RECAP LAST WEEK
It was all about the DOTS and how The FOMC didn’t deliver. That’s one way of looking at it but in reality they hiked 25bps and kept pretty much the same median forecast from December. The market was clearly ahead of itself as most currencies moved >100 pips. USD took a big hit. EURUSD had strength before this and broke 100DMA at 1.0645 then stayed above. It closed at the highs so watch out for 1.0700 holding in Asia Sunday and London Monday morning. USDJPY broke 100DMA at 113.20 which is formidable. This is now the line in the sand. Bears will defend it tooth and nail. Be aware.
As previously mentioned we have now formed a solid base at 1.0500/20
Last weeks PA is looking bullish. Look for dip buyers at 1.0700 but 1.0777 and 1.0830 will be tough to crack. Expect two way action as traders battle it out but ultimately I see this higher. Danske citing current account differentials among other things. I like it – a lot. See below:
- EUR/USD. We expect that EUR/USD is close to forming a base. In our view, relative rates remain EUR/USD bearish as the Fed is slightly underpriced and the ECB is priced too hawkish. However, it appears that clarity with regards to US tax reforms has been postponed towards later in the year and hence is less of a short-term USD positive. We believe that it is most likely that Le Pen will not become France’s next president. Hence, in our base case France’s election will not hinder a gradual rise in EUR/USD. Medium-term, we continue to expect EUR/USD to move higher on the large eurozone-US current account differential and the undervaluation of the EUR. In sum, we are ‘rolling’ our EUR/USD forecasts predicting the cross at 1.06 in 1M (1.04 previously), 1.08 (1.05), 1.10 (1.08) and 1.14 (1.12).
Full report here: https://www-2.danskebank.com/danskeresearch
The base at 1.2080/1.2120 is now rock. I heard a few big mean reversion quants were buying it up. Now there’s a small question of 1.2400 breaking which is 100DMA. It’s big and if broken expect stops to 1.2440 very quickly. Look to buy at 1.2350 but more at 1.2300 which is very nice. Looking at the weekly PA I see this as very bullish. However, that could turn at Trigger 50 so be aware. The FOMC “dovish hike” helped of course but expect two way action at highs. I fancy buying dips but smalls. Still sell 1.2400 but add more for the stop hunters at 1.2440
This looks sick as it came off 2 big figures. Trumps plans for fiscal stimulus at the end of the year didn’t help.
Sell into 113.00 and more at 113.20 but 111.60/80 is massive so I fancy buying into that too. Look on the DAILY. If that breaks things will get proper ugly for USD – real quick.
DAILY CHART USDJPY
HOURLY CHART USDJPY
Watch out for EU PMI’s – especially with EURUSD recent uplift. Things are looking rosy in Europe. I just feel it. Apart from that UK CPI will be watched. The CORE that is. Maybe the recent lone voter saw the figure ?
That’s it from AP
Enjoy and discuss.
Adam and Patrick
Patrick Reid will be posting a few things on Linked in. Keep an eye out !