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Dollar and Yen Firm as Investors Stay Cautious

Dollar is generally firmer as markets enter into US session. Futures point to a flat open, but investors are clearly on guard of selloff before the weekend. Cautiousness is keeping Yen afloat too, even though Swiss Franc is lagging behind. As for today, Sterling is the worst performing one, followed by Swiss, and then Aussie.

Technically, Dollar and Yen pairs are the focuses from now till early next week. In particular, break of 129.47 minor support in EUR/JPY and 150.75 minor support in GBP/JPY would indicate short term topping. Yen cross could be staging a generally correction, probably except USD/JPY. Another focus will be how EUR/USD would breakout from range of 1.1834/1989. For now, downside breakout in EUR/USD is mildly in favor.

In Europe, currently, FTSE is down -1.03%. DAX is down -0.62%. CAC is down -0.75%. Germany 10-year yield is down -0.0285 at -0.288. Earlier in Asia, DOW dropped -1.41%. Hong Kong HSI dropped -1.41%. China Shanghai SSE dropped -1.69%. Singapore Strait Times dropped -0.10%. Japan 10-year JGB yield rose 0.0092 to 0.116.

Canada retail sales dropped -1.1% mom in Jan, second monthly decline

Canada retail sales dropped -1.1% to CAD 52.5B in January, better than expectation of -2.5% mom. That’s nonetheless, still the second consecutive month of decline. Sales contracted in 6 of 11 subsectors, representing 39.4% of retail sales. Core retail sales, excluding gasoline, and motor vehicles and parts, also posted their second consecutive decline, by -1.4%.

ECB Panetta: Digital Euro will have strong impact on the entire society

ECB Executive Board member Fabio Panetta reiterated the central bank’s plan to decide around mid-year whether to proceed with a digital Euro. Then, there will be a two year investigation, followed by two to three year implementation.

“Five years is a long time but you should bear in mind that a (digital euro) is not simple and it is not simply a technical issue,” Panetta said. “Its introduction will inevitably have a very strong impact not only on payments and financial markets, both domestic and international, but also more broadly on the entire society.”

BoJ widens 10-year JGB yield target range to +-0.25%

Three major changes are announced by BoJ today, as results of the policy review. Firstly, short-term interest rate is held at -0.1%. An “Interest Scheme to Promote Lending” will be established to enable the central bank to “cut short- and long-term interest rates nimbly while considering the impact of the functioning of the financial intermediation”.

Secondly, 10-year JGB yield target is kept at around 0%. But it’s now allowed to fluctuate in a wider band between plus and minus 0.25%. A “fixed-rate purchase operations for consecutive days” will be introduced to set an upper limit on interest rates when necessary.

Thirdly, BoJ will purchase ETF and J-REITS with upper limits of about JPY 12T and JPY 180B respectively. But the reference to JPY 6T annual ETF purchase target was dropped.

Australia retail sales dropped -1.1% mom in Feb, lockdown in Vic and WA

Australia retail sales dropped -1.1% mom, or AUD -346.5m, in February, worst than expectation of 0.4% mom rise. The falls were led by Victoria (-4%) and Western Australia (-6%). Both states saw COVID-19 lockdown restrictions during the month. Partially offsetting falls in these states were rises in New South Wales and Queensland, which had seen COVID-19 restrictions impact January.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3888; (P) 1.3944; (R1) 1.3991; More….

GBP/USD drops notably today but stays inside range of 1.3777/4016. Intraday bias remains neutral first. On the downside, below 1.3777 will extend the correction from 1.4240 with another fall. But downside should be contained by 38.2% retracement of 1.2675 to 1.4240 at 1.3642 to bring rebound. On the upside, above 1.4016 will bring retest of 1.4240 high first.

In the bigger picture, rise from 1.1409 medium term bottom is in progress. Further rally would be seen to 1.4376 resistance and above. Decisive break there will carry larger bullish implications and target 38.2% retracement of 2.1161 (2007 high) to 1.1409 (2020 low) at 1.5134. On the downside, break of 1.3482 resistance turned support is needed to be first indication of completion of the rise. Otherwise, outlook will stay cautiously bullish even in case of deep pullback.

Economic Indicators Update

GMTCcyEventsActualForecastPreviousRevised
23:30JPYNational CPI Core Y/Y Feb-0.40%-0.40%-0.60%
00:01GBPGfK Consumer Confidence Mar-16-20-23
00:30AUDRetail Sales M/M Feb P-1.10%0.40%0.50%
03:00JPYBoJ Interest Rate Decision-0.10%-0.10%-0.10%
07:00EURGermany PPI M/M Feb0.70%0.70%1.40%
07:00EURGermany PPI Y/Y Feb1.90%2.00%0.90%
07:00GBPPublic Sector Net Borrowing Feb18.4B20.0B8.0B2.4B
12:30CADRetail Sales M/M Jan-1.10%-2.50%-3.40%
12:30CADRetail Sales ex Autos M/M Jan-1.20%-2.00%-4.10%
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