Just prior to the Easter break the dollar bulls made another move higher. Weaker than anticipated PMIs in Europe painted a picture of a continued struggle for economic traction. It also increased expectation of a need for the ECB to respond. Add in strong US retail sales number and the economic outperformance of the US continues. Yield differentials are swinging dollar positive once more and the greenback has responded on key markets. EUR/USD back below $1.1300, and Gold falling to a four month low, in addition to Cable back below $1.3000. Traders return to their desks after long weekend for Easter and their response to this move by the dollar could be crucial. Looking at the initial response this morning, it seems that the dollar is set to continue to move forward. However, on a day light of data, US earnings could be a driving factor, with Twitter being a highlight. Also watch out for moves on oil after the US announced the end of its sanctions waivers on Iran. Yesterday’s announcement kicked oil higher again through resistance and looks set to continue higher.
Wall Street closed a muted session very mixed last night, with the S&P 500 +0.1% at 2908. US futures are also muted this morning, waiting for a catalyst. Asian markets have been supported overnight but lack real direction, with the Nikkei +0.2% and Shanghai Composite +0.3%. In Europe, the sentiment remains mildly positive with FTSE futures +0.4% and DAX futures +0.2%. In forex, there is a dollar positive bias forming again, with the Aussie and Kiwi pressures, whilst the euro is a slight underperformer. The yen continues to hold up well across the majors. In commodities, the dollar strength and broad risk positive sentiment does not bode especially well for gold, whilst oil continues to make gains after yesterday’s 3% jump on the Iranian sanctions.
A quiet start to the week on the calendar following the Easter break, at least quiet in the European morning. However into the afternoon there is a number of economic data to keep an eye out for. Eurozone Consumer Confidence at 1500BST is expected to improve a shade to -7.0 in April (from -7.2 in March). US New Home Sales for March are expected to drop back to 650,000 (from 667,000 in February). Finally the Richmond Fed Composite index at 1500BST is expected to remain at +10 in April (from +10 in March).
Chart of the Day – EUR/NZD
We highlighted the improving outlook on Euro/Kiwi a couple of weeks ago on the breakout above 1.6630. The improvement has now moved on a couple of stages. Having broken out above 1.6630 the market has used this neckline as a basis of support. The mini base pattern implied 340 pips higher towards 1.6970. The next move in the improvement has now come with a break above resistance at 1.6850. This is a break above the February high and is the latest breach of a former lower high. With momentum indicators increasingly positively configured, corrections are a chance to buy. There is initial support around 1.6770. The next resistance is at 1.6930 which stands in the way of the December highs around 1.7100.