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market review 06 April 21

06 April 21

Dollar retreats with yields, markets wary of Chinese cooling, US stimulus news eyed

The market mood is somewhat cautious as China is reportedly curbing credit while mixed reports about US stimulus also give investors a pause after sending US stocks to record highs. AUD/USD is edging higher after the RBA and several figures are eyed.
One day after the S&P 500 and the DJIA hit record highs, Asian stocks and US futures are on the back foot amid worries that China would curtail loan growth, to prevent credit bubbles. The cooling may last until the end of the year. On the other hand, the Caixin Services Purchasing Managers’ Index beat estimates with 54.3, showing robust activity in China.
Safe US bonds are finding fresh demand, pushing yields and the dollar lower. EUR/USD is settling above 1.18 and GBP/USD is changing hands around 1.39. Sterling is also benefiting from the British government’s announcement that it will proceed with the reopening plan on April 12. However, the UK remains hesitant about allowing international travel.
US stimulus: Democrats will be able to pass President Joe Biden’s infrastructure program via the quick reconciliation process, providing relief for markets. Investors also cheered comments from Senator Joe Manchin, who ejects an increase of the corporate tax rate to 28% but agrees to 25%. Deliberations within the ruling party are critical to passing the bill, as Republicans oppose it.
Monday’s rally was partially fueled by recent upbeat figures from the US. After Nonfarm Payrolls showed an increase of 916,000 jobs in March, the ISM Services PMI hit 63.7, the highest on record. Tuesday’s economic calendar features the JOLTs Job Openings report.
AUD/USD is changing hands around 0.7650 after the Reserve Bank of Australia left rates unchanged as expected. The Canberra-based institution released no hints about the future of its bond-buying scheme.

GBP/USD prospects for additional gains towards the 1.4000 mark

GBP/USD kicked off the new week on a positive move and jumped back above the 1.3900 mark. The set-up favours bulls but an upbeat US economic outlook might cap gains, FXStreet’s Haresh Menghani reports.
The USD price dynamics will continue to play a key role in influencing cable’s intraday momentum
“Against the backdrop of the upbeat US economic outlook, US President Joe Biden’s over $2 trillion infrastructure spending plan has been fueling expectations for an uptick in US inflation. This, in turn, has raised doubts that the Fed will retain ultra-low interest rates for a longer period, which should limit any meaningful slide in the US bond yields. This suggests that the path of least resistance for the USD remains up and the pair’s ongoing positive move runs the risk of fizzling out rather quickly.”
“The constructive set-up is reinforced by the fact that technical indicators on hourly/daily charts have been gaining positive traction. Hence, some follow-through buying has the potential to lift the cable further towards the 50% Fibo. level, around the 1.3960-65 region, en-route the key 1.4000 psychological mark.”
“Sustained weakness below the 1.3900 mark (38.2% Fibo. level) might prompt some technical selling and drag the pair back towards the 1.3840-35 horizontal support. This is followed by the 23.6% Fibo. level near the 1.3800 mark, which if broken decisively will negate any near-term positive bias. The GBP/USD pair might then turn vulnerable to accelerate the fall towards intermediate support near the 1.3740 before eventually dropping to the 1.3700 mark and multi-week lows, around the 1.3670 region touched on March 25..”

USD/JPY risks a move to the mid-109.00s – UOB

UOB Group’s FX Strategists noted USD/JPY could recede to the 109.50 zone in the short-term.
24-hour view: “Our expectation for ‘further sideway-trading’ in USD was incorrect as it lurched lower to an overnight low of 109.95. The rapid decline appears to be overdone and USD is unlikely to weaken much further. USD is more likely to consolidate at these lower levels, expected to be between 109.90 and 110.55.”
Next 1-3 weeks: “We highlighted yesterday that ‘while the rally is clearly overbought, it is too early to expect a significant pullback’. We added, ‘a break of 110.20 would indicate that the current upward pressure has eased’. However, the manner by which USD plunged below 110.20 came as a surprise (low of 109.95). The price actions suggest that last week’s high of 110.96 is a short-term. The current corrective pullback has scope to move lower to 109.55. Overall, USD is expected to trade with a downward bias as long as the ‘strong resistance’ at 110.75 is not taken out.”

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