EUR momentum fading, JPY fails 100, AUD bearish

EUR/USD is losing some upside momentum, with the currency pair likely to be more constrained in the days ahead. Weak April Eurozone purchasing managers’ indices (PMI) set to be revealed today taken together with an expected decline in the German IFO business survey suggest no support for the EUR on the data front especially as the data will point to lower policy rates.

Additionally although the latest CFTC IMM data shows that the speculative market is still short EUR, the magnitude of short positioning is at its lowest in several weeks implying less scope for short covering. Yield differentials point to more downside risks for EUR/USD too especially given the widening in US Treasury / German bund yield differentials over the last week (ie US Treasuries offer a relatively more attractive yield). A test of EUR/USD 1.3001 support is on the cards in the very near term.

After sliding close to 30% from mid September last year the JPY appears to be having a little difficulty cracking the psychologically important 100 barrier despite the green light to do so in the wake of the G20 meeting. In anticipation of the move short speculative JPY positions have increased to their highest in several weeks.

However, domestic investors have yet to pour money overseas, with weekly portfolio data revealing that since the start of the year any Japanese outflows have been more than compensated by portfolio inflows; net inflows have totalled JPY 13.3 trillion. Once Japanese investors increase overseas investments the move in USD/JPY will accelerate but for now expect to see a much more gradual move higher.

AUD has lost a lot of ground over recent days damaged both by a plunge in commodity prices and also by weaker Chinese and domestic data including a recent in the unemployment rate and a budget which remains in deficit. AUD took another hit from a weaker than expected reading in the private sector reading of Chinese PMI today. March quarter CPI inflation data tomorrow in particular will help to determine whether the RBA cuts policy interest rates on May.

The data is unlikely to prove supportive of a rate cut with an increase in the annual rate of inflation set to be revealed. While this may help to alleviate some downward pressure on AUD/USD the technical picture remains bearish, with a test of support around 1.0202 likely, which if broken would open the door for a test of the 2013 low around 1.0116.

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