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Sterling Paring Losses as Brexit Cliff Edge Delayed for Two Weeks

After some roller coaster rides, Sterling is trading broadly higher for today after EU approved a short Brexit extension for UK. But overall, the Pound remains the weakest one for the week. Delaying the “cliff edge” by two weeks is just giving the economy a breather. The problem is not solved and uncertainties remain. Nevertheless, focus will turn to economic data from Eurozone and Canada today first.

Staying in the currency markets, New Zealand Dollar is the second strongest for today, following Sterling. Swiss Franc is the weakest one, followed by Australian Dollar. But all major pairs and crosses are bounded inside Thursday’s range. As for the week, Sterling is the weakest, followed by Canadian and then Dollar. Swiss Franc is the strongest, followed by Kiwi and Yen.

In Asia, Nikkei closed up 0.09%. Hong Kong HSI is down -0.19%. China Shanghai SSE is up 0.09%, staying above 3000 handle. Singapore Strait Times is up 0.01%. Japan 10-year JGB yield is down -0.0335 at 0.071. Overnight, DOW rose 0.84%. S&P 500 rose 1.09%. NASDAQ rose 1.42%. 10-year yield rose 0.002 to 2.537.

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EU approved short Brexit extension, cliff edge delayed to April 12

At the European Council meeting in Brussels, EU approved a short Brexit extension for UK to decide which way they’d choose to go. If not Brexit deal is approved by the House of commons, The extension will be until April 12, when UK has to indicate a way forward. If a Brexit deal is approved, the extension will be until May 22. The offer is accepted by UK Prime Minister Theresa May.

EU President Donald Tusk said “the cliff edge will be delayed”, adding that “I was really sad before our meeting, now I’m much more optimistic.” He also noted, until April 12, “all options will remain open” and “the UK government will still have a choice between a deal, no deal, a long extension or revoking Article 50 ”

May said after the summit that “what the decision today underlines is the importance of the House of Commons passing a Brexit deal next week so that we can bring an end to the uncertainty and leave in a smooth and orderly manner”. She added “tomorrow morning, I will be returning to the U.K. and working hard to build support for getting the deal through.”

Japan CPI core slowed to 0.7% yoy, drifting away from BoJ’s target

Japan national CPI core (all items less fresh food) slowed to 0.7% yoy in February, down from 0.8% yoy and missed expectation of 0.8% yoy. CPU core-core (all items less food and energy) remained sluggish at 0.4% yoy, unchanged from January. Headline all items CPI was unchanged at 0.2%.

Despite BoJ’s massive monetary stimulus, there is no sign for CPI core to achieve the 2% target. And even worse, it’s actually moving farther away from the goal. Sluggish core-core reading is providing no help too. Moreover, there are risks of drag by slowdown in overseas economy. For now, there is practically no case for BoJ to exit ultra-loose policy any time soon.

Japan PMI manufacturing unchanged at 48.9, sustained downturn

Japan PMI manufacturing was unchanged at 48.9 in March, missed expectation of 48.9. Markit noted there are “further production cutbacks amid weaker new order inflows”. Also, “business confidence remains below long-run average”.

Joe Hayes, Economist at IHS Markit, said: “Further struggles for Japanese manufacturers were apparent at the end of Q1, with latest flash PMI data showing a sustained downturn. Slack demand from domestic and international markets prompted the sharpest cutback in output volumes for almost three years. With input purchasing falling, firms appear to be anticipating further troubles in the short-term. Indeed, concern of weaker growth in China and prolonged global trade frictions kept business confidence well below its historical average in March.”

Looking ahead

Eurozone PMIs will be the major focus in European session. Later in the day, Canadian data will take center stage with CPI and retail sales futures. US will release PMI, wholesale inventories and existing home sales.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.2999; (P) 1.3114; (R1) 1.3223; More….

GBP/USD spiked lower to 1.3003 but quickly recovered ahead of 1.2960 support. Intraday bias remains neutral first. With 1.2960 intact, rise from 1.2391 is still in favor to extend. On the upside, firm break of 1.3381 will target 61.8% retracement of 1.4376 to 1.2391 at 1.3618 next. However, on the downside, firm break of 1.2960 will indicate that rebound from 1.2391 has completed earlier than expected. Deeper fall would then be seen to 1.2773 support for confirmation.

In the bigger picture, medium term decline from 1.4376 (2018 high) should have completed at 1.2391. Rise from 1.2391 is now seen as the third leg of the corrective pattern from 1.1946 (2016 low). Further rise could be seen through 1.4376 in medium term. On the downside, though, break of 1.2773 support will dampen this view. Focus will be turned back to 1.2391 low and break will resume the fall from 1.4376 to 1.1946.

Economic Indicators Update

GMTCcyEventsActualForecastPreviousRevised
23:30JPYNational CPI Core Y/Y Feb0.70%0.80%0.80%
0:30JPYPMI Manufacturing Mar