Will U.S Retail Sales Test New EUR Lows?

  • Yen looking for cross currency support
  • U.K. narrowly avoids deflation
  • U.S. retail sales to test EUR 12-year lows
  • German bunds trade sub-0.14%

There comes a time when trading in stretched forex markets, you do need to be patient when trying to pick a winning trade. When bored, most investors tend to disregard both fundamental and technical analysis and rely on instinct. It’s certainly not the ideal trading strategy, but it does beat the monotony of a slow-paced, contained trading range. Despite the dominant dollar currency trend remaining intact, slow intraday moves can make the whole forex experience rather frustrating. Remember, being patient is as important as knowing when to push the envelope in a winning trade.

Yen Goes It Alone

The ‘big’ dollar seems to have entered a slight adjustment stage for now, weighed down by Greek concerns.

The yen, with a little help from a Japanese advisor or two, has managed to break the dollar trend over the past two sessions. USD/JPY (¥119.70) has fallen back on comments from Japanese Prime Minister Shinzo Abe’s economic advisor Koichi Hamada. In various interviews this week, Hamada said that JPY selling is approaching its limit. He has managed to single-handedly talk USD/JPY down shy of ¥121 to well-below ¥120 as investors exit their long dollar positions. According to Hamada, the yen is weak at ¥120, and ¥105 is an appropriate level for the Japanese currency. He reiterated that the Bank of Japan’s monetary policy has been working well, and more consumption in Japan is expected as stocks rise.

Outright dollar heaviness is eyed back toward ¥120; the supposed site of option expiries. Analysts will continue to look to the yen crosses for support, especially now that the market has managed to penetrate AUD/JPY 200-HMA at 91.56 overnight, fueling more tech sellers (yen buyers). Now that the mid-March EUR/JPY lows have broken 128.00, any break with momentum could provide JPY with support and lead the crosses to push USD/JPY to retest sub-¥119 again in time.

Aiding the yen in the overnight session has been dollar selling against SGD ($1.3623), especially following the decision by the Monetary Authority of Singapore (MAS) to stand pat on policy. Its actions have surprised the market somewhat, a good percentage were expecting a change. In keeping its currency policy unchanged, the MAS is saying that it expects the economy to grow at a moderate pace, adding that inflation is likely to remain subdued.

Cable Comes Under Pressure

Data released this morning showed the U.K. economy has narrowly avoided deflation as the core rate of inflation fell from +1.2% in February to +0% in March; the lowest rate of consumer-price index inflation since estimates of the measure began in the 1980s.

Cheaper clothing and footwear were offset by the rise in the cost of gasoline, and there was a slight easing in food deflation. The Bank of England (BoE) believes that the weakness of inflation in the U.K. will be temporary, and will accelerate up toward the central bank’s +2% target in the second half of the year. The fixed-income market believes that the BoE is unlikely to hike rates before 2016. Cable is currently trading ahead of its five-year low outright of £1.4612.

Consumers to Focus on Retail Sales

As investors head stateside, this morning’s focus will be on March’s U.S. retail sales data, and whether the series could reinforce speculation that the Federal Reserve could begin its tightening policy my midyear.

Retail sales data has been negative for the past three months and is expected to rebound with a vengeance this time around (+0.7% versus -0.1%). This has certainly been one of the few factors helping the USD in recent sessions.

The EUR/USD (€1.0561) currently remains in the lower portion of its one-month trading range of five big figures (€1.05-1.10). A strong print this morning has the potential of putting the EUR in all sorts of trouble. It has the potential to push the single unit to once again test its 12-year lows sub-€1.05 (€1.0457), and perhaps on the path toward parity in the near term.

Investors need to keep alert over Greece. Continuing worries have managed to send German 10-year yields to record lows below +0.14% this morning. Renewed talk of a potential Greek default and the withholding of upcoming International Monetary Fund payments could cause a rather quick whiplash effect along with market liquidity restraints.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell
Dean Popplewell

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