Sample Category Title

• Pound holds against major currencies
• Bank of Canada expected to hold rates at 0.50%

Yesterday saw the Pound put in another day of modest gains across the board. GBP-EUR and GBP-USD both spent the morning hovering around 1.17 and 1.24 respectively. UK March Consumer Price Index results largely met expectations at 2.3% from forecast 2.2% and 0.4% month-on-month.

German ZEW Economic Sentiment then beat forecasts at 19.5 to keep Pound gains in check. The afternoon saw the Pound continue its gains on average of around 0.5% across all major currencies. There was no specific data to justify this; however, there does appear to be some shifting in the global risk environment which suggests that the Pound is responding well to global investor nerves.

Trump's stance on North Korea, Russia and Syria have stressed geopolitical tensions and created some risk aversion. Yesterday, President Trump said that the US is willing to go it alone against North Korea and the decision to move ships into the region could enrage the unpredictable Kim Jong Un into an action that sees things escalate quickly.

And with the Eurozone not being considered a safe-haven ahead of the French elections, the German stock market is in the red; maybe the UK is turning into a safer option. The Pound performed second strongest in the G10 only being outdone by the ultimate safe-haven, Japanese Yen.

Today we have UK Average Earnings, Claimant Count and UK Unemployment Rate data, just after a speech by Mark Carney at the International FinTech Conference in London.

In the afternoon, we have Canada's rate decision; expecting no changes here and to remain at 0.5%. The following press conference will be closely monitored for hints of a potential hike in the future.

English is hard

How can a clam cram in a clean cream can?

The thirty-three thieves thought that they thrilled the throne throughout Thursday.

Seth at Sainsbury's sells thick socks.

Roberta ran rings around the Roman ruins.

US CRUDE OIL

US oil remains in strong uptrend and extends rally into fifth consecutive bullish day. Tuesday's close above Fibo 76.4% barrier at $53.13generated fresh bullish signal, as yesterday's long-tailed daily candle underpins fresh extension higher.

Rising geopolitical tensions keep oil price supported, along with weaker dollar. Fresh bullish extension on Wednesday is approaching target at $53.78 (07 Mar high) ahead of psychological $54.00 barrier and $54.41 (01 Mar high).

Firmly bullish daily studies that formed double bull-cross of 10/100 and 10/55 SMA's underpin the action and so far ignore strongly overbought daily slow stochastic, which continues to head north.

Session low at $53.33 and broken Fibo 76.4% barrier at $53.13 mark initial supports, ahead of yesterday's low and strong downside rejection at $52.68.

Res: 53.78, 54.00, 54.41, 55.01
Sup: 53.33, 53.13, 52.68, 52.30

Ongoing geopolitical tensions across the globe and heightened political risk in Europe have limited appetite for riskier assets this week, with global stocks now on the back foot. Asian share concluded in the redon Wednesday, as the uncertainty from world events left investors on edge. Although European markets have displayed some resilience by opening higher this morning gains may be capped, especially if anxiety mounts ahead of the French Presidential elections. With the overall trading mood subdued and participants adopting a cautious stance in this tense environment, Wall Street could struggle to venture higher this week.

Sterling boosted by mixed jobs report

Sterling received a slight boost on Wednesday, with short bulls in action after the mixed jobs report showed that the UK’s unemployment rate remained steady at 4.7% in the three months to February. However, the upside was limited, as claimant count increased sharply by 25.5k in March while regular pay rose by a tepid 0.1% after accounting for inflation. With nominal earnings in the United Kingdom slowing to their weakest pace in seven months, consumer spending may be negatively impacted moving forward. A drop in consumer spending power could reignite concerns over the sustainability of the UK’s consumer-driven economic growth, which may in turn create further headaches for the Bank of England.

Focusing on the foreign exchange outlook, the GBPUSD has staged a sharp rebound, with prices breaking above 1.2500 on the back of Dollar weakness. The currency pair still remains in a wide range on the daily timeframe, with weakness back below 1.2450 opening a path towards 1.2370. In an alternative scenario, a decisive breakout above 1.2550 will signal an official breakout with bulls targeting 1.2650.

Trump in the spotlight again

The heightened geopolitical risks around Syria and North Korea have left markets tense this week andinvestors on high alert. Participants are in need of clarity on world events this week and as such, may encourage most to focus on Donald Trump’s aired interview on Fox Business Network. For those who remain somewhat optimistic over Trump's fiscal policies, the pending interview could provide further insight on the market-shaking tax reforms and infrastructure spending. With Syria and North Korea developments likely to be discussed, this could be labelled as a high-risk event that sparks volatility.

The combination of profit taking, geopolitical concerns and overall uncertainty has exposed the Greenback to downside risks this week. With short-term bulls still in control amid the expectations of higher US rates, the current Dollar decline could be treated as a technical correction. From a technical standpoint, the daily bullish outlook remains valid as long as the Dollar Index keeps above 100.25.

Commodity spotlight – Gold

The uncomfortable trading atmosphere created from geopolitical tensions andpolitical risk has boosted Gold’s attraction this week, with prices sprinting to five-week highs. This yellow metal is firmly bullish on the daily charts, and further upside may be expected as anxiety accelerates the flight to safety. From a technical standpoint, prices are trading above the daily 20 SMA, while the MACD has crossed to the upside. Previous resistance at $1260 could transform into a dynamic support that opens a path towards $1280 and potentially higher.

Notes/Observations

Simmering tensions on the Korean Peninsula and Syria fan demand for safer assets; gold at 5-month highs

UK average wages slightly exceeds expectations with back month revised higher

Overnight:

Asia:

China Mar CPI registered its 2nd straight decline (M/M: -0.3% v -0.2% prior Y/Y: 0.9% v 1.0%e

Trump administration said to be unlikely to label China as a currency manipulator in Treasury Dept foreign currency report out Saturday, Apr 15th

Europe:

Germany Fin Min Schaeuble: German 2017 GDP seen growing by ~1.5%; European authorities would turn to WTO over any trade violations (urges US to scrap plans for border-adjustment tax)

France govt to revise 2017 budget deficit target to 2.8% from 2.7% prior

Italy govt raised its 2017 GDP forecast to +1.1% y/y (up from +1.0% prior forecast)

Americas:

Fitch affirms United States sovereign rating at AAA; outlook Stable

Fed's Williams (moderate, non-voter): reiterates three to four rate increases are appropriate this year; Fed should start to shrink balance sheet by end of 2017

Economic Data

(DE) Germany Mar Wholesale Price Index M/M: 0.0% v 0.5% prior; Y/Y: 4.7% v 5.0% prior

(ES) Spain Mar Final CPI M/M: 0.0% v 0.0%e; Y/Y: 2.3% v 2.3%e

(ES) Bank of Spain (BOS): Mar Spanish Banks ECB borrowings at €149.4B v €145.0B prior

(UK) Mar Jobless Claims Change: +25.5K v -6.1K prior; Claimant Count Rate: 2.2% v 2.1% prior

(UK) Feb Average Weekly Earnings 3M/Y: 2.3% v 2.2%e; Weekly Earnings (Ex Bonus) 3M/Y: 2.2% v 2.1%e

(UK) Feb ILO Unemployment Rate 3M/3M: 4.7% v 4.7%e; Employment Change 3M/3M: K v +70Ke

Fixed Income Issuance:

(IN) India sold total INR140B in 3-month and 12-month Bills (INR80B and INR60B respectively)

(EU) ECB allotted $35M in 7-day USD Liquidity Tender at fixed 1.41% vs $45M prior

(SE) Sweden sold SEK10B vs. SEK10B indicated in 3-month bills; Avg Yield: -0.6714% v -0.6735% prior; bid-to-cover: 2.36x v 1.25x prior

(GR) Greece Debt Agency (PDMA) sold €812.5M vs. €625M indicated in 13-Week Bills; Avg Yield: 2.70% v 2.70% prior; Bid-to-cover: 1.3x v 1.3x prior

(IE) Ireland Debt Agency (NTMA) sold total €1.25B vs. €1.0-1.25B indicated range in IGB 2023 and 2026 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.4% at 3,482, FTSE +0.4% at 7,396, DAX +0.4% at 12,183, CAC-40 +0.5% at 5,126, IBEX-35 +0.2% at 10,440, FTSE MIB +0.3% at 20,172, SMI +0.4% at 8,672, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European equity indices are trading higher as market participants digest ongoing concerns over geopolitical tensions, ahead of the French Presidential elections; Banking stocks trading generally higher across the board with shares of Deutsche Bank higher on large volume; shares of Daimler also notably higher in the Eurostoxx after they released prelim Q1 results overnight; commodity and mining stocks trading lower in the FTSE 100 as copper prices trade sharply lower intraday; shares of Tesco the notable laggard in the index after releasing their FY results, with shares of other large supermarket chains Morrison and Sainsbury lower in sympathy.

Upcoming scheduled US earnings (pre-market) include Delta Air Lines, Fastenal, ClubCorp Holdings, and Shaw Communications.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Barry Callebaut BARN.CH -0.2% (H1 results), Dunelm DNLM.UK -2.2% (Q3 sales), Norcros NXR.UK +13.2% (trading update), PageGroup PAGE.UK +6.4% (Q1 gross profit), Puma PUM.DE +4.9% (prelim Q1 results), Telegraaf Media Groep TMG.NL +0.8% (Talpa confirms bid of €6.50/shr), Tesco TSCO.UK -3.4% (FY16/17 results)]

Consumer Staples: [Clas Ohlson CLASB.SE +1.7% (Mar sales)] - Energy: [Hunting HTG.UK +1.9% (trading update)]

Financials: [Countryside Properties CSP.UK +1.5% (trading update)]

Industrials: [Daimler DAI.DE +1.0% (prelim Q1 results), Kuehne & Nagel KNIN.CH +0.7% (MoU with BABA)]

Materials: [BHP Billiton BLT.UK -0.4% (Response to Elliott proposal)]

Speakers

German Economic Ministry Monthly Report: Domestic demand remained very robust; saw vigorous expansion in Q1. Euro area growth outlook was brighter

German Leading Economic Institutes (Advisors) spring economic forecasts raises 2017 GDP growth forecast from 1.4% to 1.5%and 2018 from 1.6% to 1.8%(as speculated). Saw German 1Q GDP growth of 0.6% and at 0.5% in Q2. ECB monetary policy could stimulate German economy more than assumed

Eurogroup chief Dijsselbloem: ECB's broad monetary policy could be phased out and did disadvantages to low interest rates

South Africa's Fin Min Gigaba: Treasury committed to fiscal consolidation; top priority is inclusive growth. Fully aware of impact of govt ability to borrow affordably. To undertake an international roadshow soon and meet with foreign investors

Turkey Dep PM Simsek: GDP growth would rise to 6% path following a 'yes' vote in upcoming Constitutional referendum. Easing of fiscal policy was temporary and expected rapid improvement in budget balances in H2

US Sec of State Tillerson stated from Moscow that lines of communication were always open; talks with Russian counterpart come at important moment in relationship

Russia Dep Foreign Min: Upcoming Lavrov/Tillerson meeting to discuss no-fly zone in Syria. US position on Syria remained a mystery to Moscow

China Foreign Ministry commented on potential US actions on Korea said to urge actions should be in accordance with International law. Escalating situation on Korean peninsula would be dangerous

S&P affirmed Singapore sovereign rating at AAA; outlook stable

OPEC secondary output production for March to be 31.928M bpd

Bund futures trade at 163.14 ticks down 7 ticks trading at the lower end of today's range in a relatively quiet morning ahead of the Easter break. Futures traded a high of 163.37, with a break back above targeting 163.57 then 163.99. A reversal continues to target 162.84 followed by 162.25.

Gilt futures trade at 128.44 down 5 ticks trading little changed after a mixed UK jobs report. Support moves to 127.94 then 127.34 followed by 127.05. A move above 128.67 targets 128.96. Short Sterling futures trade flat to up 1bp with Jun17Jun18 remaining at 10.5/11bp

Wednesday's liquidity report showed Tuesday's excess liquidity fell to €1.593T a fall of €27B from €1.620T prior. Use of the marginal lending facility rose to €265M from €185M prior.

Corporate issuance saw $5.4B come to market via 3 issuers comprised Yankee issues. Toyota 3 part $2.25B and JSC NC KazMunayGas $2.75B 3 part deal accounted for the bulk of the issuance as weekly issuance stands just shy of the $10B estimate.

Currencies

Safehaven flows remained the prevalent theme as geopolitical risks related to conflicts in Syria and saber-rattling by North Korea were not abating. Price action saw the JPY currency (Yen) climb to its strongest level since mid-November. USD/JPY tested 109.35 before consolidating. Spot gold hit a 5-month high just under the $1,280 level.

GBP/USD (Sterling) touched a 1-week high ahead of UK labour market data. The GBP was able to hold onto its gains as average wages (key focus of the BOE) did beat expectations and saw higher back-month revisions).

Looking Ahead

(IT) Italy Debt Agency (Tesoro) to sell €8.0-10B in 2020, 2024, 2030 and 2036 BTP Bonds

05:30 (DE) Germany to sell €3.0B in 0.25% Feb 2027 Bunds

05:30 (UK) DMO to sell £1.5B in 2.5% 2065 Gilts

05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.0-1.25B in 2022 and 2025 OT bonds

06:00 (PT) Portugal Mar CPI M/M: No est v -0.2% prior; Y/Y: No est v 1.6% prior

06:00 (PT) Portugal Mar CPI EU Harmonized M/M: No est v -0.2% prior; Y/Y: 1.2%e v 1.6% prior

06:45 (US) Daily Libor Fixing

06:50 OPEC Monthly Report

07:00 (RU) Russia to sell OFZ bonds

07:00 (US) MBA Mortgage Applications w/e Apr 7th: No est v -1.6% prior

07:00 (ZA) South Africa Feb Retail Sales M/M: +0.2%e v -1.2% prior; Y/Y: -1.8%e v -2.3% prior

07:30 (CL) Chile Central Bank's Traders Survey

08:00 (IN) India Mar CPI Y/Y: 4.0%e v 3.7% prior

08:00 (IN) India Feb Industrial Production Y/Y: 1.3%e v 2.7% prior

08:00 (BR) Brazil Feb Retail Sales M/M: +0.3%e v -0.7% prior; Y/Y: -6.9%e v -7.0% prior

08:00 (BR) Brazil Feb Broad Retail Sales M/M: +1.7%e v -0.2% prior; Y/Y: -7.4%e v -4.8% prior

08:00 (PL) Poland Mar CPI Core M/M: 0.2%e v 0.1% prior; Y/Y: 0.5%e v 0.3% prior

08:00 (RO) Romania Central Bank (NBR) Apr Minutes - 08:00 (HU) Hungary Central Bank (NBH) Mar Minutes

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Mar Import Price Index M/M: -0.2%e v +0.2% prior; Y/Y: 4.0%e v 4.6% prior

08:30 (CA) Canada Mar Teranet/National Bank HPI M/M: No est v 1.0% prior; Y/Y: No est v 13.4% prior; House Price Index: No est v 202.25 prior

09:00 (EU) EU's Juncker speaks in Brussels

10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.50%

10:00 (CA) Bank of Canada (BOC) April Monetary Policy Report

10:00 (MX) Mexico Central Bank (Banxico) Mar Minutes

10:00 (US) Fed's Kaplan (moderate, voter) speaks in Texas

10:30 (US) Weekly DOE Crude Oil Inventories

11:00 (IS) Iceland Mar International Reserves (ISK): No est v 811B prior

11:15 (CA) Bank of Canada (BoC) Gov Poloz holds post rate decision press conference

13:15 (DE) German Fin Min Schaeuble attends panel discussion in Berlin

13:00 (US) Treasury to sell 30-Year Bonds Reopening

14:00 (US) Mar Monthly Budget Statement: -$169.0Be v -$108.0B prior

(BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to cut Selic Target Rate by 100bps to 11.25%

Currency pair USD/JPY

The USD/JPY broke below the support trendline (dotted green) and has now reached the 50% Fibonacci support level of wave 4 vs 3 (purple). This is an important decision zone because a bullish bounce would confirm the current wave 4 (purple) structure, whereas a bearish break below the 50% Fibonacci level would make a continuation towards the 61.8% Fibonacci retracement likely (plus a new wave structure).

The USD/JPY is building a 5 wave structure (purple) within wave 5 (orange) of wave C (brown). The 5th wave (purple) is slowing down its pace and moving lower in a small channel (orange/green lines).

Currency pair EUR/USD

The EUR/USD is pausing and moving sideways which could indicate that the 5th wave (orange) of wave 1 (green) has been completed. A break above the resistance trendline (red) could spark a retracement within wave 2 (green).

The EUR/USD did not build a 5 wave structure but rather an ABC (pink). This is probably part of a larger WXY (orange) correction, which is why the Fibonacci levels of wave X (orange) and the support trendline (blue) could provide bouncing spots.

Currency pair GBP/USD

The GBP/USD broke above the resistance trendline (red), which confirms the completion of wave X (blue) and the start of wave Y (blue). Price could now be heading higher to test larger resistance levels (brown/red), but a break above the previous top of the triangle (red line) would invalidate wave E (green).

The GBP/USD is probably building an ABC zigzag (orange). Within wave C (orange), there could be a 5-wave pattern (pink). The wave 4 (pink) becomes invalidated if price breaks below the top of wave 1 (green line).

Today, all eyes will be on the Bank of Canada rate decision. Expectations are for the Bank to remain on hold once again. The BoC has maintained a concerned tone recently. At the press conference following the January gathering, Governor Poloz unexpectedly said that another rate cut remains on the table, while in the latest policy statement, the Bank hinted that there are still 'significant uncertainties' weighing on the outlook for exports. The Bank has previously stressed that the strength of CAD is posing challenges to that outlook. Even though the economic data have improved somewhat since the latest meeting, particularly with regards to economic growth, we doubt that this is enough to lead to a material change in the officials' dovish rhetoric.

Thus, our view is that the Bank will probably remain on hold once again, but will likely keep the door wide open for a near-term cut, if needed. By providing dovish hints and essentially talking down the currency, the BoC can ensure that Canada's exports remain competitive. It is also worth noting that this meeting includes a press conference as well, so even if the statement has a more or less neutral tone, we could still get some concerned comments from Governor Poloz. Such signals could bring CAD under selling interest.

USD/CAD declined somewhat yesterday, after finding resistance near the 1.3360 (R1) hurdle. Given the price structure on the 4-hour chart, and that on Monday the pair broke below a short-term uptrend line taken from the low of the 16th of February, we think that the short-term bias is flat for now. Any dovish signals from the BoC today could be the trigger for another test near the 1.3360 (R1) barrier, where a clear break could pave the way towards the 1.3400 (R2) territory.

Safe havens rally as geopolitical risks take center stage

Investors sought the shelter of safe haven assets yesterday, amid rising geopolitical tensions in the Korean Peninsula. Both the yen and gold rallied after North Korea warned the US of a nuclear attack if it is provoked, as a response to the US sending military ships to the region. President Trump replied via tweeter that North Korea is 'looking for trouble', and that if China does not help, then the US will solve the problem alone.

Should these geopolitical uncertainties remain in the market's spotlight, or even escalate further in coming days, investors could stay in a risk-averse mood in our view. Safe havens such as the yen and gold could extend their recent gains. In particular, we would expect JPY to strengthen further against EUR, bearing in mind that the first round of the French elections and the 'Le Pen risk', are just around the corner. Meanwhile, stocks and risk-sensitive currencies like the AUD and NZD may continue to underperform, as market participants avoid risky assets.

EUR/JPY has been printing lower highs and lower lows recently below a short-term downtrend line taken from the 17th of March. The pair plunged after finding resistance near the 117.40 (R2) hurdle, to break below the 116.85 (R1) support-turned-into-resistance level. It continued to decline during the Asian day Wednesday and at the time of writing, the pair looks to be headed for a test near the support zone of 115.70 (S1). If the bears prove strong enough to overcome that barrier, we may see further downside extensions towards the 114.10 (S2) territory.

As for the rest of today's highlights:

During the European day, the economic calendar is light. The only noteworthy data we get are UK employment figures for February. The forecast is for the unemployment rate to have held steady, while average weekly earnings are expected to have risen at the same pace as previously. However, earnings excluding bonuses, which the BoE has signaled that it pays a lot of attention to, are expected to have slowed. We think that something like that could confirm the Bank's concerns that real income growth in the UK is headed for a slowdown, especially as inflation is expected to accelerate further in coming months. As a result, these employment data could curb even further speculation regarding a tightening move by the BoE and thereby, reverse some of sterling's latest gains.

USD/CAD

Support: 1.3310 (S1), 1.3280 (S2), 1.3210 (S3)

Resistance: 1.3360 (R1), 1.3400 (R2), 1.3430 (R3)

EUR/JPY

Support: 115.70 (S1), 114.10 (S2), 113.25 (S3)

Resistance: 116.85 (R1), 117.40 (R2), 118.10 (R3)

GOLD (in USD) A new phase of strength is expected.

Gold has broken the key resistance area 1263. This validates a bullish reversal pattern with an upside potential at 1337. The hourly support at 1263 (previous resistance) has induced some buying interest. Another hourly support lies at 1260 (rising trendline). An hourly resistance can now be found at 1280 (intraday high).

In the long-term, the technical structure suggests that there is a growing upside momentum. A break of 1392 (17/03/2014) is necessary ton confirm it, A major support can be found at 1045 (05/02/2010 low).

SILVER (in USD) Bullish reversal.

Silver is rising sharply, validating the recent technical improvements. Strong resistance is given at a distance at 18.49 (27/02/2017 high). Key support is given at 17.74 (10/04/2017 low) then 16.82 (15/03/2017 low).

In the long-term, the death cross indicates that further downsides are very likely. Resistance is located at 25.11 (28/08/2013 high). Strong support can be found at 11.75 (20/04/2009).

Crude Oil (in USD) Bullish momentum.

Crude oil continues to find strong demand. Hourly resistance can be located at 54(07/04/2017 high then 55.24 03/01/2017 high). Support stands at 52.80 (intraday low and rising trendline).

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness are very likely. Strong support lies at 24.82 (13/11/2002) while resistance can now be found at 55.24 (03/01/2017 high).

USD/CHF - 1.0072

Original strategy :

Buy at 1.0000, Target: 1.0100, Stop: 0.9965

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.0000, Target: 1.0100, Stop: 0.9965

Position : -

Target :  -

Stop : -

Dollar’s retreat after rising to 1.0108 on Monday has retained our view that consolidation below this level would be seen and initial downside risk is for pullback to 1.0050, then towards support at 1.0026, however, reckon 0.9995 support would contain weakness and bring another rise later, above indicated resistance at 1.0108-09 would extend recent upmove from 0.9813 towards 1.0140-45 but loss of upward momentum should prevent sharp move beyond another previous resistance at 1.0171, risk from there has increased for a retreat to take place later. 

In view of this, would not chase this rise here and would be prudent to buy dollar on subsequent pullback as support at 0.9995 should limit downside. Below 0.9970 (50% Fibonacci retracement of 0.9831-1.0108) would abort and signal top is formed instead, bring correction to support at 0.9948. 

The latest inflation report continues to portray a subdued CPI, high PPI environment in China. Headline CPI improved to +0.9% y/y in March from +0.8% a month ago. The market has anticipated stronger pickup to +1%. Core inflation (excluding food and energy) rose +2% y/y, up from +1.8% in February. The decline in food prices deepened to -4.4% y/y from -4.3% in February. Nonfood inflation improved modestly to +2.3% y/y, up from +2.2% in February. PPI eased to +7.6% in March, from +7.8% in the prior month, compared with consensus of +7.5%. Both seasonal factors and moderation in the commodity price rally were key reasons for the slowdown. Lunar New Year in the first week of February pushed prices higher and absence of such factor was reflected in the March reading. Meanwhile, mining input prices gained +3.7% y/y in March, compared with a +36.1% y/y rally in the prior month. Oil and gas price, gaining +68.5% y/y in the month, was the biggest driver of PPI inflation last month. We expect PPI to stay high in coming months but growth would be more gradual due to strong base effect. Meanwhile, the rally in commodity prices over the past months is seen passing through to downstream CPI.

As we mentioned in previous reports, the Chinese government has adopted monetary tightening measured targeting the asset markets in order to prevent macro risks and sustain stable social and economic developments and prevention of macro risks. We believe the government's tightening policy would remain confined to interbank tightening. The probability of raising benchmark interest rates stays low, as headline inflation remains subdued. Rather, this might lead to more chances of liquidity injection into the market.

China's FX reserve stayed about US$ 3 trillion in March, as the government's strict capital control measures adopted since the beginning of this year helped curb the depreciation in renminbi. FX reserve increased +US$ 3.96M to US$3.01 trillion in March, marking a second consecutive monthly but decelerated growth in the series. Yet, FX reserve stays -24.6% below the peak made in June 2014. Renminbi has stabilized so far this year. USDCNY fell -0.86% in 1Q17, after gaining over the past three consecutive quarters (up +7.53% in total). Besides China's capital control effort, pullback in US dollar also helped stabilize renminbi. During the first quarter, USD index DXY was down -1.82%.Again, we suggest to wait for PBOC's FX position and SAFE flow data before judging capital flow situation in China.

China would release its March trade report on Thursday (April 13) with a surplus of US$ 12.5B, following a deficit of 9.1B in the prior month. In February, imports soared +44.7% y/y while exports gained +4.2% y/y, compared with growths of +15.9% and +25.2%, respectively, in January. The sharp rise in imports might indicate improvement in domestic demand

GBP/USD - 1.2491

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

As cable has maintained a firm undertone after yesterday’s rally, suggesting low has been formed at 1.2365 on Monday and near term upside risk remains for the rebound from there to extend gain to 1.2520-30, however, break there is needed to add credence to this view and bring further rise towards resistance at 1.2559 but near term overbought condition should prevent sharp move beyond there, bring retreat later.

In view of this, would not chase this rise here and would be prudent to stand aside for now. Below 1.2445-50 would suggest an intra-day top is possibly formed, bring weakness to 1.2420, break there would confirm and bring further fall to 1.12400-05 which is likely to hold on first testing.