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*Please note the Morning Call will be on Break next week. We will return for the Weekly Call on Mar 28th.
Intermarket:
• SP Futures 3900 (-0.15%)
• EUSTXX 3777 (-2.43%)
• Crude Oil 59.53 (-0.79%)
• US 10YR 1.73% (+1.20%)
• EurUsd 1.1919 (+0.04%)
• UsdJpy 108.82 (-0.05%)
• DAX 14701 (-0.60%)
Risk appetite has changed tack into Friday and has softened decisively after the S&P lost 1.5% yesterday and the Nasdaq 3%. Higher yields, a strong Philly Fed print and the FED’s pledge to allow an inflation overshoot are the potential causes, while worsening ties between China and the US overnight did nothing to stem losses. Crude Oil also lost 10% yesterday, dragging down the Loonie in tandem. US 10YR is at 1.73% this morning.
Yen in focus today as the BOJ decided to widen the yield curve control target band by 10bp to 50bp around 0% and only purchase ETFs in case of market turmoil. This removed some support from beneath the Nikkei, and the JPY pairs are under pressure today.
Vaccine divergence play: while most EU countries now face a 3rd wave (large parts of France and Italy are back in lockdown, with Germany potentially to follow), US and UK continue to see improvement helped by the fast vaccine roll-out.
Looking ahead: With no market movers on tap, markets will continue digesting the outcome of the FOMC and BOJ meetings. Meanwhile, the EMA yesterday concluded that the benefits of the AZN vaccine far outweigh the risks.
Matters that Matter:
• BOJ allows 10-year JGB yields to move in 0.25% range either side of zero vs 0.20% prior; drops pledge to buy ETFs at annual Y6 tln pace, keeps Y12 tln ceiling, will only buy TOPIX-linked ETFs
• AU retail sales fall MM -1.1%, 0.4% f’cast, 0.5% prev
• Top American, Chinese diplomats clash publicly at start of first talks of Biden presidency
• UK consumer morale leaps in March to hit one-year high: GfK
Majors 1-Day View:
USDJPY
- Prices posted a volatile session on Thursday, but eventually closed little changed. While net movement was limited, the consecutive failed attempts to break 109.20/30 leave signals marginally bearish into Friday.
- BOJ widens YCC band to +/- 25bps around target; removes mandate to purchase ETFs at 6Trl/yr.
- US yields higher, but risk appetite weaker into Friday.
EURUSD
• Sellers returned yesterday from close to prior week highs at 1.1990s, prices declining by ¾ Big Fig. Although losses were contained within Wednesday’s range, signals have deteriorated and are now cautiously bearish for Friday.
• USD flows driving EURUSD, EUR weakness more evident on the crosses.
• 1.2000 resistance,1.1880/1.1830 supports.
• Slow vaccine rollout and potential 3rd wave weigh.
AUDUSD
• A failed rally on Thursday, with prices also interrupting the higher daily low into today’s Asia session, highlights selling pressure. So while trend signals remain weak, the immediate outlook is cautiously bearish.
• Risk sentiment, Retail Sales weigh on prices.
• Support at .7740.
GBPUSD
• Prices posted the 2nd higher daily high & low in a row on Thursday, but sellers returned from close to prior week highs at 1.4000. Prices declined by 1 Big Fig, with signals switching to a cautiously bearish stance for Friday.
• 1.3860, 1.3800 supports; 1.3950, 1.3980/00 resistance.
• Range trading persists.
FX Relative ATR Grid
Comment: Volatility remained elevated yesterday, so trading conditions remain optimal across the board.
Relative Strength Grid
Comment: The strongest trends are in JPY (bearish), EUR (bearish), CAD (bullish). The strongest momentum was seen yesterday in NZD (bearish), JPY (bearish), CHF (bullish).