Fundamentals to lead the way

The USD was able to edge higher yesterday and during today’s Asian session supported also by financial releases. Characteristically the Philly Fed Business index rose more than expected, implying a faster expansion of economic activity in the wider Philly area, while the initial jobless claims figure ticked up yet did not rise as much as the market was fearing. Given the lack of high impact financial releases, fundamentals to lead the way and comments of Fed policymakers may gain additional attention given that Feed officials are entering a statement moratorium period ahead of the bank’s next meeting on the first of May.

On a fundamental level we note that cautiousness tended to characterize the markets as worries for an escalation in the conflict in the Middle East are intensifying. It seems that Israel has launched a retaliatory air strike on Iran yesterday, with explosions being heard at Isfahan, a city in central Iran, while drones were reported to have been downed. Yet media for the time being do not seem to make a fuss of it, in overall an effort to de-escalate the situation. It should be noted that oil prices were able to rise during the late American session yesterday and during today’s Asian session, on concerns regarding the supply side of the commodity. On the flip side, riskier assets such as the Aussie and to a wider degree US stock markets tumbled. US stock markets may also keep an eye out for the earnings season and we intend to focus on the earnings release of Procter & Gamble today (#PG). Should market worries start easing we may see yesterday’s movements being reversed, yet in any case the market remains very sensitive with the possibility of unexpected moves being on the horizon. In the FX market we note that UK’s retail sales growth rate for March failed to accelerate while on a core level even contracted, implying a weakness on the demand side of the UK economy , which tended to weigh on the pound a bit, while in Germany the PPI rate seems to have edged higher for March implying some persistence of inflation at a producers level.

On a technical level, EUR/USD edged lower yesterday and during today’s Asian session tested once again the 1.0615 (S1) support line. We note the bearish tendencies of the pair, given also that the RSI indicator below our daily chart remains near the reading of 30, implying the presence of a strong bearish sentiment among market participants for the pair. Furthermore the 20 moving average (median of the Bollinger bands is pointing downwards reflecting the downward motion of the past month. We tend to maintain a bearish outlook for the pair yet for its confirmation the pair has to break below the 1.0615 (S1) support line a level that resisted the downward pressure of the pair twice in the past week, with the next possible target for the bears being the 1.0450 (S2) support level. Should the bulls take over we may see the pair reversing course breaking the 1.0740 (R1) resistance line, thus opening the gates for the 1.0890 (R2) resistance level.

Across the channel, cable also tended to maintain some bearish tendencies, as the pair is aiming for the 1.2375 (S1) support line. Also given that the RSI indicator remains close to the reading of 30, implying a bearish market sentiment for GBP/USD, and the 20 moving average (MA) has crossed the 100 MA and is about to cross also the 200 MA, implying an intensification of the pair’s downward movement. Should the selling interest be maintained we may see the pair breaking the 1.2375 (S1) support line and aiming for the 1.2205 (S2) support base. Should on the other hand buyers take control over the pair’s direction, we may see cable reversing direction, breaking the 1.2480 (R1) resistance line and aiming for the 1.2600 (R2) hurdle.

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On the monetary front we note that BoE Deputy Governor Ramsden, Chicago Fed President Goolsbee, BoE MPC member Mann, ECB and BuBa President Nagel, BoC Governor Tiff Macklem are scheduled to speak.