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The single European currency depreciated about 59 base points against the Japanese Yen on Tuesday. A breakout occurred through the lower boundary of an ascending channel pattern at the end of yesterday's trading session.

The currency pair is currently stranded between SMAs. The 50– and 100-hour SMAs are providing resistance for the pair at 125.30, while the 200-hour simple moving average is providing support for the rate at 125.05.

Technical indicators flash sell signals on the daily time-frame. Therefore, the decline of the currency exchange rate could continue during the following trading session.

EUR/USD

Current level - 1.1261

The overall outlook remains positive above 1.1240, for a rise towards 1.1330. Crucial is 1.1210 low and a break through the latter will signal an imminent test of 1.1175 low, en route to 1.1015.

USD/JPY

Current level - 111.15

The downtrend is intact, heading towards 110.50 area. Crucial on the upside is 111.50 resistance.

GBP/USD

Current level - 1.3059

The recent test of 1.3120 resistance failed and the intraday bias is neutral. Nevertheless, I still favor an upswing to 1.3200 area, at least while 1.2960 support is intact.

The Euro holds within narrow range ahead of today’s key events, ECB, Fed minutes and Brexit decisions, which are expected to give fresh direction signals.

The European Central Bank policy meeting might be a non-event as the policy remains unchanged and similar rhetoric from the previous meeting in emphasizing downside risk is expected from Mario Draghi.

More action could be expected from EU summit’s Brexit decisions, as well as US CPI data and Fed minutes.

Recent recovery on profit-taking after past three-weeks fall was so far seen as adjustment as the action was capped by key barriers at 1.1280 zone (20SMA / Fibo 38.2% of 1.1448/1.1183).

Tuesday’s Doji with long upper shadow adds to negative signals from bearish momentum and stochastic penetrating overbought zone.

Repeated failure at 1.1280 zone barriers would signal recovery stall, with return and close below 10SMA (1.1231) needed to confirm reversal and shift focus lower.

Bullish scenario requires sustained break above 1.1280 to signal further recovery and expose next significant barriers at 1.1319 (55SMA / near 50%) and 1.1348 (100SMA / Fibo 61.8% of 1.1448/1.1183).

Res: 1.1284, 1.1319, 1.1348, 1.1385
Sup: 1.1255, 1.1244, 1.1231, 1.1200

In the late European session today (11:45,GMT) the ECB is expected to announce its interest rate decision and is widely expected to remain at 0.0%. Currently EUR OIS support such a scenario as they imply a 97.04% probability for the bank to remain on hold. Hence we expect the market's attention to turn to the accompanying statement and Mario Draghi's following press conference (12:30,GMT+3). Despite the recent slight pickup in the readings of the PMIs and the retail sales, we continue to see Eurozone's economic outlook as subdued, as the rates CPI are slowing down. After the latest meeting where any future rate move was pushed in 2020 and the offer of TLTRO's was announced, we do not expect to see any major shift in policy. We expect the tone to remain tilted to the dovish side. Currently, the ECB could be monitoring incoming data in an effort to determine the persistence and depth of the slowdown in the EUR area and whether it worsens. Main data for the ECB in the near future, in that regard could include domestic demand, in particular consumption and investment, and whether the weaker external environment, spills over into consumer sentiment and business investment decisions. It should be noted that in that respect, we could see the possibility and economic effect of a hard Brexit resurfacing, as well as the effect of US tariffs on European products. Never the less and despite most analysts considering the event as a low key event, we tend to maintain our reservations for a possible weakening of the EUR. Especially we tend to focus on Mario Draghi's press conference and whether he is to release any further dovish signals. EUR/USD had a rather restrained movement yesterday and surrendered any gains made during the European session, landing once again just below the 1.1260 (R1) resistance line. Should ECB's interest rate decision show increased dovish tendencies from the central bank, we could see the EUR weakening and the pair trading in a bearish market. Should the bears dictate the pair's direction, we could see it aiming if not breaking the 1.1220 (S1) support line. Should the bulls have another go we could see the pair breaking the 1.1260 (R1) resistance line and aim if not break the 1.1300 (R2) resistance level.

EU emergency Brexit summit

With rumors about London preparing to take part in the EU Parliament elections not being confirmed and an offer from Germany for a legally binding end date in five years for the Irish backstop being denied from the Germans, we are back to square one with Brexit. What is official is that the UK Parliament rejected Theresa May's deal with the EU once again, as it also rejected the possibility of a hard Brexit as well. Also the UK has asked for another extension to the Brexit, this time until the 30th of June. The Germans sound sympathetic to Theresa May's difficulties, while the French seem more strict and ask also for a valid reason and plan to grant any extension. We see three scenarios as being the main ones which could play out from the emergency summit regarding Brexit. The first scenario, would be for the EU to counter UK's request, with an offer for a longer delay (maybe 9 to 12 months). In such a scenario, the UK could have also the option to cut the Brexit date short should it find a solution, providing for some flexibility. In case such a scenario plays out, we could see the GBP strengthening as the danger of a hard Brexit is being removed for a considerable amount of time, providing for some flexibility for any further efforts to find a solution maybe even the possibility of Brexit being revoked altogether. The second scenario could involve the possibility of the EU granting an extension until the 30th of June as Theresa May has asked. Despite this scenario also, postponing the dangers of a hard Brexit, it provides little room to maneuver, hence it may provide with some support for the pound, yet the GBP is expected to remain in check, as uncertainty will persist. The last scenario would be no delay being granted. Despite a hard Brexit being in no-ones best interest and remaining the most extreme and abrupt scenario, the lack of any concrete progress on behalf of the British, the fact that it would take only one veto (EU members side) to deny an extension and there not being any lights at the end of the tunnel for the UK to make up its mind, could cause the scale to tilt towards a hard Brexit. In such a case the pound is expected to crash and many analysts seem to be targeting cable at 1.20. We retain as a base scenario the possibility of a long delay, in which case the pound could get some substantial support, however please be advised that such a scenario could have substantial repercussions in the inner UK political stage, with hard Brexiteers probably intensifying their efforts to discredit if not overthrow Theresa May and the UK taking part in the EU Parliament elections possibly. Cable yesterday surrendered any gains made during the European session, and landed below the 1.3070 (R1) resistance line. Should the EU grant an extended delay for Brexit, we could see the pair strengthening however it should be noted that also the financial releases and the release of the FOMC's meeting minutes could affect the pair's direction. Should the market be interested in the pair's long positions, we could see cable breaking the 1.3070 (R1) resistance line as well as the 1.3175 (R2) resistance level. Should cable come under the selling interest of the market, we could see it breaking the 1.2970 (S1) support line and aim for lower grounds.

Other economic highlights, today and early tomorrow

In today's European session, we get Norway's CPI rates for March and UK's GDP and manufacturing output growth rate for February. In the American session we get the US CPI rates for March and later on the FOMC meeting minutes. In Thursday's Asian session, we get China's CPI and PPI rates for March.

GBP/USD H4

Support: 1.2970 (S1), 1.2875 (S2), 1.2800 (S3)
Resistance: 1.3070 (R1), 1.3175 (R2), 1.3265 (R3)

EUR/USD H4

Support: 1.1220 (S1), 1.1175 (S2), 1.1130 (S3)
Resistance: 1.1260 (R1), 1.1300 (R2), 1.1340 (R3)

EURCHF continues to rise above the strong support level of the 20-month low of 1.1160, surpassing the 20-day simple moving average (SMA). According to the RSI, positive momentum could push for further gains in the short-term as the indicator picks up steam above 50. The stochastic is advancing in the overbought territory; negative corrections cannot be excluded.

In the positive scenario, where the price continues to expand above yesterday’s high of 1.1280, the pair could move towards the 23.6% Fibonacci retracement level of the downleg from 1.1710 to 1.1160, around 1.1290, which stands near the 40-SMA. If the market manages to overcome that area, immediate resistance would come from 1.1305 before steeper bullish actions take the price up to the 38.2% Fibonacci of 1.1370.

A reversal to the downside could stall at the bottom of March’s 29 at 1.1160, while sharper downside pressure could take the pair until 1.1000, identified by the inside swing top of August 2016.

Concluding, in the short-term EURCHF has been bullish over the last couple of weeks, with strong resistance the 40-SMA, while a break below 1.1160 could confirm the long-term bearish outlook.

USDJPY made a nice three-wave A-B-C pullback in wave 4), which represents a pause within uptrend with possible support around 111.04/110.9 area. That said, once price turns back above 111.57 region, that is when bulls are back in the game. A similar situation is with CADJPY, where we also see an a-b-c corrective decline in wave 4 with ideal support around 83.20 – 83.00 area that can act as a rebound back to the highs for wave 5. That being said, be aware of more upside while both pairs trade above invalidation levels.

USDJPY, 1h

CADJPY, 1h

General Trend:

• Financials, IT, Property and Materials firms are among the decliners in China
• Chinese automakers out perform, March auto sales declined at slower rate
• Large brokerage firms in China generally report m/m increases in March profits amid gains in the Shanghai Composite
• Chinese e-commerce firm JD.com denies report it plans to cut 8% of workforce
• Hong Kong equity market capitalization moves above Japan's - FT
• Australia’s Crown Ltd declines over 8% after terminating talks with Wynn
• Decliners in Japan include automakers, big banks and Electric Appliances companies
• Japan Display declines over 6%, did not give timeframe for aid agreement
• J Front Retailing rises over 3% in Japan after FY results and guidance
• China Iron Ore prices decline for first time in 8 sessions
• Short-term rates rise in China and Hong Kong as PBoC skipped OMO for 15th straight session
• China 10 year bond yields continue to rise as analysts debate rate outlook
• China sells 2 and 5-year bonds at higher than expected yields
• IMF raised China 2019 growth forecast, cut global growth estimate
• BoJ Gov: Recent negative bond yields not a problem for YCC
• Japan Fin Min and BoJ Gov comment on wages after Feb real cash earnings expectedly declined
• South Korea Fin Min: Semiconductor exports worse than govt forecast, extra budget unlikely to exceed KRW7.0T (vs prior speculation of lower than KRW9.0T)
• Taiwan Semi expected to report March sales later today
• ECB rate decision expected later today
• US Fed due to release March policy meeting minutes on Wed
• China March CPI data due on Thursday, expected to accelerate amid focus on rising pork prices
• Fast Retailing is due to report results after Nikkei close on Thursday

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.1%
• CWN.AU Confirms Wynn terminated talks
• (AU) Reserve Bank of Australia (RBA) Assist Gov Debelle: How tensions resolve in the coming months will be important for path of rates; see tension between strength in jobs and weakness in output data; tensions is critical to RBA outlook
• (AU) Australia Apr Westpac Consumer Conference 100.7 v 98.8 prior; M/M: +1.9% v -4.8% prior
• (AU) Australia sells A$900M v A$900M indicated in 2.75% Nov 2029 bonds, avg yield 1.8864% v 1.8158% prior, bid to cover 2.91x v 2.81x prior
• BEN.AU IOOF to acquire financial planning book for A$3.0M cash and additional payment after 1-yr

Japan

• Nikkei 225 opened -1.0%
• (JP) Bank of Japan (BOJ) Gov Kuroda: 2% inflation target helps long run currency stability; seeking to create condition in which inflation rises in line with rises in corporate profits and wages; inflation like to remain around 1% as wages aren't rising - speaking in parliament
• (JP) JAPAN FEB CORE MACHINE ORDERS M/M: +1.8% V 2.8%E; Y/Y: -5.5% V -4.6%E
• (JP) JAPAN MAR PPI M/M: 0.3% V 0.2%E; Y/Y: 1.3% V 1.1%E
• 6178.JP Japan Govt to cut stake to the legal minimum of just over 33% later this year, to complete the privatization process - financial press
• (JP) Japan Ministry of Defense reports a Lockheed Martin F-35A stealth fighter jet has disappeared from radar over the eastern Pacific Ocean – Nikkei
• (JP) Japan Jan Bank Lending Ex-Trusts Y/Y: 2.5% v 2.4% prior; Bank Lending Including Trusts Y/Y: 2.4% v 2.3% prior
• (JP) Japan Fin Min Aso: Will not do much good if inflation alone rises, capex and wages must also rise
• (JP) Japan Fair Trade Commission raids offices of Expedia, Rakuten and Booking.com Japan to investigate alleged anti-monopoly law violations - Nikkei

Korea

• Kospi opened -0.3%
• (KR) North Korea confirms to convene plenary session of ruling party central committee Wednesday to discuss the country's "new orientation" – KCNA
• (KR) South Korea Mar Unemployment Rate: 3.8% v 3.9%e
• (KR) South Korea Fin Min Hong: External conditions are deteriorated; chip sector growth slower than expected; semiconductor exports worse than govt expectations; Undecided on size of extra budget, likely to not exceed KRW7.0T (prior thought to be lower than KRW9T)

China/Hong Kong

• Hang Seng opened -0.4%; Shanghai Composite opened -0.5%
• (EU) EU's Tusk: talks with China have been difficult but fruitful - EU/China summit
• (CN) China CBRC calling for stricter standards for non-performing loans (NPL) - China Securities Journal
• (CN) China PBoC Open Market Operation (OMO): Skips for 15th consecutive session: Net: CNY0 v CNY0 prior
• (CN) China PBoC sets yuan reference rate: 6.7110 v 6.7142 prior
• (CN) China Mar retail passenger vehicle sales at 1.78M units, -12% y/y v -18.5% prior (10th straight month of decline)
• (CN) China March Smartphone shipments y/y: -4.1% v -19.9% prior - China Academy of Information and Communications Technology (CAICT)

North America

• (US) Fed's Clarida (moderate, voter): Jobless rate may have room to fall without inflation, given uncertainty around estimates of full employment; economy is at or near employment goals
• (US) Trump administration reportedly readying new edict on cross-border pipelines, such as Keystone XL – press
• (US) Weekly API Oil Inventories: Crude: +4.1M v +3M prior
• (US) Fed's Quarles (hawk, voter): White House comments do not factor in Fed decisions, remain data driven and very disciplined; Recent dissents in Fed votes are healthy
• UBER.IPO Said to plan to sell ~$10B worth of stock in IPO, ready to file as soon as Thursday - financial press

Europe

• (UK) Parliament approves PM May's plan to ask for a Brexit extension to June 30th
• (UK) EU officials said to consider offering UK extension of Brexit deadline to March 30, 2020 with final date to be confirmed – press
• (UK) Chancellor of the Exchequer Hammond (Fin Min): MPs could remove article 50 to prevent no deal sinking value of pound
• (IL) Israel’s Netanyahu said to have won the election after 96% of the votes were counted (Channel 12)

Levels as of 1:20 ET

• Nikkei 225, -0.6%, ASX 200 +0.1%, Hang Seng -0.2%; Shanghai Composite -0.1%; Kospi +0.2%
• Equity Futures: S&P500 +0.1%; Nasdaq100 +0.1%, Dax +0.3%; FTSE100 flat
• EUR 1.1272-1.1255 ; JPY 111.23-111.05 ; AUD 0.7142-0.7106 ;NZD 0.6755-0.6741
• Gold -0.1% at $1,306/oz; Crude Oil +0.2% at $64.09/brl; Copper flat at $2.934/lb

UK GDP rose 0.2% mom in February, down from January's 0.5% mom but beat expectation of 0.0% mom. Index of services rose 0.1% mom, while index of production rose 0.6% mom. Manufacturing rose 0.9% mom. Construction rose 0.4% mom. Agriculture dropped -1.3% mom.

Rolling three-month growth rate (Dec to Feb) was unchanged at 0.3%. Services contributed 0.29%, production 0.02% and construction -0.04%.

Commenting on today's GDP figures, Head of GDP Rob Kent-Smith said: "GDP growth remained modest in the latest three months. Services again drove the economy, with a continued strong performance in IT. Manufacturing also continued to recover after weakness at the end of last year with the often-erratic pharmaceutical industry, chemicals and alcohol performing well in recent months."

Also from UK, in February, industrial production rose 0.5% mom, 0.1% yoy versus expectation of 0.1% mom, -0.8% yoy. Manufacturing production rose 0.9% mom, 0.6% yoy, versus expectation of 0.2% mom, -0.7% yoy. Construction output rose 0.4% mom versus expectation of -0.3% mom. Visible trade deficit widened to GBP -14.1B.

EURJPY is building a downtrend below 127.49 since the start of March, with the pair being set to register another lower high this week around 125.60. The technical picture suggests neutral conditions for short-term trading as the RSI and the MACD hover in neutral territory.

Yet a close above 126.77 would question the short downtrend and boost bullish sentiment, shifting attention straight up to 127.53 and near to the 200-day moving average (MA). An aggressive rally above the latter could increase buying orders significantly, with resistance coming next around the 129.30 restrictive area.

Alternatively, a fall below 124.26 would add confidence to the recent downward pattern, while under the previous low of 123.75, traders may increase their selling positions significantly, driving the price probably towards the January 4 low of 122.38.

In the medium-term timeframe a strong run above the 200-day MA would put the market back into the bullish mode, while a decisive close below 122.38 would confirm the start of a bearish phase.

Today is the most important day for traders, the European Central Bank will deliver its verdict about its monetary policy for the Eurozone. The economic clouds have become dark, the ECB is under pressure to respond accordingly.

The economic data out of the Eurozone shows that the growth has become feeble and there is a strong need for more support from the ECB. The bank has lowered its growth forecast for the Eurozone but still, the economic situation doesn’t warrant for another quantitative easing package from the ECB. Having said this, the policymakers do have every right to take all the precautionary measures in order to handle the situation.

Two Important Factors

This argument becomes even more compelling when we start to factor in two important elements: firstly, Donald Trump is ready to start another trade war. He hasn’t learned any lesson from the current trade war with China. The war has not only impacted the US economy but also the world growth as well. But, he is ready for more. In his latest comments, the president has said that he is prepared to slap tariffs of $11 billion in imports from the EU. This is surely a matter of concern for the ECB who has fought hard to revive the growth in the Eurozone.

Finally, the Italian growth and debt conditions have become dire. The country’s growth shows that the recession is on its doorsteps and there is a serious political turmoil as well. The current government is in a battle with the European Commission over its budget deficit. Evidently, there is a strong need for structural reform but no one is ready for austerity.

No Firework Expected

Despite all of this, we are not expecting any major shift in the economic policy from the ECB today. Mario Draghi, the president of the ECB may increase the volume on his warning about the risks to growth and inflation. Looking at the three different manufacturing PMIs (chart below), it clearly shows that the Eurozone is lagging well behind the U.S. and China.

The ECB can no longer afford to remain the weakest link. The structural problems in the five bigger economies in the eurozone has become troublesome for the bank. I expect the bank to send a clear message to the governments that they need to play their part with respect to the structural reforms otherwise, countries like Italy would continue to weigh on the growth.

The Question

So the question is what will happen to the Euro today?

Since, the start of this year, we have seen one clear dominant trend for the currency: it is skewed to the downside against the dollar. Traders have sold the currency on every recovery. They have used this an opportunity to increase their short positions. The economic data doesn’t warrant the ECB to stay positive, so there is a little to no hope for the bulls today.

If the overall focus of the speech is on the negative factors, the Euro could test the support of 1.1174 against the dollar today. On the flip side, if the Bank shows its optimist side, although, hard to think which factors can make that, the Euro could trigger a large number of stop losses. This could result in pushing the Euro-Dollar pair higher-testing the resistance at 1.1350.