US Dollar, Yen Rise as Currencies Question Wall Street Optimism

TALKING POINTS – US DOLLAR, YEN, IFO, EARNINGS, STOCKS, S&P 500

• Currency market price action continues to reflect textbook risk aversion

• Euro may fall as market mood sours if German IFO survey disappoints

• S&P 500 chart positioning shows breakout missed despite sharp gains

The G10 FX currencies produced another textbook day of risk aversion in Asia Pacific trade. The defensively-minded US Dollar and Japanese Yen outperformed, with the Swiss Franc not far behind. Sentiment-geared Australian and New Zealand Dollars suffered the brunt of selling pressure, with the former unit suffering outsized losses in the wake of disappointing CPI data.

Interestingly, performance in the equities space – typically a bellwether for the overall market mood – diverged for a second day. Regional bourses put in a mixed performance, committing to neither the decidedly positive lead from Wall Street nor the risk-off cues on display elsewhere. That the exuberant tone from New York hours didnt carry over may yet speak to its ephemeral nature but saying so requires more evidence.

Looking ahead, Germany‘s IFO business confidence survey is in focus. A slight pickup in the headline gauge is expected. Broadly speaking, Eurozone economic news-flow has tended to underperform relative to baseline forecasts over recent months. This hints that analysts’ models are rosier than reality has ratified and sets the stage for disappointment. That might weigh on the Euro and overall risk appetite alike.

US corporate earnings releases may still take top billing. There is plenty to consider: 43 constituents of the tone-setting S&P 500 index are set to report first-quarter results. Large, cycle-geared names due ahead of the New York trading open – like Caterpillar and Boeing – might dominate the spotlight. If they remind investors of the ongoing downshift in global economic growth, risk-off dynamics will probably persist.

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CHART OF THE DAY – S&P 500 FALLS SHORT OF BREAKOUT DESPITE SURGE

Much has been made of Tuesdays earnings-driven rally, which saw the S&P 500 issue a record-high session close. This seems to obscure the bigger picture: prices have yet to breach resistance marked by the 2018 swing high, leaving alive the possibility of a double top.

Whats more, this barrier is reinforced by the top of a bearish Rising Wedge chart pattern as well as the underside of trend line support-turned-resistance set from February 2016. These hurdles may be overcome in time, but any optimism triggered by recent gains probably ought to be tempered until this actually occurs.