New York Forex Report: Dollar, Dead Cat Bounce?

New York Forex Report: Dollar, Dead Cat Bounce?

New York Forex Report: US data trends and the Trump administration’s difficulties advancing its agenda have raised the risk of the reflation trade stalling, paring back Fed rate hike expectations to below 50% for the June meeting, from around 63% probability ten days ago. A broadening in the global activity rebound drew some attention yesterday to the fact that the Canadian economy was expected to deliver some of the strongest growth in the G7 in Q1 (Bloomberg consensus forecast expects 3.2%.). Yet this morning sees the USD broadly higher and the CAD one of the weaker performers in the G10 block, despite crude oil rebounding from yesterday’s low. Crude oil is firmer (but of little help to the CAD) while traders have turned their backs on gold. With no data releases from the US today, aside from the Beige Book release for the May FOMC meeting, markets may continue to meander in search of a broader theme or direction whilst keeping a close eye on event (French election) and geo-political (North Korea) risks.

USD Economic data from the US showed that housing starts declined 6.80% MoM to annualized pace of 1215k in March after a revised 5.00% MoM increase in February. On the other hand, the number of building approval rose 3.60% MoM to annualized pace of 1260k in March (February: revised to -6.00% MoM). A third report showed that industrial production climbed 0.50% MoM in March after a 0.10% MoM increase in output in February. Last month’s increase in headline IPI growth was driven by higher output in the utilitites sector (+7.00% MoM) which alleviated the drop in manufacturing output (-0.40% MoM). Dollar Index slumped through European and US sessions to close 0.79% lower at 99.49, driving largely by rally in GBP.

EUR Polling in France suggests the first round of the presidential election Sunday boils down to a four way split between the main candidates. EURUSD 1-week risk reversals continue to reflect demand for near-term downside protection despite the relative nonchalance of the spot market buoyed by the GBP bid.

GBP remains bid after PM Theresa May called a early election and the expectations she will win – paving the way for a smoother Brexit. With nearly a 21 point lead over the Labour Party, May and the Conservatives are gambling that they can strengthen their position in Brexit talks by gaining a wider mandate in Parliament. The news served to immediately boost the British Pound printing year to date highs.

JPY Nikkei was negative at open, then recovered to flat. 10-year UST yield was up 1bp at the Tokyo open. There is an article in Nikkei, where it said one of the two new BOJ board members, economist Kataoka is noted for favouring monetary easing to stoke inflation.

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

Technical: 1-3 Day View – 1.0620 becomes support as this contains corrections 1.0760 becomes the next upside objective, below 1.06 resets focus on downside objectives 1.05 should be tested next, over 1.07 opens 1.0860.

1-3 Week View – While 1.10 contains corrective attempts higher focus remains on a retest of 1.03 ahead of 1.0118 extension objective form 2015/17 consolidation. Only over 1.14 sets upside focus on 1.1876
Retail Sentiment: Bullish
Trading Take-away: Short

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

Technical: 1-3 Day View – Testing 1.2880 equidistant swing resistance as 1.2770 supports bulls will focus on a test of psychological 1.30 magnet , only below 1.2560 concerns near term bullish bias.

1-3 Week View – While below 1.2880 bears set sites on 1.10 as the broader downside objective, a weekly closing breach of 1.2880 opens 1.30 as the next upside objective ahead of symmetry swing objective sited at 1.3238
Retail Sentiment: Bearish
Trading Take-away: Long

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

Technical: 1-3 Day View 108.43 equidistant swing objective to the achieved, near term resistance is sited at 109.58, only over 112 stems selling pressure

1-3 Week View – as 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnet
Retail Sentiment: Bullish
Trading Take-away: Short

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

Technical: 1-3 Day View – , 114.65 becomes the next downside objective as 116.50 contains upside reactions. Only over 120.50 arrests near term selling pressure.

1-3 Week View – The weekly close below symmetry swing support sited at 117.69 sets a bearish tone with 113.70 the medium term downside objective , a weekly close above 118.50 would arrest the immediate downside risk.
Retail Sentiment: Neutral
Trading Take-away: Neutral