FX Update: USD Bulls Need Strong Retail Sales Print

The JPY rally picked up pace overnight after comments from an advisor to prime minister Shinzo Abe yesterday suggesting 120 in USDJPY is too weak a level and that 105 is more in line with purchasing power parity.USDJPY is still within the tight range, while EURJPY was pushed to new cycle lows and other JPY crosses look heavy. One can’t help but wonder if these comments are a direct response to the criticism from the recent US Treasury currency report that criticised Japan for its over-reliance on monetary policy to achieve its objectives. New Zealand house price inflation accelerated in March, a development that will garner increasing political and central bank attention and coming at an awkward time, as the Reserve Bank of New Zealand would prefer to do nothing on the rate front, given the kiwi’s extremely elevated levels. An RBNZ governor is out speaking tonight.The US Retail Sales release for March is a very important one, after a string of weak readings, as the market will be looking at this number for whether we’ll find support for the theory that the weak patch of data in the US in recent months has been due to extreme winter weather along the most heavily populated areas of the country.In any case, expectations for the ex autos and gas number are running at a rather elevated +0.7% month-on-month. Considering that we only have one Fed rate hike priced in through the end of this year, it won’t take much of an upside surprise today to get the market to price in a tighter Fed. EURUSDThe run lower within the range here in EURUSD has been almost entirely without a bounce, and if we get a strong US Retail Sales report today one wonders if the next level is parity immediately or if we start to make slower progress and start to move in “quarters” rather than “fives” as has been the case since 1.4000.In that case, 1.0250 may be the first objective beyond 1.0500. One has to imagine, meanwhile, that parity is very psychologically “sticky” if it eventually comes into play.

EUR/USD

The G-10 rundownUSD: Taking a breather as we await today’s important US Retail Sales release, where an upside surprise may have a bigger impact than a downside one – considering that hardly anything is priced in out the curve anyway from the Fed.EUR: Extremely weak and wondering what will support the currency – if the European Central Bank doesn’t do so and we get a strong US Retail Sales report today, we may be looking lower to 1.0300/1.0250 quickly.JPY: Trading very strongly and curious to see how USDJPY behaves on the US data release to see whether JPY trades even stronger than the USD for now – 118.75 is important on a closing basis in USDJPY to the downside and EUR.GBP: Strong due to euro weakness – watching 0.7155 Fibonacci area in EURGBP. Watching for relative strength in GBPUSD on today’s UK CPI and US Retail Sales releases as would be surprised to see GBP retaining the upper hand if US data is strong today.CHF: Passively following JPY strength/EURJPY if we look at the grind lower in EURCHF, but CHFJPY is an interesting short for the contrarians and USDCHF support around 0.9750 is important as well. Looking for a return to 1.0200+ in USDCHF soon.AUD: Watching those cycle lows at 0.7535 to fall today if the US Retail Sales report is strong. Meanwhile, AUDJPY is also pushing at cycle lows soon near 90.00.CAD: Reluctant to weaken further at the moment versus the USD as oil trades in the higher side of the recent range and with the Bank of Canada up tomorrow. Still prefer to look higher in USDCAD as long as we close above 1.2500/50 zone after tomorrow’s BoC meeting.NZD: Strong housing gains are supportive, but strong US data today will likely see better confirmation today of the bearish case for NZDUSD below 0.7400.SEK: CPI today the focus and the technicals look locally bearish as EUR isn’t able to put up much of a fight against anything.NOK: EURNOK at very important 8.55 (200-day moving average) and 8.50 (range/psychological) support area as euro is having a hard time putting up a fight. Seems risk may be tilted to at least a probe below the 8.50 area.

Economic data highlights

  • New Zealand Mar. REINZ House Price rose +6.7% MoM and +9.5% YoY vs. +6.1% YoY in Feb.
  • UK Mar. BRC Sales Like-for-Like out at +3.2% YoY vs. +0.5% expected and vs. +0.2% in Feb.
  • Australia Mar. NAB Business Conditions/Confidence out at 6/3/ vs. 2/0 in Feb.

Upcoming Economic Calendar Highlights (all times GMT)

  • Sweden Mar. CPI (0730)
  • UK Mar. CPI/RPI/PPI (0830)
  • Eurozone Feb. Industrial Production (0900)
  • Sweden Riksbank Governor Ingves to Speak (0900)
  • Norway Norges Bank’s Olsen to Speak (0930)
  • US Mar. Retail Sales (1230)
  • Canada Mar. Teranet/National Bank Home Price Index (1230)
  • US Mar. PPI (1230)
  • US Mar. NFIB Small Business Optimism (1300)
  • Australia Apr. Westpac Consumer Confidence Index (0030)
  • New Zealand RBNZ Deputy Spencer to Speak (0030)
  • China Mar. Retail Sales (0200
  • China Mar. Industrial Production (0200)
  • China Q1 GDP (0200)
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