Despite all indications that the US economy is slowing even further, US stocks and risk appetites in general have rebounded to their best levels for the year. Interest rate markets are began pricing out anything more than a 25 bp rate cut on April 30, and even pricing in a tiny chance of a steady rate.
EUR/USD - Is finishing the week well below its highs after a vicious shake-out on Friday, but that appears to be more the result of excessive long EUR/USD positions from very high levels. US dollar sentiment remains weak and I continue to expect another try to take out the 1.6000 level next week. I look to build EUR/USD long positions between 1.5640/1.5740 on remaining weakness, and to take profit on strength between 1.60-1.61. EUR/USD’s upside is in jeopardy if we see a break below trendline support at 1.5620/30. Eurozone officials will continue to complain if the EUR appreciates further and their verbal intervention seems likely to continue to unsettle short-term traders, offering additional opportunities to buy EUR/USD on dips.
JPY Crosses - USD/JPY and the JPY-crosses have traded directly higher in line with gains in other risky assets like stocks and are representative of decreased risk aversion. USD/JPY's daily close back below 103.00 would be a sign of a rejection. EUR/JPY's break above 165.50 would be needed to see gains extend further. The whole outlook for a top in USD/JPY, EUR/JPY and other JPY-crosses hinges on risk appetites turning back to risk aversion, which will require a piece of negative real-world news. The near term resistance levels, which must hold or a larger rebound is indicated, are 104.60/105.00 in USD/JPY; and 164.80/165.40 in EUR/JPY.
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