Talking Points:

- EUR/USD Rebound Fizzles Ahead of 2017-High (1.0829); Fed Rhetoric, EZ CPI on Tap.

- USD/JPY Halts Eight-Day Decline; RSI Rebounds Ahead of Oversold Territory.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

EUR/USD

1.0801

1.0813

1.0760

18

53

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • EUR/USD pares the decline from earlier this week following the batch of better-than-expected data prints coming out of the euro-area, but the lack of momentum to test the 2017 high (1.0829) raises the risk for the near-term pullback especially as the U.K. is on course to trigger Article 50 of the Lisbon Treaty next week; may see euro-dollar respond to the downward trend carried over from the previous year, which largely lines up with the 200-Day SMA (1.0886).
  • The repercussions from ‘Brexit’ are likely to gain increased attention especially as Scotland plans to hold a second referendum, but the transition may have a limited impact on near-term price action as the European Central Bank (ECB) keeps the door open to further support the monetary union.
  • With the Euro-Zone Consumer Price Index (CPI) for March expected to highlight a slowdown in headline and core inflation, the Governing Council may show a greater willingness to extend the quantitative easing (QE) program beyond the December 2017 deadline as board member Peter Praet warns ‘underlying inflation trend is still noticeably weak;’ even though the ECB is scheduled to reduce its asset-purchases to EUR 60B/month, President Mario Draghi may continue to cast a dovish outlook for monetary policy as ‘headline inflation had increased recently, mainly owing to developments in energy prices.’
  • At the same time, the slew of fresh speeches coming out of the Federal Reserve (Chicago Fed President Charles Evans, Dallas Fed President Robert Kaplan, Chair Janet Yellen, Fed Governor Jerome Powell and Minneapolis Fed President Neel Kashkari) may generate limited interest as officials continue to project a longer-run interest rate close to 3.00%, with Fed Funds Futures pricing a greater than 90% probability the central bank will retain the current policy at the next decision on May 3; may see month/quarter-end flows generate choppy price action especially as the Federal Open Market Committee (FOMC) appears to be in no rush to unwind the $4 trillion balance sheet.
  • With that said, the break of the 1.0660 (50% expansion) to 1.0680 (78.6% expansion) hurdle following the Federal Open Market Committee’s (FOMC) March rate-hike keeps the near-term bias tilted to the topside for EUR/USD, with a break of the 2017-high (1.0829) raising the risk for a run at the December high (1.0873); however, failure to hold above the Fibonacci overlap may undermine the near-term rebound in the exchange rate, with the next downside region of interest coming in around 1.0600 (23.6% expansion).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

111.07

111.48

110.86

13

62

USD/JPY Daily

USD/JPY Daily Chart

Chart - Created Using Trading View

  • The near-term decline in USD/JPY appears to be losing momentum ahead of channel support, with the pair at risk for a larger rebound as the Relative Strength Index (RSI) fails to push into oversold territory; the turn in the oscillator may stoke a larger rebound in the exchange rate especially as the Nikkei (JPN225) highlights a similar behavior, with the global benchmark equity index climbing back from a monthly low of 18,897.
  • Risk sentiment may continue to influence the dollar-yen exchange rate as the Bank of Japan (BoJ) sticks to its Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control and keeps the 10-year yield close to zero; however, Japan’s 2016 fiscal year-end may generate choppy to whipsaw-like price action as the DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains stuck on the wrong side.
  • According to the SSI, retail traders have been net-long USD/JPY since January 9 when the pair traded near 116.30; despite the divergence paths for monetary policy, USD/JPY has moved 4.4% lower since then and the pair may continue to give back the sharp advance from late-2016 as price & RSI continue to operate within a bearish formation.
  • The break below the support-zone around 111.30 (50% retracement) to 111.60 (38.2% retracement) keeps the near-term outlook tilted to the downside, with the next region of interest coming in around 109.40 (50% retracement) to 109.90 (78.6% expansion); nevertheless, an eventual move back above the Fibonacci overlap may pave a larger recovery in the exchange rate, with the first topside hurdle coming in around 112.40 (61.8% retracement) to 112.80 (38.2% expansion).

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DailyFX SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd has been net-short EUR/USD since March 15, while traders remain net-long USD/JPY since January 9.
  • Retail trader data shows 34.6% of traders are net-long EUR/USD with the ratio of traders short to long at 1.89 to 1. The number of traders net-long is 11.8% higher than yesterday and 16.5% higher from last week, while the number of traders net-short is 11.9% lower than yesterday and 2.8% lower from last week.
  • Retail trader data shows 73.0% of traders are net-long USD/JPY with the ratio of traders long to short at 2.71 to 1. The number of traders net-long is 0.7% lower than yesterday and 24.7% higher from last week, while the number of traders net-short is 5.1% lower than yesterday and 16.1% lower from last week.

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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