Forex News and Events:
Last night’s comments out of China boosted the risk appetite, as the Chinese Premier Wen Jiabao kept its growth target unchanged at 7.5% and revised the CPI target down to 3.5% from 4.0% for 2013. In Australia, RBA kept its cash rate unchanged at 3.00%, with scope to ease if needed. Asian stock markets recovered from Monday’s sell-off, commodities advanced.
JPY extended gains overnight as the Japanese opposition DPJ didn’t lend support to Iwata’s nomination for the Deputy Governor seat in BoJ. JPY remained bid, USD lost some ground, EUR recovered over 1.30, while AUD rallied post-RBA rate announcement.
Technicals Favor JPY Recovery
Keisuke Tsumara, a lawmaker from DPJ, said yesterday that he was personally opposed to Iwata’s nomination as DepGov in BoJ. The statement was interpreted as a potential barrier to the PM Abe’s choice. The freshly nominated Japanese board seeks more QE, temporary fiscal spending measures, higher JGB buy duration, lower JPY and BoJ law revision to defeat deflation and reach the 2% inflation target within 2 years. Despite opposition, things should change in Japan.
JPY and its crosses extended gains overnight. Technically, a Bearish Harami has been formed on the daily chart, predicting a future bearish trend for USDJPY. USDJPY crossed its 21-day MA to the downside. According to technicals, we should expect JPY consolidation in the coming days. Yet regarding the historical pattern, we interpret the signal as a short-term correction and place our support at 90.61 – Fibonacci 76.4% level. Overall, we keep our bearish view on JPY.
Euro Advances on Short-Covering
The Euro-Zone Services and Composite PMIs showed that the contraction narrowed more than the market estimates in February. The supportive German Services PMI at 54.7 gave a tiny boost to EUR this morning. Yet, the French, Italian and Spanish PMIs remained in the contraction zone. Nothing to be very proud of or to raise our weak growth estimates. The GDP numbers in Q4 are scheduled tomorrow, and the markets do not forecast any improvement regarding the European growth.
Thanks to some short-covering and the buoyant JPY, EURUSD managed to recover over 1.30. Ahead of the ECB rate announcement, EUR might advance on speculative longs and further short-covering. Yet, the dovish tone expected out of ECB’s meeting Thursday should limit the EUR-longs quickly. Fibonacci 61.8% level at 1.3074 acted as intra-day resistance to the weak rally on PMI figures this morning. EURUSD failed to extend gains further on the back of the negative-bias regarding the EUR-trading.
In Australia, RBA kept its cash rate unchanged at 3.0% as the Chinese growth seems stabilizing at encouraging pace, the commodity prices are still high, and the inflation remains within the targets. Aussie recovered from yesterday’s heavy sell-off pulling the pair down to its lowest level since July. AUDUSD rallied to 1.0253, pulling up the levels back into our trend corridor 1.0201-1.0357. The trend on Aussie remains negative, while 1.0270 level is seen as critical, to support a potential upside. We hear some players considering long positions due to dividend-related AUD longs from the corporates, while others think that the fact is already priced in.
AUDJPY recovered above 95.00 post-RBA rate announcement. We observe the similar Bearish Harami pattern on AUDJPY chart and interpret the signal as a short-term correction rather than a longer-term trend reversal.