Intermarket Movements to Drive Forex Trading with Light Calendar Today

Market overviews

Dollar traded mixed overnight as while 10 year yield breached 3% handle, there was no follow through selling in bonds that kept it above that level. On the other hand, the situation was complicated by the selloff in stocks due to earnings, which propelled Japanese Yen briefly higher. The greenback is regaining strength in Asian session. In particular, Dollar is already extending recent rally against Aussie, and Swiss Franc. With an exceptionally light calendar today, intermarket movements will be the main driver in FX.

Technically, in the currency markets, the first focus today is that EUR/CHF is heading back to 1.2 handle after brief consolations. Secondly, there will be some minor levels to pay attention. Those include 1.2181 temporary low in EUR/USD, 1.3917 temporary low in GBP/USD 109.19 temporary top in USD/JPY and 1.2860 temporary top in USD/CAD.

The economic calendar is exceptionally light today. Asian session was already quieter than usual with Australia and New Zealand on holiday. Japan released all industry activity index which rose 0.4% mom in February and that triggers little reaction in the markets. Looking ahead, Italy is on bank holiday today. Credit Suisse will release economic expectation for Swiss. China will release conference board leading index. US will release crude oil inventories. BoC Governor Stephen Poloz will speak today too. And traders will look through today’s event for ECB rate decision tomorrow, and Q1 GDP of US and UK on Friday.

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Having said that, the interaction between different financial markets would probably be the drivers today.

DOW closed sharply lower overnight by -424.56 pts or -1.74%, at 24023.13. The rebound from 23344.52 is confirmed to be complete at 24585.97, after failing to sustain above 55 day EMA. Further fall would be seen back to 23344.52 ahead, as long as 24585.97 holds. While there could be some support at that level, an eventual break is expected to 38.2% retracement of 15450.56 to 26616.71 at 23351.24.

US 10 year yield edged higher to 3.003 overnight and breached 3% handle briefly. Then, it failed to sustain above 3% and closed at 2.983, up only 0.010. Bear in mind again that 3% is an important psychological level for many investors. And there is a key resistance of 3.036, 2013 high. These could both limit the strength of TNX for the very near term.

If the markets movements unfold like the above today, that is, stocks tumble and yield struggles to advance, we could see a reversal of fortune in Aussie and yen. That is, firmness in US yields will pressure both Aussie and Yen. But in case of risk aversion triggered by other factors, like earnings, Yen could be supported by risk aversion. This would be an interesting point to watch today.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2173; (P) 1.2231 (R1) 1.2265; More….

Intraday bias in EUR/USD remains on the downside for 1.2154 support. Decisive break there should confirm the bearish case of medium term reversal. And EUR/USD should then target 161.8% projection of 1.2475 to 1.2214 from 1.2413 at 1.1991. On the upside, 1.2245 minor resistance will turn bias neutral first. But risk will now stay on the downside as long as 1.2413 resistance holds.

In the bigger picture, key fibonacci level at 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 remains intact despite attempts to break. Firm break of 1.2154 support will confirm rejection by this fibonacci level. And in that case, a medium term top is at least formed at 1.2555. EUR/USD should then head back to 38.2% retracement of 1.0339 to 1.2555 at 1.1708 first. We’ll look at the structure and momentum of such decline before decision if it’s an impulsive or corrective move.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
4:30 JPY All Industry Activity Index M/M Feb 0.40% 0.50% -1.80% -1.10%
14:30 USD Crude Oil Inventories -1.1M

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