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The New Zealand Dollar depreciated about 60 base points against the US Dollar on Tuesday. The decline was stopped by a support level formed by the weekly S1 at 0.6748.

Today's session began with a bullish sentiment. By the middle of the European trading session, a breakout through the upper boundary of the ascending channel pattern has occurred.

Given that a breakout had occurred, it is likely that the currency exchange rate will aim for a resistance cluster formed by the weekly and the monthly pivot points at 0.6837 within this session.

EUR/USD

Current level - 1.1222

A minor reversal has been confirmed at 1.1182 and my outlook is positive, for a rise towards 1.1330.

USD/JPY

Current level - 111.45

The overall bias is still positive above 111.20, for a test of 112.15 area.

GBP/USD

Current level - 1.3142

The pair is ready for a break though 1.3150, towards 1.3300 hurdle. The latter will allow a rise towards 1.3450.

Brexit Drags on

Brexit continues to drag on with investors having no idea what the outcome might be. UK parliament is stuck in gridlock and the EU seem unwilling to help. As we have long predicted, Brexit visibility was close to zero and probability pricing on outcomes was misleading. Despite uncertainty, GBP against EUR and USD remains in manageable ranges ahead of 12th April. In general, the thinking has shifted from damage to the UK economy to effect on EU industries. While investors have been quick to price in the economic result of separation on UK assets, EU exposure is now coming under scrutiny. Finally, we have scant hope that May and Corbyn will find a common plan for Brexit. We suspect the opposition labour party leaders primary objective all along was to put that vote back to the people. With the hope of overturning the EU Referendum (no a compromise of ultra soft Brexit such as EU customs union). The meeting is a massive political miscalculation by May playing right into Labours hand and breach of the prime minister own “red line”.

WTI Crosses 200d MA

WTI crude crossed the 200d MA to $62.79 brl after OPEC signaled tightening in global energy markets. This follows OPEC supply cuts. The Saudi resilient led output reductions, come on the heel for Venezuelan product issues increase optimism that $70 is a manageable target. Despite US supplies jumping (US stockpiles data will be released today), weaker US production and firmer manufacturing data further fuel upside outlook. Heading into the summer driving season Gasoline futures have also gained a bullish bid rising 1.6% to $1.93 a gallon. Crude strong showing this quarter is likely to push up oil companies providing a wider boast to stock indices.

Aussie in demand as risk-on sentiment shows up

The Australian dollar is changing course of action as Chinese Vice Premier Liu He and his delegation is resuming trade talks in Washington in order to agree on an enforcement mechanism. Sticking points remain on topics such as intellectual property and trade surplus reduction. Furthermore, recent economic releases and hopeful statements made by the Australian government on a budget plan to help low- and middle-income classes ahead of general elections helped the Aussie to recover from RBA’s neutral outlook.

Indeed, the RBA maintained its monetary policy unchanged, with its cash rate at 1.50% and put emphasis on the downside risk for global growth during Tuesday monetary policy meeting. Yet the surprise came from February trade balance ticking at AUD 4.8 billion ($ 3.4 billion), its highest historical level thanks to a rise in resource, metal ores and minerals which largely offset the decline in coal amid Chinese import reduction. In addition, February retail sales at 0.80% (consensus: 0.30%) suggests that the Australian economy is doing great considering that personal consumption accounts for more than half of Australia’s GDP while unemployment rate is lowest in 7 years.

We therefore remain optimistic that a rebound in AUD/USD is feasible in the future, as supportive measures for the Australian economy as well as an improving Chinese economy should support the pair during 2Q 2019. Currently trading at 0.7119 (+1% year-to-date), AUD/USD is heading along 0.7130 short-term.

Wednesday April 3: Five things the markets are talking about

Global equities are better bid in the overnight session on renewed optimism that China and the U.S would reach a deal as trade talks resume in Washington.

According to a FT report today, the world’s two largest economies are “still at odds on carrying out and enforcing a deal, while most other roadblocks were cleared.” Investor sentiment has also improved on a better-than-forecast increase in a gauge of China’s services industries and on stronger Aussie retail sales data in the overnight session.

Sterling (£1.3175) has rallied for a third consecutive session as PM Theresa May announced a cross-party approach to break the impasse in parliament over Brexit. Yesterday she indicated she would look for Labour support for a new Brexit deal. However, there is no guarantee that Labour and the PM would agree terms on the Brexit path, nevertheless, the fact that she is willing to cross the floor is a clear shift in her party’s stance towards a ‘softer’ Brexit.

PM May still insists that her withdrawal agreement – which was voted down last week – would remain part of the deal. The U.K requires an extension and PM May has said she wanted the extension to be “as short as possible” – before 22 May so the UK does not have to take part in European elections.

The UK has until 12 April to propose a plan – which must be accepted by the EU – or it will leave without a deal.

On tap: U.S services and ISM non-manufacturing PMI (09:45 am EDT), Reserve Bank of India (RBI) will set policy tomorrow, and Friday’s NFP is expected to show a headline print of +180k for March after February’s miss, while Canadian employment may show a revision after their massive headline print. China’s Vice Premier Liu He is in Washington to resume trade negotiations with his US counterparts.

1. Stocks find support across the globe

In Japan, equities rallied overnight on renewed optimism over Sino-U.S trade talks which lifted shippers and other cyclical shares while index heavyweight Fast Retailing Co. soared after it reported strong monthly sales. The Nikkei share average rose +0.97%, edging closer to its best level for 2019. The broader Topix advanced +0.63%.

Down-under, Aussie shares closed at a new seven-month high overnight as soaring iron ore prices boosted miners, while healthcare stocks surged after Australia’s government allocated record spending for the sector in its pre-poll budget. The S&P/ASX 200 index rallied +0.68% at the close of trade. The benchmark rose +0.4% on Tuesday. In S. Korea, the Kospi index has rallied +1.2% on reports that the U.S and China are drawing closer to a final trade agreement.

In China, stocks closed at their highest levels in 12-months overnight, aided by further evidence of economic recovery and signs of progress in trade talks. The blue-chip CSI300 index rose +1.3%, while the Shanghai Composite Index closed up +1.2%. While in Hong Kong, stocks traded atop of their 10-month highs. The Hang Seng index rose +1.2%, while the China Enterprises Index gained +1.4%, its highest close since June 2018.

In Europe, regional bourses trade mainly higher across the board with the DAX outperforming, tracking stronger indices in Asia on upbeat service PMI data out of Europe and Asia.

U.S stocks are set to open in the ‘black’ (+0.49%).

Indices: Stoxx600 +0.67% at 387.60, FTSE +0.07% at 7,395.95, DAX +1.31% at 11,905.83, CAC-40 +0.68% at 5,460.48, IBEX-35 +1.00% at 9,461.93, FTSE MIB +1.12% at 21,759.50, SMI -0.03% at 9,527.00, S&P 500 Futures +0.49%

2. Brent trades towards $70 despite U.S inventories rising

Oil prices have rallied for a fourth consecutive session, pushing Brent toward its five-month high as support from OPEC+ led supply cuts and U.S sanctions overshadow Tuesday’s report stateside showing an unexpected rise in U.S stocks.

Brent futures have gained +38c, or +0.55%, to +$69.75. They earlier reached +$69.96 – the highest since Nov. 12, when they last traded above $70. While U.S West Texas Intermediate (WTI) crude rose +20c or +0.32% to +$62.78, having hit +$62.99, the highest since Nov. 7.

Oil prices have been supported for much of this year by efforts from OPEC+, who have pledged to withhold around +1.2M bpd of supply this year. Last month saw supply hit a new four-year low – OPEC crude oil production is expected to average +30.1M bpd in 2019, down from +31.9M bpd in 2018.

Note: According to the API yesterday, U.S crude stocks rose unexpectedly last week, while gas and distillate inventories declined.

Expect dealers to take direction from today’s EIA report (10:30 am EDT).

Ahead of the U.S open, gold prices edged lower as safe-haven demand for the ‘yellow’ metal subsides with equities rallying to a seven-month high, while a weaker dollar limits the metals losses. Spot gold is -0.2% lower at +$1,290.81 per ounce, while U.S gold futures are flat at +$1,295.50 an ounce.

3. Yields slide on new ECB guidance

Eurozone government bond yields have fallen this week, led by Italian BTP yields, after the ECB announced a delay in when it expects to raise interest rates, alongside a series of targeted longer-term refinancing operations. This announcement is likely to keep eurozone bond yields ‘lower for longer.’

The 10-year German Bund yield trades about +2 bps lower at -0.01%, while the 10-year Italian BTP yield trades about +7 bps lower at +2.55%. On Tuesday, the ECB said it interest rates would stay at current levels at least through the end of 2019, having previously said until after the summer. It will introduce new quarterly TLTRO-s in September, ending them in March 2021, each one with two-years of maturity.

Elsewhere, the yield on 10-year Treasuries has backed up +4 bps to +2.52%, while the yield on two-year Treasuries has rallied +3 bps to +2.33%.

4. Sterling holds onto gains despite weaker data

Sterling (£1.3175) is holding onto this week’s gains, shrugging off a weaker-than-expected U.K services PMI (see below). The pound remains driven by Brexit developments and remains in firm territory after PM May said yesterday that she would look for cross-party support for a new Brexit deal. GBP/USD is last up +0.3% at £1.3177, slightly stronger than around £1.3162 before the data was released. EUR/GBP is flat at €0.8533.

The risk for the pound is that hard-Brexiteers (without a deal) within the Conservative party strongly oppose PM May’s decision to seek a Brexit compromise with the opposition Labour party. What will be their response? Lack of unity in parliament is the key reason why the U.K. has so far failed to endorse a Brexit deal with the EU.

Elsewhere, a pick-up in risk appetite is providing some headwinds for the recent USD strength, nevertheless, investors continue to favor the USD as EUR/USD stays around €1.1240, having fallen yesterday (€1.1181) to its lowest since the March ECB meeting. But the appetite for the ‘big’ dollar is more the result of safe-haven demand rather than fundamentals. Rate differentials between the two currency pairs have tightened since last month, which should indicate more EUR support on pullbacks. EUR/USD is last up +0.2% at €1.1242.

5. UK headed for downturn as Brexit worries hammer services sector

Data this morning showed that Brexit worries has caused the dominant services sector to contract for the first time in nearly three years.

The IHS Markit/CIPS services Purchasing Managers’ Index (PMI) tumbled to 48.9 in March from 51.3 in February, much weaker than the expected forecasts of 51.

This index sits firmly in contractionary territory for the first time since July 2016, immediately after the U.K voted to leave the E.U.

“There were widespread reports that domestic political uncertainty had constrained demand in March, with clients hoping for clarity about Brexit outcomes before committing to new projects,” IHS Markit said.

Note: A broader PMI (manufacturing and construction) data released this week, also fell to its lowest in 36-months and escaped outright contraction only because firms bought more raw materials to prepare for a potentially disorderly Brexit.

“A stalling of the economy in the first quarter will … likely turn into a downturn in the second quarter unless demand revives suddenly, which given the recent escalation of Brexit uncertainty, seems highly improbable,” IHS Markit said.

Investors are keeping a close eye on the upcoming IMF’s decision in relation to the global growth outlook. We are expecting a cut in global growth forecast and it could easily sour the risk appetite. It is clear that the global growth momentum isn’t at a level where it was two years ago and the ongoing trade war saga between the US and China has made an adverse impact on the growth equation. Smart money is betting that a resolution on trade war and another stimulus from the People Bank of China would put the global growth back on track.

Aussie Retail Sales Number Isn't Going To Support The Currency For Long

Looking at the Aussie retail sales number, it becomes clear that the saggy growth in the country is getting some support from consumers. Retail sales number are volatile in nature and today’s number was certainly a surprise for the markets. This supported the currency and equity markets, but I am not sure if the recovery would continue. This is because the outlook for the services PMI number has collapsed. In fact, to put things in perspective, the AIG survey shows services suffered their worst quarter going all the way back to 2013.

Oil Rally May Not Last That Long

As for the oil market, WTI is still building on its stellar Q1 performance, up nearly 32 percent, a jaw-dropping performance. Of course, the main driver behind this is the production cut by the suppliers because, in terms of demand, it isn’t that strong. Remember, the rally in the equity has a lot to do with because of the performance of the energy stocks. If we start to see the anemic oil demand because of the ongoing trade war, it would have a negative impact on the energy stocks. This would push the energy stocks lower.

For now, OPEC and Russian crude production are under control and the oil supply curve has plunged as a result of this. The sharp drop in oil production has also some elements of involuntary actions such as sanction by the US on Iraq and Venezuela, this took some meaningful supply out of the market. The level where the WTI and Brent prices are trading encourages the US shale oil production, and as long as the price stays above the $60 mark, it is difficult for me to see the global oil supply going lower.

Critical Level For GOLD

The precious metal has been out of luck as investors are interested to buy the riskier assets than parking their money in safe-haven assets. The reality is that everyone is looking at the quarterly performance of the equity markets and they are felling FOMO. This is the reason that we are not seeing much support for the gold price. Otherwise, the dovish stance by the Fed should have provided a lot of support for the gold price because if the Fed is dovish, then interest rates aren’t going to go higher. This means a lower dollar. The dollar index is down nearly 0.40 percent from its peak of 97.70 but year-to-date, it is up 1.06 percent.

For me, the critical level for the gold price is 1300, and the price needs to stay above this mark in order to convince the bulls that the path of the least resistance is skewed to the upside. One of the reasons which can support the gold price is the geopolitical uncertainty and the fact is that the trade war between the US and China has almost ended, they are writing the final chapter to resolve this issue. Another factor which can support the gold price is if the Chinese growth fails to revive, the recent data isn’t supporting this argument, but then again, it may be too early to say that. Finally, I am also going to look at the upcoming earning season performance, so far not too optimistic and if the actual picture fails to impress, I think it could be a factor which could drive the gold price higher.

If the Fed remains dovish, I am expecting the gold price to continue to consolidate between the levels of 1260 to 1360. I do not see any substantial reason why the Fed would change its stance because Donald Trump is still not happy with the Chairman of the Fed and he still blames the Fed for hiking the interest rate. The current economic conditions of the US do not warrant the Fed to keep the interest rates at an ultra-low level or even cut the interest rate. So, either Donald Trump would have to change his mind or he would have to replace the Fed chairman.

Notes/Observations

• Continued improvement in global economic data aiding risk appetite (China PMI, Australia Retail Sales; Major European Services PMI data all beat expectations)
• UK Mar PMI Services bucks the trend and registered its 1st contraction in 32 months and lowest level since Brexit Referendum back in July 2016
• China's Vice Premier Liu He in Washington to resume trade negotiations with his US counterparts.

Asia:

• US and China continue to haggle on trade deal enforcement and implementation; had resolved most other issues (in line with prior reports). Reports circulate that f this round of talks is successful, it could result in a Trump-Xi summit this month to sign the agreement; if not an agreement could be delayed until the end of June
• Australia Feb Retail Sales registered its fastest rise since Nov 2017 (M/M: 0.8% v 0.3%e)
• Australia Feb Trade Balance hits a record high surplus (A$4.8B v A$3.7Be)
• China Mar Caixin PMI Services: 54.4 v 52.3e

Europe:

• EU said to be preparing to offer a long delay on Brexit to January or April of 2020 with strict conditions. Conditions to include the need to hold European Parliament elections and a possible promise/informal agreement over Britain's future conduct as a member state
• PM May stated that needed a further short extension of Article 50 and would try and find an arrangement with Labour to put to EU next week. Focused on find route out of impasse. Could make a success of no deal in long term but stressed that leaving with a deal was best. EU had stated that withdrawal deal would not be reopened, focus on future relationship in new talks. Would try and complete legislating by May 22nd
• PM May spokesman: there needs to be compromise on both sides of Brexit. Cabinet agreed as a whole to back the position. PM was talking about approaches to the future relationship that may be negotiated. UK would prepare for EU elections and then cancel if needed
• UK Brexiteer MP Rees Mogg stated that PM May's move to work with Opposition Leader Corbyn was deeply unsatisfactory; history would not reflect well on her decision to work with Labour
• Opposition Labour Leader Corbyn statement: we want a customs union with the EU, access to markets, and worker protections; I will ensure that those aims are on the table

Americas:

• Fitch affirmed the United States sovereign rating at AAA; outlook Stable
• Trump Fed Nominee Stepthen Moore: Believe in a stable dollar

Energy:

• Weekly API Oil Inventories: Crude: +3M v +1.9M prior
• SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.67% at 387.60, FTSE +0.07% at 7,395.95, DAX +1.31% at 11,905.83, CAC-40 +0.68% at 5,460.48, IBEX-35 +1.00% at 9,461.93, FTSE MIB +1.12% at 21,759.50, SMI -0.03% at 9,527.00, S&P 500 Futures +0.49%]
• Market Focal Points/Key Themes: European Indices trade mainly higher across the board with the Dax outperforming once again tracking stronger Indices in Asia on upbeat service PMI data out of Europe and Asia as well as continued trade optimism. On the corporate front shares of German Auto makers Volkswagen, BMW and Daimler rise on trade optimism and US March car sales data. On the earnings front Gattaca, Stagecoach, Groupe Gorge are among the names trading higher, while CMC Markets declines after a profit warning and Christian Hansen trades lower after earnings and announcing a JV with Lonza Group. Elsewhere UK fashion group Superdry trades over 10% lower after the stepping down of its Chairman, CEO and CFO, while Babcock International trades higher after naming Ruth Cairnie Chairman. Looking ahead notable earners include Signet Jewelers and Acuity Brands.

Equities

• Consumer discretionary: Superdry [SDRY.UK] -12% (management changes), Pandora [PNDORA.DK] -1.5% (COO steps down)
• Consumer staples: CHR Hansen [CHR.DK] -4% (earnings), Ite Group [ITE.UK] +1.5% (trading update)
• Energy: Chariot Oil & Gas [CHAR.UK] +19% (award), Maersk [MAERSK.DK] +1.5% (Vice-CEO to step down)
• Financials: CMC Markets [CMCX.UK] -7% (trading update; CFO to step down), AA Plc [AA.UK] +3% (earnings)
• Healthcare: Roche [ROG.CH] -1% (refiling of premerger notification)
• Industrials: BMW [BMW.DE] +2%, Volkswagen [VOW3.DE] +2.5% (car sales), Saint-Gobain [SGO.FR] +3.5% (media reports), Stagecoach [SGC.UK] +7.5% (trading update), Babcock [BAB.UK] +2% (appoints Chairman)

Speakers

• SNB's Maechler: Global economic growth should remain solid
• Italy Fin Min Tria rules out idea he could step down following frictions with ruling coalition, warned on market reaction if he were to resign
• UK Brexit Sec Barclay: Customs union with EU is highly undesirable; opportunity to see if labour party would stand by manifesto. Not the govt intention to hold EU parliamentary elections. Not holding elections would rule out a long extension. Timing for any request for Brexit extension will be shaped by discussions with Labour party leader Corbyn; any formal request to come on April 10th but informal approaches could be earlier
• UK Conservative MP Letwin: Process of seeking a delay in Brexit in parliament to continue
• UK Conservative MP Baker: PM May's shift on Brexit might unite the conservatives against her
• Labour MP Long-Bailey (opposition): PM May's Brexit shift was a welcome change; must find common ground

Currencies/Fixed Income

• A pick-up in risk appetite put some headwinds into the recent USD strength. Continued improvement in global economic data was aiding risk appetite (China PMI, Australia Retail Sales; Major European Services PMI data all beat expectations).
• GBP/USD was higher after PM May reached out to the opposition labour party for help in resolving the current Brexit impasse ahead of the April 12th deadline imposed by the EU. PM May implied that she would negotiate that with the EU without calling for elections. Dealers noted that the removal of election risk and that of hopes of a compromise supported the GBP currency. The UK parliament has failed twice to find a way forward in the process after PM May's deal was rejected 3 times. The situation appeared to be moving towards a softer Brexit as Labour sought to remain in the Customs Union. Pair approaching the 1.32 level but knocked oof its best levels of the session after UK Mar PMI Services bucked the trend and registered its 1st contraction in 32 months and lowest level since Brexit Referendum back in July 2016 .
• USD/JPY higher on the unwinding of safe-haven flows with the pair testing 111.50 in the session.

Economic Data

• (RU) Russia Mar PMI Services: 54.4 v 55.0e (38th month of expansion); PMI Composite: 54.6 v 54.1 prior
• (SE) Sweden Mar PMI Services: 55.3 v 55.8 prior; PMI Composite: 54.6 v 54.9 prior
• (TR) Turkey Mar CPI M/M: 1.0% v 1.0%e; Y/Y: 19.7% v 19.6%e; CPI Core Index Y/Y: 17.5% v 18.0%e
• (TR) Turkey Mar PPI M/M: 1.6% v 1.2%e; Y/Y: 29.6% v 29.2%e
• (ES) Spain Mar Services PMI: 56.8 v 55.0e (65th month of expansion and highest since May 2018); Composite PMI: 55.4 v 53.8e
• (ZA) South Africa Mar PMI (whole economy): 48.8 v 50.2 prior
• (IT) Italy Mar Services PMI: 53.1 v 50.8e (2nd straight expansion); Composite PMI: 51.5 v 49.8e
• (FR) France Mar Final Services PMI: 49.1 v 48.7e confirms move back into contraction); Composite PMI: 48.9 v 48.7e
• (DE) Germany Mar Final Services PMI: 55.4 v 54.9e (confirms 69th month of expansion); Composite PMI: 51.4 v 51.5e
• (EU) Euro Zone Mar Final Services PMI: 53.3 v 52.7e (confirms 69th month of expansion); Composite PMI: 51.6 v 51.3e
• (IT) Italy Q4 YTD Budget Deficit to GDP: 2.1% v 2.2% prior
• (BR) Brazil Mar FIPE CPI (Sao Paulo): 0.5% v 0.5%e
• (TW) Taiwan Mar Foreign Reserves: $464.1B v $463.9B prior
• (UK) Mar Services PMI: 48.9 v 50.9e (1st contraction in 32 months and lowest level since July 2016); Composite PMI: 50.0 v 51.1e
• (UK) Mar Official Reserves Changes: -$172M v +$73M prior
• (NG) Nigeria Mar PMI Services: 53.6 v 53.3 prior
• (EU) Euro Zone Feb Retail Sales M/M: 0.4% v 0.3%e; Y/Y: 2.8% v 2.3%e
• (NO) Norway Mar House Prices M/M: 0.7% v 0.5% prior; Y/Y: 3.2% v 3.0% prior

Fixed Income Issuance

• (EU) EFSF opened its book to sell €3.0B in 16-year bond via syndicate; guidance seen +5bps to mid-swaps
• (IN) India sold total INR200B vs. INR200B indicated in 3-month, 6-month and 12-month bills
• (DK) Denmark sold total DKK2.6B in 2023 and 2029 Bonds
• (SE) Sweden sold SEK5.0B vs. SEK2.0B indicated in 3-month Bills; Avg Yield: -0.4626% v -0.4559% prior; Bid-to-cover: 1.92x v 3.04x prior

Looking Ahead

• (BR) Brazil Feb CNI Capacity Utilization: No est v 78.3% prior
• 05:30 (GR) Greece Debt Agency (PDMA) to sell 26-week bills
• 06:00 (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 1.50%
• 06:45 (US) Daily Libor Fixing
• 07:00 (RU) Russia OFZ Bond auction results
• 07:00 (US) MBA Mortgage Applications w/e Mar 29th: No est v 8.9% prior
• 07:00 (UK) Weekly PM May question time in House of Commons
• 08:00 (UK) Baltic Bulk Index
• 08:15 (US) Mar ADP Employment Change: +175Ke v +183K prior
• 08:30 (US) Fed's Bostic (dove, non-voter) speaks at American Banker Association Summit
• 09:00 (BR) Brazil Mar PMI Services: No est v 52.2 prior; PMI Composite: No est v 52.6 prior
• 09:00 (SG) Singapore Mar Purchasing Managers Index: 50.5e v 50.4 prior; Electronics Sector Index: No est v 49.5 prior
• 09:00 (EU) Weekly ECB Forex Reserves
• 09:45 (US) Mar Final Markit Services PMI: 54.8e v 54.8 prelim; Composite PMI: No est v 54.3 prelim
• 09:45 (UK) BOE to buy £1.15B in APF Gilt purchase operation
• 10:00 (US) Mar ISM Non-Manufacturing Index: 58.0e v 59.7 prior
• 10:00 (MX) Mexico Mar Vehicle Domestic Sales: No est v 103.7K prior
• 10:00 IMF updates its World economic Outlook
• 10:00 (PL) Poland Central Bank Gov Glapinski to hold post rate decision press conference
• 10:30 (US) Weekly DOE Crude Oil Inventories
• 11:00 (CO) Colombia Feb Exports: $3.2Be v $3.1B prior
• 12:00 (CA) Canada to sell 5-year notes
• 17:00 (US) Fed's Kashkari (dove, non-voter)

Chinese and US stock indices maintain growth impulse. Normalisation of 3mo-10y yield curve helps the market's optimism. EURUSD and GBPUSD finds support at major levels 1.12 and 1.30, respectively. Brent nears $70 on worries about supply.

Stocks

Chinese and US stock indices maintain growth impulse, adding 0.3-1.0% within 24 hours, reflecting the demand for risky assets. The Chinese blue-chip index A50 fully offset the last year decline due to trade wars fears. S&P 500 reached the highest levels since October 10, 2018, when the market collapsed due to the Fed's tough comments. Among the macroeconomic news, China's service PMI growth is higher than expected after strong production data at the beginning of the week.

Debt markets

The yield on US 10-year government bonds is growing again, exceeding 2.5%. The yield of 3-month treasuries is at the level of 2.43%. Maintaining a positive spread between 3-month and 10-year bonds allows markets to sustain demand for risk.

EURUSD

EURUSD received support after falling below 1.1200, and this level looks like significant support for the pair since November. The markets focus on the euro-region business activity weak indicators, which may further put pressure on the single currency. On the other hand, improved performance in China often also supports the demand for the euro and may contribute to the consolidation of the pair near this level before the release of important macro statistics from the United States. The focus today is on US employment data from ADP and Non-Manufacturing ISM. In both cases, data are expected to confirm the good state of the largest economy. Indicators better than expected can strengthen the demand for the dollar and contribute to the breakdown of support at 1.1200. Subsequent levels of support in the pair are quite away, at 1.07 or even lower, at 1.05.

GBPUSD

The British pound pushed off from the 1.30 against the dollar after May's comments that she will ask the EU to postpone the Brexit date further. Formally, until April 12th she still has time to exit without a deal, but the desire of politicians to overcome the deadlock helps the British currency. The reaction of the markets is simple in this case. The longer Britain is in the EU, the better it is for the pound since it is considered as a benefit for the economy. In addition, the alternative to a repeated referendum and a new election is becoming more and more sound option, which is also perceived by market participants as a chance to get out of a painful impasse.

Bitcoin

On Tuesday, the bitcoin price jumped by 20%, at some point breaking the threshold $5,000. The initial impulse was somewhat weakened, and retail investors and the media began to put forward their own hypotheses for such a sharp dynamic. In our opinion, in this situation, it is important that until now there is no sharp correction, and purchases continued on Wednesday morning. Moreover, the Altcoin’s market was inspired by this impulse and began to catch up the main cryptocurrency.

Brent

Oil continues to climb on the increased demand for risks from market participants, as well as due to fears of the production cut impact by OPEC +. Brent crude is currently trading at $69.70, close to MA (200). Closing above this level will be a positive signal and can inspire markets for further purchases. Weekly data on oil reserves and production can support or expand the trend of recent days.

The USD/CAD has formed a clear bearish swing below the POC zone. A retest of the zone might show fresh sellers.

1.3340-55 is the POC zone. Any pullback within could be used for fresh selling. However, if we don’t see any retracement to the upside, watch 1.3290. 1h or 4h close below 1.3290 will show a continuation of the bearish momentum with next target a 1.3267. If we take a look at the big picture, we can see a bearish M pattern on H1 time frame that is in place. Pay attention to today’s ADP numbers as the price in the pair might get additional momentum just after the data has been released.

Markets buoyed by Sino-US talks and PMI data

It's been a strong start to trading on Wednesday and the US looks poised to follow, with futures up around half a percent ahead of the open.

The optimism has carried over from Asia where reports of progress in Sino-US trade talks and another strong Chinese PMI reading provided the fuel for Wednesday's rally. We've spent so long fretting about a Chinese slowdown and the impact that a prolonged trade war could have that this week's data releases have come as something of a surprise. The services PMI capping things off, coming in well above expectations at 54.4 – the highest since January 2018 – is more than welcome.

There's also positive noises around the trade talks, with suggestions that the two sides are 90% there obviously providing encouragement. Obviously the last 10% was always likely to be the most challenging but we're hearing nothing at the moment that suggests a deal is at risk, rather there's a lot of optimism that it will get done. We're just going to have to be a little patient.

Adding to the good news this morning has been the eurozone PMIs – it's clearly one of those days – which have been beating expectations right, left and centre. Obviously, it's worth noting that the worst of the PMIs have come from the manufacturing sector and as the numbers showed earlier in the week, this remains a major concern, but these numbers for the services sector are a positive point.

Gold flat despite dollar weakness

The euro was quite slow to respond to the data but it seems an improvement in overall risk appetite as the morning has progressed has seen it play catch up. This has put further pressure on the dollar, which was already being weighed on by gains in the pound on the back of Theresa May's attempts to salvage Brexit with the help of the opposition, a move that could see Parliament form a majority around a softer exit.

This reversal of fortune for the dollar has done little to lift gold, which remains quite flat on the day. Perhaps the improved risk appetite is undoing any good that a softer dollar may otherwise have brought, or maybe recent price action has just made gold bulls a little more apprehensive, with the price having broken back below $1,300, with $1,280 now offering the next major test.

Oil pares gains after bouncing off notable resistance

Oil prices are paring earlier gains but remain higher on the day. We've very much seen oil prices benefit from stronger risk appetite this year and that again appears to be what we're seeing this week. It also comes at a time when US output is stabilising, oil rigs are on the decline and OPEC+ remains committed to output cuts. It's been something of a reluctant rally over the last month or so but it appears to have gathered some momentum this week.

It now faces a big test around notable resistance though, just as momentum is building. Perhaps this is a bullish signal but so far, we're yet to see a breakout. If price can break above $63 in WTI and $70 in Brent, then $64.50-65 and $71.50 would be the next notable resistance. The EIA data today could provide the next catalyst, with APIs report of another small build on Tuesday slowing the rally.

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.12120
Open: 1.12038
% chg. over the last day: -0.08
Day's range: 1.12001 – 1.12287
52 wk range: 1.1214 – 1.2557

EUR partially recovered against the USD. Right now the quotes are testing the local supply zone at 1.12250-1.12450. The key support is at 1.11850. The financial market participants are watching the US/China trading negotiations. According to the Financial Times, both sides have settled their differences and are going to sign the deal soon. Keep an eye on this issue, as well as the today's economic releases that can offer insight in the future of major currencies. Open the positions from the key levels.

The Economic News Feed for 03.04.2019:

Business activity indicators (EU) – 11:00 (GMT+3:00);

ADP's Preliminary Labour Market Report (US) – 15:15 (GMT+3:00);

Non-industrial PMI by ISM (US) – 17:00 (GMT+3:00);

The indicators do not provide precise data, the price fixed between 50 MA and 200 MA.

The MACD histogram moved to the positive zone, which points to the bullish mood.

The Stochastic Oscillator is in the neutral zone, the %K line is below the %D line which gives a signal to sell EUR/USD.

Trading recommendations

Support levels: 1.11850, 1.11500
Resistance levels: 1.12250, 1.12450, 1.12800

If the price fixes above 1.12250, expect the qutoes to correct further toward 1.12700-1.13000.

Alternatively, the quotes can descend toward 1.11600-1.11400.

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.30925
Open: 1.31302
% chg. over the last day: +0.20
Day's range: 1.31215 – 1.31931
52 wk range: 1.2438 – 1.4378

GBP/USD started to grow and updated the local maximums. The worries about the "hard Brexit" were debunked by Theresa May's statement that she will request another delay for Brexit. Right now the quotes are close to 1.32000 with 1.31500 acting as a mirror support. GBP can recover further. You should open positions from the key levels.

At 11:30 (GMT+3:00) the UK will release a service industry PMI.

The price fixed above 50 MA and 200 MA which points to the power of the buyers.

The MACD histogram is in the positive zone and above the signal line which points to the bullish mood.

The Stochastic Oscillator is inear the overbought zone, the %K line is above the %D line which also gives a weak signal to buy GBP/USD.

Trading recommendations

Support levels: 1.31500, 1.31200, 1.30800
Resistance levels: 1.32000, 1.32400, 1.32650

If the price fixes above the round 1.32000, expect the qutoes to grow toward 1.32400-1.32650.

Alternatively, the qutoes can fall toward 1.31200-1.31000.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.33046
Open: 1.33362
% chg. over the last day: +0.27
Day's range: 1.33026 – 1.33531
52 wk range: 1.2248 – 1.3664

USD/CAD started to descend again. Right now the trading instrument is testing 1.33000. The key resistance is as 1.33400. The pressure on the USD is caused by the weak economic releases. The bullish mood on the oil market keeps up the demand for CAD. The currency pair can descend further, so keep an eye on the US news feed and open the positions from the key levels.

The Economic News Feed for 03.04.2019 is calm.

The price fixed below 50 MA and 200 MA which points to the power of the buyers.

The MACD histogram is in the negative zone and below the signal line which gives a strong signal to sell USD/CAD.

The Stochastic Oscillator is in the oversold zone, the %K line is crossing the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 1.33000, 1.32650
Resistance levels: 1.33400, 1.33750, 1.34000

If the price fixes below the round 1.33000, expect the quotes to fall further toward 1.32700-1.32500.

Alternatively, the quotes can grow toward 1.33700-1.33900.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 111.344
Open: 111.314
% chg. over the last day: -0.03
Day's range: 111.209 – 111.579
52 wk range: 104.56 – 114.56

USD/JPY keeps showing a positive trend. Right now the trading instrument is testing the local resistance at 111.550. 111.150 acts as a mirror support. USD/JPY has further growth prospects. Keep an eye on the relevant data regarding the US/China negotiations. Open the positions from the key levels.

The Economic News Feed for 03.04.2019 is calm.

The price fixed above 50 MA and 200 MA which points to the power of the buyers.

The MACD histogram is in the positive zone and above the signal line which gives a strong signal to buy USD/JPY.

The Stochastic Oscillator is in the neutral zone and above the signal line which also points to the bullish mood.

Trading recommendations

Support levels: 111.150, 110.850, 110.500
Resistance levels: 111.550, 112.000

If the price fixes above 111.550, expect the further growth toward 112.000.

Alternatively, the qutoes can fall toward 110.850-110.600.