Thin Volume As News From Asia Dominates & Markets Wait For Corporate Earnings

After a long weekend participants seem to be easing into this trading week. We are seeing low volumes across FX and even less direction in markets overall. With light trading due to the holidays, currencies were relatively quiet last week. However, risky asset-currencies, such as the AUD, NZD and GBP, outperformed against the USD (due to improved sentiment), while dovish comments from the ECB weighed on the EUR. Interestingly, we see that the tight correlation between equities and the EUR is steadily decoupling.

It has yet to be determined if this puzzling trend is a short term anomaly or part of a new trend. With the improvement of risk conditions carry trades have also performed well and we believe the AUDJPY trade to be one of the best plays near term. With a big week in US economic data and corporate earning releases (specifically in the Banking sector) we understand why traders are sitting back and watching. Just after Wells Fargo’s positive earning release, GS also reported better than expected Q1 results. The reaction in equity markets has been slightly favorable (on relatively thin trading), but risk appetite remains fragile at best, with US futures giving risk a softer tone. Recent changes to accounting rules to dilute mark-to-market should provide splashy headlines but results will be rightly questioned.

Overall, any negative earning surprises, as releases gets into full gear, will shift sentiment back to safe havens like the USD and JPY. In China, the rate of decline in exports eased to 17.1% y/y in March (smaller fall than expected) and Imports recorded a drop of 25.1% y/y.

And in Singapore, the MAS announced a downward re-centring of the SGD policy band, while keeping a neutral policy stance moving forward and holding the width of the band. The shift amounts to a 1.5% move, which was less than the market had expected. The accompanying state noted “there is… no reason for any undue weakening of the Singapore dollar”, which implies that the shift was geared towards fighting deflationary pressures and not gaining an advantage in trade.

The highlight of the trading day will be US March retail sales. With solid gains from very depressed levels in the beginning of the year (rises of 1.7% and 0.5% over the previous two months), consensus appears to be factoring in the start of an upwards trend and false level optimism regarding the domestic economic climate. We remain cautious as there is a good deal of event risk this week, mostly stemming from financials and ECB, which will send traders quickly into “safe haven ” trades.

The Risk Today:

EurUsd Despite weaker dollar the pair remains in broad downward trend. Crucial support at 1.3100 tested twice in the last month. Currently trading a 2-figure range between 1.3100 and 1.3300. 1.3300 being the upper extremity of current mini-trend which is a more pronounced dollar bull than the broader declining triangle we have outlined in the past. Initial support at 1.3168 while on the upside we are eyeing at 1.3224.

GbpUsd Dollar decline brings the pair higher as the BoE keeping rates unchanged late last week bolster the Sterling. Today’s move culminated at 1.4919 and look like a test of 1.4959 will be postponed as risk appetite wanes in front of earning and retail sales. Initial intra day support stands at 1.4731 (5 day MA).

UsdJpy Boost of risk aversion has capped any upside move below trendline resistance at 100.60. Ahead of an event filled week we expect the pair to take a neutral tone. 98.97 (200 day MA) should provide support while 100.44 stand as intra day resistance.

UsdChf As markets deal with earning’s season and a hypothetical “bottom” to the crisis volatility should increase. Stops above 1.1550 in the thin holiday market before dropping to 1.1327. Initial resistance stands at 1.1447 while initial trend support stands at 1.3105 <!–

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