Behind the EURO and USDJPY Breakouts Behind the EURO and USDJPY Breakouts | DZHI - DZH International 

Behind the EURO and USDJPY Breakouts

  • Kathy Lien
  • 21 April 2017

Daily FX Market Roundup 04.20.17

By Kathy Lien, Managing Director of FX Strategy for BK Asset Management


The two most actively traded currency pairs - the EUR/USD and USD/JPY broke above important resistance levels on Thursday. USD/JPY had been holding above 108 and flirting with resistance at 109.20 for the past 6 trading days but this level was finally breached when U.S. rates shot higher at the start of the NY trading session.  The rally defies fundamentals as today's U.S. economic reports were softer than expected with jobless claims rising and manufacturing activity in the Philadelphia region growing at its slowest pace this year.  Shrugging off softer U.S. data has been a constant theme for USD/JPY traders this month with the market ignoring weakness in consumer spending, inflation and manufacturing.  Although the greenback has fallen against other major currencies like the euro and British pound, its resilience versus the yen is consistent with the move in Treasury rates, which increased today.  With that in mind, after racing to a high of 109.45, USD/JPY failed to extend its gains and instead ended the NY session not far from 109.20. On a technical basis, this means that the breakout could still be a fake-out but there are signs of a bottom on longer-term charts.  Fundamentally, the only argument for dollar strength is that the disappointment in U.S. data changes nothing about the outlook for U.S. monetary policy.  The Federal Reserve is still expected to raise interest rates again this year with the rate hike likely to occur in September over June. Yen weakness on the other hand is supported by Bank of Japan Governor Kuroda's comment that the current pace of bond purchases will continue for some time.  He's promising a longer period of easy monetary policy, which stands in stark contrast to the Fed's tightening plans.  Looking ahead, momentum is still on the side of the bulls which means that USD/JPY could make run for 110.  


Meanwhile based on the price action of the euro, forex traders are clearly not worried about this next week's French elections.It has been a great week for the euro, which appreciated nearly 200 pips versus the U.S. dollar since Monday.  Although German producer price growth stagnated in the month of March, inflation and trade data released earlier this week was better than expected.  The April PMI reports are scheduled for release on Friday and given the general improvements in Germany's manufacturing sector, we look forward to healthy data that should support the latest rally in the euro.  Yet the situation in the Eurozone economy won't be the only thing on investors' minds on Friday.  The first round of voting in the French Presidential election is on Sunday and if there is a desire for profit taking, it would need to happen on Friday. Investors don't seem worried because Macron is leading Le Pen in the polls but as we've learned in the past year there's always the risk of an upset on Election Day. 


Sterling also traded well, resuming its rise against the U.S. dollar but we yet to see flight to safety from euros to pounds as EUR/GBP is steady for the day.  Bank of England Governor Carney avoided talking about the economy or monetary policy in his speech which appears to have given investors the green light to drive the currency higher again.  U.K. retail sales are scheduled for release tomorrow and economists are looking for spending to contract after last month's strong rise.  A pullback would be consistent with lower shop prices and softer spending reported by the British Retail Consortium.  As the most important piece of U.K. data this week and a key input into monetary policy, tomorrow's report could determine whether sterling hits 1.29 or falls back to 1.27. 


The Canadian dollar ended the day unchanged against the U.S. dollar while the Australian and New Zealand dollars traded higher.Higher Canadian yields and steady oil prices helped prevent further losses in USD/CAD while the Australian dollar benefitted from improving risk appetite.  The only country with any data today was New Zealand.  Consumer prices rose 1% in the first quarter, outpacing the market's 0.8% forecast.  This drove the year over year CPI rate to 2.2% from 2.1%.  Although part of the increase was driven by one-time rises in tobacco taxes and oil gains, data from New Zealand has consistently surprised to the upside.  Dairy prices are also moving higher, providing the case for stronger relative performance for the New Zealand dollar.  Canadian consumer prices are due for release on Friday.  Given the sharp drop in the price component of IVEY PMI, CPI growth may have eased in the month of March.  



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About the Author
Kathy Lien
Kathy Lien is Managing Director and Founding Partner of BKForex. Having graduated New York University’s Stern School of Business at the age of 18, Ms. Kathy Lien has more than 13 years of experience in the financial markets with a specific focus on currencies

Ms. Kathy Lien is Managing Director of FX Strategy for BK Asset Management and Co-Founder of Her career started at JPMorgan Chase where she worked on the interbank FX trading desk making markets in foreign exchange and later in the cross markets proprietary trading group where she traded FX spot, options, interest rate derivatives, bonds, equities, and futures.

In 2003, Kathy joined FXCM and started, a leading online foreign exchange research portal. As Chief Strategist, she managed a team of analysts dedicated to providing research and commentary on the foreign exchange market.

In 2008, Kathy joined Global Futures & Forex Ltd as Director of Currency Research where she provided research and analysis to clients and managed a global foreign exchange analysis team. As an expert on G20 currencies, Kathy is often quoted in the Wall Street Journal, Reuters, Bloomberg, Marketwatch, Associated Press, AAP, UK Telegraph, Sydney Morning Herald and other leading news publications.

She also appears regularly on CNBC’s US, Asia and Europe and on Sky Business. Kathy is an internationally published author of the bestselling book Day Trading and Swing Trading the Currency Market as well as The Little Book of Currency Trading and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game all published through Wiley. Kathy’s extensive experience in developing trading strategies using cross markets analysis and her edge in predicting economic surprises serve key components of BK’s analytic techniques.