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USDZAR recovered significant ground in recent months, climbing above both its 50- and 200-day simple moving averages (SMAs) to post a new five-month high of 14.74 last week. Even though the pair retreated a little afterwards, the new high at 14.74 has nullified the previous trending structure of lower peaks and lower troughs, and suggests that the medium-term outlook is now neutral.

Momentum oscillators concur with that assessment, as the RSI is flat near its neutral 50 level, while the MACD is also very close to zero.

Another wave of declines could meet immediate support near the 14.05 zone, where both the 50- and 200-day SMAs are roughly located as well. A downward violation could see the bears challenge 13.80, the low of February 26, with even steeper losses opening the way for a test of 13.22.

On the upside, the first major obstacle may be the March 28 high of 14.74. If the bulls manage to pierce above it, they could aim for 14.85 next, before the October peak of 15.06 comes into view. Another break above 15.06 would turn the picture to cautiously positive, from neutral currently.

In brief, the outlook is currently neutral, with a break either above 15.06 or below 13.22 needed to change that.

The blue chip EU50 stock index restored bullish dynamics after meeting resistance at the 200-day moving average (MA) and hit a six-month high of 3,440 on Wednesday. While the RSI and the fast stochastics are warning over an overbought market, as the former is crawling above 70 and the latter is ready for a bearish cross above 80, a golden breakout between the 50- and the 200-day MAs is in progress, a sign that the recent upward pattern may extend to the bigger picture.

The market should hold above 3,400 for investors to resume confidence on the January uptrend. Otherwise, a decline below the pink line could bring further losses probably towards the 3,340 resistance-turned-support level. Breaking that barrier, downside corrections may stretch into the 3,278-3,260 restrictive region where the 50- and the 200-day MAs meet each other. Should the bears beat that wall too, a fresh sell-off could start probably towards 3,175.

In the positive scenario, the market would aim for a rally above 3,453, the peak on September 27. Another leg higher could also retest resistance between 3,515 and 3,535, which if violated could push gains towards a more important barrier around 3,590.

In brief, the index is in a bullish mode both in the short and the medium-term (three-month view).

US futures opened higher and European markets followed this momentum in the positive direction

Stocks

• The S&P 500 Index gained 0.2 percent as of 15:00 London time, while the Nasdaq Composite Index jumped 0.51 percent and the Dow Jones Industrial Average rose less than 0.16 percent.
• The Stoxx Europe 600 dropped 0.2 percent.
• The MSCI Emerging Market Index lost 0.3 percent.

Currencies

• The Bloomberg Dollar Spot Index gained 0.2 percent.
• The Euro maintained its critical level of 1.12 but eased 0.27 percent to $1.1214, the yen also dropped about 0.1 percent to 111.58 per dollar.
• The British pound lost some its gain from yesterday and dropped 0.41 percent to $1.3116, breaking its four consecutive days of gain.

Bonds

• The yield on 10-year Treasuries dropped about one basis point to 2.51 percent.
• Germany’s 10-year yield fell one basis point to negative 0.004 percent.
• Britain’s 10-year yield lost one basis point to 1.086 percent.

Commodities

• WTI dropped  0.05 percent to $62.43 a barrel.
• Gold dropped 0.54 percent to $1,283 an ounce.

USDCAD faces upside risk following its price rejection on Wednesday. Support comes in at the 1.3300 level where a break will aim at the 1.3250 level. Further down, support comes in at the 1.3200 level where a turn lower may occur. But if further weakness is triggered support comes in at the 1.3400 level. Conversely, resistance lies at the 1.3450 level where a violation will target the 1.3500 level. Further up, resistance resides at the 1.3550 level and then the 1.3600 level. Its daily RSI is bullish and pointing higher suggesting further upside. All in all, USDCAD faces upside risk as it looks to strengthen further higher.

Daily Pivots: (S1) 1.1204; (P) 1.1230; (R1) 1.1258; More.....

EUR/USD dips notably in early US session but stays well above 1.1176 low. Intraday bias remains neutral first and more consolidative trading could be seen. But further decline is still in favor as long as 1.1273 minor resistance holds. Sustained break of 1.1176 low will resume whole decline from 1.2555. On the upside, however, break of 1.1273 support turned resistance will confirm short term bottoming. Intraday bias will be turned back to the upside for 1.1448 resistance instead.

In the bigger picture, medium term weakness was revived as the weak rebound from 1.1176 was rejected well below 55 week EMA and failed to sustain above 55 day EMA. Focus is back on 1.1176 low, with 61.8% retracement of 1.0339 (2016 low) to 1.2555 (2018 high) at 1.1186. Decisive break there will resume whole down trend from 1.2555. Such decline target 1.0339 low next. On the upside, firm break of 1.1569 resistance is needed to be the first sign of medium term bottoming. Otherwise, downside breakout will be in favor.

Daily Pivots: (S1) 1.3121; (P) 1.3158; (R1) 1.3195; More....

Consolidation from 1.3381 is still extending and intraday bias in GBP/USD remains neutral. More sideway trading could be seen. On the upside, firm break of 1.3381 will target 61.8% retracement of 1.4376 to 1.2391 at 1.3618 next. However, on the downside, firm break of 1.2960 will indicate that rebound from 1.2391 has completed earlier than expected. Deeper fall would then be seen to 1.2773 support for confirmation.

In the bigger picture, medium term decline from 1.4376 (2018 high) should have completed at 1.2391. Rise from 1.2391 is seen as the third leg of the corrective pattern from 1.1946 (2016 low). Further rise could be seen through 1.4376 in medium term. On the downside, though, break of 1.2773 support will dampen this view. Focus will be turned back to 1.2391 low and break will resume the fall from 1.4376 to 1.1946.

Daily Pivots: (S1) 0.9961; (P) 0.9974; (R1) 0.9996; More...

USD/CHF's recovery is trying to extend but it's limited below 1.0010 minor resistance. Intraday bias stays neutral first. On the upside, break of 1.0010 minor resistance will suggest that pull back from 1.0124 has completed. Intraday bias will be turned back to the upside for 1.0124/28 resistance zone. On the downside, break of 0.9879 will resume the fall from 1.0124 to 0.9716 key support.

In the bigger picture, focus is back on medium term trend line (now at 0.9849). Decisive break there will argue that whole rise from 0.9186 has completed. Further break of 0.9716 will confirm reversal and target next support level at 0.9541. Nevertheless, there is still a chance that price action from 1.0128 are forming a consolidative pattern with fall from 1.0124 as third leg. If this is the case, stronger support should be seen between 0.9716 and the trend line to contain downside.

Markets

Global core bonds gained ground today as the risk rally of recent days loses momentum. US eco data (ADP employment and non-manufacturing) missed expectations yesterday, putting a halt to recent declines in core bonds. German Bunds opened neutral but moved higher after German factory orders declined 4.2% in February, well below expectations. Later, the Italian Treasury is said to slash the Italian growth forecast for this year from 1% to 0.1% in its budget draft, pushing the budget deficit up to 2.3/2.4% compared to the 2.04% agreed to with the EU commission last year. Bunds continued to rise. The German yield curve is edging lower with changes in the range of -0.2 bps (2-yr) to -2.9 bps (30-yr). US Treasuries moved higher during EU trading but largely paired those gains ahead of the US opening bell as this week’s initial jobless claims fell to 202k, the lowest level since December 1969. The US yield curve moves south with the belly of the curve outperforming with changes up to -1.3 bps (10-yr). French bonds moved higher after strong bond auctions, while Italian BTP futures shrugged of lower growth projections (supra). (Semi-)peripheral spreads over the German 10-yr yield are tightening, with Greece (-3 bps) and France (-2 bps) outperforming. Italy (+1 bp) underperforms.

Yesterday’s EUR/USD rebound stalled. The eco news flow was rather thin. The euro supportive risk rally also took a breather as investors are looking forward to more concrete news on the US-China trade talks and tomorrow’s key US payrolls. German February factory orders again printed at an awful -4.2% M/M and -8.4% Y/Y. The reaction of European yields and of the euro was modest. Evidently it didn’t help the single currency. EUR/USD started a gradual intraday correction. Later, the euro (and Italian assets) also faced some headwinds from headlines that Italy will downwardly revise its growth forecast, with a negative impact on the budget deficit. This afternoon, US jobless claims printed at a strong/low 202K, confirming an ongoing healthy US labour market. There is no direct connect with tomorrow’s payrolls, but the dollar traded with a tentative positive bias this afternoon. EUD/USD has drifted back lower to currently trade in the 1.1215/20 area. USD/JPY gained a few ticks to return to the mid 111 area.

EUR/GBP continued a similar wait-and-see trading pattern as was the case yesterday. The pair held a tight sideways range close to, mostly slightly below, the 0.8550 level. Talks between the conservative party and the labour opposition in order to find a Brexit compromise are said to continue. However, for now it is not sure a deal will be reached and what the reaction of May’s own party will be. EU sources also warn that a (short) delay of Brexit shouldn’t be taken for granted as the EU leaders meet on Brexit on April 10. There is ever more speculation that the stalemate might lead to a long delay of Brexit, but at least for now, this prospect doesn’t support any further sterling gains. EUR/GBP is trading in the 0.85450area. Cable is changing hands just north of 1.31

News Headlines

The Italian Treasury is set to cut its growth forecasts for this year from 1% to 0.1%. As a result, the projected 2.04% budget shortfall agreed with the European Commission after a long and difficult discussions is likely to increase to 2.3-2.4% of GDP. The new budget projections are to be approved by the government on April 10.

Minutes of the ECB meeting showed disagreement among policymakers to extend the bank’s forward guidance. They also debated the possible negative side effects of such a low for even longer interest rate policy, fueling speculations for the tiered deposit system ECB President Draghi hinted at last week.

Poor UK car sales in March (-3.4% YoY), usually a strong month because of the release of new number plates, indicates how Brexit is having a devastating impact on the industry. The head of UK’s automotive umbrella organization warned carmakers even to consider closing their UK factories if the uncertainty over Brexit is to hold on.

Daily Pivots: (S1) 111.27; (P) 111.42; (R1) 111.65; More...

USD/JPY's rally resumes by breaking through 111.57 temporary top, after brief consolidations. Intraday bias is back on the upside for 112.13 resistance. Decisive break of 112.13 resistance will resume whole rise from 104.69 to 114.54 key resistance next. For now, further rally will remain mildly in favor as long as 111.18 minor support holds. But break of 111.18 will turn bias back to the downside for 109.71, and possibly further to 38.2% retracement of 104.69 to 112.13 at 109.28.

In the bigger picture, while the rebound from 104.69 was strong, USD/JPY failed to sustain above 55 week EMA (now at 110.80), and was kept well below 114.54 resistance. Medium term outlook is turned mixed and we'll wait for the structure of the fall from 112.13 to unveil to make an assessment later. For now, more range trading is expected between 104.69 and 112.13 first.

Dollar rises broadly in early US session as partly helped by pleasant surprise in initial jobless claims, which fell to lowest since 1969. But gains are so far limited as markets are awaiting meeting between Trump and Chinese Vice Premier Liu He at 2030 GMT. It's widely reported that solid progress were made in the US-China trade negotiations since the meeting in Beijing last week. And Trump could be ready to finally announce a summit with Chines President Xi Jinping to sign a deal. But still, nothing is done until it's done. Also, the non-farm payroll report tomorrow will carry much more significance than today's jobless claims figure.

Meanwhile, news out of Europe are generally negative. Germany factory orders contracted sharply by -4.2% mom in March. Germany's leading economic institutes lowered economic growth forecasts for the country in 2019 sharply to 0.8%, down from 1.9%. Italy is said to revise down growth forecasts to as low as 0.1% in 2019, thus raising budget deficit target to 2.3-2.4%. ECB accounts revealed that some policymakers considered pushing timing of first hike to after Q1 2020. There is no special progress in Brexit in UK even though April 12 cliff edge is approaching. Nevertheless, Euro isn't too weak at all.

Technically, Dollar pairs are back into focus today. EUR/USD might have a take on 1.1176 key support. Decisive break there will resume larger down trend from 1.2555. USD/JPY is eying 111.57 temporary top and break will bring a test on 112.31 near term resistance. Sterling continues the pattern of rising in Asian session and weakening into US session. GBP/USD, GBP/JPY and EUR/GBP are still range bound with no sign of breakout.

In other markets, DOW opens higher by around 100 pts. In Europe, currently, FTSE is down -0.28%. DAX is up 0.34%. CAC is down -0.12%. Germany 10-year yield is down -0.0133 at -0.003, back in negative territory. Earlier in Asia, Nikkei rose 0.05%. Hong Kong HSI dropped -0.17%. China Shanghai SSE rose 0.94%. Singapore Strait Times rose 0.15%.

US initial jobless claims dropped to 202k, lowest since 1969

US initial jobless claims dropped -10k to 202k in the week ending March 30, below expectation of 215k. It's also the lowest level since December 6, 1969. Four-week moving average of initial claims dropped -4k to 213.5k. Continuing claims dropped -38k to 1.717M in the week ending March 23. Four-week moving average of continuing claims dropped -8k to 1.743M. Challenger job cuts rose 0.4% yoy in March.

Trump attacks Fed again, but anyone cares to listen?

Trump attacks Fed again by describing Fed's actions as "unnecessary and destructive" in his tweet. But he also said despite that the economy is looking very strong, with China and USMCA deals "moving along nicely".

Yesterday, Minneapolis Federal Reserve Bank President Neel Kashkari said in a town hall in Fargo, North Dakota that "Presidents are free to say what they want". However, he added, "I can tell you with great confidence that my colleagues and I don't pay any attention."

Some ECB members considered keeping rates unchanged till Q1 2020, but data-driven gradualist approach adopted

The monetary policy meeting accounts of March ECB meeting revealed debates regarding the extent of the extension in the calendar based leg of the forward guidance. Back then, ECB said interest rates will be kept at current level at least through the "end of 2019", changed from "summer of 2019".

A numbers of members voiced an initial preference for extending the forward guidance through the "end of the first quarter of 2020". That would be "more in line with the markets' pricing of a first interest rate increase". But others argued that "until the end of 2019" was "more consistent with the baseline scenario underlying the projections that foresaw a rebound of the economy in the second half of 2019". Also, "in view of the high prevailing uncertainty, a data-driven gradualist approach was seen as most appropriate"

On the economy, the baseline scenario was a more protracted "soft patch" followed by a return to more solid growth. However, "uncertainty remained elevated" and it was "unclear how persistent the current soft patch would turn out to be." Also "downside risks to the growth outlook continued to prevail despite" despite downward revision in growth forecasts in March.

And, it was highlighted that "growth projections had been revised down in a number of consecutive projection exercises and that growth might not be mean-reverting, as typically assumed in projections." Uncertainty might also turn out to be "more persistent than expected". Risks surround Eurozone growth outlook were "on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets."

Though, it's also emphasized that "while the growth momentum was weaker, it remained positive". And, neither " the euro area, nor the global economy, was currently in recession and the probability of a recession remained relatively low."

Gemeinschaftsdiagnose slashes 2019 Germany growth forecasts to 0.8%, long-term upswing has come to an end

Germany's leading economic institutes lowered economic growth forecasts for the country in 2019 sharply. GDP is projected to rise just 0.8%, down from Autumn 2018 forecasts of 1.9%. Nevertheless, for 2020, GDP is projected to grow 1.8%, unrevised.

In the press release, Oliver Holtemöller, head of the Department of Macroeconomics and Vice President of the Halle Institute for Economic Research (IWH) said that "the long-term upswing of the German economy has come to an end." Though, he noted that "we still consider the chance of a pronounced recession to be slight."

The statement also noted that "political risks have further clouded the global economic environment." Also, "if a no-deal Brexit occurs, economic growth this year and the next is likely to be significantly lower than indicated in this forecast."

The state was released by joint project group "Gemeinschaftsdiagnose": German Institute for Economic Research (DIW Berlin), Halle Institute for Economic Research (IWH) – Member of the Leibniz Association, ifo Institute – Leibniz Institute for Economic Research at the University of Munich in cooperation with the KOF Swiss Economic Institute at ETH Zurich, Kiel Institute for the World Economy (IfW), RWI – Leibniz Institute for Economic Research in cooperation with the Institute for Advanced Studies Vienna.

Released from Germany, factory orders dropped sharply by -4.2% mom in February, missed expectation of 0.3% mom rise.

Italy said to lower slash 2019 growth forecast, raise deficit target to 2.3-2.4% of GDP

It's widely reported today that Italy is going to cut 2019 growth forecast within this month. The government previously projected 1% growth this year and agreed to 2.04% budget deficit to GDP with EU.

Reuters said Italy will lower GDP growth forecast to just 0.3-0.4%. Bloomberg went further and said it could be revised down to just 0.1%. The budget deficit target, could then be raised up to 2.3-2.4% of GDP.

The final numbers will be approved by the Cabinet next week. But based on current situation, another clash with EU seems inevitable.

EU Katainen: It's logical to think we're rushing toward a hard Brexit

European Commission Vice President Jyrki Katainen warned that "hard Brexit is increasingly possible because we don't know what the alternative is".

He also complained that "You only know what Britain doesn't want, but you don't know what Britain wants and, taking into account the limited number of days we have available, it is logical to think we are rushing toward a hard Brexit. But hopefully I am wrong."

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 111.27; (P) 111.42; (R1) 111.65; More...

USD/JPY's rally resumes by breaking through 111.57 temporary top, after brief consolidations. Intraday bias is back on the upside for 112.13 resistance. Decisive break of 112.13 resistance will resume whole rise from 104.69 to 114.54 key resistance next. For now, further rally will remain mildly in favor as long as 111.18 minor support holds. But break of 111.18 will turn bias back to the downside for 109.71, and possibly further to 38.2% retracement of 104.69 to 112.13 at 109.28.

In the bigger picture, while the rebound from 104.69 was strong, USD/JPY failed to sustain above 55 week EMA (now at 110.80), and was kept well below 114.54 resistance. Medium term outlook is turned mixed and we'll wait for the structure of the fall from 112.13 to unveil to make an assessment later. For now, more range trading is expected between 104.69 and 112.13 first.

Economic Indicators Update