Dollar Struggles to Rebound on Unexpectedly Narrowed Trade Deficit

Dollar struggled to rebound significantly despite the US trade deficit unexpectedly narrowed by 0.7% to $58.4b from a revised $58.9b, better than expectation of $60b. Imports decreased $3.2b while exports decreased less by $2.8b. Goods deficit with China, which accounts for 32% of US trade deficit, narrowed 13.3% to $18.4b, lowest since May 06. However, mixed PPI inflation data is limiting the rebound. PPI rose 1.0% mom, 3.2% yoy in Mar, higher than expectation of 0.7% mom and 3.0% yoy. However, core PPI was flat with 1.7% yoy increase comparing to consensus of 0.2% mom, 1.8% yoy. U of Michigan consumer confidence will be featured next and is expected to further deteriorate to 87.5 in Apr, after peaking at 96.9 in Jan.

Elsewhere, yen crosses hesitate to go into either direction with G7 starting today in Washington. There were some expecting comments on yen weakness, but based on prior experience, there won’t be anything solid regarding this issue in the formal communique. Rather recent concerns on rising protectionism after US reversed more than two decades practice and impose tariffs on China imports will more likely trigger some emphasis on the important of free trade.


Daily Pivots: (S1) 1.3438; (P) 1.3470; (R1) 1.3513;


EUR/USD’s rally extends further to as high as 1.3536 and is now pressing short term channel resistance (now at 1.3547). At this point, intraday bias will still remain on the upside as long as EUR/USD stays above 1.3501 minor support and further rally is in favor. However, below 1.3501 will suggest an intraday top in formed and bring pull back. But downside should be contained above 1.3404 support and bring rally resumption. After all, with the short term rising channel remains intact, the current rally from 1.2865 is expected to extend to test 1.3668 (04 high).

In the bigger picture, outlook remains unchanged EUR/USD is still trading comfortably within medium term rising channel (1.1639, 1.2483, 1.2978) and medium term up trend from 1.1639 is still in progress. Such up trend is interpreted as having first move completed with three waves up to 1.2978, subsequent sideway consolidation completed at 1.2483. Rise from 1.2483 has made a top at 1.3364 but subsequent correction has completed with three waves down to 1.2865 already. The current rise from 1.2865 should represent resumption of this whole up trend and further rise is still in favor to retest 1.3668 (04 high).

On the downside, break of the short term rising channel (now at 1.3312) will warn that rally from 1.2865 has completed and focus will then be on 1.3253 support. Break will confirm such case and bring deeper decline for a retest of the medium term rising channel (now at 1.2934).

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