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Most European stock markets started the quarter with modest losses of less than 0.5%. US equities show no clear trend at the open, trading little changed from Friday's closing levels.

America's factories continued to expand in March at a robust pace, demonstrating momentum in an industry that struggled for the better part of the last two years. The US manufacturing ISM marginally declined from 57.7 to 57.2, in line with expectations, but remains at a very high level.

The ECB sees no evidence that its aggressive stimulus policy is hampering financial markets, ECB Coeure said, despite deeply negative yields on some bonds and fresh signs of scarcity. He blamed political risk in some European countries and stricter financial rules since the crisis for boosting demand for short-term German government bonds.

UK manufacturing unexpectedly cooled (54.2 from 54.5) for a third month in March and may weaken further, according to IHS Markit, which repeated its warning about inflationary pressures. The final EMU manufacturing PMI was confirmed at 56.2 while the EMU unemployment rate dropped to a 7-yr low (9.5%) in February.

A blast has occurred on a subway line in Russia's second city of St. Petersburg killing 10 people, according to preliminary reports from news agencies Interfax and TASS.

Rates

Bunds higher due to some specific reasons?

Global bonds parted ways today. German Bunds eked out more gains, bull flattening the curve. US Treasuries hovered listless throughout the session, ahead of the US ISM business sentiment. Given the sharp underperformance of the euro swap curve, we suspect that today's Bund movements were largely due to technically (shortage?) reasons more than fundamental ones. To a very small extent, the combination of low inflation readings in the euro area and signals out of the ECB that they don't want to contemplate changing policy now, might have still had some marginal impact. The eco data were plain vanilla. The final manufacturing PMI's were close to the preliminary ones and the unemployment rate fell as expected.

At the time of writing, changes on the German yield curve ranged between -4.5 bps (2-yr) and -1.4 bps (30-yr), while the swap curve registered changes of between -1.3 bps (2-yr) and 0 bp (10-yr). Changes on the US yield curve vary between -0.8 bps (5-yr) and +1.4 bps (30-yr). On intra-EMU bond markets, 10-yr yield spread versus Germany widened up to 6 bps (Italy). France underperformed Belgium (+4 bps versus +2 bps). As of this week, the ECB buys only €60B/month versus €80B previously. However, we wouldn't attribute the spread widening to the amount of ECB purchases.

Currencies

EUR/USD decline slows, at least for now

Trading in the major dollar cross rates started the new quarter on a slow footing. EUR/USD retested last week's lows, but there was no strong enough driver for a further euro decline/dollar gain. USD/JPY also didn't go anywhere, awaiting more guidance from this week's eco update on the US economy. EUR/USD trades in the 1.0660/65 area. USD/JPY sits in the mid 111 area.

Overnight, Asian equities started the quarter on a positive footing. The headline Japan Tankan indicator improved for the second quarter in a row, but the rise was more modest than expected. Capex was slightly stronger than expected. The report had no lasting impact on yen trading. USD/JPY held in the mid 111 area. The dollar continued to trade mixed. EUR/USD reversed part of Friday's late session decline, but held within reach of the correction lows reached late last week.

European investors were a bit more cautious at the start of the new quarter compared to their Asian counterparts. European equities opened in positive territory but the gains evaporated almost immediately after the open. The EMU manufacturing PMI was confirmed at 56.2 and the EMU unemployment rate declined to a 9.5%, a multi-year low. However, it didn't help sentiment on European markets. European yields declined and the interest rate differentials between the US and Germany/Europe widened again with the 2-year spread returning well north of 200 bps. EUR/USD touched a minor correction low in the 1.0650 area, but there were no follow-through losses. At the same time, USD/JPY stabilized in the mid to lower 111 area.

For now, US trading also didn't find any clear directional momentum as investors await the early month US data today (US manufacturing ISM) and later this week. For now both EUR/USD and USD/JPY are captured in lackluster, order-driven trading. EUR/USD changes hands in the 1.0660/65 area. USD/JPY trades in the 111.30 /40 area. US equities opened little changed from Friday.

Sterling short squeeze runs into resistance

Sterling is trading off Friday's correction top against the euro and the dollar after a solid performance last week. EUR/GBP hovered in the low 0.85 area early in Europe. The UK manufacturing PMI declined from 54.5 to 54.2. The consensus expected a modest rebound to 55.00. The report didn't change the overall picture on the UK in a profound way. Even so, it help to block the recent short-covering rally of sterling. EUR/GBP 'jumped' to the 0.8540 area. Later in US dealings, EUR/USD regained a few ticks off the intraday lows which also filtered through into EUR/GBP trading. The pair trades currently in the 0.8540/45 area. Cable drifted back to the 1.25 area. After a brief intermezzo, sterling again traded slightly in the defensive early in US dealings. The jury is still out, but today's price action suggests that last week's sterling short-squeeze maybe ran its course. Will political tensions and/or softer eco data again become more important as a driver for sterling trading?

It was another quiet week for the Canadian dollar, which posted small gains. USD/CAD closed the week just below the 1.33 level. This week's key event is Employment Change. Here is an outlook on the major market- movers and an updated technical analysis for USD/CAD.

US consumer confidence sparkled in March, as consumers remain confident about the economy. Canadian GDP posted a strong gain of 0.6%, above the forecast of 0.3%.

Updates:

• Apr 3, 12:12: Brexit Bad and "Clean Coal" - MM #140: The UK is now officially leaving the EU and the real games begin. We begin with this event and its...
• Apr 3, 0:22: The week ahead: Strong start to Q2 with a full NFP buildup [Video]: The first quarter of 2017 provided its dose of volatility. After some end-of-quarter adjustments, the new one commences with a...

USD/CAD daily graph with support and resistance lines on it.

1. RBC Manufacturing PMI: Monday, 13:30. The PMI has improved over five straight months and continues to point to expansion. In January, the index rose to 54.7 points.
2. BoC Business Outlook Survey: Monday, 14:30. The survey is released quarterly and is based on 100 businesses, which rate business conditions, hiring and spending. A positive report could send the Canadian dollar higher.
3. Trade Balance: Tuesday, 12:30. Canada's trade surplus dipped to C$0.8 billion in January, well above the forecast of C$0.2 billion. The downward trend is expected to continue in February, with an estimate of C$0.7 billion.
4. Building Permits: Thursday, 12:30. The indicator posted a strong gain of 5.4%, above the estimate of 3.1%. This follows a streak of two straight declines.
5. Employment Change: Friday, 12:30. This is one of the most important indicators and an unexpected reading can have a strong impact on the direction of USD/CAD. The indicator softened to 15.3 thousand in February, crushing the estimate of 0.6 thousand. The downward trend is expected to continue in March, with a forecast of 5.7 thousand. The unemployment rate is expected to edge up to 6.7%.
6. Ivey PMI: Friday, 12:30. In February, the indicator slipped to 55.0 in February, short of the forecast of 58.9 points. The index is expected to improve to 56.3 in the March report.

USD/CAD Technical Analysis

USD/CAD opened the week at 1.3330 and climbed to a high of 1.3414, as support held at 1.3457. The pair then reversed directions and dropped to 1.3276. USD/CAD closed the week at 1.3297.

Technical lines, from top to bottom

• 1.3648 was an important support level in February.
• 1.3551 is the next line of resistance.
• 1.3457 was a high point in September 2015.
• 1.3351 is the next line of resistance.
• 1.3212 is providing support. It was a cap in the second quarter of 2016.
• 1.3124 is the next support level.
• 1.3003 is protecting the symbolic 1.30 level.
• 1.2908 is the final support level for now.

I am bullish on USD/CAD

The US economy continues to fire on all cylinders and the Fed is expected to continue to raise interest rates, so sentiment remains favorable for the US dollar. In Canada, BoC Governor Stephen Poloz strongly hinted that no rate hikes are likely in the near future.

EURUSD selloff from this year's high of 1.0904 appears to have stabilized. The weakness was probably contained by ECB Chief Economic Peter Praet's comments that "the probability" to "provide more monetary accommodation to meet our objective has reduced considerably". He stressed, however, that the monetary stance remains appropriate and QE reduction "does not signal the start of a gradual reduction of purchases - tapering". We remain cautious over the currency's outlook which would continue to be driven by two critical factors: 1. Political risks and 2. ECB's tapering schedule.

French presidential election the most imminent political event

The most imminent political event in the Eurozone is the French presidential election, with the first round taking place on April 23 and the second and final round on May 7. Polls have suggested that centre-left candidate Emmanuel Macron and populist far-right candidate Marine Le Pen would get the most votes in the first round, but then Macron would win the second and final round, and become the next French president. However, this outcome is far from certain. Confirmation of euro-skeptic Le Pen's failure would be bullish for the euro and European yields as concerns over "Frexit" diminish. The next debate would take place on April 4 with all eleven candidates on stage. The themes to be discussed include employment, security and welfare system.

Italy next...

Italy would return to the spotlight after the French election as snap elections in the country remains a tail risk. Recent surveys suggest that Five Start Movement, a populist euro-skeptic political party have surged in support. The latest opinion poll by EMG shows that support for the party rose to 30%, compared with the ruling Democratic Party's 30%. The market has priced in little chance of "Italexit". In the unlikely event that this happens, the euro would suffer another round of selloff.

ECB guidance watched

Euro's selloff last week was driven by a report noting that the market had misinterpreted ECB's tapering intention and the central bank was now wary of making further changes to its policy guidance in the coming meeting. As we mentioned in a previous report, we expect ECB's monetary policy and QE measures to stay the same throughout the year. That is, ECB should keep the main refi rate, marginal lending rate and the depo rate 0%, 0.25% and -0.40%, respectively. Meanwhile, the central bank would continue the asset purchase program at the pace of 80B euro per month until the end of this month and then continue the program at a pace of 60B euro per month from April 2017 until the end of December 2017, or beyond, if necessary. QE tapering would likely begin in early 2018 and end by the first half of the year. ECB might begin raising the depo rate in 2Q18. Every ECB meeting would be closely watched as the market gauges whether the central bank has change its rhetoric on the monetary policy and stimulus measures.

Key Events in Eurozone

Downside risk is growing in the near-term as cable is probing into daily cloud and weakness dented next support at 1.2485 (Fibo 38.2% of 1.2374/1.2613 rally, reinforced by rising 10SMA).

Easing from fresh recovery high at 1.2553 was accelerated by today's UK Manufacturing PMI miss (Mar 54.2 vs 55.1 f/c and 54.5 in Feb).

We are looking for today's close which could further weaken near-term structure and risk deeper pullback on close in the cloud and below Fibo 38.2% support.

Otherwise, close above daily cloud would keep in play hopes for fresh upside attempts, as daily studies remain in firm bullish setup.

Res: 1.2528; 1.2557; 1.2568; 1.2613
Sup: 1.2478; 1.2443; 1.2414; 1.2401

Daily Pivots: (S1) 1.2466; (P) 1.2512; (R1) 1.2590; More...

GBP/USD continues to stay in range of 1.2376/2614. Intraday bias remains neutral at this point. Overall, price actions from 1.1946 are viewed as a consolidation pattern pattern. On the downside, below 1.2376 will target 1.2108 support next. Break there will be an early sign of larger down trend resumption. On the upside, break of 1.2614 will extend the rise from 1.2108. But upside should be limited by 1.2705/2774 resistance zone to bring larger down trend resumption eventually.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term reversal yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

Daily Pivots: (S1) 1.0004; (P) 1.0016; (R1) 1.0039; More.....

USD/CHF's rebound from 0.9812 is still in progress and intraday bias remains on the upside. The corrective fall from 1.0342 should have finished with three waves down to 0.9812 already. Sustained trading above 55 day EMA (now at 1.0022) will affirm this bullish case. Break of 1.0169 resistance will confirm and target a test on 1.0342 high. On the downside, however, below 0.9948 minor support will turn bias back to the downside for 0.9812 instead.

In the bigger picture, USD/CHF is staying in medium term sideway pattern between 0.9443/1.0342. In any case, decisive break of 1.0342 resistance is needed to confirm underlying strength. Otherwise, we'll stay neutral in the pair first. In case of another fall, we'd expect strong support from 0.9443/9548 support zone.

Daily Pivots: (S1) 111.02; (P) 111.60; (R1) 111.98; More....

USD/JPY is staying in range of 110.99/112.19 and intraday bias remains neutral first. On the upside, break of 112.19 temporary will turn bias back to the upside for 115.49 resistance. Decisive break there should confirm completion of the correction from 118.65. In that case, further rise should be seen to 118.65 and above to resume the rally from 98.97. On the downside, though, below 110.99 minor support will turn bias back to the downside for 110.10 and break will extend the corrective fall from 118.65.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Nonetheless, sustained trading below 55 week EMA (now at 111.16) will extend the consolidation from 125.85 with another fall through 98.97 before completion.

EUR/GBP - 0.8536

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term down

Original strategy  :

Sell at 0.8620, Target: 0.8520, Stop: 0.8660

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.8620, Target: 0.8520, Stop: 0.8660

Position : -

Target :  -

Stop : -

 
Although the single currency has recovered after falling to 0.8485 and consolidation above this level would be seen, reckon upside would be limited to 0.8590-00 and renewed selling interest should emerge around 0.8620-25, bring another decline later, below said support at 0.8485 would add credence to our view that top has been formed at 0.8788 and bearishness remains for this fall from there to bring retracement of early upmove, hence further weakness to 0.8470 would be seen, however, oversold condition should prevent sharp fall below 0.8450, risk from there has increased for a rebound to take place later.

In view of this, we are looking to sell euro on recovery as 0.8620-25 should limit upside. Only above 0.8660-65 would defer and suggest low is possibly formed, risk rebound to 0.8680, then 0.8700 but price should falter below said resistance at 0.8735, bring further choppy trading later.

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

WTI oil is holding above broken key barriers at $50.00/10 (psychological barrier / Fibo 38.2% of $55.01/$47.06 descend) that were taken out on last week's strong bullish acceleration from base that was formed at $47.00 zone.

Recovery rally peaked at $50.83 on Friday (the highest of past three weeks) where rally was temporarily capped by daily Kijun-sen line, ahead of next targets at $51.03/14 (50% retracement of $55.01/$47.06 / 100SMA).

The price is expected to consolidate under Kijun-sen barrier, with extended upticks not ruled out, as slow stochastic is strongly overbought on daily chart (no firmer bearish signal yet), with $50.00 zone (reinforced by top of thick hourly cloud, spanned between $50.00 and $49.41) expected to ideally contain and keep immediate near-term bulls intact.

Only return below hourly cloud (also near Fibo 38.2% of $47.07/$50.83 upleg) would weaken near-term structure.

Res: 50.83; 51.03; 51.14; 51.70
Sup: 50.47; 50.00; 49.41; 48.94

USD/CAD has edged higher in the Monday session. Currently, the pair is trading at 1.3350. On the release front, manufacturing data is in focus on both sides of the border. Canada releases Manufacturing PMI, while the US publishes ISM Manufacturing PMI. On Tuesday, Canada releases Trade Balance.

Canada's economy expanded 0.6% in January, easily beating the forecast of 0.3%. This marked a 7-month high for GDP, and raises hopes that a strong US economy will boost its northern neighbor. Although the Canadian economy has been churning out decent numbers, lower oil prices have had a negative impact on the Canadian economy and also weighed on the Canadian dollar, which remains above the 1.33 level. Later in the week, we'll get a look at Canadian Employment Change, which is expected to post a modest gain of 5.7 thousand.

Donald Trump's presidency has been anything but smooth. The battles with the media continue, an economic policy remains a mystery, and Trump suffered a major setback as he couldn't even muster a vote over his healthcare bill. Despite these hiccups, the US economy hasn't missed a beat in 2017. The CB consumer confidence report soared to 125.6 in March, and strong consumer confidence levels should translate into increased consumer spending. GDP for the fourth quarter was revised to 2.1%, up from 1.9% in the previous GDP report. This points to strong growth for the economy, as the discussions around the monetary policy tables are not whether the Fed will raise rates, but will it press the rate trigger twice or three times in 2017. The Fed will release the minutes of its March meeting on Wednesday, and the markets will be looking for clues as to the timing of a possible rate hike.