Wall Street closes off another winning week

US indices completed another positive week with strong bank earnings lifting the SPX500. Encouraging data and M&A rumours helped sentiment while global finance chiefs at the IMF meeting were confident that the world economy will rebound.

US30USD Daily Chart

The US30 index rose for a second straight week last week, hitting the high for the week on Friday

The next possible resistance point could be October’s high of 26,960. The rising 55-day moving average is at 25,737

The NY Empire State manufacturing index is expected to rebound to 6.0 in April from 3.7 in March.

DE30EUR Daily Chart

The Germany30 index extended its recent rally to three weeks last week, rising to the highest since October 8 on Friday, as it tracked gains in Asia

The index is still holding below the 61.8% Fibonacci retracement level of the May-December drop at 12,089

There are no economic data from either Germany or the Euro-zone scheduled for today. ECB policymakers were said to be leaning towards offering negative rates on targeted loans to banks that achieve lending targets.

CN50USD Weekly Chart

The CN50 index rebounded off 1-1/2 week lows on Friday after new loans data for March came in well above expectations, implying that stimulus measures are filtering through to the Chinese economy and hopefully supporting it

The rebound was not enough to bring the index into positive territory for the week as it suffered the first down-week in three weeks. The 78.6% Fibonacci retracement of the 2018 drop is at 13,917

New loans hit 1.69 trillion yuan ($252 billion) in March, higher than the 1.2 trillion expected. Today we see Foreign Direct Investment data for March, which rose 5.5% y/y last month.

Collective sighs of relief

Markets breathed a collective sigh of relief on Friday as both China data and the first of the US bank earnings came out firmly in the green. China trade data recovered with the trade surplus surging to USD32.64 billion and the street ignoring collapsing imports, while new loan growth held steady at +13.7%. Over on Wall Street, JP Morgan and Wells Fargo both beat expectations and Disney jumped more than 11.0% to show that perhaps the recovery is not Mickey Mouse after all.

Meanwhile, the S&P rose 0.7%, the Nasdaq was up 0.45%, and the Dow Jones jumped a very respectable 1.0%, driven by Disney. Bond yields in both Europe and the US continue to gently rise on the global recovery story with the inverted yield curve panic of recent times a distant short-term memory in the minds of traders.

Over the weekend, Treasury Secretary Mnuchin made upbeat comments on progress with the US-China trade talks, and the joint World Bank/IMF conference also made optimistic noises on the state of the world economy.

This should ensure Asia enjoys a positive start to the week, which will be a busy one both politically and from a data perspective. Asia’s highlights occur on Wednesday with the China GDP and Indonesia going to the polls. Both have the potential to bring volatility to local markets. Japan and Singapore release trade data the same day, ensuring the midweek has a “Big Wednesday” look to it.

FX

The US dollar steadily lost ground against major currencies on Friday as risk sentiment improved following China’s trade balance data. The euro (EUR) led the charge higher, rising to 1.1300 on alleged M&A flows. The single currency was given an additional lift as Wall Street’s positive earnings began to hit the wires, also flowing through to China high-beta currencies such as the Australian and New Zealand dollars – the antipodeans both recorded 50-point rises.

With no negative news to deflate Friday’s positive outlook, we expect Asian currencies to get off to a positive start today with only second-tier Indonesia and India data to light up the tickers this afternoon.

Equities

The positive risk environment flowing on from Wall Street on Friday should ensure Asia’s stock markets all track higher as the week starts. Indonesian election nerves will likely limit gains in Jakarta, but the other markets should have a clear runway.

The US reporting season turns into a daily deluge this week with rafts of heavyweights from different sectors reporting each day, which should keep Wall Street honest (readers may debate this possibility).

Oil

The global growth story, worries about the deteriorating situation in Libya and consequent potential production loss inevitably flowed into oil prices on Friday. Brent crude rose 0.9% to USD71.50 a barrel, while WTI jumped 0.3% to 463.80 a barrel.

The rise in prices was muted by oil’s recent standards, reflecting the extremely overbought technical picture, and the fact that a lot of good news has been pumped into prices. Winter is coming to HBO this morning, and it may also be coming to oil prices in the not-too-distant future.

Gold

Gold fell slightly to USD1,290.00 an ounce on Friday, supported by a weaker dollar but capped by rising equities and bond yields. The best that can be said is at least the yellow metal held its own following its fall from grace last Thursday. The USD1,280.00 region remains the critical longer-term support.

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US Treasury Secretary Steven Mnuchin said trade negotiations with China are "close to the final round of concluding issues". But he emphasized that this is "not a public negotiation". And it's a "very, very detailed agreement covering issues that have never been dealt with before".

Mnuchin claim that "this is way beyond anything that looked like a bilateral investment treaty." He said the two sides are negotiating an agreement with seven chapters that would be "the most significant change in the trading relationship in 40 years."

Also, there will be "real enforcement on both sides". And he expected the enforcement mechanism to work in "both directions". "If we don't, there should be certain repercussions, and the same way in the other direction."

ECB President Mario Draghi said he's "certainly worried about central bank independence in other countries, especially... in the most important jurisdiction in the world'. He emphasized, "central banks ought to be left free to choose what's the best way to comply with the mandate."

He added: "Because if you don't let them be free, then they're not accountable. That's the central banking framework since the 80s everywhere."

On Eurozone economy, he warned that risk of hard Brexit and global trade war continued to "loom large". But he's still optimistic that factors weighing down Eurozone growth are waning. And there will be recovery in the second half.

SNB Chairman Thomas Jordan said over the week end that currently, Swiss Franc's exchange rates were "still highly valued". But "there is no reason to change monetary policy". However, he also emphasized SNB has room "to lower interest rates further", "to use the balance sheet" and "for interventions in foreign exchange markets".

He also added that profits of the banking system have been relatively stable despite SNB's negative interest rates. Though, it's still improtant to keep an eye on risks as many major central banks set low or negative interest rates.

The financial markets were generally dominated by positive sentiments last week. Major global economic risks seemed to be receding generally, even though some uncertainties remain. The development was best seen in the strong rally in treasury yields. US 10-year yield closed the week up 0.059 at 2.56, above 2.554 key resistance and pointed to near term reversal. German 10-year bund yield closed up 0.055 at 0.059, positive and highest since late March. Even Australian 10-year yield also closed up 0.070 at 1.965, also highest since late March. Stocks lagged behind though, as DOW, DAX and China Shanghai SSE failing to make new highs.

In the currency markets, Yen and and Swiss Franc are the biggest losers of the weak. Dollar followed as third weakest but it's indeed bounded in range against Sterling and Canadian. EUR/USD's recovery also showed little conviction. Australian Dollar was the strongest helped additionally by up trend resumption in iron ore prices. Euro was second strongest, partly helped by rebound in crosses in EUR/CHF, EUR/GBP, EUR/AUD and EUR/CAD earlier in the week. It's doubtful if Euro could sustain the momentum.

Receding global economic risks, some uncertainties remained

Major global economic risks seemed to be generally receding. Economic data from China continued to point to improving chance to avoid steepened slowdown. Surprised 14.2% yoy rise in Chinese exports as released on Friday triggered most of the moves in the markets. It's a strong sign of robust global demand. But then, firstly, persistent decline in China imports was a clear indication of domestic weakness. Secondly, like manufacturing PMIs, March data could be distorted by seasonal factor in Chinese New Year.

US-China trade negotiations finally seemed to be making some significant progress. US Treasury Secretary Steve Mnuchin indicated that both sides have pretty much agreed on an enforcement mechanism, including establishments of so called enforcement offices. It seems that the talks have moved from the stage of terms to execution. Judging from that, Trump's claim of having a deal in four weeks is not impossible. However, uncertainty on US trade policy remains as Trump could be moving his target to EU and Japan in the upcoming weeks, including the use of threat of auto tariffs.

An abrupt, no-deal Brexit is now temporarily off the table after EU granted UK a medium flexible Article 50 extension till October 31. While there is no resolution in the impasse in the Parliament, it has at least delayed the cliff edge by nearly six months. UK MPs could now even afford to have an Easter recess to have a reflection, as Prime Minister Theresa May urged.

FOMC minutes and comments from Fed officials continued to solidify its "patient" stance. To be more exact, interest rate is now at the lower end of neutral, and balance sheet runoff is set to end later this year. Monetary policy normalization is consider rather successfully completed with unemployment rate at decades low and core inflation just slightly below 2% target. It's hugely different from the situation later year when Fed's stance was move towards neutral if nothing special happened. Now, it's "don't move" if nothing special happens. Also, Fed officials continued to remind people that it's got a "symmetric" inflation target. Thus, Fed's stance would remain "don't move" even if core inflation could hit above 2% level for a while.

Global treasury yields jumped on improving sentiments

10-year yield's rebound from 2.356 resumed last week and closed above 2.544 support turned resistance. The development now suggests that fall from 3.248 has completed at 2.356, just ahead of 61.8% projection of 3.248 to 2.554 from 2.759 at 2.330. Sustained break of 55 day EMA (now at 2.600) will bring further rise to 2.759 key resistance. Reactions to 2.759 will determine whether the correction fro 3.248 has completed totally, or just the first phase.

German 10-year bund yield also closed above supported turn resistance level at around 0.05.

S&P 500 could hit a ceiling soon

S&P 500 was the relatively stronger major US stock index last week. Rise from 2346.58 extended last week and is on track to retest 2940.91 high. Based on current momentum, breach of 2940.91 could be seen. But still, we're seeing such rise as the second leg of consolidation pattern from 2940.91 only. And, long term up trend shouldn't be ready to resume yet. Another falling leg is still expected and break of 2873.33 support will bring near term reversal to 55 day EMA (now at 2795.56) first.

Dollar index gyrated lower below 97.71 key resistance

Dollar index gyrated lower last week and is staying in the consolidation pattern from 97.71. For now, we're no seeing any clear sign of upside break out yet. Hence such consolidation is mildly in favor to extend. Sustained break of 55 day EMA (now at 96.74) will start the third leg back to 95.02 support. Though, firm break of 97.71 will confirm resumption of whole up trend from 88.25 (2018 low).

Iron ore resumed medium term up trend

Strong rally in iron ore price is a key factor underpinning Australian Dollar's strength last week. Increased demand from Chinese steelmakers and declining supplies from producers are seen as the major driving factors. It's noted that global iron ore market is facing a short fall of around 34m tonnes this year, with disruptions of supply in Brazil and Australia. The current rally price could extend well into second half should a technical level at 95.61 be taken out decisively.

USD/JPY Weekly Outlook

USD/JPY's pull back from 111.82 was contained by 55 day EMA last week. Rise from 109.71 then resumed by surging through 111.82 to as high as 112.09. Initial bias remains on the upside for 112.13 resistance first. Break will resume whole rise from 104.69 for100 % projection of 109.71 to 111.82 and 110.84 at 112.95 first. On the downside, break of 110.84 is needed to confirm completion of rise form 109.71. Otherwise, further rally will remain in favor in case of retreat.

In the bigger picture, medium term outlook in USD/JPY remains a bit mixed as it's staying inside falling channel from 118.65, but there are signs of bullish reversal. On the upside, break of 114.54 resistance will revive the case the corrective fall from 118.65 has completed with three waves down to 104.69. And whole rise from 98.97 (2016 low) is resuming for 118.65 and above. But before that, outlook stays neutral first.

In the long term picture, the rise from 75.56 (2011 low) long term bottom to 125.85 (2015 high) is viewed as an impulsive move, no change in this view. Price actions from 125.85 are seen as a corrective move which could still extend. In case of deeper fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77. Up trend from 75.56 is expected to resume at a later stage for above 135.20/147.68 resistance zone.

First, a review of last week’s events:

EUR/USD. Many traders complain of low volatility in the market. But even despite the pessimism of Mario Draghi shown by him after the ECB meeting on Wednesday 10 April, the euro managed to win back about 100 pips from the dollar over the past week and return to the very strong support/resistance zone of 1.1300, around which the pair started moving back in January 2015. The reason for this is most likely the delay in Brexit.

As a result, the forecast which was given by 40% of analysts, supported by 20% of oscillators signaling that the pair was oversold, turned out to be correct. According to them, having pushed off support in the 1.1200 zone, the pair had to go up to resistance 1.1255 and, in case of a breakthrough, reach the height of 1.1300. And this actually happened;

GBP/USD. The overwhelming majority of analysts (65%) expected the strengthening of the British currency. Their forecast was based on the fact that an extraordinary meeting of the European Council would support a long extension of the Brexit procedure, and that the UK would not withdraw from the EU without a deal on April 12. That is exactly what happened. The British Parliament passed a law prohibiting a no-deal withdrawal, and the European Council delayed Brexit for up to six months. They would have given a longer delay if it were not for Macron, the president of France, who cannot wait to take the second place in the EU, after Germany, after the departure of the islanders.

Graphical analysis on D 1 indicated a level of 1.3120 as the main resistance zone, which the pair reached on Tuesday, April 9, but failed to overcome it after 3 attempts. And in the end it finished the week at 1.3070;

USD/JPY. 85% of the experts were confident that the pair would necessarily test the upper limit of the medium-term channel 109.70-112.15. And on Friday, April 12, it almost reached the target, rising to the height of 112.09. However, before that, the pair dropped to the center line of this channel and, only pushing away from it, showed an impressive rise of 115 points. Such a rise of the pair and the strengthening of the dollar against the yen were caused, according to analysts, primarily by the increase in the yield of long-term US bonds in the last two working days of the week;

Cryptocurrencies. The forecast for Bitcoin was justified by almost 100%. According to 70% of analysts, the main fluctuations of the BTC/USD pair were to occur in the range of $5,000-5,500, where it moved most of the time. Experts also expected bears to try to lower the pair below $4,800, however, all of the attempts were unsuccessful, and the local bottom was fixed at $4,930. As a result, the reference cryptocurrency completed the weekly cycle almost at the same place where it began, in the $5,100 zone.

It should be noted that $5,100 is exactly the height to which Bitcoin unexpectedly took off on Tuesday, April 2. According to the basic version, that price spike was caused by just one investor, who left bids for the purchase of BTC for $100 million on three major exchanges, Coinbase, Kraken and Bitstamp. And the fact that the bull trend has not found its development testifies in favor of this particular version, since a one-time purchase, even for $100 million, cannot be a sufficient reason to start a steady growth of the market.

And if Bitcoin, as well as Ethereum (ETH/USD), kept in the side corridor, the quotes of Ripple (XRP/USD), Litecoin (LTC/USD), EOS and some other top altcoins went into minus. Just on Thursday, April 11, they sank an average of 10%.

As for the forecast for the coming week, summarizing the opinions of a number of analysts, as well as forecasts made on the basis of a variety of methods of technical and graphical analysis, we can say the following:

EUR/USD. If 60% of the trend indicators on D1 are still painted green, the oscillators show a completely different picture: a third of them have acquired a neutral gray color, and another third already signals the pair is overbought. 65% of experts also expect that if not immediately, then by the end of the month, the pair will go down, trying to test again, first the April 2 low - 1.1183, and then the March 07 low, 1.1175. The nearest support is 1.1250;

At the same time, graphical analysis on H4 suggests that before heading south, the pair may rise for a while above the level of 1.1300, reaching the height of 1.1350. The next target of the bulls is 1.1420;

GBP/USD. Experts believe that the euphoria caused by the Brexit delay will quickly subside, and the pair will stay in a side trend for some time, moving within 1.2985-1.3150. The nearest support is 1.3050, the resistance is 1.3120. However, in the transition to the medium-term forecast, it is already 60% of analysts who have sided with the bulls, expecting the strengthening of the British pound and the pair’s transition to the 1.3200 -1.3350 zone. But the accuracy of this forecast again depends on what will happen around Brexit. There remains a risk of a second referendum, which may entail both a refusal of Brexit in general and, conversely, a British exit from the EU without an agreement. Any news and rumors on this subject can quickly turn the trend in one direction or another, but for now the demand for British currency remains very weak;

USD/JPY. The bull scenario remains a priority: 70% of the experts, supported by 100% of the trend indicators, look to the north. According to them, if the yield on 10-year US Treasury bonds continues to grow, the pair, relying on support around 112.00, can rise to the area of 113.00-114.20.

However, since at the moment the pair is in the reversal zone near the upper boundary of the medium-term channel 109.70-112.15, a downward rebound of the pair is not excluded, as evidenced by signals from 25% of oscillators indicating it is overbought. Support levels are 110.85, 110.35 and the lower boundary of the channel is 109.70. USD/JPY quotes can also be affected by US-Japanese trade negotiations at the beginning of the upcoming week;

Among other events to which attention should be paid are the following publications: data on the UK labor market and the index of business sentiment ZEW (Germany) on Tuesday, April 16; China's GDP, the UK Consumer Price Index and the Eurozone Inflation Report on Wednesday April 17; UK and US retail sales data on Thursday, April 18; and finally, Japan's consumer price index on Friday, April 19;

Cryptocurrencies. In general, the news background around the main cryptocurrency is quite positive. The Bitcoin network has overcome another milestone. Over the entire history of the first cryptocurrency, its blockchain has processed more than 400 million transactions. At the moment, the network processes about 350 thousand transfers per day or 14.9 thousand per hour. Approximately 81.5 thousand BTC moves every 60 minutes, and the average transaction size is 5.44 BTC.

Financial analyst and co-founder of Fundstrat Global Advisors Tom Lee said optimistically in an interview with Bloomberg that Bitcoin is back in a bullish trend and the fair price for it today is $14,000. However, not everyone shares his attitude. For example, Brian Armstrong, the head of Coinbase Exchange, believes that the mass influx of investors into the crypto sphere will begin only after three main tasks related to digital assets have been solved. This is the scalability, usability and Bitcoin volatility.

If we talk about a medium-term forecast, the majority of analysts (70%) believe that the BTC/USD pair will necessarily reach $6,000. However, in the coming days, it is likely to move in the range of $4,935-5,335, making attempts to break through these boundaries in one direction or another. So, considering emissions, the range of fluctuations can be expanded to $4,600-5,500.

EUR/USD's recovery from 1.1183 extended higher last week. Despite weak upside momentum, further rise is expected this week with 1.1250 minor support intact. Rebound from 1.1183 could target 1.1448 resistance next. In that case, we'd expect strong resistance between 1.1448/1569 to limit upside. On the downside, below 1.1250 minor support will turn bias to the downside. Decisive break of 1.1176 will resume the down trend from 1.2555.

In the bigger picture, EUR/USD has been losing downside momentum around 61.8% retracement of 1.0339 (2016 low) to 1.2555 (2018 high) at 1.1186. But for now, there is no clear sign of medium term reversal yet. Downside from 1.2555 is expected to resume sooner or later as long as 1.1569 structural resistance holds. Decisive break of 1.1186. could pave the way back to 1.0339 low.

In the long term picture, the rejection from 38.2% retracement of 1.6039 to 1.0339 at 1.2516 argues that long term down trend from 1.6039 (2008 high) might not be over yet. EUR/USD is also held below decade long trend line resistance. Firm break of 61.8% retracement of 1.0339 to 1.2555 at 1.1186 should at least bring a retest on 1.0339 low. This will remain the favored case as long as 1.1569 resistance holds.

As suggested in the CFTC Commitments of Traders report in the week ended April 9, NET LENGTH in USD Index increased +598 contracts to 29 446. Both speculative long and short positions dropped as the market awaited the FOMC minutes. All other major currencies stayed in NET SHORT positions. Concerning European currencies, NET SHORT for euro futures gained +3 014 contracts to 102 198 with bets decreased on both sides. The market awaited the April ECB meeting. While the market had expected the central bank to be more dovish, it is far from certain as the economic data improved during the inter meeting period. NET SHORT for GBP futures dropped -3 415 contracts to 6 516. Speculative long positions dropped -3 163 contracts while speculative shorts plunged -6 578 contracts for the week. Again, traders trimmed bets on sterling amidst Brexit uncertainty. We won't be surprised if bets in the coming week remains sluggish. Although EU eventually approved extension of Brexit to October 31, the divided UK Parliament appears not ready to compromise for a deal.  On safe-haven currencies, Net SHORT for CHF futures rose +1 880 contracts to 28 146. NET SHORT for JPY futures jumped +8 779 contracts to 71 520 during the week. Speculative long positions slipped -548 contracts while shorts jumped +8 231 contracts. On commodity currencies . NET SHORT for AUD futures dropped -1 327 contracts to 54 416. Speculative long positions gained +1 930 contracts while shorts added +603 contracts. NET SHORT for NZD increased +1 078 contracts last week, with both speculative long and shorts position decreased last week. NET SHORT for CAD futures declined -1 121 contracts to 43 202.