the Bank of Japan is unlikely to tighten monetary policy anytime soon. The Japanese consumer remains pessimistic about the economy, and Japanese Consumer Confidence is expected to confirm this sentiment, with the March reading standing at 43.5 points.

All eyes are on the Federal Reserve, which will release the minutes of its March policy meeting. At the meeting, the Fed raised rates by a quarter-point, to a range of 0.75%-1.00%. The markets will be paying close attention to the minutes, looking hints about the timing of the next hike, as well as the tone of the minutes are factors which could move the currency markets on Wednesday. The markets considered the rate statement overly cautious, and this sentiment sent the US dollar broadly lower in March. If the reaction to the minutes is one of disappointment, the dollar could again experience broad losses.

With the US economy continuing to perform well, the discussions around the monetary policy tables are not whether the Fed will raise rates, but how many hikes we will see in 2017. There is speculation about whether the Fed will hike rates two more times or three more times, and Fed policymakers seemed divided on this question. Last week, FOMC member called for three more hikes, saying the Fed should raise rates in June, September and December. Rosengren said that employment and inflation levels were close to the Fed's targets, and that three additional hikes were needed in order to prevent the US economy from overheating. However, a majority of FOMC members are in favor of two more hikes this year.

• Theresa May triggers Brexit
• Sterling strengthens on US influences

Sterling has been whipped around in the 1.210 - 1.265 range for the last six months and both extremes of that range were tested in March. Brexit, for once, was not the sole reason for volatility, as the US Federal Reserve sought to head off rising inflation with a third interest rate rise since the 2008 financial crash; and the second in three months, taking the base rate to 1%. The US central bank set aside concerns about the impact of higher rates on consumer spending to confirm projections that it is prepared to increase rates several times this year to control rising prices, as inflation pops above 2%. The US Dollar rallied on the news, as it seems that the Federal Reserve will remain hawkish, although most expect them to peak around 2%.

Market nervousness as nature and scope of Brexit debated

The market had been incredibly nervous of the UK looking to negotiate the hardest of Brexits and UK Prime Minister, Theresa May, had made it clear that the UK would be leaving the single market and look to take control of immigration once negotiations had been concluded. The Pound has been sold as a result, as capital outflows increased with investors concerned about growth in the United Kingdom over the next couple of years. Final arguments within the UK continued up until the last minute, however, Mrs May was able to trigger Article 50 on March 29th and the Pound had already begun to rally.

Next steps for the UK-EU relationship

We are now awaiting a detailed response from the European Union, not due to meet until April 29th when they are expected to adopt their Brexit guidelines. Until then, we are in a bit of a vacuum and it is unlikely that there will be any change in sentiment unless we get some clarity around the issue. The EU has insisted that there can be no parallel talks and that we cannot move forward with trade discussions unless there has been an agreement on the "divorce". The negotiations will be tricky, especially as all the EU member states will have a domestic audience to appease. Elections in France and Germany will complicate matters further. In the short term, it is difficult to see how Sterling can rally.

US influences on Sterling strength

Attention will turn to President Trump and his meeting with Chinese Premier Xi Jinping this week. Mr Trump has already labelled the Chinese as currency manipulators. I guess we will have to wait for the official "handshake" to see if there is any further friction between the two leaders. Non-farm payroll data is also due later this week, however, rhetoric from EU/UK policymakers will most likely have more impact on the short term direction of the Pound.

US Dollar Buyers

The range has been set for the last 6 months and the 1.2550/1.2600 area is solid resistance to target. We are close to that level at the moment so it may be prudent to begin reducing any near term exposure.

US Dollar Sellers

A break above 1.2700 would suggest a test of 1.3000. For now, this looks unlikely. If you have time, 1.2200/1.2250 is decent support, as we expect the market to range trade for the time being.

Daily Pivots: (S1) 1.0646; (P) 1.0662 (R1) 1.0688; More....

Intraday bias in EUR/USD remains neutral for consolidation above 1.0635 temporary low. Recovery should be limited by 1.0772 resistance and bring another fall. As noted before, corrective rise from 1.0339 is completed at 1.0905. And more importantly, larger down trend is probably resuming. Below 1.0635 will turn bias back to the downside for 1.0494. Break will confirm this bearish case and target 1.0339 low. However, above 1.0772 will delay this bearish case and bring another rise back to 1.0905 first.

In the bigger picture, as long as 1.1298 key resistance holds, whole down trend from 1.6039 (2008 high) is still expected to continue. Break of 1.0339 low will send EUR/USD through parity to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. However, considering bullish convergence condition in weekly MACD, break of 1.1298 will indicate term reversal. this would also be supported by sustained trading above 55 week EMA.

Daily Pivots: (S1) 1.2407; (P) 1.2451; (R1) 1.2483; More...

Intraday bias in GBP/USD stays neutral at this point as range trading continues inside 1.2376/2614. Overall, price actions from 1.1946 are viewed as a consolidation pattern pattern. On the downside, break of 1.2376 will turn bias to the downside for 1.2108 support. Decisive break there will be an early sign of larger down trend resumption. On the upside, break of 1.2614 will extend the rise from 1.2108. But upside should be limited by 1.2705/2774 resistance zone to bring larger down trend resumption eventually.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term reversal yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

Daily Pivots: (S1) 110.35; (P) 110.64; (R1) 111.02; More....

With 4 hour MACD crossed above signal line, intraday bias in USD/JPY is turned neutral first. On the downside, break of 110.10 will resume the whole corrective decline from 118.65 and target 50% retracement of 98.97 to 118.65 at 108.81. On the upside, however, break of 112.19 resistance will indicate short term reversal and turn bias back to the upside for 115.49 resistance.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Nonetheless, sustained trading below 55 week EMA (now at 111.16) will extend the consolidation from 125.85 with another fall through 98.97 before completion.

Dollar strengthens mildly in early US session after stronger than expected job data. But there is no follow through buying seen yet. ADP report showed 263k growth in private sector jobs, versus consensus of 189k. Prior month's figure was revised down fro 298k to 245k, but was still solid. Markets will look into the FOMC minutes of March meeting to be released later today, as well as non-farm payroll report on Friday. The two-day meeting between US President Donald Trump and China President Xi Jinping will also be closely watched. But after all, directions of Dollar and treasury yields will remain dependent Fed expectations. And it's well known that Fed's base case is three hikes in total this year. Change in the base case will require solid input from Trump's implementation of his economic policies. And we're yet to see anything solid. Any movements in the greenback would likely be temporary before Trump delivers.

North Korea missile test ignored

Markets reacted rather calmly to news that North Korea fired another ballistic missile into waters off its east coast into the sea of Japan. Or indeed, some might say that markets didn't react at all. The US department of state also responded by said that "the United States has spoken enough about North Korea. We have no further comment". North Korea is believed to be one of the top issues at the two-day meeting between Xi and Trump. And Trump has also said that China should use its "great influence" to resolve the issue of North Korea. And, Trump said that "if China is not going to solve North Korea, we will". But then again, there is no detail on what US will do in case Trump cannot break the deadlock on North Korea with China.

UK services PMI beat expectations

UK services PMI rose to 55.0 in March, up from 53.3 and beat expectation of 53.5. Markit noted that "the survey data indicate that UK business activity growth regained some momentum after having slipped to a five-month low in February, but the upturn fails to change the picture of an economy that slowed in the first quarter." Meanwhile, the relative weakness of the PMI survey data compared to that seen at the turn of the year suggests the economy will have grown by 0.4% in the first quarter, markedly lower than the 0.7% expansion as seen in the fourth quarter of last year." And, "much of the disappointment in growth so far this year has been evident in consumer-oriented sectors, in part linked to spending and incomes being squeezed by higher prices.

Also from Europe, UK BRC shop price index dropped -0.8% yoy in March. Eurozone services PMI was revised down to 56.0 in March, Germany services PMI unrevised at 55.6, France services PMI revised down to 57.5. Italy services PMI dropped to 52.9, down from 51.4 and missed expectation of 54.3.

ECB Vasiliauskas: too early to discuss stimulus exit

In Eurozone, ECB governing council member Vitas Vasiliauskas said that "it is too early to discuss an exit because still we have a lot of significant uncertainties." He believed that "recovery of inflation is still fragile". Also, he emphasized that ECB has to "end purchases and only then we can discuss other actions." And he found the discussions of raising interest rate before end of QE as "illogical". Meanwhile he stressed that ECB's forward guidance is "very important" and should be "as predictable as possible".

Leftist Jean-Luc Melenchon came out of the chaotic eleven candidate French presidential election TV debate as the best performer. According to an Elabe poll, 25% said Melenchon was the most convincing performer in the debate. Conservative François Fillon got 15% followed by far right candidate Marine Le Pen's 11%. An OpinionWay poll had centrist Emmanuel Macron, Melenchon and Fillon tied at 18% and Le Pen at 11%. Euro showed little reaction to the news.

BoJ may downgrade inflation forecast this month

In Japan, a former BoJ official Kazuo Momma said that the central bank will likely revise down inflation forecast soon, possibly as early as during the quarterly review this month. Momma noted that the BoJ's price forecasts are "too optimistic". Meanwhile, it's "hard to raise interest rates when you're cutting your inflation forecasts." Momma expects core inflation hover around 0.5% in the current fiscal year, and jump to 1.0% next. That's sharply lower than BoJ's expectation of core inflation hitting 1.5% by the end of fiscal 2017 and 1.7% by the end of fiscal 2018.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 1.0006; (P) 1.0022; (R1) 1.0032; More.....

USD/CHF's break of 1.0036 suggests that rise from 0.9812 has resumed. Intraday bias is turned back to the upside for 1.0619 resistance first. As noted before, corrective decline fall from 1.0342 should have finished with three waves down to 0.9812 already. Break of 1.0169 should confirm this bullish case and target a test on 1.0342 high. On the downside, below 1.0007 minor support will turn bias neutral and bring retreat before staging another rally.

In the bigger picture, USD/CHF is staying in medium term sideway pattern between 0.9443/1.0342. In any case, decisive break of 1.0342 resistance is needed to confirm underlying strength. Otherwise, we'll stay neutral in the pair first. In case of another fall, we'd expect strong support from 0.9443/9548 support zone.

Economic Indicators Update

Daily Pivots: (S1) 1.0006; (P) 1.0022; (R1) 1.0032; More.....

USD/CHF's break of 1.0036 suggests that rise from 0.9812 has resumed. Intraday bias is turned back to the upside for 1.0619 resistance first. As noted before, corrective decline fall from 1.0342 should have finished with three waves down to 0.9812 already. Break of 1.0169 should confirm this bullish case and target a test on 1.0342 high. On the downside, below 1.0007 minor support will turn bias neutral and bring retreat before staging another rally.

In the bigger picture, USD/CHF is staying in medium term sideway pattern between 0.9443/1.0342. In any case, decisive break of 1.0342 resistance is needed to confirm underlying strength. Otherwise, we'll stay neutral in the pair first. In case of another fall, we'd expect strong support from 0.9443/9548 support zone.

EUR/GBP - 0.8552

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term down

Original strategy  :

Sell at 0.8620, Target: 0.8520, Stop: 0.8660

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.8620, Target: 0.8520, Stop: 0.8660

Position : -

Target :  -

Stop : -

 
Euro’s recovery after falling to 0.8485 late last week has retained our view that consolidation above this level would be seen and gain to 0.8590-00 cannot be ruled out, however, renewed selling interest should emerge around 0.8620-25, bring another decline later, below said support at 0.8485 would add credence to our view that top has been formed at 0.8788 and bearishness remains for this fall from there to bring retracement of early upmove, hence further weakness to 0.8470 would be seen, however, oversold condition should prevent sharp fall below 0.8450, risk from there has increased for a rebound to take place later.

In view of this, we are looking to sell euro on recovery as 0.8620-25 should limit upside. Only above 0.8660-65 would defer and suggest low is possibly formed, risk rebound to 0.8680, then 0.8700 but price should falter below said resistance at 0.8735, bring further choppy trading later.

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

USD/CAD - 1.3396

 
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway for headway to 1.4700

Trend:  Near term up

 
Original strategy       :

Buy at 1.3375, Target: 1.3550, Stop: 1.3315

Position: -

Target:  -

Stop: -

 
New strategy             :

Buy at 1.3375, Target: 1.3550, Stop: 1.3315

Position: -

Target:  -

Stop:-

As the greenback has retreated after rising to 1.3456 yesterday, suggesting consolidation below this level would be seen and initial downside risk remains for weakness to 1.3370-75, however, reckon 1.3340-50 would hold and bring another rise later, above said resistance at 1.3456 would add credence to our view that the correction from 1.3535 has ended and bring further gain to 1.3495-00 but break there is needed to signal upmove has resumed for retest of 1.3535, once this level is penetrated, this would extend recent recent upmove from 1.2969 to 1.3575-80 but previous chart resistance at 1.3599 should hold on first testing.

In view of this, we are looking to buy on pullback as 1.3370-75 should limit downside and bring another rise. Below 1.3340 would abort and suggest the rebound from 1.3264 has ended instead, bring further fall to 1.3300-10 but said support at 1.3264 should remain intact. Only a break below this level at 1.3264 would shift risk back to downside for the fall from 1.3535 to extend weakness to 1.3235-40 (61.8% Fibonacci retracement of 1.3056-1.3535) and then 1.3200-10. 

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

USD/CHF - 1.0029

Original strategy :

Buy at 0.9950, Target: 1.0050, Stop: 0.9915

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9950, Target: 1.0050, Stop: 0.9915

Position : -

Target :  -

Stop : -

As the greenback has continued trading with a firm undertone after last week’s rally above 1.0003 resistance, suggesting recent rise from last week’s low at 0.9813 is still in progress and bullishness remains for this move to extend gain to previous support at 1.0060 (now resistance), however, loss of upward momentum should prevent sharp move beyond resistance at 1.0109, risk from there has increased for a retreat to take place later. 

In view of this, would not chase this rise here and would be prudent to buy dollar on pullback as said support at 0.9948 should limit downside. Below 0.9931 (50% Fibonacci retracement of 0.9831-1.0031) would abort and signal top is formed instead, bring correction to 0.9905-10 (61.8% Fibonacci retracement) but reckon previous resistance at 0.9869 would hold from here.