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• Dollar index soars to 2-year high as euro, commodity currencies suffer
• BoC remains on hold but abandons rate-hike bias; loonie drops
• BoJ commits to low rates until 2020 but yen snoozes

'King dollar' returns as euro and antipodeans lose their shine

The world's reserve currency advanced across the board on Wednesday, with the dollar index soaring to 2-year highs, even without any US-specific catalyst. Instead, the greenback capitalized on weakness in other major currencies, most notably in the euro, aussie, kiwi, and loonie.

Starting with the euro – which holds the biggest weight in the dollar index by far – it fell sharply following a disappointing German Ifo survey, which highlighted that Europe's powerhouse continues to struggle. If growth in the euro area's biggest economy is still anemic and its third largest – Italy – is in recession, then a material rebound seems unlikely anytime soon, which implies a 'lower for longer' stance by the ECB. Overall, there's a clear disparity between the European and American economies.

Likewise, central banks in Australia and New Zealand may cut interest rates before long, the Bank of Canada was more dovish yesterday, sterling continues to be tormented by political woes, and Japan offers interest rates so low the yen isn't attractive. Therefore, the dollar remains 'the only game in town' for now, at least until one of these narratives changes, especially the European growth story.

Loonie crumbles as BoC abandons hiking plans, turns neutral

The Bank of Canada (BoC) remained on hold yesterday but slashed its growth forecasts and eliminated any surviving mention to future rate hikes, assuming a clearly neutral bias. Even though there were some hints of optimism, the overarching message was that the Bank sees even lower odds of any future hike, which was enough to push the loonie sharply lower – with a rising dollar exacerbating the move.

Is all hope lost for the Canadian dollar then? Even though a lot will depend on the US dollar and oil prices, the domestic economy doesn't seem to be in real trouble yet and the bar for any rate cuts may be quite high, despite markets are pricing in a ~55% chance for one by December. In other words, much pessimism is already priced into the battered loonie, so it wouldn't be a surprise to see a rebound going forward, particularly if oil prices continue to gain.

BoJ commits to ultra-low rates until 2020, but no reaction in yen

The Bank of Japan (BoJ) kept its policy unchanged overnight. To the surprise of no one, policymakers said inflation will take longer than intended to reach its 2% goal, while they also committed to keeping interest rates at current low levels until the spring of 2020. Overall, the BoJ made it clear that policy will stay ultra-accommodative for a prolonged period of time, and yet the Japanese yen did not react. Most likely because no investors were expecting otherwise, given the lackluster inflation and growth outlook.

Going forward, relative interest rates will likely continue to work against the yen. This implies a slow grind lower for the currency, until an episode of risk aversion hits, in which case the yen could gain quickly and immensely.

Daily Pivots: (S1) 144.42; (P) 144.72; (R1) 145.05; More...

Intraday bias in GBP/JPY remains neutral as it's staying in range of 143.72/148.87. For now, further rise remains in favor as long as 143.72 support holds. Decisive break of 149.48 key resistance will carry larger bullish in implications and target 156.58 resistance next. However, on the downside, sustained break of 143.72 will indicate near term reversal, after rejection by 149.48 key resistance. In that case, intraday bias will be turned to the downside for 141.00 support first.

In the bigger picture, focus is staying on 149.98 key resistance. Decisive break there should confirm that medium term fall from 156.59 (2018 high) has completed at 131.51 already. Rise from 131.51 is then seen as the third leg of the corrective pattern from 122.36 (2016 low). GBP/JPY should then target 156.59 and above. However, rejection by 149.98 will retain medium term bearishness and could extend the fall from 156.59 through 131.51 to 122.36.

Daily Pivots: (S1) 124.74; (P) 125.19; (R1) 125.58; More....

EUR/JPY's decline accelerates to as low as 124.66 so far and broke 124.78 support. Intraday bias stays on the downside for 123.65 and possibly below. Strong support could be seen at around 123.39 support to bring rebound. On the upside, above 125.28 minor resistance will turn intraday bias neutral first.

In the bigger picture, there is no confirmation of completion of the down trend from 137.49 (2018 high) yet. In case of an extension, break of 118.62 will target 109.03/114.84 long term support zone. However, break of 127.50 will solidify the case of medium term bullish reversal. Further decisive break medium term channel resistance will affirm reversal and target 133.12 key resistance and above.

Gold prices were seen trading mixed on Wednesday with prices seen consolidating at the 200-day moving average. The precious metal posted modest gains on the day as price steadily picked up after hitting lows of 1266.25 earlier this week. Friday’s advance GDP report is likely to be the catalyst for setting the momentum in the precious metal.

XAUUSD Looking More Likely for a Retest to 1285

XAUUSD previously eased lower to chalk out fresh lows. However, price has since rebounded with the 200-day moving average offering support. In the short term, price has closed above 1273 handle. Establishing support here could keep gold prices to remain range bound within the 1285 and 1273 corridor. The retest of the 1285 level will be crucial. Further gains can be expected if gold breaks past this level.

Daily Pivots: (S1) 0.8625; (P) 0.8653; (R1) 0.8676; More...

No change in EUR/GBP's outlook as it's staying in consolidation from 0.8474. Intraday bias remains neutral for the moment. Further rise cannot be ruled out but upside should be limited by 0.8722 resistance to bring down trend resumption. On the downside, firm break of 0.8474 will resume larger down trend for 0.8416 long term projection next. On the upside, though, sustained break of 0.8722 will suggest near term reversal and bring stronger rise back to 0.8840 resistance and above.

In the bigger picture, EUR/GBP is seen as staying in long term range pattern started at 0.9304 (2016 high). Current fall from 0.9305 (2017 high) is a falling leg inside the pattern. Such decline could extend to 100% projection of 0.9305 to 0.8620 from 0.9101 at 0.8416 and possibly below. But for now, we'd expect strong support around 0.8312 support to contain downside and bring rebound.

Crude oil prices held on to the gains albeit posting some modest declines. Overall, crude oil prices remain steady at the top. The EIA’s weekly crude oil inventory report saw an increase of 5.48 million barrels. This was above the estimates of a 1 million increase. The weekly report reversed the drawdown of 1.4 million barrels from the week before. The data comes on top of API’s report showing a 6.9 million increase for the week.

Crude Oil to Remain Bullish in the Near Term

Oil prices retreated from the highs on Wednesday closing with some modest declines on the day. However, we are seeing a reversal of these declines earlier today. Price is likely to attempt and test the previous highs in the range of 66.50 – 66.00. Watch for a weekly close above this level to confirm further upside. Failure to do so could trigger declines to the lower support at 64.55.

The business sentiment report from Germany came out softer than expected to impact the euro currency. The common currency lost 0.55% on the day as it plunged below the 1.1200 handle. The Ifo institute’s business sentiment report saw the index falling to 99.2 in April from 99.7. Meanwhile, French business sentiment report also weakened.

Euro Slips to 1.115 – What’s next?

The common currency fell sharply on the day and cleared the support level of 1.1200 to test 1.1150. The intraday charts point to a potential recovery, but the gains could be limited in scope. The previous lows of 1.1174 will form the initial resistance followed by 1.1217 which could keep a lid on the recovery, at least for now.

Daily Pivots: (S1) 1.5816; (P) 1.5888; (R1) 1.5976; More...

With 1.5828 minor support intact, further rise is expected in EUR/AUD towards 1.6122 resistance. Decisive break there will confirm completion with corrective fall from 1.6765 at 1.5683. In this case, further rally should be seen back to retest 1.6765 high. On the downside, however, below 1.5828 minor support will turn bias back to the downside for 1.5683 instead.

In the bigger picture, as long as 1.5346 support holds, outlook will still remain bullish. Uptrend from 1.1602 (2012 low) is expected to resume sooner or later. Break of 1.6765 will target 61.8% retracement of 2.1127 (2008 high) to 1.1602 at 1.7488 next. However, firm break of 1.5346 key support will indicate trend reversal, with bearish divergence condition in weekly MACD, and turn outlook bearish.

• Rates: Core bonds regain momentum
  The correction lower on the core bond rally during the first two weeks of April seems to be put to bed after yesterday’s strong rally. We embrace core bond’s new momentum with markets preparing for a more profound grow slowdown. Investors keep next week’s Fed meeting in the back of their minds.
• Currencies: Dollar jumps beyond key resistance
  The dollar extended gains yesterday. The trade-weighted dollar surpassed the 97.70 resistance and EUR/USD dropped below the 1.1177 range bottom. The dollar continues to profit from the relative US economic outperformance. Today, eco data are probably of second tier importance. For no there is no reason to row against the US positive momentum.

The Sunrise Headlines

• US equity markets lost modest ground yesterday (-0.2%) after setting all-time closing highs on Tuesday. Asian equities are trading mixed this morning with Japanese indices outperforming and Chinese indices underperforming.
• The Bank of Japan left its policy rate unchanged at -0.10% and pledged to keep interest rates ultra-low through at least the spring of 2020 as the BoJ forecast that inflation won’t hit the 2% target for at least another three years.
• The Bank of Canada abandoned previous indications about future rate rises and left the benchmark overnight rate unchanged at 1.75%. The BoC also reduced its 2019 domestic growth outlook. The loonie weakened on the news.
• Influential hardliners of UK PM May’s conservative party urged PM May to provide a clear timetable for her departure. However, the lawmakers decided, for now, not to change party rules so the PM could be ousted more easily.
• North Korean leader Kim Jong Un arrived in Russia and met with Russian president Putin for the first time. North Korea is seeking diplomatic support for backing in nuclear negotiations with US President Donald Trump.
• South Korea’s GDP growth shrank 0.3% (QoQ) in the first quarter of the year, the biggest fall since 2009, as exports contracted by 2.6% suffering from the US-China trade war. In year on year terms, growth fell from 3.1% to 1.8%.
• Today’s US eco calendar contains durable goods orders and capital goods shipments (excl. air) for March. Sweden’s Riksbank meets. The ECB publishes its Economic Bulletin, while ECB de Guindos speaks. Q1 earnings season continues.

Currencies: Dollar Jumps Beyond Key Resistance

Dollar jumps beyond important resistance

The USD jumped beyond important resistance levels yesterday (DXY 97.75 area). There were no US data and US yields were downwardly oriented. Even so, the dollar enjoyed a ‘by default’ bid as other major currencies suffered from an ongoing economic underperformance. In this respect, German IFO confidence disappointed again, suggesting ongoing sluggish growth in Europe’s major economy. EUR/USD initially hovered in the 1.12 area but fell below the 1.1187/77 support later to close at 1.1155. USD/JPY closed above the 112 mark (112.19). Overall dollar strength also weighed on most emerging markets currencies.

Asian equities show a mixed picture this morning with China and Korea underperforming. The Korean won suffers a substantial loss as Korea Q1 growth unexpectedly contracted (0.3% Q/Q). The BOJ left policy unchanged and committed to keep rates at current low levels at least through the spring of 2020. Still, the yen reversed most of yesterday’s loss against the dollar as investors adapt positions ahead of the golden week holidays. USD/JPY returned to the 112 area. EUR/USD consolidates after yesterday’s break lower (1.1155 area).

Today, there are few data in EMU. US durables orders are expected to rebound after a mediocre February performance. The series is volatile but the report (ex transportation) might confirm the outperformance of the US economy. US jobless claims are expected to stay low (200k).

Ongoing poor EMU data (PMI’s) last week pushed EUR/USD back to the low 1.12 area. At the same time, the dollar is supported by relative resilience of the US economy. The continuation of this story pushed EUR/USD yesterday below the 1.12/1.1177 MT range bottom. The break higher in the trade-weighted dollar (DXY) above the 97.70 area confirms the overall positive USD momentum. We expect any further USD gains to develop in a gradual way. Even so, for now, there is no reason to row against the USD positive tide. Next support comes in at 1.1110/19 (May/June 2017 lows).

EUR/GBP and cable flowed the broader price moves of the dollar and the euro yesterday. EUR/GBP dropped from the 0.8680 area to close at 0.8644. There were plenty of Brexit rumours, but no clear sign of progress. Today, the CBI order data are interesting but probably won’t have a lasting impact on sterling trading. The political pressure on UK PM May persists. Headlines on a potential new referendum on Scottish independence are also no help of for sterling. Euro and sterling weakness might keep each other in balance short-term.

DXY (USD-TW): dollar retains benefit of the doubt and breaks beyond key resistance

Daily Pivots: (S1) 1.1355; (P) 1.1407; (R1) 1.1434; More...

EUR/CHF's pull back from 1.1476 extends lower but stays above 1.1366 minor support. Intraday bias remains neutral first. Near term outlook stays bullish as long as 1.1366 minor support holds and further rally is expected. On the upside, decisive break of 38.2% retracement of 1.2004 to 1.1162 at 1.1484 should confirm completion of corrective fall from 1.2004. Further rally should then be seen to 61.8% retracement at 1.1682 and above. Nevertheless, break of 1.1366 would indicate rejection from 1.1484 fibonacci level and turn bias to the downside.

In the bigger picture, focus is back on 1.1444 resistance with current rebound. Decisive break there will indicate completion of the decline from 1.2004, with support from 61.8% retracement of 1.0629 to 1.2004 at 1.1154. In this case, further rise should be seen to 1.1713 resistance next. On the downside, firm break of 61.8% retracement of 1.0629 to 1.2004 at 1.1154 is now needed to confirm down trend resumption. Otherwise, medium term outlook will be neutral at worst.