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The Euro was able to resist further selling pressure in early Europe on Tuesday with an element of short covering as the Euro held just above 23-month lows. The Euro, however, was unable to make significant headway amid as overall yield spreads remained negative for the single currency.

US housing starts were unchanged at an annual rate of 1.79mn for March and slightly above consensus forecasts while there was a slight increase in building permits to an annual rate of 1.87mn. The housing sector will be watched closely amid the surge in longer-term interest rates and on-going supply issues.

There was little market reaction to the data as relatively narrow ranges prevailed against the dollar as markets continued to monitor overall yield trends.

Latest opinion polls for the second round of the French Presidential election indicated that Macron would win 56.5% as he continued to build a stronger lead against National Front leader Le Pen, lessening market concerns over a possible Macron defeat.  The Euro remained trapped below the 1.0800 level on Tuesday as fighting in Eastern Ukraine intensified, but did secure a limited recovery on Wednesday with a move to around 1.0815 amid a wider dollar correction.




US Treasures came under renewed pressure in early Europe on Tuesday and, although there was a limited recovery into the New York open, underlying selling pressure remained intact and the 10-year yield peaked at 2.92% and the highest level since late 2018 before a limited correction.

Higher yields maintained selling heavy pressure on the Japanese currency and Wall Street equities also posted gains which limited any potential defensive backing for the Japanese currency. Although markets remained wary over the intervention threat, the dollar posted a fresh 20-year high around 128.90 into the European close.  

Chicago Fed President Evans stated that the central bank needs to be mindful of a wage-price spiral and need to monitor for it. He added that it would be a great cause for concern if the inflation rate accelerated and that. He did express some hopes that the inflation pressures could be changing, but also commented that his expectation is that rates will need to rise above a neutral rate which he estimated at around 2.50%.

Atlanta head Bostic stated that it was important to get to neutral as expeditiously as possible, but that rate hikes larger than 50 basis points were not on the table.

Markets remained convinced that the Fed will lift rates by 0.50% to 1.00% at the May meeting while the blackout period will come into force at the end of this week which will prevent further comments on the outlook. Fed Chair Powell will have the opportunity to make comments on Thursday.

There was some relief over the latest coronavirus developments in Shanghai, but still a very important element of caution over the outlook for the economy.

The Bank of Japan intervened in the bond market to cap yields, maintaining underlying selling pressure on the yen.  The dollar posted a fresh 20-year high at 129.40, but was then subjected to a sharp correction and a retreat to near 128.50, although there was no evidence of intervention to support the Japanese currency.




UK markets re-opened on Tuesday following the Easter holidays, but overall ranges remained tight as investors waited for further UK developments and some form of signal from the Bank of England over the policy outlook. Markets continued to fret over the underlying economic outlook.

Markets again tested support below 1.30 against the dollar during the day and again crawled above this level at the European close from lows close to 1.2980.

Sterling was unable to derive significant support from gains on Wall Street as markets remained wary over the global economic outlook, but there was support below 1.30 against the dollar. Markets will still be waiting for any comments from Bank of England officials ahead of the important May policy meeting.

The Euro was able to make limited headway during the day with net gains to 0.8300. A wider US dollar retreat helped trigger a limited advance to 1.3025 on Wednesday.  




Swiss sight deposits increased to CHF740.1bn in the latest week from CHF739.4bn the previous week which suggested only limited intervention by the National Bank to restrain the currency. The Swiss franc still posted net losses on Tuesday with markets focussing on trends in global bond markets. There were expectations that the National Bank would be one of the last central banks to tighten policy and widening yield spreads were important in undermining the Swiss franc as US yields continued to increase. The Euro posted net gains to near 1.0250 while the dollar secured a net advance to 22-month highs above 0.9530.

There was a limited correction on Wednesday, but overall yield spreads undermined franc support with the Euro strengthening to 1.0280.  

Technical Levels 




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