Quarter-End Adjustments Blunt Trend Moves

The dollar approached JPY111 in Tokyo before backing off and finding support in early European turnover near JPY110.50, where an expiring option for $585 mln is struck. Recall that the dollar made two highs last March as the pandemic hit. The first was near JPY112.25, and the second was about JPY111.70. The 2019 high was set in April by JPY112.40.Those offer obvious targets. The Australian dollar posted an outside down day yesterday by trading on both sides of Monday's range and closing below its low. However, there was no follow-through selling, and the Aussie is straddling the $0.7600-area today. An option for almost A$625 mln at $0.7600 expires today. A recovery above $0.7665 would lift the technical tone. The dollar slipped against the Chinese yuan for the first time this week. The PBOC set the dollar's reference rate at CNY6.5713, spot on what the banks' models anticipated. Some reports seek to link the yuan's recent weakness to the hidden hand of the state working through the large banks in the swap market. However, such accounts often ignore the large exposures created by companies that are among the world's largest exporters and importers. 


The preliminary eurozone March CPI was mixed. The headline rose by 0.9% after February's 0.2% increase. The median forecast in Bloomberg's survey called for a 1% increase. The net result is that the year-over-year pace accelerated to 1.3% (not 1.4% projected) from 0.9% in February. The core rate unexpectedly slipped to 0.9% from 1.1%. An unchanged reading was expected. As ECB President Lagarde sketched at her press conference a few weeks ago, inflation readings are very noisy right now, and what appears to be a rebuilding of price pressures is due to some technical factors and base effect and will prove transitory. There are no policy implications.  

Monthly house prices in the UK fell by 0.2% in March, according to Nationwide. A 0.4% increase was anticipated. It is difficult to read much into one month's data as house prices rose by 0.7% in February. Some suspect that the impact of the temporary property-tax cut has run its course. The tax holiday was extended for three months through Q2. A new mortgage guarantee program will start tomorrow and may help spur activity. Also, after a strong H2 20, the base effect works against UK house prices later this year.  

The $1.17-level in the euro held on the first attempt. That area corresponds to the (38.2%) retracement of the euro's recovery from last March's low (~$1.0635) to the January high (~$1.2350). It recovered to almost $1.1750 in early European turnover. The single currency had appeared to build a small shelf near $1.1760 before yesterday's drop, and it offers resistance today. A move above $1.1800 is really needed to improve the technical tone. Sterling is firm and is approaching $1.38 in Europe after being sold to almost $1.3700 yesterday. The week's high was set on Monday near $1.3850, which also corresponds to the 20-day moving average. It seems too far away to be challenged. That said, the euro is pressing against one-year lows near GBP0.8500, and a break could help underpin sterling against the dollar.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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