Mixed Signals On USD

USD sentiment mixed overnight ahead of month/quarter and Japan FY end, supported by more hawkish Fed speak but capped by tweets from President Trump said to be studying ways to penalize currency manipulators and indicating “the meeting next week (April 6-7) with China will be a very difficult one…”

USD & JPY　

• USD: Fed President Rosengren believes 4 hikes may be required in 2017 to prevent overheating. Probably of most interest is that would be "surprised" if the long end of the curve didn't respond. Fed President Williams wouldn’t rule out more than 3 hikes in total this year.

Strategy: USD now seen well supported as Fed speak sees upside risk to rates: 

• USD: Gains in USDJPY overnight are probably a function of approaching Japanese fiscal year end today as the unit breaks through 111.30-50 resistance though the overall backdrop now appears to be one of a more sustained move higher due in part to support for the USD Index that has bounced strongly off its lows. Reminder by Fed officials overnight of potential upside risks to tightening amid a more determined Trump to support the reflation trade pose a potent mix to potentially take USDJPY to the 116 – 118.00 area in the months ahead.

EURO BLOC

• EUR: Dovish comments from a number of ECB officials attempting to downplay any potential changes to monetary policy in 2017.

Strategy: EUR’s tactical reversal continues, sterling more range bound eyeing Brexit talks: 

• EUR: EURUSD’s fall from 1.0750 overnight doesn’t look back as 1.0877 is now seen to cap topside while break below 1.0672-84 support would target 1.0458/1.0523.
• GBP: Key resistance in GBPUSD is found at 1.2669 followed by 1.2775-98 where July low and December highs converge. Alternatively, a break below 1.2450 support would target 1.1986-1.2083 where the 2017 low converges with lows from October.

COMMODITY BLOC

Strategy: AUD’s recent support linked to domestic bond index extension and unlikely to sustain:

• AUD:  Australian bond index extension is likely to keep AUD well supported though there is little to suggest overall sentiment has changed with the unit seen firmly capped around the 0.7700-0.7750 area. The only exception to AUD underperformance right now is probably EURAUD where positioning and the ECB’s bid to correct its message to a less hawkish tone could potentially sees some downside adjustment to the cross before renewed EUR buying emerges and AUDJPY where after having broken through 85.10 resistance, a weekly close above that level tonight would likely confirm a double bottom targeting the 85.75 area.
• CAD: CAD has yet to react to the oil supportive headlines overnight but with WTI having broken back above $50.0 and now seen targeting the $52.15 area, this is likely to give a boost to short AUDCAD trade though CAD itself remains capped against a more resurgent USD.

ASIA EMERGING MARKETS

• At the upcoming MAS meeting, Citi sees no change in the slope, width or center of the SGD NEER band as incoming data remains supportive of MAS’s view that external demand has seen a mild step-up. As a result, a further easing of monetary policy would seem inappropriate given expectations for a
  recovery in headline GDP. That said, Singapore’s output gap still negative, domestic demand and a weak job market sees the current mix should as sufficiently stimulative at this stage.

Strategy: SGD a "sell’ at sub 1.4000 versus USD. 

• SGD: Citi analysts points to USDSGD having tested and held support
  at 1.3913 that has often been a decent level on the charts in the past. Daily momentum has not been this stretched to the downside since June last year when USDSGD turned up and the overall move down looks like it is on it is last legs, if not over already – note SGD NEER is currently trading 0.75% stronger than the mid band.

This is an extract from the Daily Currency Update, dated 31 March 2017. Please approach a Citigold Relationship Manager if you would like a copy.