Equities Pull Back, NZ and UK CPIs Under the Radar

Most major EU and US indices closed in negative waters on Monday, perhaps as investors remained cautious due to earnings results by major firms. As for tonight, currency traders may pay attention to New Zealand’s CPIs, while tomorrow, during the early EU morning, we get inflation data from the UK as well.

Equities Slide as Investors Stay Cautious Due to Earnings

The US dollar traded lower against all the other G10 currencies on Monday and during the Asian session Tuesday. It lost the most ground against NOK, GBP, SEK, and NZD, in that order, while it lost the least ground against CAD.

The weakening of the greenback and the relative strength of the risk-linked Kiwi suggest that markets traded in a risk-on fashion yesterday and today in Asia. However, looking at the performance in the equity world, we see that this wasn’t the case. Most major EU and US indices closed in negative territory, with the only exceptions being the French CAC 40 and Spain’s IBEX 35, which rose 0.15% and 1.14% respectively. Market sentiment improved somewhat during the Asian trading today. Although Japan’s Nikkei 225 fell 1.96%, China’s Shanghai Composite and Hong Kong’s Hang Seng traded virtually unchanged, while South Korea’s KOSPI gained 0.66%.

It seems that investors remained cautious due to upcoming earnings results by major firms, with tech stocks taking the biggest hit after a Tesla vehicle, believed to be operating with no driver, crashed into a tree on Saturday, killing two occupants. Today, eyes may be on earnings results by Johnson & Johnson, as well as by Netflix. Corporate outlooks may indicate whether the rally from last year’s low could continue. In our view, with most major central banks suggesting that any spikes in inflation this year are likely to prove to be temporary, and staying committed to keep their monetary policies extra loose, we believe that even if the earnings disappoint somewhat, there is a decent chance for equities to rebound again and continue trending north. We stick to our guns that other risk-linked assets, like the Aussie and the Kiwi may benefit as well, while the US dollar and other safe-havens may stay under selling interest.

Euro Stoxx 50 – Technical Outlook

Overall, the Euro Stoxx 50 index continues to trade above a short-term upside support line taken from the low of February 26^th. However, after finding strong resistance last week near the 4050 barrier, the price is now seen correcting lower. There is a possibility to see a larger correction to the downside, but if the index finds good support somewhere above that upside line, another push higher could be possible. Hence our cautiously-bullish approach for now.

A small decline could bring the price to the 3989 area, marked near the highs of April 6^th and 9^th, which may act as support zone this time. If so, the buyers might step in and lift the index back to the current highest point of April, at 4050. If this time that barrier fails to provide resistance and breaks, this will confirm a forthcoming higher high, possibly setting the stage for a push towards the 4131 level. That level marks the lowest point of September 2007.

On the other hand, if the correction continues and ends up breaking the aforementioned upside line and also falling below the 3910 zone, marked by the low of March 31^st, that could spook new buyers from entering for a while. Euro Stoxx 50 may drift to the 3875 obstacle, a break of which could open the gate to the next support area between the 3834 and 3844 levels. Those levels mark the high of March 24^th and the low of March 26^th.

NZD and GBP Traders Await Inflation Data

As for tonight, during the Asian session Wednesday, we get New Zealand’s CPIs for Q1. The qoq rate is forecast to have risen to +0.7% from +0.5%, but this is likely to keep the yoy one unchanged at +1.4%. At last week’s gathering, the RBNZ kept its policy settings untouched, staying prepared to lower the OCR further if required and adding that a prolonged period of time is most likely to pass before their objectives are met. An unchanged yoy inflation rate is likely to add more credence to the Bank’s view and is likely to allow officials to remain ready to cut interest rates if deemed necessary. With that in mind, the Kiwi may slide somewhat at the time of the release, but given that the RBNZ’s view is already known, we don’t expect the slide to last for long. Eventually, the currency may start reacting to the broader market sentiment again, and given that we expect it to improve, the Kiwi may rebound and strengthen as well.

The pound was the main gainer yesterday, with no clear catalyst behind the rally. That said, traders of this currency are now likely to turn their attention to the UK CPIs for March, due out tomorrow during the early EU morning. The headline rate is expected to have risen to +0.7% yoy from +0.4%, while the core one is forecast to have ticked up to +1.0% yoy from +0.9%. At the prior BoE gathering, policymakers kept their policy unchanged and noted that the recent plans for easing of covid-related restrictions may be consistent with a slightly stronger outlook for consumption growth. However, they repeated that the outlook for the economy remains unusually uncertain and that if the inflation outlook weakens, they stand ready to take the necessary action. Thus, with both the headline and core CPI rates well below the Bank’s objective of 2%, we don’t believe that officials will alter their stance any time soon. In our view, this is likely to keep a lid on further gains in the pound, and combined with a potential slowdown in retail sales and a setback in the PMIs on Friday, the currency may come back under selling interest.

GBP/NZD – Technical Outlook

From the end of last week, after finding support near the 1.9173 hurdle, GBP/NZD started slowly grinding higher, while trading above a short-term tentative upside support line taken from the low of April 16^th. However, yesterday, the pair met strong resistance near a short-term downside line drawn from the high of April 1^st. For now, the rate is stuck between the two lines and wee need a clear break through one of them, in order to consider the next short-term directional move.

If the aforementioned upside line proves to be on the weaker side and breaks, this may open the door for a move lower, especially if the rate falls below the 1.9335 hurdle, marked by an intraday swing low of April 19^th. GBP/NZD could continue sliding, eventually reaching yesterday’s low, at 1.9283, where a temporary hold-up might occur. That said, if the bears are still active, they may easily push the pair towards last week’s low, at 1.9173.

Alternatively, if the rate breaks the previously-discussed downside line and rises above the 1.9500 territory, near yesterday’s high, that will confirm a forthcoming higher high, potentially attracting more buyers. GBP/NZD may then travel to the 1.9600 obstacle, a break of which could set the stage for a move to the 1.9664 level, marked by the high of April 7^th.

As for the rest of Today’s Events

During the early EU morning today, we already got the UK employment report for February, with the unemployment rate falling to 4.9% from 5.0%. The forecast was at 5.1%. The employment change showed that the economy has lost 73k jobs in the three months to February, instead of losing 150k as the forecast suggested. The only other release worth mentioning on today’s agenda is the API (American Petroleum Institute) report on crude oil inventories for last week, but as it is always the case, no forecast is available.

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