In terms of relevant news to account for, the last 24h should be defined as a low key affair, which is why I will afford to take a step back and look at the big picture for April. After all the chat about the Euro being fundamentally weak, which is a reality I agree on, the market is not yet convinced that the currency deserves to be overly supplied even if the ECB remains firmly dovish and ready to go through another round of TLTRO mid this year. The net effect, however, considering the rest of Central Banks are headed in the same dovish direction, is a market that lacks the incentives to develop macro trends and its volatility is a reflection of it, with carry trade back in vogue.
The performance of G8 FX through the first 2 weeks of April is the proof in the pudding if you were wondering the true rotational nature of these markets. It makes the interpretation of intermarket flows, especially episodes of ‘risk on & risk off’ to gauge the direction of the AUD, CAD, NZD, JPY, USD all more important, while the GBP keeps trading to the tune of its own drummers (Brexit-related news) & the EUR accurately respecting technicals. The depreciation by the NZD and the trends that have developed as a result of the dovish surprise by the RBNZ earlier this month encourages us to think that once Central Bank policy divergences become a bigger theme in the future, trends will return, even if we shouldn’t hold our breath but instead adapt to the present circumstances.
One really needs to contend with the diminutive moves witnessed day-to-day by being much more nimble to take profits, be aware of the relevances that proj target has in such a multi-year low environment and get better at deconstructing the granular directional biases still developing intraday. As the chart below shows, long EURs or USDs against the likes of the Japanese Yen have paid off handsomely in the last 24h, which judging by the RORO conditionsI analyze every day, you were definitely warned.
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