It’s a busy start for March as investors continue to weigh the outcomes of upcoming major policy meetings and the effects of some unresolved concerns from the eurozone and the US.

Concerns over the eurozone and the US favoured demand for safe haven assets

This week we had a number of high-profile data, typical for the first week of the month. At week start China reported a softer non-manufacturing PMI figure (or simply put a health check of the services sector) for the month of February; needless to say this dampened enthusiasm throughout the Asian session.

As a generic gauge of sentiment we may look at the performance of equity indices which were mostly lower at open last Monday. The Japanese Nikkei however was the exception as stocks rose on reiterated comments of more stimulus; what about the Japanese yen however? You would have normally expected the Japanese yen (JPY) to be weaker in the midst of stimulus promises from the BoJ and the newly-appointed Governor.

Yet, however, the JPY depicted a different story, at least in the former part of this week. The USD/JPY slipped to lows of 92.91 after Friday’s close at 93.58, and similarly EUR/JPY slipped to 121.12 after Friday’s close at 121.86.

Taking the broader picture the yen has suffered significant losses across a basket of major currencies in these last three months. More specifically the USD/JPY is facing some significant resistance in the 93.50-93.70 region after rising to 94.46 on February 11; the USD/JPY was unable to find the necessary momentum to attempt higher levels.

Earlier this week the yen rose across the board, as concerns over the eurozone and the US favoured demand for safe haven assets. This support seems to have offset the prevailing yen selling trend at least for the immediate term, as BoJ changes now appear to have been priced in and investors are eager to see some real action as opposed to just talk.

Back to the European concerns the euro remained weak, unable so far to react to losses incurred throughout the month of February. The concerns revolving around a political gridlock in Italy continued to prevail, but even speculation on what moves the ECB might take later today (when it is due to announce its policy rate decision) started to come into play. With continued ailing growth speculators are starting to ask themselves if the ECB might be looking into more stimulus.

In the former part of this week the EUR/USD has traded in the range of 1.2982 – 1.3075 with resistance expected to hold price moves higher in the range of 1.3238 – 1.3454, while support should hold price moves lower at 1.2886 – 1.2750.

In the US, a much talked about episode went through last Friday – the dreaded ‘Sequester’ came into force. For those of you not yet familiar with the term it is simply put a budgetary enforcement tool, originally introduced in 1985, which has seen added interest recently since it was also included for enforcement within the Budget Control Act of 2011. The effects of it had brought serious concerns towards the end of last year, just before a last minute fiscal cliff resolution.

In reality, what should strike investor attention here is the muted effect that this had on the markets, probably because it is reversible if and when US legislators manage to find a more structured approach, and that minimises any negative economic consequences.

Early into Tuesday’s session, in line with expectations the Reserve Bank of Australia announced it would make no changes to its policy rate and that it would remain on hold at three per cent. The Australian central bank reiterated there was still room for a cut, if needed as the outlook for inflation remains benign. The AUD/USD rose to 1.0253 after the announcement as the Aussie took relief on the fact that the dovish move was somewhat remanded.

So far in the earlier part of this week the AUD/USD remained in the range of 1.0115 – 1.0253. For the current week we are expecting resistance to hold price action at 1.0291-1.0383, while support should hold price moves lower at 1.0145 – 1.0091.

Price moves lower for gold were held at the price of $1,565.01, hit on the first day of this current month. The yellow metal has been facing significant support in the region of $1520 – $1540 since September 201; a clear break of the mentioned region could open the door to more bearishness.

Upcoming FX key events:
Today: UK BoE Interest Rate Decision, Asset Purchases Target & EZ ECB Interest rate decision.
Tomorrow: Switzerland CPI, Canadian Net Change in Employment, US Non-Farm Payrolls & Unemployment Rate.

Technical key points:
EUR/USD is neutral.
EUR/GBP is bullish target 0.90, key reversal point 0.8579.
USD/JPY is bullish, target 95.0, key reversal point 83.90.
GBP/USD is bearish target 1.46, key reversal point 1.5450.
USD/CHF is neutral.
AUD/USD is neutral.
NZD/USD is neutral.

trading@rtfx.com

Rudolf Muscat is a senior trader at RTFX Ltd.

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