- Euro continues to chop around; no clear directional bias
- Yen gains have been impressive and leave room for some more upside
- Fed officials remain hawkish and upbeat despite softer NFPs
- Canadian Dollar takes hit on downbeat FinMin comments
Markets have seen some choppy trade in the early week and it seems as though more time will be needed to establish a clearer short-term directional bias. Initially, the buck had been well offered across the board on the back of a softer NFP report, with the data reigniting hopes for additional stimulus from the Fed. But any of these post NFP offers were easily absorbed, as broader global macro uncertainty once again reared its head. Questionable data out of China (hard landing back on thetable with higher inflation readings and concerning components in trade data), softer Eurozone Sentix investor sentiment, widening EMU bond spreads, and fears of further deterioration in the Spanish economy were all seen driving the liquidation of risk correlated assets and infusing strength into safe haven currencies.
Although the USD was a solid beneficiary of the flows, it was the Yen that emerged as the real stand out outperformer. Nevertheless, any gains in the Yen are expected to be well capped over the coming sessions, and we continue to project relative outperformance in the US Dollar over the medium-term, even against the Yen. Also seen putting some bids back into the buck were comments from various hawkish Fed officials on Tuesday, with all of these officials maintaining their respective outlooks, even after the weaker Friday employment data.
Elsewhere, the risk off trade continued to have a negative impact on the correlated commodity bloc currencies, with the Canadian Dollar standing out as the weakest of the bunch. Despite its lower yield relative to its commodity cousins, the Loonie took a hit and traded back below parity against the buck after Canada FinMin Flaherty projected only moderate growth in Canada this year and also cited risks associated with the Eurozone crisis. Perhaps the weaker performance in oil prices compared to gold also factored into the relative weakness in the Canadian Dollar. Looking ahead, the European economic calendar is razor thin, and as such, the markets will likely continue to trade off of the broader macro themes. As always, we will look to the Euro for directional insight over the coming day, and a break and close back above 1.3145 or below 1.3030 will dictate our outlook for the remainder of the week.
ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: The latest round of setbacks have stalled ahead of some key multi-week support by 1.3000 and from here, we still can not rule out risks for a shorter-term bounce back towards the 1.3200-1.3300 area, before considering bearish resumption. Ultimately, any rallies towards 1.3300 should be very well capped, while a break and close back under 1.3000, would accelerate declines.

USD/JPY: The market continues to correct from the recent 2012 highs established at 84.20 several days back, and risks still exist for additional setbacks into the 79.00-80.00 area before considering a bullish resumption. Overall, our outlook is highly constructive and we see the pair in the process of carving a longer-term base ahead of the next major upside extension into the 85.00-90.00 area. We would therefore expect to see the shaping of a fresh medium-term higher low over the coming days. Ultimately, only below 78.00 delays outlook and gives reason for concern.

GBP/USD: Failure to establish any fresh momentum on the recent break above 1.6000, followed by an aggressive bearish reversal, now suggests that the market could finally be looking to carve a top in favor of a more significant decline over the coming sessions. Look for a break and close below next support at 1.5800 to reaffirm outlook, while back above 1.6065 would be required to negate.

USD/CHF: Our core constructive outlook remains well intact, with the latest setbacks very well supported by psychological barriers at 0.9000. It now looks as though the market could be looking to carve a fresh higher low, and we will be watching for additional upside back towards the recent range highs at 0.9335 over the coming sessions. Above 0.9335 should accelerate gains towards the 2012 highs by 0.9600 further up. Ultimately, only back under 0.9000 delays and gives reason for pause.
--- Written by Joel Kruger, Technical Currency Strategist
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