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News and Events:

Markets to refocus on hard data and monetary policy

It has been a quiet week so far as volatility in the FX market remains desperately low, despite lingering political uncertainty. Over the last few days, the USD has been particularly resilient, especially after Trump's health-care reform setback. The single currency completely erased last week’s gains dipping below the 1.07 threshold amid building political pressure in Europe, mostly due to Brexit and the upcoming French elections. However, we have the feeling that the Trump trade is coming to an end and the market now needs a new driver. Equity gains have begun to stall recently, while the greenback has been unable to reach higher ground. We believe that the market will slowly start focusing again on monetary policy and economic data.

US price data is due for release later today. The Fed’s favourite measure of inflation, the core PCE, is expected to have held steady at 1.7%y/y in February, while the headline measure, which includes the most volatile components, is expected to have risen from 1.9% to 2.1%. Personal income and spending are also anticipated to have stabilised at 0.4%m/m and 0.2%m/m respectively. Next week will be a busy one in the US as a fresh batch of key data is due for publication, with notably the March job report, FOMC minutes, factory and durable goods orders and ISM. The market is still positioned for two rate hikes from the Fed this year, suggesting that risk is mostly on the downside as we are approach the release of the FOMC minutes.

Japan shows signs of steady improvement

Economic data released for Japan continues to support steady improvements. Japan's CPI for February posted a 0.3% y/y gain as expected, while industrial product surged 2.0% m/m - well above the expected figure of 1.2%. However, housing starts fell 2.6% y/y following a 12.8% rise prior, posting the first decline in eight months. Next week will bring the BoJ Tankan report into focus. Weaker JPY and strong global trade growth should allow sentiment, specifically in manufacturing to improve. Given the inflation backdrop, we anticipate further strengthening in corporate inflation expectations which should influence the BoJ's monetary policy strategy. Despite BoJ commitment to ultra-extreme accommodating measures, improvement in the economics suggests tightening in 2018. Given the lack of responsiveness from US yields, we remain short USDJPY heading into next week. USDJPY 21d MA at 112.83 should provide resistance for a corrective decline to 108.80. Watch EURJPY for a deeper bearish move towards 118.55.

French Elections: Macron clear favourite in race for French presidency

Both in polls and the financial markets, Macron seems to be the clear favourite for the Élysée Palace with markets currently pricing a probability in excess of 67%. However, for now, the euro still remains weak against the dollar with further possibility for upside. Drawing comparisons with the US elections, we would do well to recall that Clinton had an estimated win of over 80%. However, we are extremely sceptical of these polls and believe that the Le Pen vote should not be underestimated, especially when we factor in the clear bias regarding this candidate.

Zooming in on markets, the 10-year French yield has risen above 0.90%, yet rates are still holding around a one-month low, while the 10-year spread France vs Germany is back above 60 basis points.

Markets are demonstrably confident that Macron will win and French rates are clearly trending lower. This is partly due to the nature of the elections. Many socialists from the government (including former Prime Minister, Manuel Valls) are now supporting Macron. This is why we believe that what is called the “Republican Front” i.e. an alliance of all forces against the National Front represents the best possible strategy for French leftists. Macron is now racing towards the presidency and the markets are reflecting this. Of course, this perception could create epic turmoil in the event of a Le Pen victory. Yet, as we have seen in the past, political turmoil can be very temporary and central banks would quickly return to being the main drivers of asset pricing.

Today's Key Issues (time in GMT):

• 4Q F GDP SA QoQ, last 0,20% DKK / 07:00
• 4Q F GDP SA YoY, last 1,90% DKK / 07:00
• Feb Unemployment Rate Gross Rate, exp 4,20%, last 4,20% DKK / 07:00
• Feb Unemployment Rate SA, last 3,30% DKK / 07:00
• Feb Trade Balance, exp -3.70b, last -4.31b, rev -4.33b TRY / 07:00
• Feb Retail Sales YoY, last -0,10% EUR / 07:00
• Feb Retail Sales SA YoY, exp 0,90%, last 0,10% EUR / 07:00
• 4Q GDP YoY, exp 1,90%, last -1,80%, rev -1,30% TRY / 07:00
• Mar Unemployment Change (000's), exp -10k, last -14k, rev -15k EUR / 07:55
• Mar Unemployment Claims Rate SA, exp 5,90%, last 5,90% EUR / 07:55
• Jan Current Account Balance, last 3.4b, rev 3.6b EUR / 08:00
• Apr Norges Bank Daily FX Purchases, exp -850m, last -850m NOK / 08:00
• mars.24 Money Supply Narrow Def, last 8.93t RUB / 08:00
• Mar Unemployment Rate, exp 3,00%, last 3,10% NOK / 08:00
• Bank of Italy Annual Shareholder Meeting EUR / 08:00
• 4Q Current Account Balance, exp -16.0b, last -25.5b, rev -25.7b GBP / 08:30
• 4Q F GDP QoQ, exp 0,70%, last 0,70% GBP / 08:30
• 4Q F GDP YoY, exp 2,00%, last 2,00% GBP / 08:30
• Jan Index of Services MoM, exp 0,20%, last 0,20% GBP / 08:30
• Jan Index of Services 3M/3M, exp 0,70%, last 0,80% GBP / 08:30
• 4Q F Total Business Investment QoQ, exp -1,00%, last -1,00% GBP / 08:30
• 4Q F Total Business Investment YoY, exp -0,90%, last -0,90% GBP / 08:30
• ECB's Benoit Coeure Speaks in Brussels EUR / 09:00
• Mar P CPI NIC incl. tobacco MoM, exp 0,10%, last 0,30%, rev 0,40% EUR / 09:00
• Mar P CPI NIC incl. tobacco YoY, exp 1,50%, last 1,50%, rev 1,60% EUR / 09:00
• Mar P CPI EU Harmonized MoM, exp 2,10%, last 0,20% EUR / 09:00
• Mar P CPI EU Harmonized YoY, exp 1,60%, last 1,60% EUR / 09:00
• Mar CPI Estimate YoY, exp 1,80%, last 2,00% EUR / 09:00
• Mar A CPI Core YoY, exp 0,80%, last 0,90% EUR / 09:00
• ECB's Ignazio Angeloni Speaks in Bologna, Italy EUR / 09:50
• Feb PPI MoM, last 1,10% EUR / 10:00
• Feb PPI YoY, last 2,80% EUR / 10:00
• Feb Fiscal Deficit INR Crore, last 62942 INR / 11:00
• Jan Economic Activity MoM, exp -0,20%, last -0,26% BRL / 11:30
• Jan Economic Activity YoY, exp -0,50%, last -1,82% BRL / 11:30
• Feb Trade Balance Rand, exp 1.6b, last -10.8b ZAR / 12:00
• Feb National Unemployment Rate, exp 13,10%, last 12,60% BRL / 12:00
• Jan GDP MoM, exp 0,30%, last 0,30% CAD / 12:30
• Feb Personal Income, exp 0,40%, last 0,40% USD / 12:30
• Jan GDP YoY, exp 1,90%, last 2,00% CAD / 12:30
• Feb Personal Spending, exp 0,20%, last 0,20% USD / 12:30
• Feb Real Personal Spending, exp 0,10%, last -0,30% USD / 12:30
• Feb PCE Deflator MoM, exp 0,10%, last 0,40% USD / 12:30
• Feb PCE Deflator YoY, exp 2,10%, last 1,90% USD / 12:30
• Feb PCE Core MoM, exp 0,20%, last 0,30% USD / 12:30
• Feb PCE Core YoY, exp 1,70%, last 1,70% USD / 12:30
• 4Q F Current Account Balance, last 7800m RUB / 13:00
• Fed's Dudley Speaks to Mike McKee in Bloomberg TV Interview USD / 13:00
• Feb Primary Budget Balance, exp -21.2b, last 36.7b BRL / 13:30
• Feb Nominal Budget Balance, exp -55.8b, last 0.3b BRL / 13:30
• Feb Net Debt % GDP, exp 47,10%, last 46,40% BRL / 13:30
• Mar Chicago Purchasing Manager, exp 56,9, last 57,4 USD / 13:45
• Fed's Kashkari Answers Questions at Banking Conference USD / 14:00
• Mar F U. of Mich. Sentiment, exp 97,6, last 97,6 USD / 14:00
• Mar F U. of Mich. Current Conditions, last 114,5 USD / 14:00
• Mar F U. of Mich. Expectations, last 86,7 USD / 14:00
• Mar F U. of Mich. 1 Yr Inflation, last 2,40% USD / 14:00
• Mar F U. of Mich. 5-10 Yr Inflation, last 2,20% USD / 14:00
• Fed's Bullard Speaking in New York USD / 14:30
• BOE's Andy Haldane speaks in San Francisco GBP / 21:00

The Risk Today:

EUR/USD is getting lower. The pair is heading lower since the pair failed to hold above former resistance given at 1.0874 (08/12/2017 high). Hourly support given at 1.0719 (21/03/2017 low) has been broken. Stronger support can be found at 1.0493 (22/02/2017 low). The short-term technical structure indicates further weakness.. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD's bullish pressures increase again after the pair exited short-term uptrend channel. Hourly resistance is located at 1.2615 (27/03/2017 high). Hourly support is given at 1.2324 (03/17/2017 low). Expected to show strengthening towards resistance at 1.2771 (05/10/2016 high). The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY's bearish pressures are fading. Hourly resistance can be located at 113.57 (16/03/2017 high) while support is given at 110.11 (27/03/2017 low). We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USD/CHF is strengthening. Hourly support is given at 0.9814 (27/03/2017 low). Key resistance can be found at a distance at 1.0344 (15/12/2016 high). Expected to show further consolidating below parity. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

'The dollar climbed to a two-week high against the euro after U.S. data showed gains in personal consumption and corporate profits.' – Lananh Nguyen and Vincent Cignarella, Bloomberg

Pair's Outlook

During the early hours of Friday's trading session the common European currency found support against the Greenback in a combined support level, which is made up of the weekly S2 and 55-day SMA. Both of the support levels are located exactly at the 1.0675 mark. The pair fell sharply during Thursday's trading session, as the Buck surged all across the financial markets. If the fall continues, the rate is set to retreat to a much stronger support cluster, which begins with the 23.60% Fibonacci retracement level at 1.0639. On the other hand a rebound up to the 20-day SMA at 1.0708 might occur.

Traders' Sentiment

SWFX traders have decreased their bearish outlook, as 58% of open positions are short, compared to 62% previously. Meanwhile, 57% of set up orders are to sell the Euro.

'Given the positioning, our bias would still be toward a stronger pound over the coming weeks.' – MUFG (based on Business Recorder)

Pair's Outlook

The British Pound found support in front of the 55 and 100-day SMAs yesterday, but was unable to fully breach the immediate resistance cluster. Although technical studies keep suggesting the GBP/USD pair is to edge higher and the 55-day SMA is on the verge of crossing the 100-day one to the upside, the potential bullish development is unlikely to exceed the 1.2550 mark. The weekly R1 at 1.2558 is to prevent the Cable from rising further in case bulls do prevail today, but downside risks are still present, with political factors continuing to weigh on the Sterling.

Traders' Sentiment

There are 58% of traders holding long positions today (previously 59%), whereas 51% of all pending orders are to sell the Pound, compared to 56% on Thursday.

'It is too early to expect a sustained recovery even though on the converse, the odds for a break below 110.00 have diminished considerably.' – UOB (based on FXStreet)

Pair's Outlook

The US Dollar successfully outperformed the Yen on Thursday, receiving a boost from a better-than-expected US GDP reading. As a result, the given pair breached two immediate resistances, encountering resistance only in front of the 112.00 level. After such a relatively strong rally a bearish correction is expected. The weekly PP, which is now the nearest support, is unlikely to limit the losses if bears do push the Buck lower. Technical indicators are in favour of the negative outcome, but we should not rule out the possibility of another rally, with fundamental data providing the Greenback with more impetus.

Traders' Sentiment

Today 71% of traders are long the Buck (previously 72%), while 60% of all pending orders are to acquire the US Dollar, up from 50% yesterday.

'In the short term, factors including a strengthening dollar could pull prices down to around the $1,230 an ounce range.' – Yuichi Ikemizu, Standard Bank (based on Reuters)

Pair's Outlook

On Friday the yellow metal began the day's trading session just above the 1,240 level. The reason for that is the strength of the US Dollar, which pushed the price lower in the second part of Thursday's trading session. However, the metal seems to have found support in the weekly PP, which is located at the 1,240.87 mark, which indicates that a short period of consolidation is set to occur. Although, the further short term path of the metal is most likely going to be dictated by the US Dollar fundamentals and political risk events around the world.

Traders' Sentiment

Traders have increased their bearish outlook on the bullion, as 52% of open positions are short, compared to 51% the past three consecutive trading sessions. Meanwhile, 64% of set up orders are to buy.

'Some of this softness is due to seasonal adjustment issues that will reverse later in the year. Consumer spending will lead growth thanks to higher incomes from more jobs and rising wages.' - Gus Faucher, PNC Financial

The US economy expanded at a stronger than initially expected pace during the final quarter of 2016 amid higher consumer spending. The Commerce Department reported on Thursday the economy grew at a 2.1% annualised rate in the Q4 of 2016, compared to the previously estimated 1.9% pace. Nevertheless, for all of 2016, the economy expanded just 1.6%, the slowest pace of growth since 2011, following a 2.6% expansion in 2015. Moreover, the most recent economic indicators suggested that economic growth slowed further in the Q1 of 2017. According to the Atlanta Fed, the US economy expanded at a 1.0% rate in the Q1. However, economists claim that US employment data is more reliable than output data, as it paint a clearer picture of national income growth. Thursday's data also showed consumer spending advanced 3.5% during the last quarter of 2016, up from the initially reporter 3.0% growth rate. Furthermore, domestic demand climbed 3.4% in the Q4 of 2016, the fastest pace of growth in two years, as imports posted a 9.0% jump, the biggest since the Q4 of 2014. Other data released on Thursday revealed that initial jobless claims dropped 3,000 to a seasonally adjusted 258,000 in the week ending March 25, remaining below the 300,000 level for 108 consecutive weeks.

'2018 seems that it may be the year for the SNB to start normalizing policy.' - Nadia Gharbi, Pictet & Cie

Data released on Thursday revealed that the Swiss KOF leading indicator surged slightly over the month of March, reconfirming the strong February data and suggesting a better-than-expected growth of the country's economy. The KOF Swiss Economic Institute reported the KOF index added 0.7 points last month and held strongly above its long-term average, jumping to 107.6 from a downwardly revised reading of 106.9 registered in the preceding month. The upmove was mainly driven by the positive trend established in the construction sector coupled with favourable signals from the financial sector and domestic private consumption. In the meantime, indicators for last month's leading industries, namely, manufacturing and hospitality, posted almost no change over the observed period, while exporting sector sent slightly negative signals. Despite that, the KOF said muted confidence in the manufacturing industry did not manage to hurt the overall sentiment, as the upgraded assessment of the business situation in the country coupled with generally more positive outlook for intermediate goods and inventories weighed. Overall, the KOF report suggested that the Swiss economy should expand at an above-average growth pace in the months to come.

E_mini S&P500 is recovering nicely since Monday; it seems that bullish trend is back in play which is expected to continue after any three wave retracement. We see a flat in progress now with subwave C, final leg of a correction that may find a base at 2345-2350 area.

S&P500, 1H

Strong rally in past three days eventually broke and closed above key barriers at $50.00/10 (psychological barrier / Fibo 38.2% of $55.01/$47.06 descend), generating firmer bullish signal.

Recovery from $47.06 base peaked at $50.45, with subsequent easing signaled by reversal of 4-hr RSI / slow stochastic from overbought territory.

Dips may extend below $50, now acting as initial support and should be ideally contained above $49.25/16 support zone ( yesterday’s low / broken 20SMA / Fibo 38.2% of $47.08/$50.45 rally) ahead of fresh attempts higher.

Also, weekly close above $50.0 handle would be seen as strong bullish signal for extension towards next strong barrier at $51.03 (50% retracement of $55.01/$47.06) reinforced by 100SMA.

Res: 50.45, 51.03, 51.21, 51.73
Sup: 50.00, 49.50, 49.16, 48.67

The pair is congested between daily cloud top and Tenkan-sen line, which was cracked on past two days rallies but so far without sustained break higher.

Thickening daily cloud continues to underpin, however, the pair is lacking momentum for stronger upside action for now.

Daily Tenkan-sen (0.7666) is also 50% of 0.7747/0.7585 pullback and repeated failure here would keep the downside vulnerable.

Mixed setup of daily MA's also shows no clear direction.

Weekly close below cloud top (currently at 0.7646) would generate initial bearish signal and expose lower pivot at 0.7618 (daily Kijun-sen) break of which will be bearish.

Res: 0.7666, 0.7685, 0.7709, 0.7739
Sup: 0.7632, 0.7618, 0.7588, 0.7550