· The safe-haven yen remained in demand on Wednesday as investor caution prevailed due to fresh U.S.-Europe trade tensions and the International Monetary Fund’s downgrade of its global economic outlook.
Most major currencies were locked in narrow trading ranges as market participants largely kept to the sidelines ahead of a crucial Brexit summit meeting and a rate decision by the European Central Bank later in the day.
Broader sentiment in the market remained subdued as the flare-up between the United States and Europe added to other potential global flashpoints over trade, including Sino-U.S. negotiations.
Against a basket of key rival currencies, the dollar drifted slightly higher to 97.036.
The dollar was a shade lower at 111.135 yen. From a more than three-week high of 111.825 brushed on Friday, the U.S. unit has fallen almost two-thirds of a percent.
Investors’ immediate focus on Wednesday will be on the ECB rate decision, a news conference by ECB President Mario Draghi and the release of minutes of the Federal Reserve’s last policy meeting.
Ahead of the Brexit summit meeting, the euro and sterling were largely unchanged, trading at $1.1258 and $1.3052, respectively.
European Union leaders will likely grant Prime Minister Theresa May a second delay to Britain’s exit from the EU but they could demand she accepts a much longer extension as France pushed for conditions to limit Britain’s ability to undermine the bloc.
· EUR/USD trims daily gains ahead of Wednesday's first-tier events
The EUR/USD pair extended its monthly advance up to 1.1283, but ended the day unchanged around 1.1260, as caution prevails ahead of the ECB monetary policy meeting, FOMC Minutes, and US latest inflation figures.
The pair reached the 38.2% retracement of the 1.1447/1.1183 slide at 1.1285 before investors turned cautious, now consolidating a few pips below the level. In the 4 hours chart, the price is stuck around a mild bearish 100 SMA, but well above a bullish 20 SMA that now approaches the 23.6% retracement of the same decline at around 1.1245. Technical indicators partially lost their upward strength after nearing overbought readings, still well into positive ground and far from suggesting an upcoming decline.
Support levels: 1.1245 | 1.1200 | 1.1175
Resistance levels: 1.1285 | 1.1315 | 1.1350
· USD/JPY: Risk-off takes a hold but bulls defend 111 handle
Overnight, risk mood was soured boosting the yen (best performer on the day) and safe haven assets with USD/JPY falling from 111.40 to 110.98.
The pair turned short-term bearish but managed to bounce from the 38.2% retracement of its latest bullish run, measured between 109.70 and 111.81 at around 111.00, which means that a break below 110.90 is required to confirm additional slides ahead. In the 4 hours chart, the 100 SMA converges with the mentioned daily low, further supporting the case of a downward extension on a break lower. In the same chart, the 20 SMA gains bearish strength around 111.50, while technical indicators stabilized near daily lows within negative levels, also skewing the risk to the downside.
Support levels: 110.90 | 110.55 | 110.20
Resistance levels: 111.20 | 111.55 | 111.80
· AUD/USD: Bears eyeing 0.7100 amid risk-off, better Aussie data
The AUD/USD pair is seen extending its latest leg down and looks to test the 0.7100 support as the risk-off sentiment overshadows upbeat Westpac consumer confidence numbers. Focus shifts to RBA Debelle, US CPI and FOMC minutes.
· “China has ramped up its fiscal and monetary stimulus to counter the negative effect of trade tariffs. Furthermore, the outlook for US-China trade tensions has improved as the prospects of a trade agreement take shape,” Gita Gopinath, IMF’s economic counselor, wrote in the report.
However, the fund downgraded China’s economic growth for 2020 to 6.1 percent from its previous projection of 6.2 percent.
“While the overall outlook remains benign, there are many downside risks. There is an uneasy truce on trade policy, as tensions could flare up again and play out in other areas (such as the auto industry) with large disruptions to global supply chains. Growth in China may surprise on the downside,” said Gopinath.
Economists at the International Monetary Fund downgraded their growth forecast for the U.S. in 2019 to 2.3 percent, down from 2.9 percent in 2018.
The announcement Tuesday is part of a downgrade for 70 percent of the overall global economy, including Europe and Japan, with experts pointing to heightened trade tensions as a key reason for the shifting outlook.
The IMF expects the world economy to grow 3.3 percent this year, down from 3.6 percent in 2018. That would match 2016 for the weakest year since 2009 - the first full year following the economic downturn that began in 2008.
In its previous forecast in January, the IMF had predicted that international growth would reach 3.5 percent this year.
In Europe, the IMF expects the 19 countries that use the euro currency to expand 1.3 percent collectively in 2019, weaker than last year's 1.8 percent growth or in any year since 2013.
· New World Bank President David Malpass said on Tuesday he would not alter the lender’s commitment to fight climate change, but pledged to step up its anti-poverty mission and to evolve the bank’s relationship with China.
Malpass, who started at the Bank on Tuesday, was nominated by U.S. President Donald Trump. Some development professionals feared that he would pursue Trump’s “America First” agenda at the bank by resuming financing for coal power projects and pressuring China.
But Malpass told reporters that he will pursue the World Bank’s climate change goals, including its previous decision to withdraw from coal power funding. He called climate change a “key problem” facing many of the world’s developing countries.
· The EU has hit back at new U.S. proposals to target European goods with tariffs, following a World Trade Organization (WTO) ruling over subsidies for Airbus.
Trade tensions between the EU and U.S. flared Monday after the U.S. said it’s considering $11 billion worth of retaliatory tariffs on a range of goods in response to illegal subsidies the EU granted to the aerospace firm.
The European Commission spokesman also said Tuesday that Brussels is ready to retaliate in kind, noting that in the parallel Boeing dispute, “the determination of EU retaliation rights is also coming closer and the EU will request the WTO-appointed arbitrator to determine the EU’s retaliation rights.”
· The European Central Bank is in an uncomfortable situation. It only announced its exit from the crisis-era multi-trillion bond buying program at the end of last year. However, only four months later there is more and more evidence that the economy is only having a temporary weakness as data across the board comes in lower than expected.
· Bank of Japan Governor Haruhiko Kuroda vowed on Wednesday to continue the central bank’s “powerful” monetary easing to achieve its 2 percent inflation target, while urging the government to win market confidence in its fiscal management.
Kuroda also told parliament that he saw no problems with long-term government bond yields moving at slightly negative rates due to risk aversion among investors globally.
· Oil prices inched up on Wednesday amid supply cuts by producer group OPEC and U.S. sanctions on oil exporters Iran and Venezuela, but pressured by expectations that an economic slowdown could soon dent fuel consumption.
International benchmark Brent futures were at $70.76 per barrel at 0652 GMT, up 15 cents, or 0.2 percent, from their last close.
U.S. West Texas Intermediate (WTI) crude oil futures were at $64.20 per barrel, up 22 cents, or 0.3 percent, from their last settlement.
Both benchmarks hit five-month highs on Tuesday, before easing on global growth worries.
· WTI Technical Analysis: 4hr stochastic slens bearish and bears eye a run to 4HR 50-SMA
With price capped at the rising resistance line, WTI is on the verge of a break below the 61.8% Fibo down in the 63.70s with 4HR stochastics turning lower out of overbought territory - now leaning bearish.
A daily close below the 61.8% Fibo, or, ideally an engulfing bearish close below 8th April's low would open the case for 61.80 below the 504hr SMA.
and then a test of the 200-D SMA - (61.20) and 100 4HR SMA at 61 the figure.
If the 200-DMA gives out, bears can target below 61 the figure for a run to the rising wedge's support line.
A break of the support line and below $57.80 opens the case for a continuation of the bear trend that would target below the $42 handle and late Dec lows.
Reference: CNBC, Reuters, Daily Mail, FXStreet
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