USDJPY, DAX, STOXX50, US earnings…

The Greenback continued on its descending route with the USDJPY breaching well below 110 and EURUSD hitting a new high since October 2015 at 1.1454. The Fed minutes largely confirmed that there will not be a rate rise in April, and little prospect for a hike in June.

The dollar basket is approaching the lower bound of its trading range, but a break will not be an easy one, as current prices already suggest no hike this year. The weaker dollar helps commodity prices and US equity markets to maintain ground, but momentum is clearly slowing. European markets like the DAX or the Euro Stoxx 50 remain in a bear trend, as they were unable to break above the 200 day moving average, and now moved out of their short term uptrending channel. The fairly tight Bollinger bands announce a period of high volatility still to come, however for European indices to correct substantially, it will have to start from the US.

DAX – Daily Chart

The Fed dovishness’ effect will probably fade, unless it converts into higher profits (or US dollar continues to fall extensively). The US earning season, which kicks in next week, will tell. Disappointing numbers might bring “sell in May…” which did not really play out in the past 3 years. On the other hand stronger results and company guidance will help the SP500 extend gains above the 2080 resistance. Consensus expects corporate profits to decline by 6.9%YoY in 1Q16.

On the currency side you might look to sell any rallies on Yen crosses. The Bank of Japan remained muted in the face of its strengthening currency, and the Yen would offer good protection in case of a volatility spike.

USDJPY – weekly chart

ANDREAS RUHLMANN
Premium Client Manager / Market Analyst