Tackling the week ahead, OANDA APAC Trading market note

The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” – John Templeton

Currency Markets

Markets begin Q2 at a confoundingly confused crossroads with rudderless markets unable to focus on one single theme so instead, flows and positioning dominated into month end. Of course, trade concerns continue to simmer, but this weeks diary is chalk filled with a torrent of top-tier US data so expect a return to trading 101- ISM, Payrolls and AHE should be the primary focus.

Tackling the obstinately resilient USD which splattered currency markets last week, will be a significant discussion after month-end flows and correctly modelled USD demand dominated last weeks landscape.

Month-end flow has challenged some long-held market persuasions, and none more so than the USDJPY shorts after the market went all in in the low 105’s during the FANG meltdown.But bearish $ views were summarily spanked last week when month end USD demand overwhelmed the JPY-SPX correlation triggering a plenitude of weaker short-term stop losses along the way. While trades thought best to pare back positions ahead weekend headline risk, they could be looking for opportunities to re-engage USD short positions out of the gates.

But with NFP/AHE approaching, logic suggests traders will keep the powder dry until a convincing signal on the US inflation before aggressively re-engaging the dollar downside. Given the evolving curious currency conundrum, there’s nothing wrong with taking the early part of the week off as market participants slowly filter back after the holy junction of Easter and Passover.

And while it’s unlikely the US dollar has undergone something of a Damascene conversion, don’t write off dollar just yet – it’s been a surprisingly good week for the Greenback.

Key Currency views 

USD: The market will look to fade the US PCE Core and month/quarter end flow. Regardless of short-term random dollar walks, I continue to view the USD through a bearish lense  given unchanged from  Fed not supporting the hawkish market suspicions and the burgeoning US budget deficit
JPY: Last week was a week I won’t’ forget too soon as I have gained much more respect for month-end flows after getting utterly overwhelmed by the broader markets rebalancing act. While USDJPY could hold a bid on North Korea de-escalation, the political uncertainty and the caution for the Abexit will likely temper any topside moves.
EUR: Although both misses in Germany and Spain CPI could put downside risks on Eurozone CPI next week, It’s hard not to stay long EUR given the skewed propensity for a negative tail risk surprise from both US economic data and US politics.
MYR: Continue to view bullish opportunities from both rates and currency. Lower US yields are good for MGS’carry trades. If traders re-engage short USD positioning this will boost  Ringgit sentiment Oil prices remain firm providing a favourable backdrop. Regional risk sentiment remains a bit wobbly but more so directed towards countries reliant on high tech exports.

Equity Markets
Equity markets are coming off an exceptional rough patch in March weighted down by Tech sector woes but pared back losses heading into the long weekend. I wouldn’t make much of a short covering rally, with the S&P 500 technology sector ending the month 4 percent lower.

Global Equity market volatility remains elevated, and the markets continue to be susceptible to another leg lower. However, essential support levels are now being tested and continue to hold on the S&P 500. Likewise, the VIX has failed to break above significant resistance suggesting this to is little more than a healthy market correction within the context of a bull market. But times will get very testy if we close below February S & P 500 low ( 2,532) and or a close above 27 on the VIX which would elevate market concerns ten fold. While not my base case scenario, these flashpoints should be noted as they well spark considerable investor angst.
Oil Markets

Geopolitical anxieties, especially the tensions between Saudi Arabia and Iran, continued to bolster prices. Also, the hawkish shuffle within the White House inner sanctum suggests the US administration will withdraw from the Iran agreements and reimpose Iran sanctions disrupting global supply and further buttressing prices. All the while OPEC and non-OPEC compliance remain rocks solid. These factors suggest price risks should stay skewed higher in coming weeks.

Gold Markets

Consolidation rules the roost and expectedly so. After the gold market shellacking on Wednesday, there’s apparently little appetite from Gold investors to get back in the saddle into weeks end. Weekend headline risk permeates, and with the dollar coming off a surprisingly strong week, the jury remains out. Again gold is nothing more than a USD proxy trade these days so it will be driven primarily by broader USD movements. Gold traders will be watching currency markets intently this week.

Bitcoin Markets 

The two primary reason why the market continues to  like  the short side of this trade

Besides the lack of bullish indicators and general quarter-end rebalancing  the  Crypto space remains dominated by retail traders and with increased regulatory oversight the market is nervous
1) Two Japanese exchanges packed it in this week, Mr Exchange and Tokyo Gateway as the Finacial Services Authority ( FSA) is upping the ante after the security breaches at Coincheck Japan’s Mrs Watanabe type trader is thought to be at times  ~ 40 % of daily volumes, so regulatory clampdown in Japan is a massive negative
2) https://www.esma.europa.eu/sites/default/files/library/esma71-98-125_faq_esmas_product_intervention_measures.pdf
Much of the Bitcoin positioning is on leverage so with the ESMA’s product intervention measure to cut leverage 2:1 it’s a huge negative and predictably has seen a culling of “over-leveraged” retail positioning and the prospects of industry-wide compliance is real and not just an isolated issue to Europe.
So in my view, the spectre of less leverage will continue to be a negative driver for global bitcoin demand and a compelling sell signal, The key for an extension, however, is BTC $ 6000

Mark Your Calander 

· USD: ISM manufacturing (April 2,), ADP employment (April 4, ), Fed member Bullard speaks (April 4, ), ISM services (April 4,), trade balance (April 5, ), US NFP and AHE (April 6, ).

· CAD: Payrolls report (April 6, 13:30).

· EUR: Headline HICP inflation (April 4, ), retail sales (April 5, ).

· GBP: Markit manufacturing PMI (April 3, ), construction PMI (April 4, ), services and composite PMI ( April 5, ).

· AUD: RBA Policy meeting ( April 3, ), Retail sales ( April 4, ), trade balance ( April 5,

· JPY: Tankan quarterly data for large and small manufacturers ( April 2, )

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes