FX Strategists at UOB Group keeps the neutral bias on Cable, adding that it has moved into consolidation phase.

Key Quotes

24-hour view: “While we noted yesterday that “GBP has likely found a short-term top”, the sharp decline after the release of the weaker than expected UK inflation data came as a surprise. The rapid drop appears to be running ahead of itself but with no sign of stabilization just yet, further weakness is not ruled out. That said, in view of the already rather oversold condition, a sustained break below the next support at 1.4145 seems unlikely (the overnight low near 1.4175 is a minor support). Resistance is at 1.4245 but only a move above 1.4270 would indicate that the current weakness has stabilized”.

Next 1-3 weeks: “The weaker than expected UK inflation data sent GBP crashing below 1.4230 and the break of this ‘key support’ has put paid to our expectation for the rally in GBP to extend further to 1.4400. The 1.4377 high registered on Tuesday (17 Apr) is acting as a very strong resistance now and this level is unlikely to be threatened, at least not for the next several days. That said, the current GBP weakness is viewed as part of correction/consolidation phase and not the start of a major bearish reversal. From here, we expect GBP to trade sideways even though the near-term bias is for a probe lower towards the bottom of the expected 1.4080/1.4320 consolidation range”.

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Senior Technical Analyst at Commerzbank Axel Rudolph noted the pair should keep the bearish outlook while below 1.2426.

Key Quotes

“EUR/USD remains tightly range bound. We look for the cross to remain capped by the near term resistance line at 1.2426 and we should see it head back to the 1.2272 2017-18 uptrend line and the 1.2215 current April low. We preferably need to see a close below the 1.2155 February low to confirm a top formation”.

“Above 1.2426 lie the March highs at 1.2447/76”.

“Above the 2008-2018 resistance line at 1.2622 lies the 1.3190 50% retracement of the move down from 2008”.

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Analysts at TDS expect Bank Indonesia to keep its policy rate (7d reverse repo) on hold at 4.25% at today’s meeting in line with consensus expectations.

Key Quotes

“This outcome is likely to have a limited market impact in our view especially if BI maintains no bias in either direction as we expect. At the last meeting BI noted that it believed that past monetary easing was “adequate”, indicating little desire to ease policy further. Assuming that there is no surprises from BI, we will remove our expectation of a Q2 policy hike from our forecasts, with the first hike from BI likely in Q3, as the central bank moves the policy rate to 4.50%.”

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The two days of US-Japan summit talks on 17-18 April came to a close with the joint press conference that the leaders of the two countries gave on the 18th and it seems Japan successfully avoided tough demands from the US side, but risks remain, according to Takashi Miwa, Research Analyst at Nomura.

Key Quotes

“Much of the discussion centered on North Korea, and we credit pre-negotiation from the Japan side with keeping blunt and hardline demands on trade issues from US President Donald Trump out of the discussion. We suspect that the pre-negotiations included a concession from Japan in the form of an agreement to procure more weapons from the US, as suggested by President Trump’s comment that the US hopes to sell more defense technology to Japan.”

“On trade issues, the two sides agreed to turn the discussions over to Toshimitsu Motegi, Japan’s Cabinet minister in charge of economic revitalization, and Robert Lighthizer, the US trade representative. However, Prime Minister Abe commented that while he understands that the US is strongly interested in a bilateral agreement, Japan sees the Trans-Pacific Partnership (TPP) as the best solution. This shows that there is still some distance between the two sides, and that on trade issues, they have effectively simply kicked the can down the road.”

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Analysts at TDS note that it was a weaker than expected headline print on Aussie employment for March, printing at +4.9k vs market at +20k.

Key Quotes

“The split revealed a -19.9k drop in full time jobs against a +24.8k rise in part time jobs. Adding to the softer tone to today’s report was the drop in the participation rate (albeit at multi year highs) and the sizeable downward revision to full time jobs in Feb from +64.9k to 20.1k, making it the 2nd time in 3 months that full time jobs have been shed. The unemployment rate was unchanged at 5.5% meaning there is further wood to chop if we are to see wage pressures building, given NAIRU at 5%.”

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The Barclays Research Team brings a brief preview of what to expect from today’s UK retail sales data due on the cards at 0830 GMT.

Key Quotes:

“Barclaycard data indicate significant weakness in weather-sensitive areas such as spending at garden centers and DIY stores, signaling that March retail sales might be negatively impacted by the storms.”

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Analysts at TDS note that New Zealand’s Q1 CPI was +0.5%/qtr and in annual terms came in as per RBNZ expectations at +1.1%, the bottom end of the 1%-3% target range and in line with the market, factoring in base effects (after food prices rose sharply in Q1 last year) and the market factored in the fee free first year of education.

Key Quotes

“Even excluding education, annual CPI fell from 1.5% to 1.3% and core inflation dropped from 1.1% to 0.9%, the first time core inflation fell below 1%/yr in 2 years. So it does appear as underlying CPI is softening in NZ. Later in the day, the RBNZ published it’s Q1 sectoral factor model update, showing it has remained at 1.5%/yr for two straight quarter now. There is little in today;s data to sway the RBNZ to bring foward a hike to this year.”

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Oil-price rally, upbeat NZ CPI aides recovery on the 0.73 handle.
Inflation remains below the lower end of the RBNZ target range, RBNZ to keep rates on hold?

The NZD/USD pair witnessed good two-way businesses so far this Thursday, now heading back towards the post-NZ CPI highs of 0.7343 amid a renewed buying interest seen around oil prices.  

Despite upbeat Q1 NZ CPI figures, the bulls failed to sustain at higher levels and reversed to hit daily lows at 0.7309, as markets believed that the Reserve Bank of New Zealand (RBNZ) will continue to keep rates-on hold this year, with the inflation still remaining below the bottom of RBNZ target band.

 However, the renewed uptick in the major is mainly driven by better sentiment towards risk assets, as reflected by higher Asian equities and ongoing rally in oil prices. The NZD/USD pair also tracks the solid gains in its OZ peer, the AUD, after the commodity currency tracked the upturn in copper prices.  

Markets will continue to track the broader market sentiment for further momentum in the higher-yielding Kiwi.

NZD/USD levels to watch

FXStreet’s Analyst, Omkar Godbole, explains, “acceptance below the session low of 0.7309 would add credence to the bearish 5-day MA and 10-day MA crossover and strengthen the odds of a drop to 0.7241 (April 6 low). A violation there would expose support lined up at 0.7211 (100-day MA). On the higher side, a close above 0.7342 (session high) could yield a re-test of the recent high of 0.7395 (April 13 high) and 0.74 (psychological hurdle).”

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At yesterday’s BoC meeting, interest rates were unchanged and the BoC kept its cautious and pragmatic stance, points out Sam Bonney, Research Analyst at Nomura.

Key Quotes

“The BoC upwardly revised its GDP growth forecasts at yesterday’s meeting. The forecasts for end-2018 and 2019 were raised to 2.1% and 2.0% from 1.8% and 1.7%, respectively. While the Bank noted weaker-than-expected growth in Q1, this was largely driven by temporary factors and the data are expected to rebound in Q2.”

“Outlook for interest rates: Still expecting a slow and hiking cycle

The BoC maintained a cautious and data dependent stance. In the press conference, CAD weakened on comments that interest rates “may need to remain below the neutral range until various forces have dissipated.” The BoC estimates the neutral rate is somewhere between 2.5% and 3.5%.”

“CAD: Being tugged in both directions

At today’s meeting, the BoC delivered a cautious message in line with our medium-term thinking and should see the USD/CAD rates differential continue to exert a positive force on USD/CAD. All else being equal, this should see a weaker CAD.
However, another key CAD driver is Canada’s terms of trade – which tend to be an anchor over the medium term. Oil prices are continuing to climb higher, which should limit the extent to which CAD can weaken. We expect oil prices to be a more important driver of CAD in coming weeks, and continue to await better levels to enter CAD short positions.”

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