World markets played back another batch of optimism associated with new initiatives on Brexit and rumors that China and the United States are nearing the end of trade negotiations.
Today, the ISM index in the service sector will be published, which is more informative in terms of the growth rate of the US economy than the manufacturing index and may have a significant impact on the adjustment of labor market forecasts for March. Volatility can also strengthen the ADP report on employment in the private sector. In addition, several FOMC members, who can adjust market expectations regarding the Fed's plans, are expected to speak at once.
USD / JPY pair
The Japanese yen continues to fall in price against the backdrop of rising stock markets and declines in panic but apart from external factors, the yen is gaining strength and internal factors.
After Tankan's quarterly business activity figures were worse than expected, the current PMIs were published. In the services sector, there is a slight slowdown and the index is kept in the growth zone, gaining 52p against 52.3 a month earlier. Yet, the business climate subindex fell to an 18-month low.
With the manufacturing sector, all the more it will be difficult. Despite the fact that there was a slight increase from 48.9p in March to 49.2p in February, PMI was firmly entrenched below the expansion zone and is near 3-year lows. The contraction of the manufacturing sector mainly reflects a decline in export demand.
Mizuho Bank monitors the volumes and prices of electronic components, a part of the production in which Japanese companies have long established themselves in leading positions in the world. They said that in the last two months production has decreased significantly.
From the point of view of financial markets, the collapse indicator of one of the most important components of exports may indicate a decrease in output, as well as a subsequent reduction in GDP growth rates and the return of the multi-year problem of deflation.
After launching the stimulus package in 2014, the Japanese economy grew at a sufficient pace for the Ministry of Finance to start reducing the issuance of new bonds financing the deficit. If the world economy starts to enter the phase of contraction, then the budget revenues will start to fall again. Also, Japan will return to what it started with, but only with a much higher level of public debt than 5 years ago.
At the moment, this is one of the main concerns of investors regarding the yen. The Bank of Japan may announce the launch of its own incentive program at any time, following the Fed and the ECB. These concerns, as well as the general surge in demand for risky assets, will continue to put pressure on the yen. The USD/JPY pair will continue to grow with the nearest target of 112.14 then 112.35 / 45 which is the upper limit of the downward channel. Overcoming this area can change the technical picture to confidently bull.
EUR / USD pair
The report on producer prices somewhat reassured players but there was no decline, which somewhat smoothed out the negative from a weak inflation report. Despite the fact that prices rose by only 0.1% with the annual growth rate slightly increased from 2.9% to 3.0%.
Markit will publish data on PMI of countries in the eurozone today and expectations are neutral, which are unlikely to significantly affect the euro.
The EUR/USD pair continues to be traded under pressure and the resistance of 1.1175 is still holding up but chances of leaving are growing lower. A pullback will most likely be used to boost sales.
GBP / USD pair
A group of deputies of the UK parliament took the initiative to find a way to prevent the scenario of the country's withdrawal from the EU without any agreement. What is significant is the group being interparty, which means that the development of the situation does not suit both those who voted for the agreement and those who voted against.
Theresa May announced on Tuesday that she will develop a new approach to Brexit in collaboration with Labor leader Corbin. Markets accepted the news with enthusiasm as the pound has grown significantly, but the potential for further growth is limited -we need specifics.
The pound is in equilibrium and trading is likely to be range-bound with some margin in the direction of growth. The resistance is in the zone of 1.3210/15 and moves towards the next level of 1.3267. However, there is no possibility to look further without specifics by agreement. On the other hand, the support is at 1.3013, but a decline is possible only in the case of unexpectedly negative news.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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