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The morning Chinese statistics left worse than expectations

Spring offers the market new issues in place of previous: America does not need an expensive dollar; the yen is rising, gold falls, London is protesting, Greece threatens. While the ECB believes that, the purchase of assets within the QE at approximately 9% of the Eurozone GDP is indeed the expected positive. The global objectives remain the same slightly adjusted.

US Treasury obviously completes the cycle of debt build-up - last Monday an unexpectedly low volume of Treasuries (all types) was set for the auction. If earlier the US Treasury with such placements used to withdraw dollar liquidity from the market, now on the contrary - it adds to the market. At this point, when the reserves on Fed accounts make $313 bln and the annual tax payments ensure a budget surplus in April there is no particular need for the Treasury in raising debt. This means, thanking to Yellen’s report among other things, an active «green light» to further dollar downing at least until the end of this month.

For the first time ever, the «gang of four» in the persons of the current Fed Chairman Janet Yellen and her three predecessors (Ben Bernanke, Alan Greenspan and Paul Volcker) debated on-line the risk of a possible recession in the United States. Their synchronous optimistic positions on all the areas of concern did not excite any particular interest from analysts; the same cannot be said of the event ticket price - to listen to the financial gurus costs barely a $1000.

However, the real situation is not so encouraging. The S&P500 is back at historical highs. Next week in the USA the 1st quarter report session starts. The expectations on the main industries are negative: the energy sector expects its first quarterly loss in the last 10 years; the financial sector forecast promises 9.2% decline in profits and sales growth of 0.2%; S&P500 companies’ profit should drop by 6.9% YoY.

The four largest banks from the S&P500 basket: JPMorgan Chase & Co, Wells Fargo, Bank of America and Citigroup are to report already on Wednesday. Whereas the negative predictions are confirmed, then the continuous fall in profits of US companies for the past three months will give all the reasons to start talking about slipping into a real recession.

Verbal interventions of Japanese officials a bit scared off speculators on the yen, which last week reached a minimum in 2014 at 107.6. There were the first hints of the possibility for direct interventions; Japan is on hold so far, and there is an opinion that this is only possible after testing 105.00-105.50.

Although none is desperately willing to recognize the fallacy of negative rates maintenance, the Bank of Japan has to take actions against the strengthening yen already next week. A formal decision can be deferred to the meeting on the Monetary Policy April 27-28 or even to the G7 summit in late May. However, some "illegal" steps cannot be excluded, and therefore now be extremely careful when dealing with the asset.

In other news worth mentioning:

  1. Minutes of the FOMC meeting confirmed their position softening; no one expects any decisive steps from Fed yet. They discussed possibility to increase the interest rate in April but rejected it flatly.
  2. Minutes of the ECB meeting turned out to be softer, traditionally Draghi escaped any speculations on current exchange rate that supported demand for the euro.
  3. According to the S&P report, the volume of high-yield US bonds defaults reached a six-year high in the last six years. Following the base scenario the indicator will approach 3.9% by December, the worst option - 5,2%, i.e. - 70 defaults in the US before the end of the year.
  4. Alongside the situation with refugees, Greece again asks either money or the waiver of debt, but in vain for now. Merkel after the meeting with the head of the IMF Lagarde excluded any debt writing-off for Greece and suggested looking for other solutions. United Kingdom, for example, is ready to send to Greece trained personnel to deal with migrants, while the internal conflict between the ruling political groups in Greece is suggested for resolving independently and free of charge.
  5. Offshore scandal with Blairmore Holdings investment fund, owned by the father of the current Prime Minister Cameron, passed the peak of informational blackmail and massive demonstrations. The figurant himself sees no reason for resignation and confines himself to promises of disclosing tax returns for all his years of premiership.
  6. There emerged information on another threat for the European financial market, which is already more urgent than Brexit, and more real than the offshore scandals. Ten leading European countries are developing a mechanism to tax financial transactions. The initiators of the tax on trading, especially high frequency, are Germany and France, accusing AlgoTraders in creating speculative market instability. Such a tax can ruin an entire group of companies, for example, Flow Traders, IMC BV and Optiver, currently working in Amsterdam. Traders’ sites are forced to seek for arrangements to transfer business to more loyal territories - in Britain or Switzerland. Moreover, in this respect the decision of Britain to leave the EU can gain a strong informational and financial support from the leading European electronic market makers.

The morning Chinese statistics left worse than expectations, but doesn't cause trust. Kuroda's performance by dangerously next promises and slow reactions of the market. We watch closely yen, which continues to hang on minimum levels.

The market next week except retail data of the USA will face "Beige Book" and two decisions on the interest rate - banks of Canada and England: no surprises, but speculators should have good chances. It is advisable to watch the China key data and appearances of the Fed representatives and Kuroda - the probability of information intervention is rather high. In addition, it is recommended to trace final data on inflation of the key countries of the Eurozone.

EUR/USD: on Friday market makers couldn't overcome a key mark 1.1450 again. Basic resistance: 1.1420/1.1465/1.1510. In case of breakdown the first purposes - 1.1540/1.1590/1.1670, further the key purpose 1.2000. Basic supports: 1.1390-1.1378, 1.1335-1.1320, 1.1284-1.1277. The steady bear scenario is possible only at aggressive breakdown of the lower range. So far, advantage behind the movement up.

USD/JPY: except the price of a strike of large options (111.11), basic resistance here: 110.00-109.82, 109.37-108.91, and 108.50-108.43. Hour support on 107.68, further key levels 107.20/106.50/105.90/105.23 (min 15.10.14). If there are no interventions - of further easing is expected.

Author: Alexander Ward,
ForexChief Currency strategist