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Yen Crosses Sluggish to Rebound with Nikkei 225, Risk

Though Japanese equity markets were off to a slow start Monday, the Nikkei 225 futures were playing catch up to US and European shares by rising 0.6 percent through early trade Tuesday. The traditional barometer for speculative appetite was materially higher, but the move smacked of weak conviction. The same was true of the yen-funded carry trade. Most of the yen crosses ranged between a 0.2 percent gain or equivalent loss. Given the weight of major support on these pairs (like 101 for USDJPY), investors are more insistent on a fundamental driver for progress.

New Zealand Dollar: Steady Rate Hikes Needs Inflation Backing

In the monetary policy ranks, the New Zealand dollar is at the very upper end of the perception curve – and for good reason. The Reserve Bank of New Zealand (RBNZ) was the first developed world central bank to hike its rate at its last meeting; and the authority remains very vocal about its intentions to carry on with further tightening over the next two years. Yet, as loudly as the central bank’s threats are, policy is still dictated by data. And, nothing is more important to rate setting that inflation. That makes the upcoming 1Q CPI reading for New Zealand particularly important. It is difficult to ‘surprise’ to the upside, but bulls born from hawkish expectations could be seriously taken aback by soft data.

Chinese Yuan Hits Fresh 13-Month Low Heading into 1Q GDP Data

USDCNH jumped 0.2 percent Monday and is up for the fifth consecutive session in early Tuesday trade. The consistency in the run is perhaps less impressive than the market’s overall level. With this week’s sustained drive, the exchange rate cleared nearly a month’s worth of resistance around 6.2150-2200 and nowtrades at 13-month highs. A heavy run of event risk meanwhile has already started. This morning, the government reported new lending in March grew more than expect to 1.05 trillion yuan while foreign reserves hit a record $3.95 trillion. The immediate impact was moderate though as the market readied for Wednesday’s 1Q GDP release amid calls for more stimulus.

Emerging Market Currencies Slip Lead by Ruble’s Ukraine Troubles

A further deviation between the picture equities painted Monday and the broader assessment of ‘risk trends’ was the lackluster performance of the Emerging Market set. From the MSCI Emerging Market ETF, a 0.2 percent slip was backed by the third weakest hand in trading volume this year. Meanwhile, JPMorgan’s EM volatility index advanced for a fourth consecutive day to 8.4 percent (still substantially off the March peak 9.3 vols and 2014 high of 10.5 vols on January 30). Looking at the FX performance for the group, the vast majority of the EM currencies were moved lower Monday. Leading the way was the Russian Ruble’s 0.8 percent tumble as the US and Eurozone threatened further sanctions over Ukraine. US President Obama and Russian President Putin reportedly spoke on the country’s turmoil, but little progress was reported.

Gold Advances to Three-Week High After COT Shows Three-Week Drop in Speculative Holdings

Despite a rebound in equities (for risk trends) and a further bounce from the US dollar, spot gold still managed a 0.7 percent climb Monday to push the metal back to $1,328. Looking at the commodity’s performance against various currencies, it comes as little surprise that the biggest jump on the day was associated with the Euro. The threat of stimulus – regardless of the catalyst – will provide a material source of demand for a non-fiat asset. On a broader basis, the general drop in the majors’ benchmark yields (10-year government bond) to the cusp of an 8-month low further weakens the argument against holding a physical asset that suffers from a lack of traditional return. That said, the speculative demand that was the metal’s primary source of strength has significantly eroded as of last. The CFTC’s Commitment of Traders data shows that net long speculative holdings of gold futures have dropped an impressive 35 percent in just the past three weeks.

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ECONOMIC DATA

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visit Technical Analysis Portal

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CLASSIC SUPPORT AND RESISTANCE

INTRA-DAY PROBABILITY BANDS 18:00 GMT

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--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter

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