08-APR-2019, MONDAY

1) JAPANESE YEN COULD GAIN AS FOCUS GROWS ON CREAKING INFLATION TARGET

2) EURO LOOKS FOR TRIGGER AT 1-MONTH LOW

3) CRUDE OIL PRICES RISE AS US WAGE GROWTH DROP STOKES RISK APPETITE

4) GOLD PRICE CHART CONTINUES TO WARN THAT A MAJOR TOP IS TAKING SHAPE

1) JAPANESE YEN COULD GAIN AS FOCUS GROWS ON CREAKING INFLATION TARGET

The Japanese Yen tends to play the role of haven in international currency markets, sought after when investors are worried about global growth but not much wanted when risk appetite runs high. The reasons for this are clear enough. The Japanese authorities have for many years been attempting to stoke pricing power with ultra-accommodative monetary policy. This has left Japanese short interest rates at -0.1% and Yen returns extremely paltry when compared to, say, the US Dollar’s. US base rates may not be especially high by historical standards but, at 2.25-2-5%, they dwarf Japan’s.

The only reason to repatriate your Yen, then, is when you are so worried about world growth prospects that you’ll take even rock-bottom Japanese returns as the price of safety. The problem is, though, that the Japanese authorities have not managed to stoke that pricing power. Today, after decades of loose monetary policy the Japanese annualized consumer price inflation rate stands at 0.2%. Yes, you read it correctly. That is the annualized rate. It seems obvious that the Bank of Japan’s ‘sustained 2%’ inflation target is now unreachable. Inflation has been nowhere near that level since the end of 2014.

Officially the BoJ line is that powerful monetary easing will see that inflation target hit, but it’s hard to find many in the markets who believe that that day is coming anytime soon. And it’s very likely that doubts are growing in official circles too. The Bank of Japan’s Governor Haruhiko Kuroda said in December that attempts to hit the target would be taken ‘step by step.’ This looks innocent enough on casual viewing, but it replaced earlier pledges to get there ‘as soon as possible’ and was a clear watering down of ambition.

Now comes a Bloomberg report suggesting that some at the BoJ think the target will remain elusive through this year, next year and into 2021. It’s important to note that all of the above are merely straws in the wind. As far as anyone knows these are unrelated reports and there may be no deeper meaning behind any of them. But the inflation target is in focus again. If these stories keep coming, speculation that it could be altered will only increase. Should they gain traction then they may well provide the Yen with the sort of domestic economic data support it now lacks, given the current clear disconnect between economic performance and monetary policy.

2) EURO LOOKS FOR TRIGGER AT 1-MONTH LOW

The Euro has stalled near one-month support after recoiling from resistance capping upside progress against the US Dollar since late September 2018. That barrier has also established a shallow but unmistakable series of lower highs. Indeed, prices appear to be stair-stepping lower, despite a lot of chop along the way. From here, a daily close below the March 7 low at 1.1176 opens the door for a test of the 1.1110-32 area, marked by a range floor dating back to mid-2017. Thorough invalidation of the near-term bearish bias is some way off, calling for a daily close above trend line resistance now situated at 1.1412. Tactically speaking, this seems to broadly argue against the long side while highlighting the unattractive risk/reward setup in establishing short exposure. Directional conviction may need a fundamental jolt to rebalance the scales and revive activity.

3) CRUDE OIL PRICES RISE AS US WAGE GROWTH DROP STOKES RISK APPETITE

Crude Oil prices rallied alongside stocks as US jobs data revealed an unexpected drop in wage inflation. That triggered a dovish shift in Fed policy bets, pushing yields downward and stoking risk appetite. Looking ahead, a defensive mood at the start of the trading week may be amplified if US durable goods and factory orders data falls short of expectations, feeding global slowdown fears. A downbeat result would be consistent with broad deterioration in macroeconomic news flow over recent months. Bellwether futures tracking top European and US stock indexes are pointing tellingly lower. A risk-off outcome bodes ill for cycle-sensitive oil prices, although they have managed to hold up reasonably well in early APAC trade following reports of violence in Libya. That seems to have been taken as a supply disruption threat. Crude Oil prices are pushing up against support-turned-resistance in the 63.59-64.43 area once again, with negative RSI divergence warning of ebbing upside momentum. That may precede a bearish reversal. Confirmation on a daily close below trend line support at 59.55 initially targets the 57.24-88 zone. Alternatively, a break above 64.43 sees the next upside barrier in the 66.09-67.03 inflection region.

4) GOLD PRICE CHART CONTINUES TO WARN THAT A MAJOR TOP IS TAKING SHAPE

Gold prices attempted to capitalize lower lending rates but an elevated US Dollar which began to recover early in the day and held up reasonably well through the data release capped the metal’s progress. Gold rose overnight as the Greenback struggled to capitalize on risk-off price action. It may struggle for follow-through if the benchmark currency reclaims support from haven flows however. Gold prices continue to show the makings of a bearish Head and Shoulders chart pattern. Confirmation of the setup on a daily close below its neckline now at 1283.48 would initially expose rising trend support set from August 2018 (currently at 1256.28). Alternatively, a rebound back above support-turned-resistance in the 1303.70-09.12 zone targets 1326.30 next.