HotForex Forex News

16:38 USD/CAD stays in the positive territory despite USD weakness

  • DXY pushes lower toward 93 on Monday.
  • WTI struggles to recover last week's losses.

The USD/CAD pair, which was able to end the previous week higher following Friday's sharp upsurge, is having a difficult time setting its next short-term direction on Monday. As of writing, the pair was trading at 1.2872, adding 0.05% on the day.

Today's data from Canada showed that foreign investment in Canadian securities rose to $20.8 billion in October from $16.69 billion in September. Moreover, "Canadian investors increased their holdings of foreign securities by $16.5 billion, mainly purchases of US shares," the Statistics Canada announced. However, the market reaction to the data was non-existent and it couldn't force the pair out of its 40-pip daily trading channel.

On the other hand, the US Dollar Index started the week on a negative note as investors are waiting for clarity on whether or not the tax bill in the U.S. is going to be legalized before the end of the year. Although the Congress is expected to pass the tax code overhaul later this week according to comments from some top U.S. Republicans on Sunday, markets prefer to stay in a wait-and-see mode.

Meanwhile, the commodity-sensitive loonie is having a difficult time finding demand as crude oil prices fail to stick to its recovery gains on Monday. As of writing, the barrel of West Texas Intermediate was trading near $57.30, virtually unchanged on the day.

Technical outlook

The initial support for the pair aligns at 1.2840 (200-DMA) ahead of 1.2775 (50-DMA) and 1.2700 (psychological level). On the upside, resistances could be seen at 1.2880 (daily high), 1.2915 (Oct. 31 high) and 1.3000 (psychological level). On the daily chart, the RSI indicator continues to float above the 50 mark, suggesting that the buyers are still in control of the price action.


16:14 GBP/USD surges to 1.3400 handle

   •  Recovers a major part of Friday’s steep losses.
   •  Renewed USD selling bias turns out to be a key driver. 
   •  A follow-through momentum needed for bullish confirmation.

The GBP/USD pair staged a solid recovery and jumped back to the 1.3400 handle, recovering around 100-pips from 2-1/2 week lows touched on Friday.

Despite the latest progress over the long-awaited tax cut legislation, a fresh wave of US Dollar selling pressure emerged at the start of a new trading week and has been one of the key factors driving the pair higher. 

The British Pound got an additional boost from today's better-than-expected UK CBI Industrial Order Expectations for December, which further collaborated to the pair's strong up-move through the early NA session. 

Meanwhile, possibilities of some short-term trading stops being triggered, on a decisive move break through 1.3360 hurdle, might have also collaborated to the pair's upsurge over the past hour or so. Hence, it would prudent to wait for a follow-through buying interest before confirming that the pair has found a firm base near the 1.3300 handle.

In absence of any major market moving economic releases from the US, an extension of the pair's upward trajectory, amid persistent USD weakness, now seems a distinct possibility.

Technical outlook

Valeria Bednarik, American Chief Analyst at FXStreet writes: "The short-term technical stance is neutral, as technical indicators remain within negative territory with limited directional strength, while the price remains below its 20 SMA, which also lacks momentum. The pair has an immediate support at 1.3345, followed by the 1.3300 level, with a break below this last required to see the pair gaining bearish momentum. The potential of a bullish extension is being limited by the 1.3465 level, a probable top for today, should the greenback remain under pressure."
 


16:02 Belgium Consumer Confidence Index fell from previous 3 to 2 in December


15:50 USD/CHF eases below 0.99 as DXY inches closer to 93 mark

  • Greenback starts the week under pressure.
  • Investors are awaiting fresh developments on the tax bill.

After closing the previous week a few pips above the 0.99 mark, the USD/CHF pair failed to hold above that level on Monday and refreshed its session low at 0.9875. As of writing, the pair was trading at 0.9880, losing 0.25% on the day.

Eyes on tax bill

Although major equity indexes surged to record highs on Friday on expectations that the U.S. tax reform could soon legalize, the greenback struggled to extend its gains and reversed course before breaking above the 94 mark. With investors staying hesitant to commit to long USD positions, the US Dollar Index started to retrace its recent gains. As of writing, the index is trading at 93.18, losing 0.3% on the day.

There won't be any macroeconomic data releases from the United States that could impact the buck's trading action in the remainder of the day and markets will continue to look for fresh headlines that could provide further clues about the tax bill. 

In the meantime, in case the US T-bond yields and the Wall Street take advantage of an improved market sentiment in the NA session, the pair could start recovering its losses and we could witness the DXY stage a modest recovery.

Technical levels to consider

The immediate support for the pair could be seen at 0.9860 (20-DMA) ahead of 0.9835 (Dec. 5 low) and 0.9785 (100-DMA). On the upside, resistances align at 0.9930 (Dec. 15 high), 1.0000 (psychological level) and 1.0040 (Oct. 27 high).

  • USD/CHF consolidating below the 78.6% retracement - Commerzbank

15:44 Gold sits at session tops, near $1260 on weaker USD

   •  Benefitting from persistent USD selling bias. 
   •  Surging US bond yields/risk-on moods does little to hinder the up-move.

Gold continued gaining positive traction through the early NA session and is currently placed at session tops, around the $1259-60 region. 

Some uncertainty over the passage of a long-awaited US tax cut bill and doubts over the pro-growth effect of the reforms kept exerting downward pressure on the US Dollar and was seen benefitting dollar-denominated commodities - like gold.

Meanwhile, traders seemed to have largely ignored a goodish pickup in the US Treasury bond yields, which usually drives flows away from the non-yielding yellow metal. Even the prevalent risk-on mood, which tends to cap gains for traditional safe-haven assets, also did little to halt the precious metal's up-move on Monday.

The USD price dynamics would continue to act as an exclusive driver of the commodity's moves as investors now look forward to this week's important US macro data for some fresh directional impetus.

Technical levels to watch

A follow-through buying interest beyond $1260-62 area now seems to pave the way for an extension of the up-move back towards the very important 200-day SMA hurdle near the $1268 region.

On the flip side, $1255 level now becomes an immediate support to defend, which if broken could drag the commodity back below $1250 level towards its next important support near the $1245-44 region.
 


15:33 Canada: Foreign investment in Canadian securities totalled $20.8 billion in October

"Foreign investment in Canadian securities totalled $20.8 billion in October, led by record acquisitions of Canadian bonds," the Statistics Canada announced on Monday. 

Key highlights

Canadian investors increased their holdings of foreign securities by $16.5 billion, mainly purchases of US shares.

Since the beginning of the year, foreign acquisitions of Canadian securities have totalled $171.0 billion.

Nearly three-quarters of this was in instruments issued by Canadian private corporations; mainly bonds denominated in foreign currencies.


15:31 Canada Foreign portfolio investment in Canadian securities climbed from previous $16.81B to $20.81B in October


15:31 Canada Canadian portfolio investment in foreign securities up to $16.49B in October from previous $2.41B


15:05 BoJ most unlikely to change policy - BBH

Bank of Japan meets in the week ahead and is most unlikely to change policy, according to analysts at BBH.  

Key Quotes

“It may also be a little early to seriously discuss a more flexible approach to the 10-year yield target.  Also, there is nothing quite like have critics on the governing board that may want to take new action to reach the 2% inflation target to make Kuroda appear cautious.”  

“Less appreciated is Abe's tax initiative.  At the end of last week, the government announced a targeted corporate tax cut and progressive changes individual taxes.  The corporate tax cut was for companies that "sharply increased wages."   If businesses follow the government's tax incentives, the statutory rate could fall to 20% from 29.7% presently.”  

“The basic income allowance will be increased.  This tax break will be funded by raising the income tax on incomes above JPY8.5 mln (~$75.5k).  Taxes are also likely to increase for pensioners with incomes greater than JPY10 mln.”


15:02 EUR/USD bulls eyeing a decisive break through 1.1800 handle

   •  German political development underpins shared currency.
   •  Final EZ CPI print matches original estimates. 
   •  Persistent USD weakness provides an additional boost. 

The EUR/USD pair built on its strong up-move back above 50-day SMA, with bulls now aiming for a decisive break through the 1.1800 handle. 

The shared currency gained traction at the start of a new week after Germany's Social Democrats agreed on Friday to open coalition talks with Chancellor Angela Merkel, paving the way to end the country's political deadlock. 

This coupled with some renewed US Dollar selling bias, amid some doubts over the passage of the long-awaited US tax reform bill, further collaborated to the pair's strong up-move through the early NA session.

Meanwhile, today's mostly in-line EZ CPI print, coming at 1.5% y-o-y for November, helped offset a goodish pickup in the US Treasury bond yields and remained supportive of the prevalent strong bid tone surrounding the major. 

It, however, remains to be seen if bulls are able to maintain their dominant position or the pair's up-move once again fizzles out near 100-day SMA in absence of any major market moving economic releases

Technical levels to watch

A clear breakthrough 100-day SMA hurdle near the 1.1800-1.1805 region is likely to accelerate the up-move towards 1.1825-30 intermediate hurdle en-route 1.1860-65 supply zone.

On the flip side, 50-day SMA near the 1.1765-60 region is likely to protect the immediate downside, which if broken might drag the pair towards the very important 1.1715 horizontal support.
 


15:01 Russia Producer Price Index (MoM) declined to 0.9% in November from previous 1.2%


15:01 Russia Producer Price Index (YoY) up to 8% in November from previous 7.6%


14:41 Spain: Driven by politics - Rabobank

When the Spanish government dissolved Catalonia’s parliament and announced that an election would take place on December 21, it was hoping to draw a line under the unofficial referendum that favoured an independent state, according to analysts at Rabobank.

Key Quotes

“According to a Metroscopia poll, however, the ballot could result in a hung parliament with pro-unity parties tipped to win 62 seats and pro-secession factions 63 seats. For the Spanish economy the continuation of political uncertainty would be a drag on an otherwise strong growth outlook.  While this would be a negative factor for the EUR, the absence of any contagion from Catalonia’s independence bid has meant very little lasting impact on the single currency to date.”


14:36 USD/JPY struggling near mid-112.00s amid notable USD weakness

   •  Renewed USD weakness helps offset fading safe-haven demand.
   •  Surging US bond yields seemed lending some support. 
   •  This week’s US macro data & BoJ awaited for fresh directional impetus.

The USD/JPY pair finally broke down of its late Asian/early European session consolidation phase and has now retreated back to the mid-112.00s.

The pair stalled its 50-pips rebound from session low level of 112.31 and was being weighed down by persistent US Dollar selling bias, despite the latest optimistic news over the long-awaited tax reform bill.

Meanwhile, a goodish uptick in the US Treasury bond yields, coupled with the prevalent risk-on environment, which tends to dent the Japanese Yen's safe-haven appeal, helped limit deeper losses, at least for the time being.

The pair's good two-way move, within a broader trading range over the past three sessions now seems to suggest traders’ indecision. Hence, this week's important US macro data, along with the BoJ monetary policy decision would play a crucial role in determining the pair’s next leg of directional move. 

Technical levels to watch

A follow-through weakness below 112.30 level might now turn the pair vulnerable to break below the 112.00 handle and aim towards testing the very important 200-day SMA support near the 111.65-60 region.

On the flip side, 112.80-85 zone now seems to have emerged as an immediate hurdle, above which the momentum could get extended back towards an important supply zone near mid-113.00s.
 


14:10 USD/CHF consolidating below the 78.6% retracement - Commerzbank

Karen Jones, Analyst at Commerzbank, provided a technical outlook for the USD/CHF pair and foresee a move towards 1.0295/1.0343 over a period of 1-3 months.

Key quotes:

“USD/CHF spend much of last week consolidating below the 78.6% retracement at .9975. Above here lies the 1.0015 resistance line and the 1.0039 recent high. It guards 1.0100/08 the April and May highs and the 1.0145 78.6% retracement. Longer term this is considered to be the last defense for the 1.0335 January 2017 high. The intraday Elliott waves counts have neutralised.”

“Only failure at .9705, the mid October low, would target the .9553 June 30 low and potentially the .9421 September low.”


14:08 UK outlook clouded by Brexit issue BBH

UK government's belated success in getting the EU's approval to start talks about the post-exit was tarnished by the loss of having the last word on Brexit, suggests the research team at BBH.  

Key Quotes

“In a narrow vote, Parliament secured the right to grant final approval.  Another confrontation and possible defeat could be avoided in the week ahead if the specific date of 31 March 2019 can be removed from withdrawal bill.”  

“Given that Q1 18 will be spent discussing the transition period, a hard date may make that period more difficult.  It is in the EU's interest to argue for a standstill agreement; this is one that keeps the UK firmly in the EU's rules and regulations, while the UK would be technically out of the EU.  It also seems widely recognized that the Irish border issue has not been resolved in any meaningful way, implying that it could emerge again as a formidable challenge.”

“The US two-year premium over the UK appears to be the widest in at least a quarter century and sterling its flirting with a downtrend line drawn off the 2014 and 2016 highs.  Speculative positions are relatively extreme still.  Sterling seems particularly vulnerable.”  


14:03 BoJ widely expected to confirm its commitment to its huge QQE programme - Rabobank

BoJ is widely expected to confirm its commitment to its huge QQE programme this week, according to analysts at Rabobank.

Key Quotes

“In terms of growth, Japan has been one of the success stories of 2017. However, the country’s inflation rate remains well below the central bank’s 2% target.  After last week’s slew of central bank policy meetings, the BoJ will wrap up the year with a meeting on December 21.  In contrast to the less dovish signals stemming from many of the world’s major central banks, the BoJ is widely expected to confirm its commitment to its huge QQE programme this week.  However, the tone of Governor Kuroda is likely to be watched closely by the market.”

“By dropping the phrase “reversal rate” into a speech in November, Kuroda injected some doubt into the market as to his commitment to the BoJ’s current policy settings.  The term refers to a level of interest rates so low that the cost to Banks’ profitability stops credit creation.  Kuroda used the term a couple of weeks later in parliament and, despite the Governor’s subsequent vocal commitment to QQE, the market is speculating as to whether or when the BoJ will fine tune its policy, potentially raising its yield target or slow the ETF buying programme.  This speculation, combined with the impact of further geopolitical events could hinder the ability of the carry trade to push USD/JPY higher in the coming months.”


13:58 BoC: Next hike to come in March TDS

Analysts at TDS are pushing our call for the next Bank of Canada rate hike to March, with a second hike in July.

Key Quotes

“We don’t see the Bank hiking more than twice in 2018 as the household-debt overhang leaves the Canadian economy on fragile footings.”

“Poloz aims for the sweet spot and plans to let the economy run hot. Hiking only once in Q1 supports that approach in our view.”

Rates: Our rates outlook remains intact with our new March call. We think short-end pricing is a reasonable reflection of risks surrounding the Bank. We favour owning Canada versus the US in the front-end and steepening trades.”

FX: Our USDCAD forecast remains unaltered with the pair anchored around 1.25 over the medium-term, barring a NAFTA dissolution.”


13:56 GBP/USD clings to strong gains above mid-1.3300s

   •  Renewed USD weakness helps bounce off 1.3300 handle.
   •  US tax bill optimism fades and prompts fresh USD selling. 
   •  UK CBI industrial order expectations beat estimates and remain supportive.

The GBP/USD pair held on to its strong recovery gains and now seems to have entered a consolidation phase within a narrow trading range around mid-1.3300s.

The latest optimism over a sweeping US tax code overhaul legislation seems to have faded and a fresh wave of US Dollar selling bias helped the pair to catch some strong bids near the 1.3300 important support. 

The market seems to have largely ignored a goodish pickup in the US Treasury bond yields, with concerns over a possible government shutdown and some skepticism over any positive implication of the tax reforms keeping the USD bulls on the back-foot. 

Currently placed around the 1.3350-60 region, the pair has now recovered part of Friday's slump to 2-1/2 week lows and was further supported by today's better-than-expected UK CBI Industrial Order Expectations data, coming in at 17 for December as compared to an expected reading of 14.

With the EU leaders formally agreeing to move into the next phase of negotiations with the UK, investors now look forward to any fresh Brexit news for some fresh impetus in absence of any major market moving macro data

Technical levels to watch

Immediate resistance is pegged near the 1.3380-85 region, above which the pair is likely to surpass the 1.3400 handle and head towards testing 1.3435 supply zone. 

On the flip side, 1.3315 level now becomes an immediate support to defend, which if broken might turn the pair vulnerable to break below the 1.33 handle and head towards testing 50-day SMA support near the 1.3265-60 region.
 


13:55 Germany: Politics again on the forefront BBH

The immediate political focus in Europe is on the German attempt to put together a new government three months after the election, suggests the research team at BBH.  

Key Quotes

“In Germany's way, there will be exploratory talks first.  These can talk several weeks.  Merkel does not want to lead a minority government.  The SPD does not want to lose its identity in another coalition government.  Both blocs do not want to return to the polls.  In the September election, both saw their public support fall to post-WWII lows.”

“A type of arrangement where the SPD and CDU/CSU agree on several broad programs and then fight for the rest of the agenda in the Bundestag seems like a minority government.  However, it may be the basis of a compromise.  It allows the SPD to still be the main opposition party (rather than the AfD) and draw the parliamentary privileges associated with it.”

 


13:53 China: Growth forecasts expected to take some attention - Rabobank

Analysts at Rabobank suggest that China’s growth forecasts can be expected to take back some attention this week given its three day Central Economic Work Conference.

Key Quotes

“The Communist Party’s annual gathering is expected to conclude with a brief communique.  Although China’s key economic targets for 2018 are not due to be disclosed until the annual parliamentary session next March, there is some speculation that some of President’s Xi’s remarks will be published this week and that these could include hints about the country’s predicted growth path for next year.  The markets are trying to gauge how serious China is about potentially reining in credit creation going forward.  This would lead to a slower pace of economic growth.” 


13:51 Riksbank unlikely to extend its asset purchase program - BBH

Sweden's Riksbank meets in the week ahead and the upside surprise in the November CPI and strong growth will discourage it from extending its asset purchase program, according to analysts at BBH.  

Key Quotes

“On a trade-weighted basis, the krona is largely flat on the year, which is helping keep financial conditions easy.  The euro is trading near seven-year highs against the krona.  If the currency weakness persists, it may give the central bank the latitude to consider a rate hike around the middle of next year.”


13:47 Brazil: Economy at a glance Rabobank

In the week ending on December 15, most (of the key) Brazilian assets posted a median performance, relatively in line with peers, according to analysts at Rabobank.

Key Quotes

“The easing global pressures from the USD contrasted with a reduced euphoria locally, as the government officially postponed the parliamentary discussions on the pension reform for 2018.”  

“The BRL closed the week at 3.30/USD (-0.2%), a performance only slightly different from peer-currencies (e.g. we estimate that EM and commodity FX stood nearly flat in average).” 

“Elsewhere, the Copom minutes confirmed that the BCB is heading for a (likely final) 25-bp cut to 6.75% in February, yet they leave door open for a possible change in plan. The authority also kept the signal of caution for subsequent moves, which seems to tell that the end is near.” 

“Weak figures in retail and services for October, contrasting with good numbers from manufacturing, have fed a downward bias to our Q4 GDP forecast (0.4% q-o-q, 1.5% annualized).”    

“In a week packed of local economic events, the highlight is the BCB’s Q4 inflation report. On activity, the main release is October IBC-Br, the BCB’s broad activity index (Mon). Another noteworthy report is December IPCA-15 inflation (Thu). For the latter, we project a gain of 0.36% m-o-m and 3.0% y-o-y.”


13:44 US: Odds of tax cuts passage have improved - BBH

The prospects that the Republican-controlled legislative branch would find a compromise to tax cuts were enhanced when a few senators appeared to capitulate without much to show for it, notes the research team at BBH.  

Key Quotes

“This may have helped lift US stocks and dollar ahead of the weekend.  Each chamber must now approve the reconciliation measure, which does not look particularly like either the House or Senate bills, though the regressive thrust was maintained.”

“Passage will be relatively easy in the former, but it will be a close call in the Senate.  There are a few Republican Senators that do not face re-election, like McCain and Flake from Arizona and are not subject to party retaliation.  Still, despite "maverick" rhetoric, and others professing concern about the resulting deficit, the odds of passage have improved.”

“At the same time, the Federal Reserve raised interest rates and the median Fed forecast was for three more hikes next year.  This combination of expanding fiscal policy and tighter monetary policy is associated with an appreciating currency.  As we have pointed out before, the two "textbook" examples are the Reagan-Volcker mix of the early 1980s and the terms of the reunification of Germany in the early 1990s.  A year ago, many investors were led to believe the fiscal expansion was going to be delivered in 2017.”

“The failure to deliver this stimulus in this year and recovery of the anxiety over European politics since the Dutch and French elections in the spring are reasonable factors behind the poor dollar performance.  Indeed, the euro is the strongest of the major currencies this year.   It appears that early 2018, attention will turn to the other leg of the fiscal stimulus--an infrastructure initiative.  A public-private partnership is consistent with the signals from the White House, which could see around $200 bln from the federal government, though it may be cannibalized from some current programs.”

“We agree with those that do not expect the tax adjustment on overseas profits by American companies to boost the dollar directly or fuel much investment.  The direct impact on the dollar is limited by the fact that most of the estimated $2 trillion overbooked abroad is kept in dollar-based investments.”

“The jaundiced eye toward the prospect of an investment spree is derived from experience.  Research of the 2004 tax holiday, for example, cited by the Wall Street Journal, found that for every dollar repatriated, 79 cents went for repurchasing shares, and another 15 cents went towards dividends.  The research found no increase in domestic dividends.  Also, as reported ahead of the weekend, US industry is operating at a little more than 77% of capacity.  The last cyclical expansion saw capacity utilization rates exceed 80%.”

“There may be an indirect impact on the dollar from the changed tax regime for internationally booking profits.  It may come through the current account narrowing as investment income is repatriated.  Traditional models of valuation in the foreign exchange market emphasize the basic balance as a key driver of movement in the foreign exchange market.”

“The recent string of economic data suggests that the synchronized economic expansion in the US, Europe, and Japan is strengthening as the year winds down.  The stronger than expected US retail sales report points to a strong personal consumption report this week and prompted economists to revise up estimates for Q4 US GDP.  The Atlanta Fed sees it tracking 3.3%, while the New York Fed sees 4.0%.  The NY Fed also projects Q1 18 growth of a little more than 3%.”


13:39 USD shorts fell further, CAD longs have edged lower - Rabobank

According to the IMM Net Speculators’ Positioning as at December 12, 2017, USD shorts fell further from their late November high, notes the research team at Rabobank.

Key Quotes

“The USD has performed well in the spot market on news of progress with the Republican’s tax reform package, though there are signs of the optimism running out of steam.”

Not since May 2007 have EUR speculators’ longs been stronger. Ahead of last week’s ECB meeting speculators extended their EUR positions on the hope of some less dovish rhetoric. In the event, ECB President Draghi maintained a dovish outlook, though Eurozone growth estimates were revised higher.”

Net GBP longs pushed further into positive territory on optimism surrounding Brexit negotiations. The EU has given the green light for EU/UK trade talks to start. These will commence with the 2 year transitional period that is due to start in March 2019. Although progress has been made, trade talks are likely to be tough and could expose cracks in PM May’s cabinet.”

Net JPY shorts consolidated below their recent highs. This week’s BoJ policy meeting is in view. Although commitment to QQE is expected to be repeated, there is some speculation as to whether the BoJ will signal it wants to fine tune its policy in 2018.”

CHF positions have been in negative territory for nineteen consecutive weeks. Although positions have consolidated in recent weeks, their size is significantly larger than in mid-October. This is consistent with higher levels of risk appetite and a backdrop of solid growth in the Eurozone. The worries around Catalonia have not triggered contagion, and concerns about German politics have eased.”

CAD longs have edged lower for a second week. In the spot market, the CAD has been knocked around by speculation regarding BoC interest rate policy. Oil prices have failed to offer much influence recently.”

AUD longs consolidated. The strength of domestic jobs data has reignited speculation that the RBA could be persuaded to bring forward an interest rate hike.”

 


13:28 EUs Moscovici: US tax reform may have international consequences BBG TV

While speaking to BBG TV, the European Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici was noted saying that US tax reform may have international consequences. 

He further acknowledged that significant progress has already been made on Brexit talks and also said that EU countries should sanction tax havens.


13:17 Bundesbank: Strong momentum in German economy should continue in winter 17/18

According to the Bundesbank Monthly Report, released this Monday, the German Central Bank expects strong momentum in the economy to continue in winter 17/18. 

Additional headlines:

   •  Share of zombie firms in Germany has not risen during period of low interest rates
   •  Expects further increase in Target 2 balances in 2017 as ECB continues QE program


13:08 US Dollar slides to 1-1/2 week lows, inching closer to 93.00 mark

   •  US tax-bill optimism fades. 
   •  An uptick in the US bond yields fails to lend support.
   •  Tuesday’s possible Senate vote awaited.

The greenback came under some fresh selling pressure on Monday, with the key US Dollar Index hitting 1-1/2 week lows near the 93.25 region. 

Despite the latest optimism over a sweeping tax code overhaul bill, some uncertainty that the legislation would indeed be pushed through kept the USD bulls on defensive.

Investors also seemed skeptic over the positive implication of the tax reforms and thus, refrained from placing any fresh bullish USD bets ahead of a Senate vote, planned as early as Tuesday.

Meanwhile, the market also seems to have largely negated a renewed uptick in the US Treasury bond yields, with a goodish rebound around the EUR/USD major also exerting some downward pressure on the buck. 

The shared currency found some support after Germany's Social Democrats agreed on Friday to open coalition talks with Chancellor Angela Merkel, paving the way to end the country's political deadlock, and in-line EZ CPI print for November. 

In absence any major market-moving economic releases due for release from the US, market participants are more likely to wait for this week's important macro data before positioning for the next leg of directional move.
 


13:05 ZAR: Focus on ANC successor voting Danske Bank

In South Africa, the ANC party delegates will cast their votes today for a successor to Jacob Zuma, points out the research team at Danske Bank.

Key Quotes

“There are two front-runner candidates: 1) Zuma’s candidate, and ex-wife (!), Nkosazana Dlamini-Zuma, is leftish leaning candidate promoting more rights to the black population and 2) Deputy President Cyril Ramaphosa, a pro-business businessperson, who is seeking to distinguish himself from Zuma’s administration and corruption charges.”

“Ramaphosa is currently the front-runner (benefiting the ZAR), but the outcome is far from given. As the voting begins, the ZAR hits its three-month high against the USD at 13.08, posting 7.3% of 1M total return. If Mr. Ramaphosa wins, the USD/ZAR may break below the 13 benchmark. However, in such event, there may still be a messy aftermath with Jacob Zuma fighting for his political survival as he can still sit out the term until the presidential election in 2019, but there overall there are downside risks to our current forecast of 13.7 in 3M for USD/ZAR.”


13:03 US rates: Three cheers for the flattener TDS

Analysts at TDS explain that the US rates market reacted dovishly to Yellen’s last FOMC press conference as the Fed suggested little impact of the tax plan on growth, inflation or interest rates.

Key Quotes

“Even though the curve bull steepened after the meeting, given that the market is still pricing in only 2 hikes in 2018, we think that there is still some more room to flatten. However, we recommend hedging the directionality of the trade via 2m5y receiver spreads.”

“The Conference Committee initially hit some road blocks on the tax plan, but we expect the tax plan will make it through by early-January at the latest. The Alabama election reduces the margin for the Republicans starting in January, making every protest vote count. While there may be a risk-on bear steepening reaction when the bill passes, we look to use any such move to add to our flattener since most of the supply increase should occur in the sub-5yr sector.”

“Foreign demand for Treasuries remained very high in Q3 as evidenced by the Fed’s Flow of Funds data. While we don’t have much data for Q4, we think foreign flows have remained supportive of the market. The move in the swap spread curve implies that much of this demand has been in the long-end.”


13:01 United Kingdom CBI Industrial Trends Survey - Orders (MoM) above forecasts (14) in December: Actual (17)


13:00 NOK will remain vulnerable Danske Bank

The NOK followed SEK’s suit and also came under pressure on Friday, which illustrates an important point that the NOK will remain vulnerable this side of New Year as key NOK buyers leave the market; Friday was for instance the last day where Norges Bank (NB) was active in FX markets in 2017, suggests the research team at Danske Bank.

Key Quotes

“We still think that the monetary policy message given by NB on Thursday was important for our call that the NOK should move higher next year. The data calendar for Norway is very thin for the remainder of the year. The only noteworthy release this week is Friday’s NAV unemployment report where we pencil in another strong report, indicating above-trend growth and higher capacity utilisation.”


12:57 South Africa: News awaited on the ANCs choice of new leader - Rabobank

According to analysts at Rabobank, news is awaited from South Africa on the ANC’s choice of new leader and market friendly Ramaphosa and previous President Zuma’s ex-wife Nkosazana Dlamini-Zuma are the main two candidates.

Key Quotes

“Ramaphosa represents the pro-business and anti-corruption group within the ANC. Last month he revealed an ambitious 10-point plan to revive weak economic growth by supporting growth and jobs. South Africa should aim for a 3% GDP growth in 2018 and an even faster pace of expansion of 5% in 2023 to create jobs, Ramaphosa said. The ANC must also restore confidence amongst investors and avoid populist measures to stimulate economic activity. Ramaphosa has also pledged to fight against corruption.”


12:54 EUR/GBP to trade within the 0.8650 -0.90 range Danske Bank

EUR/GBP traded higher on Friday and peaked close to 0.8860 as the market was positioned for more positive news from the EU summit about Brexit, points out the research team at Danske Bank.

Key Quotes

“As expected, EU leaders agreed to move Brexit negotiations to phase 2, but comments from both EU officials and UK politicians on Friday and over the weekend support our view that it is too early to reprice a Brexit risk premium as significant difficulties lie ahead in the second phase of negotiations. We still see EUR/GBP within the 0.8650 -0.90 range in coming months. We expect GBP to remain volatile towards year-end and sensitive to Brexit-related news.”


12:50 Feds Williams: Were ending the year with some very good momentum going into 2018 - WSJ

Headlines are crossing the wires from the San Francisco Fed President Williams’ interview with the Wall Street Journal (WSJ) that took place last Friday.

Key Quotes:

“We’re ending the year with some very good momentum going into 2018.”

“We are operating on all cylinders, which is, I think, a positive sign in terms of the sustainability of the expansion.”

With inflation likely to rise and unemployment likely to fall further, “something like three rate increases next year, and two to three increases in 2019—that seems like a reasonable view.”

A strong economy eventually creates higher inflation.

As we move interest rates back up to more normal levels as the economy improves, that will reduce the risks of the economy overheating.

Expects the economy to grow by 2.25% to 2.50% next year.

“We are not in a rush to tighten monetary policy.”

“If the economy performs as expected, fed is likely to raise rates steadily over next couple of years.”

“I’m not worried about that in terms of the possibility of a recession in the next year or two.”

“We are now in the midst of the third longest expansion, and I think we’ll get to be the second longest expansion in coming months. My goal is to try to keep the economy on a sustainable pace.”


12:47 UK: PM Mays vision for the Brexit transitional period awaited - Rabobank

Analysts at Rabobank point out that UK PM May is due to stand up in parliament at 3:30 GMT this afternoon and pitch her vision for the Brexit transitional period.

Key Quotes

“In doing so she risks stoking divisions within her own cabinet and triggering a row with the EU.  May will reportedly state that she wants the UK to leave the EU’s single market and customs union while retaining many of the benefits.  However, it is reported that May will demand the right to start registering new arrivals from the EU during the transitional phase and to begin negotiating trade deals with non EU members.”

“Both practices would be denied for current EU members.  While negotiating with the EU, May must also attempt to prevent an explosion within her cabinet between members such as Rudd and Hammond who wish to keep a close relationship with the EU and those such as Johnson and Rees-Mogg who want to move away from the EU to avoid the UK becoming a “vassal state”.  EUR/GBP has been trading a range since the start of the month waiting for impetus from the start of the UK/EU trade talks.  The release of the third estimate of UK Q3 GDP data later in the week is expected to confirm a pace of growth of 0.4% q/q, half of that recorded by Germany.”


12:37 FX option expiries for Dec 18 NY cut

FX option expiries for Dec 18 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: 1.1700 (EUR 316m), 1.1740-45 (221m), 1.1790-00 (616m), 1.1850-60 (423m), 1.1875 (211m), 1.1900 (503m)

- GBP/USD: 1.3350 (GBP 2.2bn), 1.3380 (507m)

- USD/JPY: 112.00 (USD 902m), 112.25-30 (1.7bn), 112.50 (486m), 112.65-75 (715m), 113.00 (466m), 113.35-40 (300m)

- USD/CHF: 0.9965 (USD 360m)

- AUD/USD: 0.7530 (AUD 638m), 0.7590 (242m), 0.7620 (365m), 0.7650 (417m), 0.7700 (AUD 566m)

- NZD/USD: 0.7165 (NZD 240m)

- USD/CAD: 1.2800 (USD 241m), 1.2900 (545m)

- EUR/GBP: 0.8775 (EUR 775m)

- AUD/NZD: 1.0865 (AUD 202m), 1.0950 (321m)


12:35 JPY: Investor appetite for selling is likely to be limited Danske Bank

USD/JPY gained on Friday on renewed hopes that the US congress could pass a tax bill within few days and besides possible support to the cross from a US tax reform, the tight USD liquidity situation is also likely to continue to underpin the cross near term, according to analysts at Danske Bank.

Key Quotes

“Investor appetite for selling JPY is likely to be limited ahead of the BoJ meeting, which ends on Thursday. Here, focus will be on the communication from Governor Haruhiko Kuroda during the press conference, as he might elaborate on recent tightening speculation.”


12:34 Trump Strategy Doc: China & Russia are determined to make economies less free and less fair

Reuters reports the excerpts of Trump’s national security strategy document released by the White House, according to which the US President is expected to lay out the following in a speech on Monday.

“China and Russia are determined to make economies less free and less fair, to grow their militaries, and to control information and data to repress their societies and expand their influence.”

“The United States will continue to advance an approach that balances energy security, economic development, and environmental protection.”

“North Korea seeking to be able to deliver launch missile attacks with chemical and bioweapons. “


12:25 EUR/USD: Upside capped near 1.1800 post-EZ CPI

  • DXY stalls decline amid US tax reform optimism.
  • Eurozone final CPI y/y meets estimates.
  • EUR – unfazed by risk-on.

The EUR/USD pair failed to extend its renewed upmove and remained capped below the 1.18 handle, as the bulls were left unimpressed by the Eurozone final CPI report.

EUR/USD reverts to the hourly 100 & 200-MA

The main currency pair stalled its recovery mode just shy of the 1.1800 mark, largely on the back of a pause in the USD sell-off across the board, as Treasury yield regain poise across the poise amid risk-on trades, reflected upon by the rally in the European equities. The USD index bounced-off lows at 93.23 and now trades at 93.31 levels, down -0.17% on the day.

Moreover, the headline Eurozone final CPI data met expectations on an annualized basis, but the core inflation figures disappointed, which dented the sentiment around the Euro. The Eurozone inflation numbers remain well below the ECB’s 2% price target.

With the Eurozone data out of the way, the focus now remains on the German Bundesbank monthly economic report due out shortly for fresh impetus.

EUR/USD Technical Levels

Valeria Bednarik, Chief Analyst at FXStreet notes: “The pair has an immediate resistance at 1.1800, followed by a stronger one around 1.1830, both static levels. Beyond this last, selling interest has been surging around 1.1870, the level to surpass to consider a bullish EUR. Intraday supports are located at 1.1750 and 1.1715, this last being a bearish breakout point.”


12:01 European Monetary Union Consumer Price Index - Core (MoM) below expectations (0.2%) in November: Actual (-0.1%)


12:01 European Monetary Union Consumer Price Index - Core (YoY) below forecasts (1%) in November: Actual (0.9%)


12:01 European Monetary Union Consumer Price Index (MoM) meets expectations (0.1%) in November


12:01 European Monetary Union Consumer Price Index (YoY) in line with expectations (1.5%) in November


11:47 ECB to pay special attention on relocation plans of Brexit-hit banks - BBG

Bloomberg reports of a warning issued by the ECB to the London-based banks, who will relocate from the UK to the Euro area, in the wake of the Brexit issue.

The ECB said that they will continue to assess those banks' plans to relocate from the UK to the Euro area, including applications for the granting of banking licenses.

Bloomberg also reports that the focus will now shift from preparatory work to the implementation of policy, and that special attention will be paid to compliance with the agreed policy stances - so as to avoid the establishment of empty shell offices/institutions.


11:39 USD/CAD stuck in a range around mid-1.2800s

   •  Struggles to build on last week’s up-move amid renewed USD weakness. 
   •  Bullish oil prices further benefitting commodity-linked Loonie.
   •  Positive US bond yields lending some support and help limit downside. 

The USD/CAD pair lacked any firm directional bias and extended its consolidative price action through the early European session on Monday.

A combination of factors failed to provide any fresh impetus, with the pair now seen consolidating last week's sharp recovery move the 1.2700 neighborhood. Ahead of a crucial vote on the long-awaited US tax cut legislation, the US Dollar bulls remained on defensive and failed to provide any fresh bullish impetus.

Adding to this, the prevalent bullish trading sentiment around crude oil prices underpinned the commodity-linked currency - Loonie and further collaborated towards keeping a lid on any further up-move.

Meanwhile, a goodish pickup in the US Treasury bond yields helped limit deeper losses and has eventually led to a range-bound/subdued price action at the start of a new trading week. 

With the only scheduled release of second-tier data - Foreign Securities Purchases from Canada and the US NAHB Housing Market Index, today's economic docket lacks any major market-moving economic releases. Hence, the pair seems more likely to remain confined within a narrow trading range. 

Technical levels to watch

Immediate resistance remains near 1.2880 level, above which the pair is likely to make a fresh attempt to reclaim the 1.2900 handle and head towards testing 1.2915 supply zone.

On the flip side, 1.2840-30 area might continue to protect the immediate downside, which if broken might drag the pair back below the 1.2800 handle towards its next support near mid-1.2700s.
 


11:36 Eurozone: Watch out for details of core inflation - TDS

Analysts at TDS offer their thoughts on the upcoming Eurozone final CPI release due out shortly.

Key Quotes:

“The only data release is the final reading of December CPI for the Eurozone. We’ll be looking at the details of core inflation for more information into why exactly it’s been so weak the last couple of months, and if it’s really just been due to special factors like Draghi said during last week’s ECB press conference.”


11:21 Why Bitcoin is destined to become a niche asset? - ING

In the long term, Bitcoin has little to offer a wider audience, and will likely return to being a niche product for a select group of enthusiasts, according to Teunis Brosens, Senior Economist at ING.

Key Quotes

“In the long term, Bitcoin has little to offer a wider audience, and will likely return to being a niche product for a select group of enthusiasts. What they regard as key benefits, may actually be impediments to wider adoption. Moreover, Bitcoin’s high-value today is based on shaky foundations, given that the platform is open source and can, therefore, be forked and copy-pasted easily.”

“Scope for such cryptocurrency debasement is limited only by network effects and switching costs, but those may be smaller than expected.”

“The “true” value of Bitcoin depends on its future use case. If users would, en masse, lose interest, then it could end at zero. On the other hand, in the unlikely scenario that Bitcoin takes over all worldwide payments, its value could rise beyond $1mln.”

“Yet as Bitcoin is failing as payment system, and is now primarily used as an asset to hold, the only remaining justification for investing in Bitcoin is the assumption that others are willing to buy Bitcoin at higher prices in the future.”

Why won’t Bitcoin appeal to mass audience?

  • Regulation: Its decentralised nature makes it difficult to regulate. Governments and regulators may never come to like decentralised financial networks at all. A negative event, such as a price crash followed by public outcry, could trigger a regulatory crackdown.
  • Intermediaries: Working without intermediaries is cherished by a core group of Bitcoin enthusiasts. The mass audience however dislikes having no rights, no recourse, no guarantees, no legal coverage, nothing. They just want secure, reliable and hassle-free access to their money, and a help desk to call when they lose their password.
  • Scalability: The Bitcoin network is currently clogged and the current level of transaction fees (average $8 in November) makes it very unattractive for small payments.
  • Volatility: while the value of “ordinary” money is managed by the central bank, Bitcoin’s supply is fixed and its value depends greatly on demand. This makes it inherently volatile.
  • Energy use: in the case of Bitcoin, the price of taking out intermediaries is very high electricity consumption.
  • Governance: Blockchain is great at rule enforcement, but does not provide at all for rule-setting. This lack of governance makes implementing innovations slow and painful. Moreover, power may get concentrated in the hands of a few (miners, in the case of Bitcoin).”

“The current Bitcoin dominance appears built on the idea that bitcoin will remain the cryptocurrency of choice forever. Indeed, cryptocurrency, like other internet services, are subject to “network effects” and “switching costs”, creating a “winner takes all”-dynamic.”

“However, with cryptocurrencies, these network effects and switching costs may be lower than thought. This is especially the case given Bitcoin’s open-source, forkable, clonable nature. It is easy to create a clone or close substitute. This means that Bitcoin may be scarce on its own blockchain, but its blockchain is in infinite supply. If Bitcoin is “digital gold”, then forking and copy-pasting are successful forms of “digital alchemy.”


11:21 WTI rises for the third straight session, $ 58 closer

  • Fundamentals lend support.
  • Re-takes $ 58 mark.
  • The US weekly crude supplies report on tap.

WTI (oil futures on NYMEX) extends its rebound from five-day lows into a third day today, as the sentiment remains lifted amid upbeat fundamentals and a broadly weaker US dollar.

WTI rejected just shy of the $ 57 mark

The barrel of WTI trades with moderate gains so far this Monday, as the bulls find support from the supply disruption concerns, emerging from the ongoing North Sea pipeline outage while a strike by Nigerian oil workers threatened its crude exports, further accentuates the bullish tone seen around the commodity.

Moreover, a drop in the US rigs count for the first time in six weeks to 747 last week, also collaborated to the upside in the prices. Also, the bulls benefit from the broad-based USD weakness and bullish US CFTC crude oil positioning data.

WTI net longs at record highs - CFTC

However, the black gold could face some struggle to extend the upside, in the wake of rising US oil production levels and expectations of ample supplies to prevail in 2018. At the time of writing, WTI trades +0.70% higher at session tops of $ 57.77 while Brent rises +0.77% to $ 63.85.

WTI Technical Levels

The resistances are aligned at $58.50 (psychological levels) ahead of $59 (Nov 24 high) and $59.85 (April 2015 tops). On the downside, supports are located at $57.20 (5 & 10-DMA), $56.29 (50-DMA) and $55.82 (Dec 7 low).” 


11:07 ECB s Liikanen: ample degree of monetary stimulus still required for inflation pressures to build up

Policy rates are expected to remain at present levels well past the horizon of net asset purchases, said Bank of Finland Governor Erkki Liikanen this Monday.

Additional headlines:

   •  An ample degree of monetary stimulus is still required for underlying inflation pressures to continue to build up and support headline inflation developments over the medium-term.

   •  Recovery of Euro area economy, reduction of economic slack supports confidence in inflation converging towards our inflation aim in due course.


11:07 Italy Global Trade Balance above expectations (3.23B) in October: Actual (4.953B)


11:06 Italy Trade Balance EU up to 0.666B in October from previous 0.469B


11:00 Gold hits fresh session tops, above $1257

   •  US tax bill hopes-led USD strength fizzles and provided a fresh boost.
   •  Traders ignore risk-on mood/renewed uptick in the US bond yields.

Gold caught some fresh bids near $1252 immediate horizontal support and jumped to session tops during the early European session on Monday.

The precious metal was initially weighed down by optimism over the long-awaited legislation to overhaul the US tax code. However, some renewed US Dollar weakness extended some support to the dollar-denominated commodity and helped regain traction. 

Meanwhile, a goodish pickup in the US Treasury bond yields did little to dampen a mildly positive sentiment surrounding the non-yielding metal. 

Moreover, the market seems to have largely negated the prevalent risk-on environment, which tends to weigh on the yellow metal's safe-haven appeal, with the USD price dynamics turning out to be an exclusive driver of the commodity's uptick at the start of a new trading week. 

In absence of any major market moving economic releases, broader market sentiment around the greenback would remain a key determinant of the commodity's move a the start of a new trading week. 

Technical levels to watch

Bulls would be eyeing for a strong follow-through momentum beyond $1260 level, above which the commodity is likely to aim towards testing the very important 200-day SMA hurdle near the $1268 region.

On the flip side, any meaningful retracement might continue to find support near $1252 level, which if broken could accelerate the fall back towards $1248-47 horizontal support en-route the $1242-41 region.
 


10:54 EUR/USD: 1.1800 a whisker away, EZ CPI eyed

  • DXY printing fresh daily lows.
  • Surpasses hourly 100 & 200-MA resistance.
  • Eurozone final CPI – Up next.

The Asian recovery in the EUR/USD pair gathers steam in the European session, with the rates now breaking through the hourly 100 and 200-MA resistances located near 1.1780 region in a bid to regain 1.18 handle.  

EUR/USD: US political worries weigh on the USD

The offered tone around the US dollar keeps growing bigger, pushing the spot closer towards the 1.1800 mark, as markets continue to liquidate the USD longs amid fresh concerns over the US government shutdown ahead of the Dec 22nd deadline.

The Euro stands resilient to the risk-on rally in the European equities and higher Treasury yields that reflects risk-on market profile, as the USD price-action continues to remain the main market driver amid a lack of fresh catalysts.

Hence, attention now turns towards the Eurozone final CPI for fresh impetus on the major, with the 19-nation bloc’s consumer prices gauge expected to confirm a 1.5% reading in the reported month.

Meanwhile, it’s worth noting that the renewed optimism around the EUR is mainly evidenced by increased investors’ confidence, as seen in the latest US CFTC report, which showed that the EUR net longs hit a decade highs last week. 

EUR/USD Technical Outlook

Jim Langlands at FX Charts, explains: “For now I prefer to remain short Euro although the rising trend support at 1.1735 is close by and may contain the downside. A break, which the daily charts suggest is possible, would allow a run back towards 1.1705/15, below which could see an acceleration towards 1.1650/80. On the topside, 1.1800 will continue to act as resistance. For Monday, look for a range of 1.1780/1.1680 with the EU CPI likely to be the key driver.”


10:32 Hong Kong SAR Unemployment rate remains at 3% in November


10:23 EUR/GBP: so far capped by the 55 day ma at .8871 - Commerzbank

According to Karen Jones, Analyst at Commerzbank, the EUR/GBP cross has managed to recover from and also seems to have stabilized above the 55 week ma.

Key quotes:

“EUR/GBP recovered last week following its recent failure to register a weekly close below its 55 week ma at .8744. Near term rallies should find decent resistance at .8871 55 day ma and then the .8913 resistance line.”

“It recently sold off to the 61.8% retracement of the move seen this year at .8697. A close below here targets the .8530/78.6% retracement of the move seen this year.”

“Key near term resistance is the .9034 12th October 2017 high. This guards the .9308 August high.”


10:13 AUD/USD bulls regain control, jumps back above mid-0.7600s

   •  USD fails to build on Friday’s attempted up-move.
   •  Aussie gains an additional boost from MYEFO. 
   •  Additional gains capped by surging US bond yields. 

The AUD/USD pair regained some fresh traction on Monday and has now recovered Friday’s retracement slide from over 1-month tops.

The US Dollar received a minor lift on Friday after the long-awaited US tax reform bill moved a step closer to ratification and prompted profit-taking from closer to the very important 200-day SMA barrier. 

The USD, however, failed to build on the attempted up-move and helped the pair to catch some fresh bids at the start of a new trading week. The Australian Dollar got an additional boost from today's release of Australia Mid-Year Economic and Fiscal Outlook (MYEFO). 

It, however, remains to be seen if bulls are able to maintain their dominant position or the pair once again fails to conquer the 0.7700 barrier amid a goodish pickup in the US Treasury bond yields, which tend to weigh on higher-yielding currencies - like the Aussie. 

In absence of any major market moving economic releases, the pair remains at the broader market sentiment surrounding the greenback and the US bond yield dynamics.

Technical levels to watch

A follow-through buying interest beyond 0.7675 level has the potential to lift the pair back towards the 0.7700 supply zone (200-day SMA), above which the up-move could further get extended towards 0.7730 resistance.

On the flip side, retracement back below 0.7640-35 immediate support might prompt some additional profit taking back towards the 0.7600 handle en-route 0.7585-80 support area.
 


10:02 Austria HICP (YoY) increased to 2.4% in November from previous 2.3%


10:01 Austria HICP (MoM) declined to 0.1% in November from previous 0.2%


10:00 SEK has remained under pressure Danske Bank

EUR/SEK was bid on Friday as the cross even breached 10.00 and was rejected just below 10.04, points out the research team at Danske Bank.

Key Quotes

“Despite the temporary headwinds for the SEK related to PPM flows now being out of the way, the SEK has remained under pressure – just as we have argued could be the case. However, this week is all about the Riksbank. If it puts an end to QE without touching the repo rate path (our call), we could see some support to the SEK as the market may deem it as semi-hawkish.”

“We still do not see the Riksbank raising the repo rate next year though and we still think the markets will ponder the consequences of the fragile housing market going forward. Therefore, we think that any rebound in the SEK will be limited. The outcome of the Riksbank meeting is admittedly very uncertain though, which is fairly reflected in implied vols and a more dovish decision like extending QE and/or delaying the first hike is clearly a possible outcome, although it is not our call. In that scenario, we should see another leg higher in EURSEK.”


09:55 SNB to continue acting as an economic safety guard in 2018 - ING

In view of Julien Manceaux, Senior Economist at ING, as the outlook for Swiss growth and inflation is only improving slightly, the Swiss National Bank (SNB) is likely to continue acting as an economic safety guard in 2018.

Key Quotes

“On the one hand, the current SNB inflation forecast is unlikely to allow for any monetary tightening before late 2019. On the other hand, a stronger economic outlook and some inflationary pressures should eliminate any risk of further accommodating measures.” 

“We, therefore, think that the SNB will keep its negative interest rates unchanged until late 2019 and will refrain from any further FX interventions while staying open to the possibility to intervene in case of a sudden risk aversion come-back.  All in all, the current policy mix equilibrium still looks very stable for the SNB.”


09:52 Global financial conditions remain supportive of growth NAB

Markets remain calm, with indicators of market stress and volatility such as credit spreads and the VIX index all remaining low and as a result, while several major central banks have raised rates this year – the US Fed, the Bank of England and the Bank of Canada -  broader measures of financial conditions have either remained benign or eased further, explains the analysis team at NAB.

Key Quotes

“The current combination of solid, above trend economic growth, falling unemployment and easy financial conditions would normally signal central bank rate hikes. However, with inflation generally below target in the advanced economies action is likely to be gradual.” 

“While there has been a shift in advanced economy central bank rhetoric away from further easing measures to when to tighten policy, there are still large differences between major central banks.” 

“Over 2018 the US Fed should continue to lead the way. The Fed raised rates three times in 2017 and started to unwind its large balance sheet. We expect another three rate hikes next year as well, conditional on a pick-up in inflation. Market pricing is more cautious for 2018, but even so it still has the Fed tightening policy more rapidly than any other major central bank.  The Bank of England (BoE) is only signalling future ‘gradual’ and ‘limited’ rate rises.” 

“By contrast, other central banks are still in the midst of QE programmes which represent monetary easing. That said, the ECB has scaled back the size of its monthly asset purchases, and the programme will probably end next year. Markets are also debating when it might start to raise rates although this is not likely to happen until the end of 2018 at the earliest. The Bank of Japan continues to target a near zero 10 year government bond yield, and is undertaking asset purchases (although at a slower pace than before) with no change in policy in sight.” 

“While the major global stock markets have been trending up consistent with the improvement in the global economy and still very accommodative monetary policy settings, it has been a different story for commodity markets. After staging a mini-recovery in the first half of 2016, the CRB commodity price index has basically tracked sideways since. However, helped along by OPEC cuts and  geopolitical risks in Iraq, oil prices have recently moved higher.”  


09:48 EUR/USD: Good chance of dipping into the 1.16s this week Danske Bank

Soft messages from the Fed and ECB helped to keep EUR/USD in check last week with the cross again trading in the 1.17-1.18 region and ahead of the holiday season, the data calendar is light but there are a few possible events to deliver – possibly – some EUR/USD downside this week, suggests the research team at Danske Bank.

Key Quotes

“First, the US Congress could pass the long-awaited tax bill, which should be a USD positive as this would be a signal that the Trump presidency is finally able to deliver; we will notably watch out for the scope of a Homeland Investment Act 2 as this could drive USD supportive repatriation flows in early 2018. Second, the Catalan election on Thursday may well return in a hung parliament and, in any case, risks putting renewed focus on ‘political risks’ for the euro near term.”

“Furthermore, USD is becoming increasingly expensive over year-end with the implied interest rate on USD in EUR/USD FX forwards hitting 20% on Friday. We thus see a good chance of EUR/USD dipping into the 1.16s this week.”


09:45 CHF: Some segments of the Swiss real estate market could be overheating - ING

According to Julien Manceaux, Senior Economist at ING, having negative interest rates lengthened until 2020 could bring some financial stability risks, notably through excessive asset valuation in Swiss markets.

Key Quotes

“In December, the SNB also expressed itself on financial stability. From that perspective, Vice-President Zurbrügg insisted on the imbalances on the Swiss mortgage and real estate markets. The SNB noted, in particular, a marked rise in residential investment property prices where it currently sees that “risks have accumulated”. In particular, increasing vacancy rates could be the sign of oversupply in some segments.”

“In parallel, the SNB noted that mortgages with high loan-to-income ratio have reached a historical high, showing that “incentives for domestically focused banks to increase risk-taking remains substantial”. Since last year, the SNB has been repeating a clear message: if the race to the bottom (in mortgage interest rates) continues, the risk of an overheating housing market could reappear, and with it higher financial stability risks. So far, this has not triggered an increase in the compulsory capital buffer for domestic banks but the SNB suggested in December that this could still happen.”

 


09:45 USD/JPY bounces back closer to session tops, around 112.70 level

   •  USD fails to extend US tax bill optimism-led up-move.
   •  An uptick in the US bond yields helps regain traction.
   •  Fading safe-haven demand lends additional support.

The USD/JPY pair quickly reversed a knee-jerk fall to 112.30 area and is currently placed near the top end of its daily trading range.

With investors looking past the latest optimism over a long-awaited US tax cut legislation, concerns over a possible US government shutdown, if a spending deal is not extended beyond December 22, prompted some fresh US Dollar weakness and weighed on the pair at the start of a new trading week. 

However, a goodish pickup in the US Treasury bond yields limited deeper losses and helped the pair to regain traction. Adding to this, a fresh wave of global risk-on trade, as depicted by strong gains across equity markets, dented the Japanese Yen's safe-haven appeal and collaborated to the pair's recovery move from the Asian session lows.

Currently placed around the 112.65-70 region, the pair remains at the mercy of broader market risk sentiment and the US bond yield dynamics amid empty US economic docket

Technical levels to watch

A follow-through buying interest beyond the 112.85-90 region now seems to lift the pair back towards pre-FOMC resistance near mid-113.00s, above which the momentum could further get extended towards 113.75 supply zone.

On the flip side, 112.30 level now seems to have emerged as immediate support, which if broken would turn the pair vulnerable to break below the 112.00 handle and head towards testing the very important 200-day SMA support near the 111.65-60 region.
 


09:42 BoJ and Riksbank to be the main events this week Danske Bank

The main events this week will be the Bank of Japan meeting on Thursday and the meeting in the Riksbank on Wednesday, according to analysts at Danske Bank.

Key Quotes

“There has been some focus on the potential negative impact of the negative deposit rate and yield curve control in Japan, but we do not expect the BoJ to change policy. The BoJ policy is to some extent pushing Japanese investors towards foreign assets, although it is getting increasingly expensive to hedge USD-denominated fixed income assets, while still ‘cheap’ to hedge DKK, SEK and EUR assets back into JPY.”

“The Riksbank is expected to end QE but as coupons and redemptions are reinvested, the Riksbank will still be buying bonds in 2018. However, the main focus is on the policy path and the first hike, where the market expects an early hike. We think differently and expect them to keep the rate path unchanged and avoid signalling a premature hike.”


09:39 German SPD leader wants Merkel to relinquish finance ministry - Handelsblatt

Reuters reports the latest news published in the German business daily, Handelsblatt, citing that Germany’s Social Democrats (SPD) leader Martin Schulz wants Chancellor Angela Merkel’s Conservatives Party to leave the Finance Ministry to his center-left party in coalition talks.

Schulz was quoted as saying, “the goal is (to get) the Federal Finance Ministry.”

Merkel’s Conservatives and the SPD are expected to meet next Wednesday to discuss the timetable and agenda of exploratory talks which will not start in serious before early January.


09:39 SNB to remain active in the foreign exchange market ING

Julien Manceaux, Senior Economist at ING, notes that in a slight change of wording, President Jordan reiterated during the press conference that the SNB “will remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration”.

Key Quotes

“If the SNB still thinks that “the franc remains highly valued”, it acknowledges that “overvaluation has decreased”, as the CHF has depreciated further against both the EUR (7% in the last 6 months) and USD.”

“Yet, for the SNB, the situation mainly reflects a decreased demand for safe havens and “remains fragile”, justifying a status quo in its interventionist stance. However, the SNB suggests that this “fragility” (or the likelihood of the return of risk aversion) is declining with the strength of the economic outlook, both abroad and in Switzerland. The SNB growth forecast for 2018 is now 2% and President Jordan was quite upbeat on the world economic recovery in December.  We believe that the current positive growth outlook could bring back some moderate inflationary pressures in 2018.”

Inflation forecasts

  • The most important figure of the conference was the SNB inflation forecasts for 2019 and mid-2020, which came out at respectively 1.1% (unchanged since March) and 2.1% (for 20Q3). The SNB also revised upwards its inflation forecast for 2017 (+0.1pp at 0.4%) and 2018 (+0.3pp at 0.7%). This shows that the SNB remains very cautious about declaring victory on deflation, but is still eager to show that getting back to the 2% target in the medium term is possible. We see a possibility that a weaker exchange rate will lead to better growth and higher inflation above 1% in 2019, but will it be enough for the SNB to follow the ECB in raising rates by then?”

Expect more of the same from the SNB in 2018

  • In 2018, with the return of inflation being slow despite a dynamic economic recovery, we do not expect any change in the monetary policy stance. Short-term interest rates will, therefore, remain negative. Moreover, it is likely that long-term interest rates will continue to reflect low inflation expectations and hence increase more slowly than in the Eurozone in 2018. Negative rates and stable short-term interest rate spread against the euro will remain the SNB’s favourite tools to add downward pressures on the EUR/CHF which should reach 1.25 at the end of the year with very limited FX interventions.
  • In 2019, with stronger growth prospects and a CHF installed beyond 1.25 against the EUR by mid-2019, we think the SNB will be able to imitate the ECB in raising short-term interest rates by 25bp in the second half of the year. They should, however, remain negative until the end of 2019. With inflation coming back towards the 2% target in 2020, the door towards normalisation will be then open.”

 


09:29 ECBs Villeroy: Bitcoin is not money, it s purely speculative

The European Central Bank (ECB) Governing Council member and Bank of France (BOF) Head Villeroy was on the wires now, speaking on French radio station, BFM.

Villeroy said that Bitcoin is not money, it's purely speculative in nature.


09:10 South Africa: Changing odds as Ramaphosa rises to 60%, others drop - TDS

Court orders banning ANC delegates in Zuma’s stronghold provinces from voting in the ANC Elective Conference, and the rejection by the ANC of a new system of consecutive votes for the Top Six within the Conference, have suddenly increased the chances of a Ramaphosa victory vs NDZ or Unity Candidate, points out the research team at TDS.

Key Quotes

“We have reassessed the probability of a market-friendly scenario (Ramaphosa’s odds now at 60%), but see the current rally of ZAR and SAGB as resulting in a greater risk of selloff in the event of a less likely NDZ win.”

“ZAR positive scenarios in the coming 3-4 months now have a 38% likelihood vs 62% of ZAR negative scenarios. However, tail risks have shrunk and we see the odds of a 5%+ ZAR appreciation at 33% vs 19% of a depreciation in excess of 7%. We continue to be neutrally positioned into the ANC Elective Conference starting on 16 December.”


09:08 EUR/USD: 1.1712 support holds the key this week - Commerzbank

Karen Jones, Analyst at Commerzbank, offers her technical view on the EUR/USD pair, as we head into the pre-Christmas trading week.

Key Quotes:

“EUR/USD last week sold off to and recovered from the 1.1712 21st November low. We start this week with attention on the 1.1712 support and a close below 1.1712 the recent low should be enough to negate upside pressure and allow for slippage back to the 1.1553 7th November low.“

 


09:00 WTI net longs at record highs - CFTC

According to the Commodity Futures Trading Commission (CFTC) weekly Commitments of Traders (COT) report for the week ending December 12 released on Friday, the net long positions held by the speculators and traders in the WTI Crude Oil futures continued to increase and reached all-time highs last week.

Key Details:

WTI futures saw a weekly rise of 3,369 contracts in non-commercials position from the previous week, which had a total of 611,128 net contracts.

The commercial traders totaled a net position of -629,330 contracts on the week.

This was a weekly shortfall of -6,070 contracts from the total net of -623,260 contracts reported the previous week.


08:44 Swiss economy is set for a bounce back in 2018 - ING

Swiss economy is set for a bounce back in 2018, with higher activity being fuelled by external demand, according to Julien Manceaux, Senior Economist at ING.

Key Quotes

“GDP growth should rebound from 1.0% to 1.8% in 2018 and 2.0% in 2019. Lower unemployment and higher inflation should support consumer confidence eventually benefiting the retail sector. If this bright outlook after several years of slow growth should bring inflation, the question remains: by how much? Indeed, the whole scenario is very much dependent on the continuing depreciation of the CHF, and hence on the SNB’s monetary policy.”

“We expect it to remain very supportive in 2018. At its December monetary policy meeting, the SNB left the target range for the 3m Libor at -1.25%/-0.25% with a negative deposit rate of -0.75%. The exemption was also left unchanged (at 20 times the minimum reserve requirements).”


08:39 Ex-PBOCs Ma: China should replace GDP growth target with a jobless rate goal

Caixin came out with the latest comments from the former PBOC Research Bureau Chief Economist Ma Jun, citing that China should replace the GDP growth target with a jobless rate goal.


08:39 US: Corporate tax rate slashed to 21% on a permanent basis Danske Bank

The final details of the US tax overhaul were revealed on Friday and the Republican tax plan cuts the corporate tax rate to 21% on a permanent basis, while offering temporary cuts to individuals, notes the research team at Danske Bank.

Key Quotes

“The tax plan is expected to be voted through Senate by Tuesday and signed by President Donald Trump by the end of the week, before entering into force by February. According to the Joint Committee on Taxation (JCT), the reform will raise economic growth of about 0.8% over the next ten years. However, according to the JCT’s estimate (link), this will only cover about a third of the cost, which means that the reform will add at least USD1trn to the USD20trn national debt over next decade. The plan could also boost US corporate earnings by some 10% on average, with oil refiners, airlines and banks among the main beneficiaries, according to Financial Times.”

“Expected passage of tax plan lifts equity markets. On Thursday, concerns about the tax plan passing this year weighed on stocks as not all Republican senators had committed to supporting it. However, on Friday there seemed to be full backing for the deal with all 52 Senate Republicans in support. This lifted US stocks, with S&P rising 0.9% and the gains have carried over to Asian trading this morning.”


08:34 GBP/USD extends recovery to test 1.3350, UK data eyed

  • DXY to resume upside on the US tax bill optimism?
  • Yield differential remains USD supportive.
  • Brexit headlines, the UK CBI industrial orders data in focus.

The GBP/USD pair is set to extend its overnight recovery mode into the European session, as broad-based USD softness combined with the latest remarks from the UK PM Theresa May remain supportive.

GBP/USD bounces-off 1.3300

The Cable is seen cheering the weekend’s comments from the UK PM Theresa May in the Sunday ‘Telegraph’, citing that "amid all the noise, we are getting on with the (Brexit) job." Her comments negated the headlines published by the same newspaper that cited - Theresa May faces cabinet row over Brexit as the EU warns there is 'no way' the UK can have a bespoke trade deal.

 Moreover, ongoing weakness seen in the US dollar against its main competitors, as markets correct a part of Friday’s sharp rebound backed a rally in the US equities amid fresh signs of progress seen on the US tax-cut legislation. The latest move lower in the greenback can be also attributed to the renewed concerns over a Government shutdown, as the December 22nd extended deadline nears.  

Later today, the pair is likely to get influenced by the US dynamics, Brexit headlines and UK industrial orders data, while the 10-year US-UK yield differential continues to remain USD supportive.

Omkar Godbole, Analyst at FXStreet noted: “Currently, the 10-year US-UK bond yield differential stands at 122 basis points (bps); the highest level since Jun. 12. The rising yield spread adds credence to the lower highs pattern seen on the daily chart and indicates scope for a drop to 50-day MA of 1.3263. Also, short-term UK-US rate differential crashed to new YTD lows on Friday.”

GBP/USD Technical Levels

According to Karen Jones, Analyst at Commerzbank: “GBP/USD’s intraday Elliott wave counts are turning more negative. While we are unable to rule out a small rebound to the 1.3550 December high, this is looking less likely. Below 1.3300 should be enough to alleviate immediate upside pressure and allow for weakness back to the 1.3184 2016-2017 uptrend.” 


08:33 Russia: CBRS 50bps cut as Christmas present - TDS

Paul Fage, Senior Emerging Markets Strategist at TDS, notes that the CBR cut the Key Rate by 50bps to 7.75% at its latest Board meeting, while TDS and the unanimous consensus had expected a 25bps cut.

Key Quotes

“The principal reason given for the larger than expect cut was that “the extension of the agreement between oilexporting countries lowers the uncertainty of energy prices’ dynamics and related pro-inflationary risks over a oneyear horizon”.”

“Looking forward the CBR said that it “will continue its gradual transition from moderately tight to neutral monetary policy and holds open the prospect of some key rate reduction in the first half of 2018”.”

“We think the CBR will keep slowly cutting next year and expect 75bp of cuts in H1 bringing the Key Rate to 7.0%.”


08:28 Switzerland: Private consumption is set to rebound - ING

Swiss private consumption growth is expected to have been weak in 2017 as economic uncertainties were still weighing on companies’ hiring intentions in the beginning of the year and the unemployment rate remained slightly above 3.2% in the first half of the year, points out Julien Manceaux, Senior Economist at ING.

Key Quotes

“This led to a further decline in retail sales which are back at their 2007 level. Consumer confidence was very low in 2017, at its 2009/2011 average (1.3), which explains the limited private consumption growth of the first three quarters (0.2% QoQ on average).”

“With the recovery in the industrial sector and the brightening economic outlook, unemployment should decline in 2018 (it was back at 3% already in November) and confidence should look up. We expect private consumption growth to rebound from 1.3% in 2017 to 1.6% in 2018. The trend should continue further after 2018, especially if deflationary pressures end up abating: we do not expect retail sales to deteriorate further. They have a long way to recover.”

 


07:59 Australia: MYEFOs budget assumptions were a little more realistic - TDS

Analysts at TDS note that the Australian MYEFO’s budget assumptions were a little more realistic compared to May, trimming wages to 3.5% by 20/21.

Key Quotes

“Growth at 3% is the usual assumption. We suspect the better outturn this year and next is the only reason behind the return to surplus. Still an absence of decent fiscal reform (broadening tax base and cutting spending) and therefore we see no reason for S&P to remove negative outlook this time, hence zero market implications.”


07:58 Goldman Sachs: Growth is bigger Fed-hike factor than market thinks - BBG

Goldman Sachs economists led by Jan Hatzius wrote in its latest note published on Sunday, the US economic growth outlook is of bigger significance for the Fed to consider the rate hike, when compared to inflation and wage data that have disappointed over the last months, Bloomberg reports.

Goldman forecasts the Fed to raise rates four times next year, while Fed dot chart showed three rate hikes in 2018.

Key Quotes:

“While we believe the heightened market focus on price and wage data is indeed warranted, we think the market may be under-appreciating the importance of growth indicators for the monetary policy outlook.”

“The Fed does not require rising or above-target inflation to tighten policy on a quarterly basis, so long as the broader economic outlook remains consistent with a return to target.”


07:46 Forex Today: Kiwi a big mover in Asia, Eurozone final CPI on tap

The US tax reform optimism induced risk-on moods extended into Asia, pushing the Treasury yields higher alongside the Asian equities. However, the US dollar failed to extend its Friday’s recovery and somewhat stabilized, as the NZD bulls benefited the most from it. The Kiwi ignored mixed NZ services PMI and consumer confidence data, as the unwinding of shorts continued heading into the NZ Q4 GDP release due later this week. The Aussie traded with mild gains on the back of slightly upbeat Australia’s Mid-Year Economic and Fiscal Outlook (MYEFO) and the recent rally in copper prices. Meanwhile, the Yen remained bettered offered, despite surging Japanese exports and trade surplus.

Main topics in Asia

CME officially launches Bitcoin futures trading

The waiting is over, with Bitcoin futures now officially trading on the Chicago Mercantile Exchange.

Japanese exports grew for a 12th straight month in November

Japanese exports rose for a twelfth straight month in November on the back of buoyant overseas demand and the confidence among nation’s biggest manufacturers is at an 11-year high.

Australia MYEFO: Real GDP growth to rise as the drag from mining investment diminishes

Australia Mid-Year Economic and Fiscal Outlook (MYEFO) released today says the real GDP is seen rising as the drag from the mining investment diminishes.

PBOC raises 14-day reverse repo rate by 5 bps to 2.65%

Having raised the MLF, SLF and reverse repurchase agreements last week in a surprise move after Fed, the Chinese central bank (PBOC) raised interest rates on RR, used for open market operations by 5 basis points for the 14-day tenor on Monday.      

Aus Treasurer Morrison: No real pressure on cash rate to slow housing market

Reuters reports the latest comments from the Australian treasurer Scott Morrison, speaking in a BTV interview.

Key Focus ahead

The European calendar remains data-light, as we kick-off a brand new week, with the only final CPI data to be reported ahead of the German Bundesbank monthly economic report. Meanwhile, the UK docket will see the release of the CBI industrial order expectations numbers. The NA session also sees a quiet start to a big week ahead, with the Canadian foreign securities purchases and US NAHB Housing Market Index data to be released.

EUR/USD bounces in Asia, eyes EZ CPI, US tax vote for fresh impetus

Fresh bids emerged for the EUR/USD pair near 1.1740 levels in early trades, which prompted a bounce back above the 50-DMA support-turned-resistance at 1.1750, as the bulls fight back control kicking-off a brand new week.

GBP/USD - Yield differential favors USD, bull flag on charts

GBP/USD fell sharply on Friday from 1.3448 to 1.3301 as US tax optimism strengthened the bid tone around the US dollar.

This week's key data in the US and Europe - ING

ING’s view on this week’s key data and events in the United States and the Eurozone can be found below, with the team concluding that as policy stands, they look for three 25bp interest rate increases by the Fed in 2018.

What to expect from this week's US economic data? - Nomura

The Economics Team at Nomura expects the US data over the next several weeks, including the present one, to highlight continued momentum in economic growth to close out 2017.

 


07:44 Switzerland: Exports should benefit from higher global demand and weaker CHF - ING

Julien Manceaux, Senior Economist at ING, expects that Swiss exports to have contracted by more than 1% in 2017, which should weigh on GDP growth, despite the recovery in manufactured goods exports.

Key Quotes

“In parallel, the depreciation of the CHF against the euro should bring a positive trend back by the last quarter of 2017. This recovery should continue in 2018. Core industrial sectors have already benefited from the currency move in 17Q3, especially in the chemical and pharmaceutical industry. With the USD weaker, the Swiss trade surplus with the United States should stabilise below 15 Bn USD. Therefore, Bern should not fear to be labelled a currency manipulator by The trump administration in 2018 (which would be the case if the trade surplus were to reach 20 Bn USD).”

Improved exports should allow Swiss companies to invest and hire

Industrial production was growing by 8.6% a year in 3Q17. The recovery in industrial activity, mainly lead by external demand, has brought capacity utilisation back to their 2012 levels. With industries running at almost 83% of capacity, stronger business investments should be observed in coming quarters after 0.9% QoQ observed in 17Q2 and 17Q3. However, this rebound could be dampened by the expected weakening of household investments. Activity in the residential building sector has indeed been abating in recent quarters and the small contraction in household investment witnessed in 17Q3 (-0.1% QoQ) could be repeated in coming quarters. Nevertheless, the rebound in total investments should reach 4% in 2018, supporting GDP growth.”

 


07:42 US Dollar holds steady amid optimism over tax bill

   •  Preserves end of the week recovery led by tax-cut legislation news. 
   •  US government shutdown risk now seemed to cap gains.
   •  US macro data also eyed for fresh directional impetus. 

The US Dollar managed to preserve Friday's modest recovery move led by progress on tax reform legislation. Republicans on Friday put the finishing touches on a sweeping tax code overhaul bill, with a Senate vote expected as early as Tuesday and the US President Donald Trump aiming to sign the legislation by the end of this week. The gains, however, remained limited as investors seemed to opt for a wait-and-see approach until the deal is actually sealed.

Although the long-awaited tax bill is most likely to be passed, the US government also faces the risk of a shutdown if it does not extend the spending limit beyond December 22 and was eventually seen holding traders from placing fresh bullish USD bets. 

Meanwhile, a goodish pickup in the US Treasury bond yields might continue to contribute towards limiting any deeper losses as investors now look forward to this week's key economic releases for some fresh impetus. This week's US economic docket features the release of final GDP growth figures, which along with housing market data, durable goods orders and the Fed's preferred inflation gauge - Core PCE price index, might help investors determine the next leg of directional move.
 


07:39 Australian mid-year budget update: $23.6bn deficit, a $5.8bn upgrade - Westpac

Analysts at Westpac, note that Australian Federal Treasurer Morrison has released the Mid-Year Economic & Fiscal Update (MYEFO) and the economic growth forecasts (real and nominal GDP) have been rounded down for 2017/18 but are unchanged thereafter.

Key Quotes

“The 2017/18 budget deficit is projected to be $23.6bn, some $5.8bn lower than the May Budget forecast of $29.4bn. This is more than accounted for by a $6.9bn boost from revisions to the forecasts.”

“Over the four years to 2020/21, the cumulative deficit is $9.3bn less than expected in May, at $36.6bn currently.”

“The improved budget position is driven by revisions to the forecasts, providing a boost of $11.2bn, with revenues $2.4bn higher and expenses undershooting by $8.8bn. Higher company tax returns and better than expected superannuation tax receipts more than offset the impact of slower wages growth and softer economic growth in 2017/18.”

“The net impact of policy decisions is minimal, at a cost of $1.9bn across the forward estimates.” 

“The Government expects the budget to return to surplus in 2020/21, unchanged from Budget time.”

“The budget balance is forecast to improve from a deficit in 2017/18 of $23.6bn (1.3% of GDP) to a surplus in 2020/21 of $10.2bn (0.5% of GDP).”

“Real GDP growth was downgraded to 2.5% for 2017/18 (from 2.75%) and is unchanged at 3.0% for the remaining three years.”

“Nominal GDP growth was downgraded to 3.50% for 2017/18 (from 4.0%). The profile for the remaining years is unchanged, at: 4.0%, 4.5% and 4.75%.”

“Net debt and gross debt forecasts have been lowered. Gross debt in 2020/21 is now expected to be $583bn, 28.2% of GDP, $23bn lower than in May. Net debt as a share of the economy peaks in 2018/19, as before, but is $12bn lower, at $363bn, 19.2% of GDP.”

“As to risks around the real GDP growth forecasts, Westpac is a little more optimistic for 2017/18 at 2.75%, but expects the economy to slow down in 2018/19 to 2.5%, some 0.5% below the government and 0.75% below the RBA's forecasts. Downside risks are centred on consumer spending and home building activity.”

“On wages growth, the government still expects this to accelerate across the forecast period, albeit with the profile lowered by 0.25% each year to reflect the weaker starting position. The risk is that even this revised profile is too optimistic given ongoing structural headwinds.”


07:34 Switzerland: GDP growth to reach 1.8% in 2018 - ING

The Swiss National Bank will have to wait until late 2019 before the current activity rebound brings inflation back, according to Julien Manceaux, Senior Economist at ING.

Key Quotes

“The Swiss economy has not exactly stood on its own two feet since 2015: the strong appreciation of the CHF following the end of the monetary floor under the EUR/CHF depressed trade while domestic demand was still strong.”

“2017 was the weakest year since 2012, but we expect GDP growth to reach 1.8% in 2018. Both dynamic exports based on a weaker CHF and higher domestic demand should contribute to the rebound.”

“In 2016, the latter was depressed by the lower activity induced by the former. At mid-2017 both legs ended up weak, which explains why 2017 growth is not expected much above 1%, the weakest pace of expansion in the economy since 2012. This should change in 2018 as most indicators point to a rebound at the turn of the year. With the economy back on its two feet again, growth should reach 1.8% in 2018 and 2% in 2019.”

 


07:13 Aus Treasurer Morrison: No real pressure on cash rate to slow housing market

Reuters reports the latest comments from the Australian treasurer Scott Morrison, speaking in a BTV interview.

Key Headlines:

We expect stronger wage outcomes over the next 4 years.

Income tax cuts are 'totally realistic'.

No risk of high rates being realized right now.

No real pressure on cash rate to slow housing market.


07:09 RBNZ: New year, new Governor Westpac

One of the lingering uncertainties about the NZ’s economic outlook has been the potential impact of looming changes at the RBNZ and the most important question on this front is how policy will respond to the planned expansion of the RBNZ objectives to include a focus on employment, according to analysts at Westpac.

Key Quotes

“We’ve been wary of the dual mandate as it might make it harder for the Reserve Bank of raise rates when inflation is too high, since that could conflict with a directive to maximise employment.”

“However, some of that uncertainty around the outlook for monetary policy has dissipated following the announcement that Adrian Orr will take over as RBNZ Governor in March. Mr Orr is currently the head of the NZ Super Fund. He has previously held senior roles at the RBNZ and was Chief Economist at Westpac. With his extensive experience in economic policy, we would expect that the RBNZ will remain realistic about what impact monetary policy can have on the economy in the long run, while still focusing on employment over the economic cycle.”


07:01 PBOC raises 14-day reverse repo rate by 5 bps to 2.65%

Having raised the MLF, SLF and reverse repurchase agreements last week in a surprise move after Fed, the Chinese central bank (PBOC) raised interest rates on RR, used for open market operations by 5 basis points for the 14-day tenor on Monday.

The PBOC published a statement announcing that it raised the 14-day rate to 2.65% from 2.60%.


06:59 China: Signs of stabilisation for housing - Westpac

Elliot Clarke, Research Analyst at Westpac, explains that the Chinese house price update for November is very similar to October’s report, albeit with a little more momentum in the established market.

Key Quotes

“A net 57% of cities across both new and existing housing experienced price gains in the month. That compares to 51% and 39% respectively in October.”

“For new housing, there was very little change in the annual growth figures across the three tiers. Tier 1 growth was again little better than flat, 0.7%yr. Meanwhile, tier 2 and 3 continued to show robust momentum, tier 2 edging higher from 5.2% to 5.4% as tier 3 ticked down from 6.1% to 5.8%.”

“Within tier 1, there was a greater sense of stability, the annual rates little changed. This was true from Shenzhen (–3%) to Guangzhou (7%). The range of outcomes across tier 2 and tier 3 remain diverse, tier 2 seeing outcomes between –1% and +12%, and tier 3 from –2% to +14%.”

“Established market outcomes for tier 2 and 3 are very similar at 6% and 5% respectively. But, for the established market, tier 1 has held up better, +3%.”

“The investment detail continues to point to a loss of momentum into 2018, with sales and starts trending down as the growth rate of floor space under construction remained relatively stable.”

“However, given the still-significant development yet to be undertaken across the nation, there is a lower bound to this downtrend – particularly in the outer tiers.”

“Developers continue to bid strongly for future development sites, showing their confidence in the outlook. China’s households are also lightly levered versus their developed-world counterparts. The consequence is structural support for housing demand as well as supply.”

“Through 2018 and 2019, we anticipate a more modest but still positive pace of housing investment growth across the nation.”

“This will be complemented by further subdued investment by the public sector in essential infrastructure. The net effect for GDP growth is that we anticipate gains of 6.2% and 5.9% in 2018 and 2019, from 6.8% in 2017.”


06:49 Crypto Today: Bitcoin drops post-CME futures launch

Having reached fresh record highs above $ 19600 levels on Bitcoin on the Luxembourg-based Bitstamp exchange on Sunday, Bitcoin (BTC/USD), the world’s largest trading cryptocurrency, eroded nearly $ 2000 and dipped to $ 17,850 before recovering more-than a quarter of the recent slide to now trade around the $ 18,800 mark, modestly flat on the day.

Bitcoin rallied to all-times on the news that CME Group launched bitcoin futures, although reversed sharply, tracking a 6% drop in the futures contract within the first half hour of its open.

At the time of writing, XBT on CBOE advances over 6% to trade at $ 19,230, reversing from $ 20,500 levels. Meanwhile, the CME bitcoin front-month futures opened at $20,650 and have so far traded as low as $19,290 and as high as $20,650.

Meanwhile, its rivals Ethereum (ETH/USD) and Bitcoin Cash, the second and third largest cryptocurrency behind bitcoin respectively, in terms of the market capitalization, traded mixed. At the time of writing, ETH/USD drops -0.60% to trade at $ 717.95 levels, while Bitcoin cash rises +1.44% dives nearly 8% to $ 1853.44.  

Meanwhile, Bitcoin sits at the market capitalization of $ 319.65 billion, almost 55% of the the total market capitalization of the cryptocurrencies that sits at $ 584.57 billion.


06:31 NZ: The shifting landscape Westpac

The past year has seen some big changes in the economic landscape, and further changes are on the cards over 2018, according to analysts at Westpac.

Key Quotes

“This week’s GDP report is expected to show that economic growth slowed to just 0.4% through the September quarter. In part, this slowdown reflects the impact of some temporary factors. Poor weather through the middle part of the year put a dampener on agricultural production. We’ve also seen earlier boosts to demand in the tourism and hospitality sectors fading following high profile sporting events in the first half of 2017.”

“However, even smoothing through those temporary disruptions, the New Zealand economy has lost some steam. We expect that GDP growth over 2017 as a whole will come in at just 2.4%. That’s down from 3% over 2016. And after adjusting for rapid population growth over the past year, we’re left with a picture of relatively flat per capita economic growth.”

“But while the pace of overall growth has eased off, the final months of the year have seen signs of resilience in some key parts of the economy. Most notably, the housing market has found a new (though likely temporary) lease on life, with house sales posting solid gains through October and November. We’ve also seen a re-acceleration in house price inflation in parts of the country including Auckland. Importantly, this resurgence in the housing market appears to have also given spending a shot in the arm, with electronic cards transactions rising by more than expected in November.”

“Increasing headwinds expected over 2018

  • GDP growth is likely to remain fairly modest over the coming year. We’re forecasting economic output will rise by only 2.4% over calendar 2018.
  • We think the Government is being far too optimistic about the outlook over the next few years. In particular, the HYEFU forecast assumes an acceleration in GDP growth to 3.5% over 2018, underpinned by firmness in both investment spending and household consumption. Both of those assumptions look doubtful to us. As well as the downside risks for the housing market and household spending highlighted above, businesses we’ve spoken with in recent weeks have told us that they are extremely nervous about the outlook. We expect that this will be a significant drag on investment spending and hiring over the coming year.
  • If GDP growth doesn’t accelerate to the extent that the Treasury is projecting, the risk is that future revenue will fall short, requiring the Government to either rein in some of its spending plans, find additional sources of revenue, or abandon its commitment to reducing net debt so rapidly. This vulnerability isn’t unique to the new Government: we made similar comments at the time of the May Budget. And since our point of disagreement relates to the outlook for economic growth several years ahead, it’s likely that our concerns will remain for some time.”

 


06:21 Australia: Wellbeing at its highest since 2013, but high anxiety still impacting one in four - NAB

The wellbeing of Australians has hit its highest point in four years driven mainly by lower levels of anxiety, according to research released today by NAB.

Key Quotes

“NAB’s Q3 Wellbeing Report revealed that wellbeing was highest among widows, men and women over the age of 50, Tasmanians and two-person households, and lowest among single people, labourers, 30-49 year olds, those earning less than $35,000 per year, and young women.”

“NAB Chief Economist Alan Oster said that while anxiety had improved, it was still affecting a significant number of Australians.”

“This research indicates that while Australians are overall less anxious, one in four Australians report high anxiety.”

“We also see a correlation between wellbeing and income, with wellbeing the highest for those in the top income group, and the lowest among those earning the least,” said Mr Oster.”

“Factors affecting anxiety

  • With one in four Australians reporting high anxiety, NAB’s research asked respondents what they believe would help reduce their anxiety.
  • Around 1 in 4 believed getting more rest or sleep and improving their financial position would help most.
  • Women also believe that they would benefit from having more time, Mr Oster said.
  • “We found by gender, almost twice as many women said having more time for themselves would have helped them than did men.”

06:10 Chinas NDRC issues guidelines for overseas investment by private firms

China’s National Development and Reform Commission (NDRC) spokeswoman Meng Wei noted on Monday that the country’s top state planner issued new guidelines for overseas investment by private companies, aiming to resolve some cases of firms violating policies, engaging in unfair competition and poor safety and quality management, Reuters reports.

Meng said: “Private companies should comply with domestic and overseas procedures and engage in fair competition with regard to overseas investment.”


06:04 USD/CAD bettered offered, losing sight of 1.29 handle?

  • DXY on the defensive ahead of the US tax reform vote.
  • BOC’s Poloz comments, Oil prices underpin CAD.
  • A big week ahead: Canada CPI and US GDP eyed.

Having failed yet another upside attempt near 1.29 handle, the USD/CAD pair turns back lower, now extending its retreat towards the midpoint of the last.

USD/CAD: 1.2900 – a tough nut to crack

The Canadian dollar is seen recovering ground against its American counterpart from near weekly tops, as the BOC Governor Poloz’ hawkish comments continue to boost the local currency. In an interview with BOC Governor Poloz published on the weekend in the Globe & Mail, the Canadian central bank chief said that his word of caution on the markets doesn’t mean he is going to sit back and not go for the next rate hike.

Additionally, last week’s remarks from Poloz, citing that he was 'increasingly confident' that the economy would need less monetary stimulus over time, also remains CAD-supportive.

However, the renewed uptick in the CAD is likely to remain short-lived, as the US dollar is expected to resume Friday’s recovery on the back of the US tax reform optimism, tracking the bullish tone seen around the US Treasury yields across the curve.

Calendar-wise, there is nothing of note, except for the Canadian foreign securities purchases, as attention turns towards the Canadian CPI and retail sales release ahead of the US final GDP and durable goods data.

USD/CAD Technical View

The immediate support for the pair aligns at 1.2848/40 (200, 10 & 5-DMA) ahead of 1.2804 (20-DMA) and 1.2776 (50-DMA). On the upside, resistances could be seen at 1.2892/93 (key resistances), 1.2915 (Oct 31 high) and 1.2950 (psychological levels).


05:53 GBP/USD - Yield differential favors USD, bull flag on charts

  • Yield differential favors downside in the GBP/USD pair.
  • Still, the bull flag pattern on the daily chart keeps GBP bulls in the game.

 

GBP/USD fell sharply on Friday from 1.3448 to 1.3301 as US tax optimism strengthened the bid tone around the US dollar.

Currently, the 10-year US-UK bond yield differential stands at 122 basis points (bps); the highest level since Jun. 12. The rising yield spread adds credence to the lower highs pattern seen on the daily chart and indicates scope for a drop to 50-day MA of 1.3263. Also, short-term UK-US rate differential crashed to new YTD lows on Friday.

Still, all is not lost for the bulls as the daily chart shows a bull flag pattern. An upside break could revive the rally from the Nov. 13 low of 1.3062.

Focus on Brexit deal

Mario Blascak, Chief European Analyst at FXStreet, writes, "The shape of the Brexit deal is by far most important factor for the currency market. This is also what the bank of England has been saying in its December policy statement."

He adds, "With all the important events this year over, the GBP/USD is likely to remain within the broader range of $1.3210-$1.3450 for extended, pre-Christmas and post New Year period of time."

GBP/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik writes, "the daily chart for the pair shows that technical indicators have turned sharply lower, entering bearish territory, but also that the price holds far above its 100 and 200 SMAs, with the shortest now around 1.3230. Shorter term, and according to the 4 hours chart, the risk has lean towards the downside, as technical indicators entered negative territory, although with the downward momentum easing, while the decline accelerated on a break below the 100 SMA, and neared the 200 SMA, now a relevant support at 1.3285.

Support levels: 1.3310 1.3285 1.3230

Resistance levels: 1.3360 1.3400 1.3445

 


05:33 Nikkei: Japanese pension fund to shoulder costs of BOJ s negative rate - RTRS

The Nikkei Asian Review, a Japanese newspaper, reported that the world’s largest pension fund, Japan’s Government Pension Investment Fund (GPIF), has decided to shoulder the costs charged on its deposits under the Bank of Japan’s negative rate policy, as cited by Reuters.

Key Points:

“The move puts GPIF in line with other institutional investors, some of which had agreed to accept the cost of negative rates.

The BOJ says about 7 trillion yen ($62 billion) overseen by all trust banks are subject to the minus rate.

GPIF, which manages roughly 157 trillion of pension savings for Japanese nationals, posted a 2.97 percent return on its investment in the July-September quarter as global stocks rallied.

But its domestic bond portfolio returned just 0.16 percent in the quarter, as the BOJ kept government bond yields around zero percent under its ultra-easy monetary policy.”


05:16 More than half of Britons now want to stay in EU -poll - Reuters News

As per Reuters poll, 51 percent of Britons would now keep European Union membership while 41 percent want to leave the bloc. This marks a near reversal of last year's referendum result.

In the referendum last year, 52 percent of Britons voted to leave the EU and 48 percent voted to remain.


05:12 Moodys: Still sees risks Australia deficits overshoot Govt estimates

Despite a slightly upbeat Australia’s Mid-Year Economic and Fiscal Outlook (MYEFO) released earlier today, the US-based ratings agency, Moody’s Investors Service, still sees the risks that the Australian deficits could overshoot the government estimates.


05:05 New Zealand: Indications for Q4 GDP look a little stronger - ANZ

Analysts at ANZ came out with their latest view on what to expect from the fourth quarter New Zealand GDP data due on the cards this Thursday.

Key Highlights:

“Indications for Q4 look a little stronger.

The bank retains a generally positive view on medium-term growth prospects.

But see the potential for growth over the next few quarters to remain somewhat mediocre and sub-trend on the back of headwinds:

  • From the softer housing market
  • Transitioning in terms of its growth drivers
  • Unease regarding the new political direction
  • Dry weather potentially hampering agricultural production

See reasonable prospects of a growth wobble.”


05:00 EUR/USD bounces in Asia, eyes EZ CPI, US tax vote for fresh impetus

  • Bounces on fresh DXY selling.
  • Back above 50-DMA barriers at 1.1750.
  • Eurozone final CPI, US tax reforms in focus.

Fresh bids emerged for the EUR/USD pair near 1.1740 levels in early trades, which prompted a bounce back above the 50-DMA support-turned-resistance at 1.1750, as the bulls fight back control kicking-off a brand new week.

EUR/USD: Will it sustain the bounce?

Amidst broad-based US dollar weakness ahead of the US tax reform votes, the main currency pair caught a fresh bid and paused its two consecutive days of declines, now making headways towards the 1.18 handle ahead of the Eurozone final CPI figures due later in the European session. The Eurozone final CPI is expected to confirm a 1.5% reading, the seen in the prelim release.

The Euro also continues to derive some support from the upward revisions made to its growth projections by the ECB last week, while solid Eurozone fundamentals, including a raft of solid manufacturing PMI reports, also helps underpin the sentiment around the spot.

More so, Friday’s US CFTC commitment of traders’ report that showed the EUR net longs increased to the highest levels since May 2007, also lifts the sentiment around the common currency so far this session. The EUR longs increased in the current week to 114K - a change of 21k. 

Looking ahead, it remains to be seen whether the major can sustain the latest upmove, in the wake of the US political developments surrounding the tax reforms and ahead of the key US macro news, including the final GDP and durable goods data.

EUR/USD Technical Outlook

Valeria Bednarik, Chief Analyst at FXStreet, explains: “Shorter term, and according to the 4 hours chart, the risk has also turned toward the downside, as the pair settled below all of its moving averages, while the Momentum indicator entered bearish territory as the RSI indicator heads south around 42. The pair has a major support around 1.1715, where it bottomed twice in the last four weeks. Support levels: 1.1715 1.1660 1.1620. Resistance levels: 1.1770 1.1830 1.1870.”


04:50 NZD/USD moves above 0.7 despite bearish MA cross

  • Kiwi mildly bid, trades above 0.70.
  • Ignores bearish pin bar and bearish 100-day MA & 200-day MA cross.
  • The unwinding of NZD shorts behind the positive action.

The NZD/USD pair is back above 0.70 levels despite Friday's bearish pin bar candle and a bearish 100-day MA and 200-day MA crossover.

As of writing, the Kiwi is trading at 0.7010 levels. The pair rose to 0.7034 on Friday; the highest levels since Nov. 20, only to fall back to 0.6988 by NY closing. The decline from 0.7034 to sub 0.70 levels highlights the "sell on the rise" mentality.

So, it remains to be seen if the spot manages to latch on to the gains above 0.70 handle today. Reuters report says, "the NZD is benefitting from the unwinding of large shorts taken after NZ election".

Ahead in the day, the US tax reform optimism and the resulting rise in the treasury yields could cap the upside in the pair.

NZD/USD Technical Levels

A close above 0.7034 (Friday's high) would signal a continuation of the rally from the Dec. 8 low of 0.6822. The attention would then shift to 0.7104 (200-day MA) and 0.7131 (Aug. 31 low). On the downside, breach of support at 0.6979 (Friday's low) could yield a pullback to 0.6933 (50-day MA) and 0.6925 (10-day MA).

 


04:46 BoJ s massive bond holdings pace seen expanding even more slowly in 2018 BBG Survey

According to the latest Bloomberg survey, a majority of the economists surveyed believe that the BoJ will continue to slow its pace of massive bond buying in 2018.

Key Findings:

“The central bank will increase its Japanese government bond holdings by about 44 trillion yen ($392 billion) next year

That’s well below the BOJ’s 80 trillion yen annual guideline and a considerable drop from the 61 trillion yen increase that was seen in the 12 months through the end of November, according to calculations by Bloomberg.

More than a third of surveyed economists forecast the central bank will raise its target for 10-year bond yields next year from the current level of 0 percent.

None of the 44 economists surveyed by Bloomberg forecast any policy changes at the next BOJ board meeting on Dec. 20-21.”


04:25 Senator Cornyn: Confident the Senate will pass tax legislation, probably Tuesday - RTRS

Reuters reported John Cornyn’s, the No. 2 US Senate Republican, interview with ABC, with the key comments found below.

“This Week” that he was “confident” the Senate would pass the legislation, “probably on Tuesday.”

Meanwhile, Brady, the House of Representatives’ top tax writer said on Fox News:

“I think we are headed - the American people are headed - for a big win on Tuesday.”

“Sunday Morning Futures with Maria Bartiromo.”

“We’ve worked hard to make sure that those strange Senate rules don’t hang this up in any way,”

“I am confident that’s the case.”

The US Congress is expected to pass a tax code overhaul this week, with a Senate vote as early as Tuesday and President Donald Trump aiming to sign the bill by week’s end.


04:24 AUD/USD risk reversals hit 5-month high

  • Risk reversals indicate falling demand for AUD bearish bets.

The one-month 25 delta risk reversals rose to -0.425 today; the highest level since July 27.  The steady rise from the November low of -0.80 indicates falling demand for the AUD put options (bearish bets).

It adds credence to the recovery in the 10Y AU-US yield spread from the Nov. 30 low of 10 basis points to 20 basis points. However, the AUD/USD still trades below the 200-day MA of 0.7692.


04:15 China press: PBOC does not need to follow Fed in raising interest rates

Bloomberg came out with the headline reported by China’s the Economic Information Daily in its latest article, citing that PBOC does not need to follow Fed in raising interest rates.

The piece was reported after the PBOC raised the MLF, SLF and RR rates in a surprise move after Fed".


03:56 AUD/USD - mildly bid, peeps above 23.6% Fib after MYEFO release

  • AUD/USD regained bid tone after MYEFO release. 
  • Rises above 23.6% Fib retracement hurdle.
  • Focus on yield spread. 

AUD/USD regained the bid tone and moved above 0.7648 (23.6% Fib R of Sep/Dec sell-off) following the release of Australia Mid-Year Economic and Fiscal Outlook (MYEFO). 

As of writing, the pair is trading at 0.7650; up marginally compared to Friday's close of 0.7640. As per MYEFO, Australia's real GDP is seen rising as the drag from the mining investment is falling. 

Real GDP is forecast to grow by 2½ percent in 2017-18 and 3 percent in 2018-19, compared to 2.0 percent achieved in 2016-17 and Budget forecasts of 2¾ percent and 3 percent for 2017-18 and 2018-19 respectively. Meanwhile, Nominal GDP is forecast to grow by 3½ percent in 2017-18 and 4 percent in 2018-19. Also, growth in consumption is expected to pick up over the forecast period in response to strengthening labor market conditions.

Elsewhere, China house price index dropped to 5.1 percent in November from 5.4 percent in October.  

Ahead in the day, the US tax reform optimism could weigh over the AU-US yield spread and thus cap the upside in the AUD/USD pair. Bill Evans, Chief Economist at Westpac, says a sustained period of negative Australian vs US rate spreads, could yield a move down to USD 0.68 in 2019, with downside risks. 

AUD/USD Technical Levels

Jim Langlands from FX Charts writes, "the short-term indicators are now pointing lower, and a run back towards 0.7620/30 would not surprise, below which would allow a run back to 0.7600 and possibly to 0.7575/80. The dailies still currently look positive but as I said previously, now that US rates are at parity with Australian rates I do not really think that the Aud has too much upside from here, and I would be looking for levels to sell into strength.

Resistance today lies at 0.7665/70

Sell AudUsd @ 0.7670. SL @ 0.7705, TP @ 0.7580

 


03:32 China House Price Index fell from previous 5.4% to 5.1% in November


03:21 Australia MYEFO: Real GDP growth to rise as the drag from mining investment diminishes

Australia Mid-Year Economic and Fiscal Outlook (MYEFO) released today says the real GDP is seen rising as the drag from the mining investment diminishes.

Key points

  • Real GDP is forecast to grow by 2½ percent in 2017-18 and 3 percent in 2018-19, compared to 2.0 percent achieved in 2016-17 and Budget forecasts of 2¾ percent and 3 percent for 2017-18 and 2018-19 respectively.
  • Nominal GDP is forecast to grow by 3½ percent in 2017-18 and 4 percent in 2018-19.
  • The 2017-18 forecast is lower compared with Budget, largely reflecting recent subdued outcomes for wage growth and domestic prices.
  • Commodity prices remain a key uncertainty to the outlook for the terms of trade and nominal GDP.
  • Household consumption is forecast to grow by 2¼ percent in 2017-18 and 2¾ percent in 2018-19.
  • Growth in consumption is expected to pick up over the forecast period in response to strengthening labour market conditions.
  • Business investment is expected to grow at a stronger pace than forecast at Budget. It is forecast to grow by 2 percent in 2017-18 and 3 percent in 2018-19.
  • Growth in non-mining business investment was stronger than expected in 2016-17 and is forecast to remain solid at 5 percent in both 2017-18 and 2018-19.
  • Exports are forecast to grow by 3 percent in 2017-18 and 4 percent in 2018-19.
  • Imports are forecast to grow by 3 percent in 2017-18 and 2½ percent in 2018-19.
  • Consumer prices are forecast to increase by 2 percent through the year to the June quarter 2018, before accelerating to 2¼ per cent through the year to the June quarter 2019.
  • Budget deficit seen at AUD 23.6 billion.

03:17 PBOC sets USD/CNY at 6.6162 vs 6.6113

PBOC sets USD/CNY at 6.6162 vs 6.6113


03:10 AUD/USD - below 23.6% Fib, eyes yield differential & budget update

  • AUD flat lined below 0.7648 (23.6% Fib R of Sep/Dec decline).
  • Negative Aus-US rate spreads could hurt AUD.
  • Focus on the Aussie mid-year budget update.

AUD/USD is trading in a sideways manner below 0.7648 levels in Asia as investors await the Aussie mid-year budget update.

According to Westpac, forecast nominal GDP growth for 2017/18 is likely to be upgraded to 4.5% from 4.0% at Budget time.

While the upward revision of the GDP would be AUD positive, still sustained gains would require a sharp rise in the AUD-US yield spread. Bill Evans, Chief Economist at Westpac fears that a sustained period of negative Australian vs US rate spreads could lead to a move down to USD 0.68 in 2019, with downside risks. 

Evans expects the Fed to hike rates twice in 2018. He adds, " That would see the AUD/USD yield differential in the overnight market contract to minus 38 basis points – a situation we have not seen early 2000. A heavy toll will be taken on the AUD with the currency forecast to fall to USD 0.70 by the end of 2018."

AUD/USD Technical Levels

Jim Langlands from FX Charts writes, "the short-term indicators are now pointing lower, and a run back towards 0.7620/30 would not surprise, below which would allow a run back to 0.7600 and possibly to 0.7575/80. The dailies still currently look positive but as I said previously, now that US rates are at parity with Australian rates I do not really think that the Aud has too much upside from here, and I would be looking for levels to sell into strength.

Resistance today lies at 0.7665/70

Sell AudUsd @ 0.7670. SL @ 0.7705, TP @ 0.7580


02:37 Japanese exports grew for a 12th straight month in November

Japanese exports rose for a twelfth straight month in November on the back of buoyant overseas demand and the confidence among nation’s biggest manufacturers is at an 11-year high.

A Bloomberg report says, "a yearlong recovery in exports has kicked Japan into a high gear, fueling record profits and rising capital spending during the longest economic expansion since the mid-1990s."

Key points (Source: Bloomberg)

  • The value of exports rose 16.2 percent in November.
  • Imports increased 17.2 percent
  • The trade surplus was 113.4 billion yen ($1 billion).
  • Japan’s adjusted trade balance showed a surplus of 364.1 billion yen.
  • Exports to China, Japan’s largest trading partner, rose 25.1 percent from a year earlier.
  • Exports to the US rose 13 percent.

 


02:34 Australia New Motor Vehicle Sales (YoY) climbed from previous 1% to 2.1% in November


02:33 Australia New Motor Vehicle Sales (MoM): 0.1% (November) vs 0%


02:27 USD/JPY adds 20 pips in Asia as T-yields rise

  • Treasury yields lift USD.
  • USD/JPY runs into 5-day MA hurdle.
  • Increased likelihood that US tax bill will be passed this week.

A minor uptick in the US 10-year treasury yield in Asia has put a mild bid under the greenback and has lifted the USD/JPY pair higher to 112.76 (5-day MA).

The pair was last seen attempting a break above the 5-day MA hurdle and the 10-year treasury yield was up 2.65 basis points at 2.369 percent (Friday's close was 2.344 percent).

Pushing the yields and the USD higher this Monday morning is the increased odds of the US tax bill being passed by the end of this week.

Still, the downward sloping 5-day MA is proving a tough nut to crack, seemingly due to the upbeat Japanese data released today. The Bank of Japan (BOJ) Tankan survey released today showed Japanese companies expect consumer prices to rise an average 0.8 percent a year from now vs 0.7 percent three months ago. Also, Japan reported export growth for the record twelfth straight month.

Ahead in the day, the bid tone around the USD could strengthen further if the treasury yields extend the Asian session gains. The data calendar is light, thus spot remains at the mercy of US tax reform optimism.

USD/JPY Technical Levels

Jim Langlands from FX Charts prefers buying USD/JPY into weakness. He writes, "although the daily charts remain neutral, the short term momentum indicators point higher at the start of the week and if 112.75/85 can be overcome we could then see a return to 113.00 and above, where 113.20/25 should see sellers ahead of the December high of 113.75.

Dips could see a run back to 112.00/20 but buying into short term weakness currently seems to be the plan, with a tight SL placed below 111.90

Buy US$Jpy @ 112.20. SL @ 111.85, TP @ 113.25

 


01:53 Japan Adjusted Merchandise Trade Balance came in at 364.1B, above expectations (342.4B) in November


01:52 Japan Merchandise Trade Balance Total came in at 113.4B, above expectations (-54.9B) in November


01:51 Japan Exports (YoY) registered at 16.2% above expectations (14.6%) in November


01:51 Japan Imports (YoY) below forecasts (18%) in November: Actual (17.2%)


01:49 What to expect from today s Aus Federal budget mid-year update? - Westpac

Today's Australian Federal Government's Mid-Year Economic and Fiscal Outlook, due at 1.15 GMT, is expected to confirm the broad profile for the budget balance, as set out in the May Budget, according to Westpac.

Key Quotes

On the economy: forecast nominal GDP growth for 2017/18 is likely to be upgraded to 4.5% from 4.0% at Budget time, on upside to commodity prices; while real GDP growth is on track for the forecast 2.75%. For the out years, the economic forecasts are likely to be little changed.

The stronger starting position for the economy boosts revenues, while a likely small undershoot on expenditures could be used to fund modest new initiatives. • On our figuring, the forecast budget deficit for 2017/18 is $2.4bn smaller, at $27.0bn vs $29.4bn at budget time.


01:25 CME officially launches Bitcoin futures trading

The waiting is over, with Bitcoin futures now officially trading on the Chicago Mercantile Exchange.

The Bitcoin Reference Rate (BRR) trades at $19,448.28, an index formed via several bitcoin exchanges and trading platforms, including Bitstamp, GDAX, itBit and Kraken.

Patrick Thompson, writing for CoinTelegraph, notes: "The first CBOE contracts will expire on Jan. 17, 2018, and the first CME Group contracts will expire on Jan. 26, 2018. Because Bitcoin futures trading has never occurred before, this unprecedented event could have a significant impact on the Bitcoin economy."

The initial price action seen in Bitcoin across the board indicates shorts have got an early upper hand, as price attempts to break sub $19k in some of the centralized exchanges such as Bittrex. There are concerns that we might be in the midst of a buy the rumor sell the fact type of event, by which the market has been incentivized to bid up the prices of Bitcoin in anticipation of the BTC futures listing in both the CBOE and CME, only to sell-off when the actual event if confirmed. 


01:03 US tax reform: Latest developments in Washington - Nomura

According to Nomura's Economics Team, despite last-minute negotiations, they expect a final passage of the US tax bill by year-end, likely by the end of this week.

Key Quotes

On Friday, Republicans signed the conference report that reconciled the House and Senate tax bill passed by each chamber. Despite last-minute negotiations, we continue to expect final passage of the tax bill by year-end, likely by the end of next week. The House and Senate will both need to vote on the conference bill, the text of which should be released this evening, before the final legislation can be sent to President Trump.

On Thursday, House Speaker Ryan (R-WI) indicated that Congressional Republicans will seek to use budget reconciliation, the vehicle for tax reform and the attempted repeal and replacement of the Affordable Care Act (ACA), to reform the US entitlement system in 2018, focusing in particular on welfare programs. Thus, government programs and fiscal policy could again take center stage next year.

Next week, Congress will need to extend the government’s spending authority beyond Friday to avert a government shutdown. This deadline was the result of the temporary two-week extension passed last week. After taking care of tax reform at the beginning of the week, we expect Congress to pass another continuing resolution that will extend the spending authority into January 2018. This should provide more time to negotiate a longer-term spending agreement. Note that the debt limit will also need to be addressed sometime in Q1 2018, with more uncertainty than usual around the projected X-date.1 Democrat Doug Jones won Alabama’s special election for US Senate, defeating Republican Roy Moore in a state that President Trump won by 28pp in the presidential election.

Jones’ victory narrows the Republican majority in the Senate to 51-49. It may also be a troubling indication for Republicans’ prospects in the 2018 congressional midterm elections. Similarities between the 2010 and 2018 election cycles are becoming increasingly apparent: roughly a year before the 2010 (2018) midterms, Democrats (Republicans) lost a special senate election in Massachusetts (Alabama), after President Obama (Trump) had won the state by 26pp (28pp) just a year earlier. The 2010 midterms turned into a wave election for Republicans, shifting control of the House. Importantly, this week’s election in Alabama indicates that President Trump’s ability to empower his preferred candidates to victory may be limited.


00:55 This week s key data in the US and Europe - ING

ING’s view on this week’s key data and events in the United States and the Eurozone can be found below, with the team concluding that as policy stands, they look for three 25bp interest rate increases by the Fed in 2018.

Key Quotes

In the US markets are clearly settling down for the Christmas period, but there are still events worthy of note. 3Q GDP is unlikely to be revised in any meaningful way from its latest 3.3% reading, but we will be focusing on the industrial data to give us a better handle on how 4Q GDP is shaping up. Business surveys are at very strong levels, suggesting another 3% figure looks likely and this view should get some support from robust durable goods orders and another healthy industrial production growth reading. With inflation not far from target and the Federal Reserve signalling an appetite to continue hiking rates we look for three 25bp interest rate increases in 2018.

The entire Eurozone will bring the economic year 2017 to a close next week. In the typical post-ECB calmness, the Ifo index will be the only possible market-mover. It will be the first test case of how the German economy has reacted to the collapsed coalition talks. We will probably see more evidence of the phenomenon that politics does hardly have any short-term impact on the economy.


00:32 BoC s Poloz plays down forward guidance into 2018

Bank of Canada Governor Poloz was interviewed by the Globe & Mail over the weekend, playing down forward guidance ahead of possible further rate hikes into 2018.

Key Quotes

I'm confident that other central banks, now that we are getting much more into normalcy, will gradually temper down the details around their forward guidance, too.

I'm not going to judge whether the market got it right or not. But it does seem like the market has a tendency to seize on a new word as if it's a new secret code.

Caution does not mean sitting back and doing nothing.

We need to get ourselves up there for real, and to the 2-per-cent zone, so we have room to manoeuvre for the next shock that comes along.


00:16 What to expect from this week s US economic data? - Nomura

The Economics Team at Nomura expects the US data over the next several weeks, including the present one, to highlight continued momentum in economic growth to close out 2017.

Key Quotes

NAHB housing market index (Monday): Home builders have shown high optimism so far in 2017. We expect them to remain optimistic in December and we forecast a reading of 71 for the NAHB housing market index, up 1.0pp from November. Structural factors such as a lack of developable lots, skilled labor shortages, and rising building material prices pose headwinds. However, we expect strong consumer demand against the backdrop of the solid labor market to boost home builders’ confidence.

Housing starts (Tuesday): We expect November housing starts to fall 5.0% m-o-m to an annualized rate of 1226k, from 1290k. Single-family housing starts in October rebounded as construction activity returned to its previous trend after weather-related disruptions. We expect a more gradual increase in November. For multi-family housing starts, we expect strong negative payback following a sharp 36.8% increase in October. We maintain that multifamily housing starts will likely remain subdued considering the ongoing high supply relative to demand. Further, despite high vacancy rates, the number of multi-family residential buildings under construction remains elevated and completions of these properties are on the rise. This suggests that the imbalances in rental housing markets will likely persist in the near term. For housing permits, we expect a decline of 2.0% to an annualized rate of 1290k as the series returns to its trend after increased volatility caused by the recent hurricanes.

Existing home sales (Wednesday): We expect November existing home sales to fall marginally by 0.6% m-o-m to an annualized pace of 5445k, from 5480k. We think a strong increase in October was transitory, reflecting pent-up demand following the recent hurricanes. Over the near and medium term, we think supply constraints will continue to dampen sales. 

Initial jobless claims (Thursday): Considering healthy labor market conditions, we continue to expect initial and continuing unemployment insurance claims to remain low. The incoming data suggest a continued downtrend. For the week ending 9 December, initial jobless claims declined 11k to 225k, near the recent post-crisis low of 223k and consistent with sustained labor market momentum. The four-week moving average of this series was at 235k. We expect this trend to persist over the near to medium term as the labor market remains strong.

Philly Fed survey (Thursday): The manufacturing sector has improved solidly, contributing to the recent uptick in economic growth in 2017. We forecast a reading of 24.0 for December’s Philly Fed survey general business conditions index. In November, the index moderated but remained firmly in positive territory with strength in new orders and shipment indexes, reflecting elevated momentum. We expect this trend to continue in the near term.

Q3 GDP, third estimate (Thursday): The BEA’s second estimate of Q3 real GDP growth was 3.3%. We expect the BEA to maintain this estimate in its final report. Incoming data on manufacturers’ inventories were modestly weaker than the BEA’s assumptions, while wholesalers’ inventories were slightly stronger. Further, the final Quarterly Services Survey for Q3 implies slightly less investment in intellectual properties and PCE services. However, the upward revisions to core retail sales for prior months imply stronger non-auto PCE goods, which may have offset downward revisions to other GDP components.

Personal income and spending (Friday): We forecast a steady 0.4% m-o-m increase in personal income in November. As for spending, we expect a 0.5% increase. The recent strong pace of job creation and low unemployment have likely been supportive of continued growth in personal spending, translating to healthy increases in both goods and service spending. However, spending on autos likely fell in the month as incoming light vehicle sales data suggest waning replacement demand following the recent hurricanes.

PCE deflator (Friday): Incorporating November PPI and CPI data, our forecast for the core PCE price index is a modest 0.1% (0.117%) m-o-m increase. Most relevant components of the PPI, such as medical care, financial services and air transportation, increased only moderately. This suggests the detailed components of the PPI will likely make a modest contribution to core PCE inflation in November. If our forecast proves correct, on a 12-month basis, core PCE inflation would inch up to 1.5% (1.525%), from 1.4% (1.447%) previously. However, there remains a degree of residual seasonality in core PCE inflation which tends to be negative in November and December. This residual seasonality could push down core PCE m-o-m inflation by a few basis points. To that extent, the balance of risk to our forecast is tilted slightly to the downside.For noncore components, we expect PCE food prices to fall marginally in November, reflecting relevant November CPI data. PCE energy prices will likely jump sharply as did relevant indices in the CPI report. Altogether, our forecast for the aggregate PCE index is a 0.3% increase, which translates into a 1.8% y-o-y increase. 

Durable goods orders (Friday): We forecast an increase of 0.5% m-o-m in durable goods orders excluding transportation equipment for November. The momentum in the manufacturing sector has remained elevated in recent months. The new orders index of the November ISM manufacturing survey improved further from October, consistent with elevated activity. We expect this healthy momentum to have continued in November. For aggregate durable goods orders, we expect a 2.0% increase. A sharp increase in civilian aircraft orders likely pushed up transportation equipment orders in the month. Considering the recent slowdown in light vehicle sales, we expect only a modest increase in orders of autos and auto parts.


00:07 Sustained period of negative Aus-US rate spreads - Westpac

Bill Evans, Chief Economist at Westpac, projects a sustained period of negative Australian vs US rate spreads, which should lead to a move down to USD 0.68 in 2019, with downside risks. 

Key Quotes

The US economy is operating with much less ‘slack’ in its labour market (unemployment rate of 4.1% compared to a estimated full employment rate of 4.75%) than Australia (unemployment rate of 5.5% compared to a full employment rate of 5.0%) but little wage pressure has emerged.

Over the course of 2017 the USD has fallen by around 8% despite four rate hikes since December. With financial conditions also easing via a 20% rally in the US equity market, the Fed has seized on the opportunity to raise rates in anticipation of rising inflation.

Without access to an effective macro-prudential policy (due to the highly regionalised and low concentration of lenders in the market) it has relied on higher rates to deal with the threat of financial instability.

We expect that process to continue in 2018 with two more 25 basis point hikes in June and December.

That would see the AUD/USD yield differential in the overnight market contract to minus 38 basis points – a situation we have not seen early 2000. A heavy toll will be taken on the AUD with the currency forecast to fall to USD 0.70 by the end of 2018.

With upward pressure on the USD in 2018 and inflation remaining benign we expect that the Fed will hold rates steady through 2019 ensuring that the negative yield differential with Australia holds through 2019 and that the AUD will fall further.

We expect a move down to USD 0.68 in 2019, with downside risks.


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