ASIA/EUROPE FOREX NEWS WRAP

High beta currencies and risk-correlated assets are consolidating on the day (AUDUSD: -0.06%; NZDUSD: +0.19%; USDCAD: -0.02%) ahead of major headline event risk scheduled before the start of the US trading session on Friday. Of note, the Japanese Yen is the top performer, which isn’t really a surprise considering that the Bank of Japan didn’t make any material changes to its current policies; instead, it promised to continue to expand its monetary base without issuing any specific details.

With the USDJPY declining away from ¥100.00 for the time being, the big question now is: what can provoke the pair to turnaround now that traders are cutting down on their short Yen positioning? The US 1Q’13 GDP print is the perfect catalyst that could produce a major reaction and finally produce a break of the elusive 100.00 level.

The US economy is expected to have grown by +3.0% annualized in the 1Q’13, from +0.4% in the 4Q’12, which comes as a bit of a surprise considering that US politicians produced ill-timed and poorly thought out policies in order to unnecessarily trim the country’s budget deficit (research has increasingly shown that austerity before “booms” or “peaks” in the business cycle can be counterproductive). Accordingly, in light of the payroll tax increase and the budget sequestration in March, I find the expectation for a print above +3.0% unlikely. Nevertheless, should it materialize, we should see the first print in USDJPY above 100.00 since April 2009.

Taking a look at European credit, sovereign debt in Europe is mixed overall with little deviation from the open, which fits neatly in with the narrative of the Euro being unchanged on Friday. The Italian 2-year note yield has decreased to 1.274% (-1.3-bps) while the Spanish 2-year note yield is unchanged at 1.884%. Likewise, the Italian 10-year note yield has increased to 4.067% (+1.9-bps) while the Spanish 10-year note yield has decreased to 4.241% (-2.8-bps); lower yields imply higher prices.

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RELATIVE PERFORMANCE (versus USD): 10:40 GMT

JPY: +0.58%

NZD: +0.19%

CHF: +0.12%

GBP:+0.11%

CAD:+0.02%

EUR:0.00%

AUD:-0.06%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.14% (-0.49% past 5-days)

ECONOMIC CALENDAR

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TECHNICAL ANALYSIS OUTLOOK

EURUSD: The pair continues to cling to the $1.3000 figure, consolidating beneath the 8- and 21-EMAs for the fourth consecutive day. With an ECB rate cut being priced in for next week, traders are looking for a catalyst to revive selling: the US 1Q’13 GDP print fits the bill. Yesterday’s Inverted Hammer and today’s tempered price action suggest that a strong growth reading out of the US could revive EURUSD bears and see the pair back towards its 200-DMA at 1.2940/45.

USDJPY: No change: “There are two possible outcomes here: a Bearish Double Top below 100.00; or a Bullish Ascending Triangle.” I also noted that “with the daily RSI uptrend intact, I am partial to the bullish outcome, which is reinforced by price remaining supported by the 8-EMA, now at 98.85/90. The Hammer yesterday at the 8-EMA bolsters the bullish case as well.” However, price has traded below the 8-EMA, and the diagonal support for the Bullish Ascending Triangle has given way amid a break in the daily RSI uptrend. Accordingly, the USDJPY appears ripe for a pullback, which could be provoked by a weaker than expected US 1Q’13 GDP reading.

GBPUSD: The GBPUSD is finding modest follow through (no doubt tempered ahead of the US 1Q’13 GDP print), pushing closer towards 1.5500 now that mid-April resistance at 1.5410/15 cracked yesterday. If the ascending channel range is to continue to play out, a run towards 1.5550 shouldn’t be ruled out. Declines should be supported in the near-term by 1.5340 (8-EMA) and 1.5285/90 (21-EMA).

AUDUSD:Mid last week the 8-/21-EMA structure flipped bearish amid the breakdown in the RSI uptrend, coinciding with the rally off of the March 4 and April 8 lows. Fundamentally speaking, amid declining base metals’ prices and poor data out of China, it is our preference to sell the commodity currencies. Technically speaking, it is worth noting that the AUDUSD failed to find follow through on the potential basing pattern, a three day cluster of “Doji-Hammer-Doji.” Now, with back-to-back Inverted Hammers (bearish reversal candles) forming on the daily chart, alongside bullish retail sentiment, we find that it is possible that AUDUSD makes a run towards the yearly lows just above 1.0100.

SP 500: No change: “Is the top in? A dramatic sell-off yesterday dropped the SP 500 below the crucial 1570/75 area, former swing highs as well as the ascending trendline support off of the late-December and late-February swings lows – coincidentally the pre-fiscal cliff deal low and the post-Italian election low. We’re in a bit of “no man’s land” here, with either a close back above 1570/75 necessary for a retest of the highs, or a close below 1530/35 to signal weakness towards and below 1500.”

GOLD: No change: “The major support zone from the past 18-months from 1520 to 1575 gave way with fervor last week, as the combination of weak fundamentals (financial institutions scrambling for cash in Europe after Cyprus) and broken technicals produced the ideal selling climate. Precious metals in general have gotten hammered, and Gold has fallen back to the mid-March swing lows near 1380/85. A weekly close below 1430 this week leaves the possibility of a bigger dip towards 1305.”

— Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

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