10-APR-2019, WEDNESDAY

1) ECB Meeting & Eurjpy Price Outlook
2) Euro Shivers, Dax and S&P 500 Fall on IMF Outlook, Italy Growth
3) Oil Prices Remain Overbought Even as IMF Cuts Global Growth Forecast

1) ECB Meeting & Eurjpy Price Outlook

The April European Central Bank rate decision is on Wednesday, April 10 at 11:45 GMT. No rate move is anticipated at the April ECB meeting, but a greater discussion about the new TLTRO program and the effects of negative interest rates could be prominent. Eurozone economic data momentum has disappointed in recent weeks, particularly following the March European Central Bank rate decision. Since its high on March 21, the Citi Economic Surprise Index for the Eurozone has fallen from -25.1 to -59.1. ECB President Mario Draghi’s preferred gauge of inflation, the 5y5y inflation swap forwards, have been falling all month long, hitting a high on March 5 at 1.510% before settling at 1.365% the week before the April ECB meeting.

There’s little reason to think that the conditions in front of the Governing Council will warrant a change in tone beyond their dovish shift seen last month. They’ve already eliminated their previous forecast of a rate hike sometime around “summer 2019,” and rates markets are leaning more into a rate cut (15.7%) than a rate hike (9.9%) by the end of the year. Being pragmatic, it seems unlikely that the new ECB president makes a policy change at their first meeting with new Staff Economic Projections; Draghi steps down in October 2019. Given the discussion by ECB President Draghi about negative interest rates and their impact on the banking sector during the interim period since the last meeting, traders should be mindful of a potential discussion in this area.

EURJPY’s progress at the start of April has been stunted in the run up to the April ECB meeting. Price is once again enmeshed in the daily 8-, 13-, and 21-EMA envelope. As a result of sideways trading at the start of the week, price remains in the downtrend from the September 2018 and March 2019 highs. Both daily MACD and Slow Stochastics have returned back to neutral positioning since last week. At this point in time, we can’t yet rule out another test of the descending trendline near 126.000 before EURJPY bears take another attempt at pushing price lower.

2) Euro Shivers, Dax and S&P 500 Fall on IMF Outlook, Italy Growth

EURUSD, along with S&P500 and DAX futures began to fall following the IMF’s publication on the outlook for global growth being at its lowest point since the financial crisis. Risk aversion was further compounded by news that the Italian economy may only expand 0.1 percent (down from the 1.0 estimate) and the budget deficit forecast was widened to 2.5%, substantially larger than what Rome and Brussels had agreed upon.

As forecasted in late 2018 and at the start of the year, the respite offered to markets by the fragile agreement between Rome and Brussels was an ethereal pause. The recessionary pressure and revised GDP numbers next to a bigger-than expected budget deficit could just be enough to push Brussels to reopen the budget case. This comes as the US pivots away from a trade conflict with China and appears to be now entering a new trade spat with the EU, another weight the economy will have to lift.

Looking ahead, there are a number of major event risks. The ECB will be releasing its rate hike decision followed by a press conference with Mario Draghi. The commentary will likely echo a similar tone struck at the last meeting, only this time the urgency may be greater, and the outlook less certain. Another European-based risk is the EU’s verdict on whether to grant the UK an extension during the emergency summit in Brussels. Traders will also be eyeing the release of the FOMC meeting minutes, another major indicator to watch.

3) Oil Prices Remain Overbought Even as IMF Cuts Global Growth Forecast

Crude pulls back from a fresh yearly-high ($64.79) as the Organization of the Petroleum Exporting Countries (OPEC) and its allies appear to be content with the recent rally in Oil prices, while the International Monetary Fund (IMF) cuts its growth forecast for 2019, but current market conditions may keep energy prices afloat as Relative Strength Index (RSI) still sits in overbought territory. Recent remarks from OPEC and its allies appear to be dragging on Crude as Russian Direct Investment Fund CEO Kirill Dmitriev insists that the group ‘could decide in June this year to abandon supply cuts and subsequently increase output,’ but the comments need to be taken into context as he goes onto say that ‘it is important not only to jointly cut output but at times to jointly increase it.’ The tone suggests that the OPEC+ alliance will persist even beyond 2019 as Russia Energy Minister,Alexander Novak, notes that ‘we have a range of instruments, depending on how the situation develops,’ with Saudi Arabian Energy Minister, Khalid Al-Falih, expressing his support for the pact as the energy market is ‘moving in the right direction.’

It remains to be seen if OPEC and its allies will reverse course at the Joint Ministerial Monitory Committee (JMMC) meeting on May 19 as U.S. Crude Inventories are anticipated to increase another 2500K in the week ending April 5, and signs of growing non-OPEC supply may drag on oil prices as weekly field production of crude sits at a record of 12,200K b/d for the week ending March 29. With that said, developments coming out of the U.S. may impact crude over the next 24-hours of trade especially as President Donald Trump tweets – ‘the EU has taken advantage of the U.S. on trade for many years. It will soon stop.’

The renewed threat of a global trade war may rattle the outlook for oil demand as the International Monetary Fund (IMF) adjusts its World Economic Outlook Projections and forecasts the world economy to grow 3.3% per annum in 2019, down 0.2% from the January forecast of 3.5%. In turn, the next update to OPEC’s Monthly Oil Market Report (MOMR) may reflect similar changes as the U.S. and China still nail out a trade agreement, but current market conditions may keep crude oil afloat as both price and the Relative Strength Index (RSI) extend the bullish formations from late-2018. Moreover, recent developments in the RSI suggest the bullish momentum could still gather pace as the oscillator holds above 70 and sits in overbought territory for the first time this year.