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Sellers weigh if the EUR is undervalued while AUD soars and JPY takes a dive on the back of USD

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What’s new?

The EUR/USD breach it short uptrend canal support yesterday hitting a major horizontal support (1.0898).

Is the EUR too undervalued now?

Should EUR buyers secure it now?

Should sellers be more worried?

The narrative is still focus on development in Ukraine et still affect more E.U currencies because of geographical proximity but economies all over the world overheating with mounting inflation will force major central bank to close the gap with FED, especially ECB, then USD will look less appealing. December contract 1M ESTR Futures is traded at 99.96 meaning that implied daily expected rate is expected to be 0.04%.

The 30 Day Federal Funds Futures (the U.S equivalent) is traded at 97.525 or 2.475% implied rate. So it will be plenty of room for ECB to catch up.

AUD/USD soared more than 1% yesterday. Even if the RBA left the cash rate at 0.1% as expected yesterday, there is hawkish turn in its post-meeting statement. The hawkish pivot probably reflect the wrong employment level and sign of overheating Aussie economy. Inflation data later This month on 27 April will be key for future RBA decisions.

USD/JPY is trading at 123.9, the weaker JPY is fuelling speculation that the BOJ might change its narrative, even if it largely anchored in a dovish stance at the moment. “If you look at moves in foreign exchange rates over the longer term such as the past decade, fluctuations have gotten smaller but as pointed out, the recent moves in foreign exchange rates seem somewhat rapid,” Kuroda said in response to questions in parliament Tuesday.

We think Kuroda is confortable with a weaker JPY but probably not with a fast weakening as seen in the previous day. Any USD/JPY sharp increase from now is low probability or will trigger more interventionism from BOJ, either verbally or by raising the 0.25% 10y JGB ceiling.

This last action would immediately trigger a JPY strengthening.

What’s in the pipe?

  • Federal Reserve minutes Wednesday
  • EIA crude oil inventory report Wednesday
  • Philadelphia Fed President Patrick Harker speaks Wednesday
  • St. Louis Fed’s James Bullard, Atlanta Fed’s Raphael Bostic, Chicago Fed’s Charles Evans speak at separate events Thursday
  • Reserve Bank of India rate decision Friday

FX rates

USD/JPY @ 123.9 - bullish trend

RSI: Overbought

CCI: Overbought

Williams %R: Overbought

EUR/USD @ 1.1062 - Bearish trend

Breach of 1.0898 support

MACD: average mean breach to the down

CCI: oversold

Williams %R: Oversold

GBP/USD @ 1.3125 - Bearish trend - major support / resistance : 1.3209CCI : oversold

Williams %R: Oversold

AUD/USD @ 0.7497 - next support : 0.7451CCI : overbought

CCI : Bearish divergence

USD/CNH @ 6.3629 - Just above major support : 6.3624MACD : Bearish divergence

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