London Forex Report: Mnuchin Calms Markets

London Forex Report: Mnuchin Calms Markets

London Forex Report: Global risk sentiments remained fragile amid the brewing trade tensions, with the Dow suffering more than 1,400 points last week amid trader anxiety over China’s potential retaliatory moves. US Treasury Secretary Mnuchin said “we’re having very productive conversations with them” and “I’m cautiously hopeful we reach an agreement” with China. Although it’s a shortened holiday week ahead with Easter holidays.

In terms of positioning, CFTC data revealed that asset managers lightened up on implied USD shorts marginally in the latest week. However, noncommercial and leveraged accounts may have gained the upper hand, as they piled heavily into implied USD short positions ahead of the FOMC decision. Significant gains were seen in the leveraged accounts’ long JPY and GBP positions.

NORTH AMERICA In the US, preliminary reading shows strength in the industrial sector as durable goods order rebounded to increase 3.1 % MoM in Feb-18 (Jan: -3.5% revised ). The higher than expected figure coincides with February industrial production which rose 1.1% MoM as reported earlier in the month. The rebound is attributed to a broad based improvement across sectors except for communications, computer electronics and products. Meanwhile the contraction in home sales slowed substantially but still registered a decrease of 0.6% MoM following a 4.7% decline in the preceding month due to seasonal factors as buyers rushed to purchase houses in the fourth quarter of 2017.

EUROPE Eurozone data reports were limited to second and third tier national data Friday, leaving the EUR to range trade versus the USD. Despite massively negative short-term rate spreads (near 290bps) versus the USD and some backsliding in Eurozone rate expectations, the EUR remains well-supported. EUR continues to benefit from investment flows away from the US in a general sense and represents something of an “anti-dollar” trade as traders mull the implications of US tariffs. EU leaders signed off on the next stage of the Brexit process at their summit meeting, allowing the UK to start negotiating trade deals. Progress on Brexit should be constructive for local business sentiment and the GBP, though the risk of parliamentary objections remains and there is still a long way to go in the overall process.

ASIA market will continue to be focused on trade developments between US and China. While we can expect tough rhetoric and protests from China in reaction to the tariffs, retaliatory actions from China could in fact continue to be rather restrained which will help to contain the overall fallout in global trade. In fact, China’s proposed counter measure targeting tariffs on US$3 bn of U.S.’ exports is relatively small in comparison to US’ target on at least US$50bn of Chinese goods.

EURUSD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Range continues contracting frustrating both sides, closes below 1.2250 opens 1.2150, however, closes above 1.2360 sets 1.2570 in bullish sites

1-3 Week View – As 1.2130 now acts as support expect a test of 1.2635 as the next upside objective. Weekly close below 1.19 neutralises bullish objectives opening a test of 1.14.
Retail Sentiment: Bearish
Trading Take-away: Long

GBPUSD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – 1.4145 achieved, profit taking pullback playing out as 1.4060 supports 1.4340 is the next upside objective. Only a close below 1.3990 concerns near term bullish bias

1-3 Week View – As 1.3650 supports 1.45 becomes the next upside objective, only a close back below 1.34 would jeopardise the bullish advance.
Retail Sentiment: Bearish
Trading Take-away: Long

USDJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – As 108.44 acts as resistance 103.22 is the next downside objective, near term resistance is sited at 105.50

1-3 Week View – The close below 108 negates the broader bullish theme and opens the psychological 100 magnet as the next downside objective, only a close above 108.50 stabilises the pair, opening 112.50
Retail Sentiment: Bullish
Trading Take-away: Short

EURJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – Breach of 131 sets a top to target 128.25 as 131 acts as resistance. A close over 132.30 stabilises the pair opening a retest of 135

1-3 Week View – The closing breach of 131 concerns the bullish consolidation bias opening a test of 128.50 while this area supports there is a window to retest and breach cycle highs above 137
Retail Sentiment: Bullish
Trading Take-away: Short

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