Game by rules of the market in country style

Saudi Arabia forms the world's largest sovereign reserve fund - more than $2 trillion as a basis for life without oil.

The first quarter of year is over, which main result was a deterioration in moods in the world markets of risk assets and (simultaneously) their substantial recovery, as China didn't devaluate the currency, euro continues to grow actively, and FRS with success plays a role of the Central Bank of the whole world. Everything goes according to the plan and April is expected not less vigorous.

Week has passed under the sign of «Saving Private Barrel», but weak stocks from the US Department of Energy, and also the fact of almost full closing of short-term positions with hedge funds, can't hold oil at reasonable technical levels yet. Refusal of Saudi Arabia to join the agreement on freezing of volumes of production without Iran looks a languid attempt to hold the share of the market and actually puts an end to an opportunity of any serious arrangements in a format Russia + OPEC in the next months.

S&P has worsened the assumption of a China`s rating to «negative» from «stable», due to change of balance in national economy goes much more slowly, than it was expected, though official data of the Chinese manufacturing sector for March has shown a gain for the first time in nine months. There is an opinion that People`s Bank of China really has strong influence on FRS decisions. As soon as PBC has approved a course for depreciation of yuan (a chronic problem for US monetary policy!), unexpected Yellen curtseys towards «careful approach to decrease in rates» have begun. And the blear thought about the forthcoming rates decrease in the fall and even the possible beginning of QE4 appears again. Reaction of a common market was nervous, and China in only three days has raised the volume of "injections" in the market to a maximum since 2005.

The U.S. Bureau of Labor Statistics report appeared slightly better than expectations, though actually in data traditional «hodgepodge». Unexpected growth of unemployment rate and increase in applications for receiving grants, then the good ISM report on production and a little strange data from University of Michigan on consumer moods have added to the market of a hysterics and have led to usual removal of stops from key levels. Unreasonable evening Friday rally on S&P will have to be corrected at least until Wednesday, especially as on Monday the Chinese markets have a rest.

Euro has updated 5-month maxima last week, but in general it was thrown there not by fundamental factors, but the general weakness of US dollar. Expectations of rate increase constantly change at the suggestion of the main international provocateur - FOMC. Even usual appearance of the Chair Janet Yellen on public (the next – on April 8) and any her comments will give new reasons for worry. On Thursday, Draghi's spearing is planned, but the subject isn't disclosed yet.

From other news there is a wish to note the following:

  1. For the first time over the last 5 years the EU budget deficit standard is infringed - Spain distinguish itself, which fact following the results of 2015 has reached 5,16% of GDP against the established standard in 4,2%. Infringement is connected with autonomous administrations, which has violated own standards almost for 1% of GDP. Penalties are not expected yet, but the same problem brew up in Lithuania, Latvia, Portugal and even in Italy. It is time to think about this problem.
  2. Somehow, there has imperceptibly passed information from the US Senate committee on the budget: its assumptions counts on decrease in the US budget deficit for 2016 for $10 billion and for the closest 10 years - for $168 billion. A pre-election point or really everything is so good in the USA?
  3. Saudi Arabia forms the world's largest sovereign reserve fund - the vice-crown prince Mohammed bin Salman stated the vision on the matter within 5 hours. The investment project on more than $2 trillion will have to create for the kingdom a basis for life without oil. Initial public offering is planned next year, but so far sales won't exceed 5%. The fund actively will invest domestically, and in a foreign market will be able to «buy» such giants as Apple Inc., Google, Microsoft Corp. and Berkshire Hathaway Inc.
  4. For last 3 months the quotation of gold has added 16.5% - a record quarter growth since 1986, and demand for SPDR Gold Shares papers, the world's largest ETF on gold, just fantastic. There has passed an inside scoop that the legendary hedge fund manager John Paulson has sold long-term contracts for gold growth for total amount of $400 million, which he held for many months. It disquiet large investors and as for now will be enough even a weak push to strong correction.
  5. On Thursday, the Swiss National Bank will publish data on the volume of currency reserves, only according to these data have yet to estimate the volume of the system interventions made by bank.

EUR/USD: everything is not in favor of EUR yet, all the more so as the key level of offers on 1.1440/60 has resisted. After the price has stabilized lower than 1.1400, large positions began to recover and for now strong drivers are necessary to break through upward. The key mark of 1.1420. Protection of market makers exhibited in the range 1.1500-1.1620. Intraday Support: 1.1360-1.1355, with the breakdown of the price can go to the 1.1325-1.1290. Changing the script on the downlink is only possible with a decrease to 1.1220-1.1190. While only look up.

USD/JPY: current resistance: 112.78/112.45/112.00/111.70, support: 111.00/110.60/110.20/109.80. If the rate drops below 111.00, speculators will close open seasonally longs with losses that can cause a decline to 109.50. While we are moving in the downward range of large volumes of buy and all there is.

Author: Navsher Bartash,
ForexChief Currency strategist