HotForex Forex News

14:59 USD/JPY to target 118 by year-end Deutsche Bank

Analysts at Deutsche Bank remain bullish on USD/JPY and target ¥118 by year-end and continue to recommend tactical buying on dips.

Key Quotes

“USD/JPY continues to be driven primarily by US rates, long-term nominal yields currently being the best predictor of FX movements. Even more strikingly, the correlation with the broad dollar has bounced back to pre-crisis levels, ending a five-year period of the yen leg dominating the cross. Our prediction of a sustained uptrend in USD/JPY thus assumes US growth of around 2.5% and two further Fed hikes in June and December. For next year, we expect 3-4 more hikes alongside balance sheet unwind. Similar to the Fed, our bullish view does not hinge on fiscal stimulus expectations, which have been priced out by now and pose little risk of further disappointment. Given very benign market pricing, this should push US ten-year yields to 2.75% by the end of the year. With the BoJ likely to continue the yield curve anchor, a 50bp widening in the spread should be worth ¥6-7 upside this year based on recent betas.”

“The trajectory will be far from smooth, though. Periods of adjustment are likely, especially in light of continuing turmoil in the US administration and lingering risks around North Korea. That said, Japanese investors should cement a firm floor by buying dips at around ¥110. Moreover, while Japanese outflows are unlikely to drive USD/JPY upside in the absence of rising US rates, recent weekly flow data suggests that Japanese buyers have already returned to foreign bond markets since the end of the fiscal year, after being reliable sellers in the first quarter.”

“Positioning has tracked USD/JPY unusually closely in recent months and is considerably lighter than at the start of the year. The main counterargument to the trade--apart from geopolitical unknowns--is valuation, with the yen still the second-cheapest currency in the world. If rising US yields attract growing Japanese outflows, however, valuation shouldn't be more than a gentle headwind.”


14:54 EUR/SEK: Running out of steam? - Rabobank

Despite some disappointment in Swedish economic data in recent weeks, Jane Foley, Senior FX Strategist at Rabobank suggests that they would look to sell EUR/SEK on rallies towards EUR/SEK9.80.

Key Quotes

“EUR/SEK has been trading in a consolidation phase since the middle of May.  The better tone of the EUR that has dominated the currency pair since early February reflects the broad-based improvement in Eurozone fundamentals and the general rotation back into the EUR.”

“We do not expect the Riksbank to extend its QE policy any further year, though the forward guidance that the repo rate will be held at -0.5% until mid-2018 may to be maintained.  The Riksbank will be wary about the impact of its policy decision on the value of EUR/SEK and is likely to prefer to keep the direction of its policy settings broadly in kilter with those of the ECB. The next Riksbank policy meeting is scheduled for July 4.”

“While the broad-based rotation back in the EUR lifted EUR/SEK during the spring, this rally appears to have run of steam.  In view of the strength of Swedish fundamentals we would look to sell EUR/SEK at rallies to the 9.80 level.  Although we see scope for some further consolidation around current levels on a 1 to 3 month view we expect EUR/SEK to trend towards 9.60 by year end.”


14:51 EUR/USD pushing higher near 1.1270

The single currency keeps the firm note today, now pushing EUR/USD to fresh multi-day tops around 1.1270.

EUR/USD boosted by Draghi

The pair is up around a cent since yesterday’s lows in the 1.1170 region following unexpected hawkish comments by President Draghi at the ECB Forum earlier in the morning.

Draghi emphasized the now broad-based economic recovery in the euro area, adding that the central bank could modify its policy in order to keep its stance unchanged.

The greenback, tracked by the US Dollar Index, tumbled to fresh 2-week lows following Draghi’s speech and is currently under pressure in the mid-96.00s ahead of the speech by Chief J.Yellen expected later in the NA session.

Further data in the US docket will see US home prices tracked by the S&P/Case-Shiller index followed by CB’s consumer confidence and more speeches by Philly Fed P.Harker (voter, hawkish) and Minneapolis Fed N.Kashkari (voter, dovish).

EUR/USD levels to watch

At the moment, the pair is gaining 0.79% at 1.1269 facing the next up barrier at 1.1275 (high Jun.27) followed by 1.1296 (2017 high Jun.14) and then 1.1300 (high Nov.9). On the other hand, a breakdown of 1.1130 (low Jun.15) would target 1.1108 (low May 30) en route to 1.1073 (76.4% Fibo of 1.1300-1.0339).


14:49 NOK more vulnerable to ECB tightening Deutsche Bank

With the ECB getting ready to taper, Eurozone term premium is likely to rise which should have greater impact on EUR/NOK than EUR/SEK, consistent with Norway historically seeing less immediate spillover from Eurozone inflation than Sweden, feels the research team at Deutsche Bank.

Key Quotes

“Since the financial crisis, Sweden's yield curve has been more tightly correlated with bunds than Norway's, and EUR/SEK has thus been less responsive to bund yields than EUR/NOK. Beyond the front-end of the curve, it is not clear that EUR/SEK responds at all, while EUR/NOK clearly does. This divergence has become even starker over the past year, as market pricing has tied Riksbank exit from "shadow QE" to ECB tapering, while Norges increasingly seems on its own policy cycle. Hence, if the ECB sticks to current sequencing, EUR/SEK should tread water; if they unexpectedly signaled depo rate hikes before the end of tapering, SEK would also be in trouble, but less so than NOK.”


14:45 BoE caught between Brexit headwinds and rising inflation - HSBC

Analysts at HSBC suggest that with falling unemployment and Brexit headwinds still looming, it’s going to be hard for the BoE to go ahead with the rate rise anytime soon.

Key Quotes

“Indeed, the UK faces the unique challenge of negotiating its exit from the EU. Following the surprise result of the 8 June election, when Prime Minister Theresa May failed to win a majority, the mood music has changed a bit, with voices calling for a softer Brexit getting louder. In theory, this points to a diminishing risk of a ‘cliff edge Brexit’. But time is short, tensions run high and the parliamentary arithmetic is very tricky.  So there is still a non-negligible chance that the UK ends up leaving the EU with no deal and no transition arrangement.”

“Against this backdrop, we think the UK faces substantial headwinds this year – on top of those that are already in play. The fall in sterling since November 2015 has seen inflation overtake nominal wage growth, leaving consumers squeezed. We now think inflation will stay more elevated for longer. The housing market is also showing signs of weakness. Given the political risks around Brexit and a weakened government, we find it hard to believe that now is the time for a resurgence in investment in the UK. While we think growth picked up from 0.2% q-o-q in Q1 to 0.4% in Q2, this is below the 0.6% average quarterly growth seen over 2013-2016. We expect growth to remain subdued throughout this year and next.”

“Our outlook is a bit more cautious than the Bank of England’s. The UK's MPC surprised observers at its 15 June policy meeting, when three of its eight members voted for an immediate rate rise.  With unemployment falling, they cited concerns that an erosion of labour market slack might start pushing underlying inflation uncomfortably high.  This followed the May Inflation Report, which laid out a fairly upbeat set of assumptions: a smooth Brexit; no further slowdown in growth from the Q1 2017 low; no rise in unemployment; a pick-up in business investment to above its pre-crisis average; a meaningful increase in wage growth and – at the end of its forecast period – a rise in domestically generated inflation. We agree, that in that scenario, rates would probably rise. However, for us, there are too many ifs.  And our assessment that the UK consumer cycle has turned means labour market slack could open up again.  So we retain our view that rates will stay on hold through 2018 at least.”


14:37 EUR/ USD: Multi-year 1.05-1.15 range will hold Deutsche Bank

George Saravelos, Research Analyst at Deutsche Bank, suggests that they think the top end of the multi-year 1.05-1.15 EUR/ USD range will hold and would fade euro strength as the top end of the range approaches.

Key Quotes

European data surprises are at extremes

European data has been impressive but data surprises are now approaching extremes relative to the US. From current levels the risk is that US data improves over Europe. Relative data surprises have done a good job of tracking relative European – US equity performance suggesting this may be at risk of peaking too.”

A soft ECB taper is already priced

An early hiking cycle from the ECB would have been a game-changer for the euro. But recent ECB commentary has confirmed “American-style” sequencing with tapering coming first. The Fed experience showed us that this is not particularly bullish for a currency. The euro has already appreciated by a similar size to the dollar around Fed taper in 2013. After the initial dollar rally the greenback weakened over most of that year.”

The euro is completely mispriced to short-end rates

The correlation between front-end rates and the euro has broken down but this has historically been a powerful driver and is pointing lower. Historical experience suggests that as the dollar climbs the global yield ranking it should find increasing support as a high-yielder too.”

Market consensus has turned bullish euro

The risk reversal, a measure of market demand for EUR/USD calls over puts has turned to the highest level since 2009 pricing out all downside risks to the euro. Positioning has also been building with the CFCT non-commercial long at the top 25th percentile since 1999. Positioning is vulnerable to negative European data surprises and politics too: an early autumn Italian election cannot be ruled out.”

Equity inflows are approaching previous peaks

Unhedged foreign equity inflows have been a key support for the euro in recent weeks but the gap to previous peaks is quickly closing. Relative European-US equity valuations have already adjusted quickly with the relative European-US P/ E ratio on the MSCI now one-standard deviation above its ten year average.”

The Fed is very underpriced

The market is only pricing one rate hike from the Fed next year compared to a 75bps Fed baseline and at a time when financial conditions are exceptionally easy. Balance sheet policy is also mis-priced with US and European 5y5y real rates at similar levels: either ECB pricing is too hawkish or Fed too dovish but similar real rates in Europe and the US do not make sense.”

Where could we be wrong?

Surprise European inflation triggering a more aggressive ECB tightening or unanticipated Trump risk: an impeachment that causes complete US political paralysis/fiscal tightening or a Fed Chair appointment that completely changes the FOMC reaction function.”


14:36 USD/JPY turns neutral around 100-DMA, US data and Fedspeaks awaited

The USD/JPY pair swung from one-month high level of 112.08 to session low near 111.46 area and now seems to have stabilized in neutral territory around 100-day SMA, around 111.80-85 band.

A fresh wave of US Dollar selling pressure, led by an upsurge in the EUR/USD major following Draghi's upbeat comments, weighed on the major through early European session. Adding to this, weaker sentiment around European equity markets provided an additional boost to the Japanese Yen's safe-haven appeal and further collaborated to the pair's sharp retracement from the highest level since May 24, touched during early Asian session on Tuesday.

   •   USD: Risk of a depreciation - Natixis

However, a strong recovery in the US Treasury bond yields, with the benchmark 10-yr yields gaining around 1% helped the pair to recover early lost ground and recovery back to the very important 100-day SMA.

Today's release of CB Consumer Confidence Index for June would now be looked upon for some short-term trading opportunities during early NA session ahead of speeches by the Philadelphia Fed President Patrick Harker and the Fed Chair Janet Yellen, later during the day.

   •  US: Consumer Confidence and Case-Shiller home price index in the limelight - Nomura

Technical levels to watch

On a sustained break through the 112.00 handle, leading to a subsequent move above 112.10 level, is likely to lift the pair towards 112.45 horizontal resistance en-route its next major hurdle near 112.80-90 region.

Meanwhile on the downside, a follow through weakness below mid-111.00s now seems to drag the pair back towards 111.15-10 support before the pair eventually breaks below the 111.00 handle and head towards testing its next major support near 110.40-30 area.


14:31 ECB: Expect QE to come to an end in Q4 2018 - HSBC

Analysts at HSBC expects QE to come to an end in Q4 2018 by ECB in spite of a stronger growth. 

Key Quotes

“When the current QE programme expires in December, we expect the ECB to extend its asset purchases for another three months at a reduced purchase rate of EUR40bn. We still anticipate this announcement at its September meeting (or at the latest in October, after the German election on 24 September). In early 2018, inflation should be low due to base effects from energy, which we think will prompt the ECB to announce another three-month extension at EUR40bn per month. After that, we expect one final extension, at the reduced rate of EUR20bn per month for another three months. By Q4 2018, we think the ECB will no longer be buying assets other than to reinvest the proceeds of maturing assets.”


14:13 Carneys Speech: Monetary policy the last line of defence to create stability

More comments crossing the wires from the BOE Chief Carney, as he continues to respond to the Q&A session.

Key Points:

Monetary policy the last line of defence to create stability

Discussions with the US authorities on regulatory standards & co-operation as ‘very productive’

Could’ve decided to raise CCYB to 1% today


14:13 BoE to raise the required capital buffer for UK banks to 1% in Nov - BBH

In an important development today, the Bank of England's announced that it will raise the required capital buffer for UK banks from 0.5% now and to 1.0% in November.  

Key Quotes

“Banks will have a year to build the initial buffer (~GBP5.7 bln) and 18 months for the second part.  Recall the counter-cyclical buffer was introduced in March 2016 but was lowered to zero following the referendum.”

“The reintroduction of the capital buffer follows recent conflicting signals by the MPC.  The vote earlier this month was a 5-3 decision to leave rates on hold.  Within days, Governor Carney said that now was not the time to raise rates.  This was quickly followed by the BOE's chief economist revealing he was close to voting for a hike.  This had already put the proverbial cat among the pigeons.”

“The question now is whether the removal of accommodation by the FPC is sufficient or whether the MPC will still resist Carney's suggestion.  The June and December short sterling futures contracts are little changed, though some economists are bound to change their view and call for an August hike.  Sterling rallied a little more than a quarter cent on the news but met strong sellers near $1.2770.  The 20-dya moving average is near $1.2790, and last week's high was $1.2815.”


14:12 USD/JPY further upside still on the cards Danske Bank

Mathias Mogensen, Analyst at Danske Bank, sees further upside is likely in the near term.

Key Quotes

USD/JPY closed in on 1.12 again following relatively dovish minutes from the latest Bank of Japan meeting, which essentially highlighted that any exit, the discussion of which has surfaced recently, remains ‘considerably distant’.

“We look for USD/JPY to edge a tad higher in coming months on general USD weakness and a continued lack of price pressure in Japan”.


14:11 EUR/USD room for an extension to 1.1150 UOB

The pair keeps the neutral bias in the near term, leaving the door open for a  test of the mid-1.1100s in the near term, suggested FX Strategists at UOB Group.

Key Quotes

EUR touched a high of 1.1219 yesterday but the up-move was quickly reversed. The sharp pullback from the top appears incomplete and further weakness is expected from here. That said, 1.1150 is a solid support and is unlikely to yield so easily (minor support is at 1.1165). Resistance is at 1.1200 and the high near 1.1220 is unlikely to be challenged, at least not for today”.

“EUR eased off quickly after touching a high of 1.1219 yesterday. The immediate outlook remains mixed and the current neutral phase has been intact for close to one month now. At this stage, there is no early indication that this pair is about to embark on a sustained directional move. However, a break out of the expected 1.1120/1.1220 consolidation range should provide additional clue”.


14:10 US: Consumer Confidence and Case-Shiller home price index in the limelight - Nomura

Analysts at Nomura point out that in the US session Conference Board’s Consumer Confidence and Case-Shiller home price index will be the keenly watched economic releases today.

Key Quotes

“The Conference Board’s consumer confidence index fell to 117.9 in May from 119.4 in April. In June, we think consumer sentiment likely continued to deteriorate modestly, to 117.5 (Consensus: 116.0). The preliminary estimate for June by the University of Michigan consumer survey suggests a moderation in optimism as consumers, particularly self-identified Republicans and independents, became more skeptical about the current administration’s ability to enact its agenda. Although the unemployment rate has fallen notably since January and income gains have been steady, it is possible that a downward shift in expectations regarding the administration’s policy promises may have outweighed healthy consumer fundamentals.” 

Case-Shiller home price index: The Case-Shiller 20-city home price index increased 5.89% y-o-y in March, a slight uptick from the February increase of 5.85%. The recent increase has outpaced the average year-on-year rate in 2016 as the number of homes for sale on the market lags high demand. On a monthly basis, this index was up 0.87%. Strong job gains in 2017, increases in personal income, and an influx of younger new home buyers may have contributed to increased demand in a low-inventory housing market, pushing up prices. However, continued increases in income and a recent downtick in mortgage rates may alleviate the adverse impact of rising prices on home affordability, to a certain degree. Consensus expects an increase of 5.90% y-o-y for April.”  


14:06 AUD/USD support expected at 0.7530/0.7496 Commerzbank

In opinion of Karen Jones, Head of FICC Technical Analysis at Commerzbank, the Aussie Dollar should find decent support in the 0.7530/0.7496 band.

Key Quotes

“The market last week eased back in the middle of the channel and is recovering from there. Very near term we are seeing a rebound from the 200 day ma at .7530. Above .7635/52 will target the top of the triangle at .7712. The market is expected to find support at the 200 day ma at 0.7530 and the 55 day ma at .7496”.

“Above .7635/42 should trigger a move to the top of the triangle at .7712. Below the 55 day ma targets the bottom of the triangle at .7342”.


14:02 NZD/USD fades a bullish spike to fresh multi-month tops

The NZD/USD pair faded a knee-jerk bullish spike to fresh multi-month tops and retreated around 50-pips from highs to currently trade back around the 0.7300 handle.

A sharp recovery in the US Treasury bond yields, which although has failed to extend any support to the greenback, was seen weighing on higher-yielding currencies and has been one of the key factors for the pair's retracement from the highest level since Feb. 7.

Despite of the pull-back, the pair has still managed to hold in positive territory for the fourth consecutive session amid a fresh wave of greenback selling interest. In fact, the key US Dollar Index was seen hovering around yearly lows and helped the pair to hold its neck just around the 0.7300 handle, at least for the time being.

Next on tap would be the release of Conference Board's Consumer Confidence Index for June ahead of Philadelphia Fed President Patrick Harker and the Fed Chair Janet Yellen's speech later during the day.

   •  US: Focus on Yellen – TDS

Technical levels to watch

A follow through retracement below 0.7280-75 region is likely to accelerate the profit-taking slide towards 0.7250 region en-route 0.7215 strong horizontal support and the 0.7200 handle. 

On the upside, momentum back above 0.7320 level might continue to face some fresh supply near mid-0.7300s, which if cleared has the potential to lift the pair towards yearly tops resistance near 0.7375 region ahead of the 0.7400 handle.


14:02 Draghi: Transitory factors were holding back inflation - BBH

ECB President Draghi told the audience at the annual ECB Forum transitory factors were holding back inflation which was quickly understood to be bullish for the euro, and it rallied from near the session lows below $1.12 to around $1.1260, a nine-day high, notes the analysis team a BBH.

Key Quotes

“To be sure, Draghi still argued that a "considerable degree of monetary accommodation is still needed" because inflation is not yet "durable and self-sustaining."  Nevertheless, by providing a context for the low inflation, Draghi fanned expectations that the ECB is will likely announce tapering as it extends its asset purchases into next year.  There is some concern that the scarcity of German paper may also hamper efforts to extend the asset purchases much beyond the middle of next year, without changing tactics.”  

“The $1.1285-$1.1300 area capped the euro in the first half of the month.  The euro had fallen to $1.1120 a week ago and recovered before the weekend to $1.1200.  The dollar, we had suggested, was vulnerable even before Draghi pushed the open door.  Technically, it is important that the euro makes a new high above $1.1300.  If it does not, the price action will give the appearance that a more complicated topping pattern in the euro is unfolding (head and shoulders top or some derivative of a triple top).”  

“Draghi's comments have also spurred a sell-off in European debt instruments.  Two-year benchmark yields are 2-3 bp higher, while 10-year yields are 2-4 bp higher.  Although US yields are firm, European rates are rising faster, spurring a narrowing of the US premium.  At the same time, the higher yields are corresponding to weaker equities, though the market was heavy before Draghi's comments.”  

 


13:58 Carneys Speech: Brexit contingency plans unchanged on UK election results

Additional headlines hitting the wires from the BOE Governor Carney, are as under:

Brexit contingency plans unchanged on UK election results

Consumer credit growth is not a response to low bank rate

There are areas of consumer credit that require vigilance

We devote necessary time to making monetary policy decisions

Risks from China are at the top end of global risks


13:53 US: Focus on Yellen TDS

 Fed Chair Yellen will discuss global economic issues at 13:00 ET during a moderated conversation (and audience Q&A) in London and will be keenly watched by investors.

Key Quotes

“We expect Yellen to push back against criticism over the Fed’s last rate hike and efforts to normalize policy. However, there is a risk that Yellen may emphasize data dependence, which could be interpreted (mistakenly, in our opinion) as dovish. We will also hear from Harker and Kashkari, both of whom are 2017 voters, while Williams (non-voter) speaks overnight in Australia.”

“Conference Board consumer confidence for June is the only economic release of note and the market consensus is for the index to drift lower to 116.0 from 117.9.”


13:42 GBP/USD around 1.2750 on Carney

The British Pound stays bid on Tuesday, now pushing GBP/USD to the 1.2740/50 band after reaching highs near 1.2770 earlier in the session.

GBP/USD bid on Carney

Cable is posting moderate gains today despite Governor M.Carney said at his press conference following the BoE's Financial Stability Report that potential outcomes from Brexit negotiations pose risks for financial stability. In addition, Carney said that monetary policy is the last line of defence to create stability.

In the meantime, spot is advancing for the fifth session in a row, looking to extend the rebound from last week’s lows in the sub-1.2600 levels.

On the UK data front, CBI’s trends came in at 12 for the current month, bettering expectations and up from May’s 2.

Across the pond, US home prices tracked by the S&P/Case-Shiller index are next on tap, seconded by CB’s consumer confidence and speeches by Chief J.Yellen, Philly Fed P.Harker (voter, hawkish) and Minneapolis Fed N.Kashkari (voter, dovish).

GBP/USD levels to consider

As of writing the pair is up 0.20% at 1.2749 and a breakout of 1.2772 (high Jun.27) would open the door to 1.2786 (20-day sma) and then 1.2832 (55-day sma). On the other hand, the next support aligns at 1.2640 (100-day sma) followed by 1.2587 (low Jun.21) and finally 1.2548 (200-day sma).

 


13:41 AUD/USD drops back to test 0.7600, Fedspeaks eyed

The bullish run in the Aussie lost pace near 0.7625 region, now sending the rate lower to test the resistance-turned support at 0.7600.

AUD/USD trades above all major DMAs

The bulls appear to face exhaustion after the latest leg higher, which was backed by a solid recovery staged by gold prices, while firmly higher oil prices also bolstered the bids around the commodity-currency.

Further advances were capped by stalled USD selling versus its major rivals, as Treasury yields picked-up pace across the curve heading towards the Fed Chair Yellen’s speech due later today.

Meanwhile, the US CB consumer confidence data and Fed official Harker’s speech will also remain in focus for fresh incentives on the US dollar.

AUD/USD Levels to watch   

At 0.7606, the pair finds the immediate resistance at 0.7630-40 (key resistances) above which gains could be extended to the next hurdle located 0.7680 (Mar 30 high) and 0.7700 (zero figure). On the flip side, the immediate support is located at 0.7550 (psychological levels). Selling pressure is likely to intensify below the last, dragging the Aussie to 0.7533 (100-DMA) and below that 0.7509/0.7497 (200-DMA/ Jun 7 low).


13:13 Carneys speech: Plans are in place for all Brexit scenarios

The BOE Governor Mark Carney is on the wires now, via Reuters, addressing the press conference about the Financial Stability Report, in London.

Key Headlines:

Potential risks to finanicial stability associated with range of possible Brexit outcomes

Consumer credit has far outpaced household income over last year

Lenders are more vulnerable

Counter-cyclical capital buffer increase will bolster resilience

Plans are in place for ‘all Brexit scenarios’

FPC raising CCYB along with MPC action supports UK economy during period of heightened uncertainty

Consumer credit growth has far outpaced incomes over the past year


13:08 EUR/USD fades Draghi-led spike to 1.1265 as focus shifts to Yellen

The Euro rallied hard across the board, following the ECB Chief Draghi’s speech, driving the EUR/USD pair sharply higher to print fresh multi-day tops of 1.1265, before easing back towards the mid-point of 1.12 handle, as attention turns towards the next big risk event for the spot, Fed Chair Yellen’s speech.

The ECB President Mario Draghi, said in his prepared remarks at the central banking forum in Portugal, the effects that keep inflation subdued are not durable and self-sustaining, adding that  “the threat of deflation is gone and reflationary forces are back in play.” Draghi also hinted at stimulus withdrawal amid a broadening economic recovery across the Euro area.

With the ECB Chief Draghi’s speech out of the way, Fed Chiar Yellen’s speech remains in limelight and hence, the greenback stalled its downslide and recovers ground broadly, as monetary policy divergence continues to favor the buck. The USD index bounced-off 9-day lows of nearly two-week lows of 96.58 to now trade at 96.70 levels.

EUR/USD Technical Levels

According to Raffi Boyadjian, Investment Analyst at XM: “If the positive momentum is sustained, the next key resistance will likely come from the area between 1.1280 and 1.13, which has been a difficult area to breach in the past. A successful break above 1.13 would likely bring the 1.1350 level in focus. Should prices reverse lower however, support could come the 1.1150 level, which has been a previous support and resistance area. Further down, the one-month low of 1.1118 from June 20 would be eyed as another support point, followed by the 50-day moving average at 1.1075.”

 


13:01 United Kingdom CBI Distributive Trades Survey - Realized (MoM) above expectations (2%) in June: Actual (12%)


12:42 US: Slack remains in the labor market - Nomura

One of the bigger questions facing the FOMC and markets is how much slack remains in labor markets, especially with the unemployment rate at 4.3% in May 2017, the lowest level in 16 years, according to analysts at Nomura. 

Key Quotes

“However the unemployment rate for a large majority of education and age groups was significantly higher in May 2017 than in May 2001, suggesting that slack in the labor market is higher than history would suggest.

  • For 20 age and education groups, 15 have higher unemployment rates in May 2017 than 16 years ago. In fact, 6 of those have unemployment rates that are higher by more than 1.0pp.”

“Using the broader definition of unemployment to include marginally attached workers and those working part-time for economic reasons (often referred to as the “underemployment rate”, or U6), similar results hold: 19 out of 20 educationage groups have higher U6 rates in May 2017 than in May 2001, and 17 out of 20 have rates over 1.2pp higher.”

“How can labor market slack as measured by unemployment appear to be so much larger now compared to May 2001, when the overall unemployment rate was the same? In a word: weighting. Since 2001, the US workforce has shifted towards groups that have persistently lower unemployment rates – older and more educated – and away from groups that have higher unemployment rates – younger and less educated.”

“This weighting issue biases the unemployment rate by 0.4pp compared to May 2001, meaning that a 4.3% unemployment rate today is more consistent with a 4.7% unemployment rate in 2001. For U6, the bias is 0.8pp, meaning the 8.4% rate recently reported is more comparable to a 9.2% rate in 2001.”

“This result should not be surprising as it mimics the logic behind the downward trend in the labor force participation rate that occurs from an aging population.”

“Overall, we think that the time-inconsistency of unemployment rates is just one of many reasons why wage growth has not picked up more quickly, and also perhaps why inflation has not shown greater upward momentum. Looking forward, if unemployment rates continue to fall as many forecast, more and more comparisons will be made to the labor markets in the late 1990s and early 2000s, and when making those comparisons, caution needs to be exercised.”


12:41 BOE FSR: Stands ready to cut buffer if conditions deteriorate

The Bank of England (BOE) published its semi-annual Financial Stability Report (FSR) on Tuesday, highlighting that the central bank stands ready to cut buffer if conditions deteriorate.

Summary:

“The FPC is increasing the UK countercyclical capital buffer (CCyB) rate to 0.5%, from 0%. Absent a material change in the outlook, and consistent with its stated policy for a standard risk environment and of moving gradually, the FPC expects to increase the rate to 1% at its November meeting.

In line with its published policy, the FPC stands ready to cut the UK CCyB rate, as it did in July 2016, if a risk materialises that could lead to a material tightening of lending conditions. Banks’ capital buffers exist to be used as necessary to a material tightening of lending conditions. Banks’ capital buffers exist to be used as necessary to allow banks to support the real economy in a downturn.

Consumer credit grew by 10.3% in the twelve months to April 2017 — markedly faster than nominal household income growth.

Will tighten mortgage affordability tests for lenders

Corp bonds, commercial property vulnerable to re-pricing

Plans to raise banks' minimum leverage ratio requirement to 3.25% of exposures ex-CB reserves from 3%

The Bank, FCA and PRA are working closely with regulated firms and financial market infrastructures (FMIs) to ensure they have comprehensive contingency plans in place. The FPC will oversee contingency planning to mitigate risks to financial stability as the withdrawal process unfolds.

Through this work, the FPC is aiming to promote an orderly adjustment to the new relationship between the United Kingdom and the European Union.”

 


12:32 USD/CHF plummets to two-week lows near 0.9665 level

The USD/CHF pair came under some renewed selling pressure on Tuesday and tumbled to two-week lows near 0.9665-60 region.

A fresh wave of greenback selling interest, primarily led by strong up-surge in the EUR/USD major after upbeat comments by the ECB President Mario Draghi, weighed heavily on the major. In fact, the key US Dollar Index plunged below the 97.00 handle and has been one of the key factors driving the pair lower. 

   •  USD: Risk of a depreciation - Natixis

This coupled with the prevalent risk-off environment provided an additional boost to the Swiss Franc's safe-haven appeal and collaborated to the pair's sharp downslide to the lowest level since June 14. 

Meanwhile, possibilities of some big stops being triggered on a decisive break back below 0.9685 support might also seems to have contributed towards aggravating the selling pressure over the past hour of so. 

The pair has now reversed all of its gains recorded in the previous session as investors now look forward to Fedspeaks, including the Fed Chair Janet Yellen, for some fresh impetus. Meanwhile, today's release of US Consumer Confidence Index would also be looked upon to grab some short-term trading opportunities, during early NA session. 

Technical levels to watch

Immediate support is pegged at 0.9640 level (June 147 low), below which the downslide is likely to get extended back towards multi-month lows support near 0.9615 region en-route the 0.9600 handle.

On the upside, any recovery move back above 0.9685 level now seems to confront fresh supply near the 0.9700 handle, which if cleared might trigger a short-covering bounce towards 0.9735 intermediate resistance ahead of 0.9765 strong resistance.


12:26 EUR/USD seen around 1.10 in the near term Danske Bank

Analyst at Danske Bank Mathias Mogensen expects the pair to grind lower towards the 1.10 area in the next months.

Key Quotes

EUR/USD rose above the 1.12 level yesterday following the weak US durable goods orders but has since retreated”.

“More broadly, while eurozone data has started to show some weakness recently, the continued stream of disappointments out of the US makes for continued support to EUR/USD from a data surprise point of view”.

“However, we expect that the balance will tip in favour of USD data-wise over the summer and help send the cross below 1.10. That said, we note that the latest IMM positioning data suggests that speculators have already moved a bit less long EUR and longer USD yet again, making a EUR/USD drop a little more difficult from a positioning angle”.


12:24 UK Defence Sec. Fallon: UK would support US carrying out more strikes against Syria

Livesquawk reported comments from the UK Defence Secretary Fallon delivered earlier today, as he spoke in an interview with BBC Radio 4.

Fallon noted that the UK would support the US carrying out more strikes against Syria.


12:24 GBP/USD neutral, likely between 1.2640/1.2830 UOB

FX Strategists at UOB Group stay neutral on Cable, expecting it to navigate within the 1.2640/1.2830 area in the near term.

Key Quotes

“While GBP touched a 1-week high of 1.2759 yesterday, the up-move is lacking in momentum and further sustained up-move is not expected. This pair is more likely to trade sideways for now, likely between 1.2690 and 1.2755”.

“GBP moved into neutral phase late last week when 1.2720 was taken out. The current movement is viewed as part of a neutral consolidation phase and we expect this pair to trade sideways within a broad 1.2640/1.2820 range for now”.


12:22 EUR/USD room for a visit to 1.1296 - Commerzbank

According to Karen Jones, Head of FICC Technical Analysis at Commerzbank, the pair could attempt another test of 1.1296.

Key Quotes

“The Euro’s rebound from the 1.1110 end of May low has eroded the 20 day ma but not sustained the break. We are unable to rule out a retest of the 1.1296 recent high and 1.1300 November high. These guard the highs from mid 2016 circa 1.1429 and the two year resistance line at 1.1467. The intraday Elliott waves counts are neutralising”.

“However a move below 1.1170 should be enough to trigger losses to the bottom of the range at 1.1100. This remains the break down point to the 1.1036 55 day ma and the 1.0822 200 day ma”.


12:08 GBP/USD fails once again near 1.2760, BOE FSR, Carney eyed

The GBP/USD pair bounced-off session lows of 1.2718 and swung back higher to test Monday’s high of 1.2759, only to find sellers lurking near the last to drift lower, despite aggressive selling seen in the US dollar against its main competitors. Meanwhile, the USD index slumps almost -0.50%, flirting with fresh two-week lows of 96.62.

The spot regained upside momentum last hour, as the offered tone behind the greenback picked-up pace across the board, after the EUR/USD pair surged to fresh multi-day tops beyond 1.1210/20 levels, in response to upbeat comments delivered by the ECB President Draghi at the central banking forum in Portugal.

However, the renewed uptick appears to lack follow-through, as fresh Brexit jitters combined with waning UK consumer confidence post-May’s election debacle continue to undermine the British currency.

Markets now remain focused on the BOE’s Financial Stability Report (FSR) and Carney’s speech due out in less than an hour for fresh impetus on the pound. Meanwhile, the UK CBI realized sales,  US CB consumer confidence data and Fed Chair Yellen’s speech will speeches garner a lot of attention in the US session ahead.

GBP/USD levels to consider             

Slobodan Drvenica at Windsor Brokers Ltd. offers key technical levels for the spot: “Monday's action showed strong upside rejection at 1.2759, as pound failed to capitalize from Tory/DUP deal in forming Conservatives' minority government and repeatedly closed below the first upper pivot at 1.2737 (Fibo 38.2% of 1.2977/1.2588 downleg).”

“Close above the latter is seen as minimum requirement for continuation of bull-leg from 1.2588 (21 June low) towards barriers at 1.2759 (Monday's high); 1.2784 (falling 20SMA) and 1.2811/17 (daily Tenkan-sen/14-19 June lower platform). Bearishly aligned daily studies keep in play risk of fresh weakness, seen on sustained break below 1.2700 pivot,” Slobodan adds.


12:07 BoEs Financial Stability Report Live

The BoE’s Financial Policy Committee will publish the central bank’s Financial Stability Report at 930GMT followed by Governor Mark Carney’s press conference at 10GMT.

 

 

Key Quotes

GBP/USD flirting with session highs near 1.2730

GBP started the European session on a positive mood, moving further north of the 1.2700 handle.

 

GBP/USD: A phase of consolidation ahead of BoE FSR, Carney

A quick view on GBP’s price action as market participants keep waiting for the upcoming events in the UK docket.


11:57 EUR/GBP regains 0.8800 and above on Draghi

The renewed bid tone around the shared currency is helping EUR/GBP to move further north of the 0.8800 handle, or fresh tops.

EUR/GBP in 3-day tops

The European cross gathered unexpected traction today after hawkish comments by Mario Draghi at the ECB Forum boosted the demand for the single currency.

Draghi gave an upbeat assessment of the economy in the region, while he hinted at the likeliness that the central bank could change the policy to keep the stance unchanged instead of tightening.

Traders reacted positively following Draghi’s comments, lifting the cross to challenge 4-day tops in the 0.8830 area.

Looking ahead, the BoE will publish its financial stability report later in the European morning followed by the press conference by Governor M.Carney. In the data space, CBI’s trends survey is only due.

EUR/GBP key levels

The cross is now up 0.40% at 0.8825 facing the next hurdle at 0.8848 (high Jun.21) seconded by 0.8865 (2017 high Jun.9) and finally 0.9055 (high Nov.2 2016). On the other hand, a drop below 0.8765 (20-day sma) would aim for 0.8760 (low Jun.23) and then 0.8715 (low Jun.16).

 


11:56 EUR/JPY surges back closer to yearly tops post Draghi

Having posted a session low near 124.75 region, the EUR/JPY cross regained traction and turned positive for the third consecutive session.

The cross surged through the key 125.00 psychological mark after the ECB President Mario Draghi's upbeat economic outlook for the Euro-zone. Draghi was noted saying that growth remains above trend and well distributed across the region, while factors weighing on inflation trajectory are temporary.

   •  Draghi Speech: "Reflationary forces have replaced deflationary forces"

Draghi's comments boosted the shared currency across the board and helped the cross to build on recent recovery move from over 1-month lows touched on June 15. Even the prevalent risk-off environment, which tends to support the Japanese Yen's safe-haven appeal, did little to stall the pair's strong up-surge to mid-125.00s, back closer to yearly tops.

Technical levels to watch

Immediate resistance is pegged at yearly tops near 125.80 region, above which a fresh bout of short-covering could lift the cross further beyond the 126.00 handle towards its next resistance near 126.70-75 area.

On the downside, the 125.00 handle now becomes immediate support to defend, which if broken could drag the cross back towards 124.45-40 horizontal support.


11:34 EUR/USD in multi-day tops near 1.1240 on Draghi

Fresh buyers now seem to be rushing to the single currency following Draghi’s speech at the ECB Forum, taking EUR/USD to fresh tops around 1.1240.

EUR/USD bid on upbeat Draghi

Spot met fresh buying interest in response to the upbeat comments by President Mario Draghi at the ECB Forum on central banking in Portugal.

Draghi argued that reflationary forces are now present in the region, while economic growth is seen above trend and well distributed across the bloc. Draghi also suggested the central bank could change policy although the stance should remain the same.

Measured by the US Dollar Index (DXY), the greenback plummeted to the 96.70 region in response to Draghi’s speech, taking the downside to 2-week lows.

EUR/USD levels to watch

At the moment, the pair is gaining 0.54% at 1.1243 facing the next up barrier at 1.1296 (2017 high Jun.14) and then 1.1300 (high Nov.9). On the other hand, a breakdown of 1.1130 (low Jun.15) would target 1.1108 (low May 30) en route to 1.1073 (76.4% Fibo of 1.1300-1.0339).

 


11:29 Feds Williams: US and other developed nations headed for growth slump

San Francisco Fed President Williams is out on the wires now, speaking at an event in Sydney.

Key Points via Reuters:

Sees inflation rising to 2% in next year or so

US has regained, even surpassed, full employment

US and other developed nations headed for growth slump

Estimated GDP trend growth for US-CA-UK-EU stands at about 1.5%, less than half what it was 30 years ago

They in process of gradually withdrawing stimulus


11:25 ECBs Draghi: May change policy to keep stance unchanged, not tighten

More comments flowing from the ECB President Draghi, via Reuters, as he continues to speak at the central banking forum on ‘Accompanying The Economic Recovery’.

Additional Headlines:

May change policy to keep stance unchanged, not tighten

Policy needs to prudent and consistent

We see EZ growth above trend and all signs now pointing to strengthening and broadening recovery in EZ


11:22 NZD/USD spikes to fresh multi-month tops near mid-0.7300s

The NZD/USD pair built on last week's strong recovery move from sub-0.7200 level and jumped to fresh multi-month tops during European session on Tuesday.

A softer tone surrounding the US Treasury bond yields, which failed to extend any immediate support to the US Dollar was seen benefitting higher-yielding currencies and drove the pair to its highest level since Feb. 7, closer to mid-0.7300s. 

Concern over the Fed’s ability to further raise interest rates later during the year, against the backdrop of slowing growth and weakening inflationary pressure, has been a key catalyst behind the recent slide in the US Treasury yields and supportive of the pair's strong up-move back closer to yearly tops touched in February. 

Adding to this, the pair was also being supported by a modest recovery in crude oil prices, which tends to derive demand for commodity-linked currencies.

Meanwhile, possibilities of some stops being triggered on a sustained move beyond the 0.7300 handle might have also collaborated to the pair's sharp up-surge over the past hour or so.

It, however, remains to be seen if the up-move is backed by genuine buying or turns out to be a stop run as investors now look forward to the speeches from influential FOMC members, including the Fed Chair Janet Yellen, for some fresh impetus for the pair's near-term directional move.

   •  USD: Risk of a depreciation - Natixis

Technical levels to watch

A follow through buying interest beyond mid-0.7300s is likely to lift the pair towards yearly tops resistance near 0.7375 region ahead of the 0.7400 handle.

On the downside, retracement back below 0.7310-0.7300 region now seems to find strong buying interest near 0.7275 region, which if broken might trigger a near-term corrective slide.


11:21 Draghi Speech: Reflationary forces have replaced deflationary forces

At the ECB Forum on Central Banking in Portugal, Draghi said:

"Reflationary forces have replaced deflationary forces".

"Growth seen above trend and well distributed across the euro area".

"Euro area inflation dynamics remain more muted than one would expect".

"Factors that are weighing on inflation path are temporary"


11:01 Italy Consumer Confidence above forecasts (106.2) in June: Actual (106.4)


11:01 Italy Business Confidence came in at 107.3, above forecasts (106.7) in June


10:59 ECB: Balancing a better situation with a dovish hawkish move Natixis

Jean-François Robin, Research Analyst at Natixis, suggests that if there is a deterioration in the macro situation, the ECB would adjust the size and duration of QE, not interest rate levels, as Mario Draghi has explained that the ECB stands ready to increase the Asset Purchase Programme if the outlook becomes less favourable.

Key Quotes

“It seems. therefore, that the ECB now favours adjusting this programme if some tweaking is needed (Mario Draghi refers to an APP bias).”

“A rise in interest rates is not on the cards any time soon, especially since the inflation forecasts were revised downwards (just 1.6% expected in 2019, when the ECB defines price stability at inflation rates below 2%, which is the case, but close to 2%, which is not really the case). We are still some way off meeting the ECB’s four official criteria for raising interest rates, which are that:

  • inflation rates are below, but close to, 2% over the medium term
  • inflation can be self-sustaining without any help from monetary policy
  • inflation is steady and lasting
  • the desired level is achieved at the level of the Eurozone not just a single country.”

“Our current scenario, being that there will be no interest rate hike before 2019, remains valid.”

“Nevertheless, Mario Draghi did seek to minimise the revision of the inflation forecasts. His assessment was that the downward revisions were rather modest in fact and due essentially to energy prices. In other words, nothing much has changed. For Mario Draghi, the real issue is core inflation, which remains weak, probably because of the slight wage growth, but his view is that this is mitigated by the fact there has been no deterioration of the core CPI, which remains at the same level as in December. In passing, this underlines the increasing importance given to this measure of inflation.... which is set to pass above the headline CPI in 2018 and 2019 despite the slight revision.”

“In short, as said by Mario Draghi, more patience is needed.

ECB removed its rates bias but kept its QE bias for now. That’s it nothing more for now. Barring  a major market mover or a new black cloud gathering on the horizon, the 20 July meeting should be a pure formality. The next really key meeting should be the one on 7 September, when new growth and inflation forecasts will be released. Also, more should be known then about the QE trajectory. Our view is that the ECB will announce then that the QE tapering will get under way at the start of 2018.” 


10:52 USD: Risk of a depreciation - Natixis

The consensus in financial markets is still that the dollar will appreciate as monetary policy is becoming more restrictive in the United States than in other regions (euro zone, Japan, China, etc.), but in reality, analysts at Natixis now have to question whether the dollar could depreciate markedly instead.

Key Quotes

“There are no longer any capital outflows from China, particularly because the rise in renminbi interest rates is encouraging Chinese investors to no longer look for investments in dollars.”

“Euro-zone growth is stronger than what was expected (and probably stronger than US growth), the euro zone could regain full employment by end-2018, and we should then expect the ECB to exit quantitative easing in 2018, which will shore up the euro against the dollar.”

“There is a risk of a cyclical slowdown in the United States, due to the decline in corporate profitability and the low capacity utilisation. It is therefore possible that the normalisation of the Federal Reserve’s monetary policy will be limited, and that there will be a downward correction in the US equity market, which would drive capital from the United States.”


10:51 GBP futures: upside running out of steam

CME Group’s advanced figures for Monday’s open interest in GBP futures markets showed traders kept scaling back its positions, this time be a bit more than 1K contracts vs. Friday’s final results.

Further gains appear unlikely

The current scenario around GBP, and Cable in particular, signals the probability that the current positive streak could run out of legs, as prices in spot have been advancing against the backdrop of dwindling volume.

Recent tops around 1.2760 could represent the initial hurdle, although the low-1.2800s appear as a more solid resistance for the time being.


10:49 Eurozone growth to be significantly higher in 2017 - HSBC

Stronger investment prospects and outturns means that the research team at HSBC has made sharp upward revisions to their eurozone investment forecasts and now expect real investment to grow 5.5% in 2017 and 2.9% in 2018 (up from 1.8% and 2.3% respectively). 

Key Quotes

“In addition, a higher euro and lower energy prices should reduce households' income squeeze, so we also nudge up consumption growth.”

“The impact of these changes is to raise our 2017 GDP growth forecast by 0.4pp to 1.9%.  But our view that investment cannot sustain the current pace for long, and the fact that wage growth is likely to remain contained, means we nudge up 2018 growth by just 0.2pp to 1.6%.”

“Despite faster growth, inflation has evolved broadly as expected at the start of the year.  Inflation peaked at 2.0% in February but has already fallen back to 1.4% according to the flash estimate for May.  Core inflation was just 0.9% in May.  We expect headline inflation to remain around its current level throughout 2017, with core rising only very slowly.”

“Ongoing slack and underemployment should contain wage growth in much of the eurozone 'big 4'.  Even in Germany where the labour market is tight, the low frequency of pay bargaining means the next big settlement deals are not expected until early 2018.  The ECB has repeatedly made the point that underemployment and changes to labour market structure mean that the rising growth environment has not translated into wage and inflation pressure.”


10:45 USD/CAD turns lower amid recovery in oil prices

The USD/CAD pair ran through some fresh offers during early European session and retreated around 25-pips from session tops near 1.3260 region.

With markets looking past the US Commerce Department's statement, to impose duties on the softwood lumber exports from Canada, a fresh wave of US Dollar selling pressure dragged the pair to fresh session lows near 1.3235 region. 

The latest leg of fall over the past hour or so could also be attributed to a strong follow through recovery in crude oil prices, which was seen benefitting the commodity-linked currency - Loonie, and weighing on the major.

The pair, however, has managed to hold within previous session's trading range as investors remained on the sidelines ahead of speeches by Philadelphia Fed President Patrick Harker and the Fed Chair Janet Yellen, later during the day.

   •  FOMC may continue to indicate that it intends to hike three times this year - Rabobank

Ahead of the Fedspeaks, the release of Conference Board's Consumer Confidence Index might provide some impetus and help grab some short-term trading opportunities.

Technical levels to watch

Immediate support remains near 1.3215-10 region, below which the pair is likely to accelerate the slide back towards monthly lows support near 1.3165 level (June 14 low) before eventually dropping to its next support near 1.3120-15 zone. 

On the upside, 1.3260-65 area now seems to have emerged as a immediate resistance, which if cleared decisively has the potential to lift the pair towards the 1.3300 handle en-route the very important 200-day SMA hurdle near 1.3335-40 region.


10:44 US: Structurally low inflation shifting central bank focus to real rates and financial conditions

The equity market resilience this year probably owes much to an improved global growth outlook and the fact that growth may now be driven more from outside the USA may also be helping support global equity markets, broadening and reinforcing investor confidence, according to analysts at Amplifying Global FX Capital.

Key Quotes

“The USD has been relatively weak this year, helping support emerging market asset prices.”

“Global bond yields remain relatively low and have declined this year (after rising late last year).  Low global bond yields may have reinforced investors’ search for yield, boosting equities and higher yielding corporate and emerging market bonds.  Lower bond yields have in part been encouraged by ongoing ECB and BoJ ongoing commitment to negative interest rates and QE programs.”

“The Fed has been tightening, but with growth and inflation in the USA underwhelming, US yields have tended to reverse increases late last year, notwithstanding the Fed’s adherence to a gradual removal of policy accommodation.”

“Global equity markets are starting to appear fatigued.  Factors that are now weighing on equities are weaker energy prices, hurting energy shares.  Curve flattening may weigh on financial shares.  Retailing shares are struggling with the shift towards internet commerce.  Amazon’s offer for Wholefoods has increased the market’s focus on the high-tech disruption of traditional commerce.”

“The increasing use of high-tech goods for business and consumer services is a source of disinflation pressure.  Some policymakers have posited that the gig economy and self-employment trends, related to incorporating high-tech services into commerce, is contributing to low wage growth.”

“High-tech companies have been leading the rise in global equities, but perhaps this is happening at the expense of other companies’ share prices, since they are the source of disruption and weaker pricing power.”

“Low inflation outcomes may be encouraging central banks to keep monetary policy easy as they attempt to raise aggregate demand to achieve their inflation targets, typically at 2% or higher.”

“Some commentators argue that the low inflation environment is more structural and attempting to keep pushing inflation higher may result in monetary policy that is too easy, and risks building up excesses in financial markets.”

“If this is the case, central banks may shift from focusing less on their inflation targets, and more on targeting real interest rates and indicators of financial conditions.”

“This is happening to some extent in Australia, where the RBA has accepted a lower glide path back to its inflation target in deference to high house prices and excessive household debt.  The Bank of Canada recently moved to a tightening bias despite weaker inflation outcomes.  The Fed too may now be paying more attention to financial conditions, and less to its inflation target.”

“Monetary policy aimed at targeting inflation may tend to pump up asset prices to dangerous levels building in financial instability risks (by keeping real interest rates too low, below the trend rate of growth).”

“Weak pricing power, undermining operating margins, may dampen equity prices.  But they may still rise if central banks are pursuing low real rates to attempt to boost aggregate demand and raise inflation.  If central banks switch gear to managing down aggregate demand to address financial stability concerns, then asset prices might be expected to have less upside potential, including risk of a correction if they have become overbought.”


10:39 FOMC may continue to indicate that it intends to hike three times this year - Rabobank

Analysts at Rabobank point out that for now, the FOMC may continue to indicate that it intends to stick to its plan to hike three times this year, but if inflation continues to undershoot the Fed’s target and expectations, the doves in the Committee are likely to get nervous.

Key Quotes

“We continue to think that the Fed will only hike twice this year. Note that this could also delay the Fed’s plan to reduce its reinvestments until next year.”

“In addition to the inflation outlook we continue to see a series of downside risks to the US economy that each by itself could make the Fed stop in its tracks.”

“On the home front, ‘Trumpgate’ is making it even more difficult to make fiscal policy. Progress was slow to begin with: the Congress produced a spending bill to keep the government open through September, but the health care bill is still in the Senate. The Republicans are still working on tax reform, while we have also seen little progress on infrastructure spending. Therefore, we continue to think that the much awaited fiscal stimulus is likely to disappoint in terms of timing, size, and impact.”

“From the start we have expressed our doubts about the Trump rally and in particular the anticipated progress on fiscal policy that supported it and events in Washington are increasingly confirming our long held view. Moreover, if we are right about the Fed getting ahead of itself – not having been able to resist the animal spirits – the correction could be even more painful.”

“What’s more, if President Trump starts to follow through on his trade policy threats in order to compensate for the lack of progress on fiscal policy, we are heading for trade conflicts that would have negative effects on both the US and global economy. If we look outside the US, the Chinese economy remains a cause for concern. Meanwhile, geopolitical risk has increased in recent months.”


10:33 Fed sounds as hawkish as it did early in the year - AmpGFX

In view of analysts at Amplifying Global FX Capital, US data flow is sending a warning that the economy may be stalling and inflation falling well below target, still the Fed sounds at least as hawkish as it did early in the year. 

Key Quotes

“It appears even more honed in on the tight labor market and expressed surprising confidence in its forecast for 2.0% inflation next year.”

“A key reason for this, several analysts have posited, is that despite the policy easing to date, US and global financial conditions appear to have eased. Rising equity and house prices, lower bond yields and tighter credit spreads have boosted consumer wealth, and corporate access to capital.”

“The FOMC June policy statements made little reference to financial conditions, but New York Fed President Dudley mad it clear that indeed the Fed has financial conditions firmly in mind in his speech at the BIS annual meeting on Monday.”

“An important implication is that the Fed policy function more clearly includes financial conditions (equities, bond yields, credit spreads); this basically means that the Fed is now more influenced by the equity market.”

“This is not necessarily a surprise to those that have often spoken of the Fed put-option for the equity market, first popularized by the so-called Greenspan put, suggesting the Fed tends to act to prop up the equity market.  However, in the current context, the Dudley speech suggests that the Fed might act to cap the equity market (‘Dudley-call’?).”

“In other words, the Fed may keep hiking rates, until the equity market rally stalls.”

“If you are an equity investor, the comments from Dudley should give you pause.  If the recent economic data suggest demand is stalling and pricing power is deteriorating, the prospect of further Fed policy rate hikes poses a significant risk of equity market correction.”


10:31 Sweden Trade Balance (MoM) increased to 2.8B in May from previous -2.6B


10:31 Sweden Producer Price Index (YoY) unchanged at 7.2% in May


10:31 Sweden Producer Price Index (MoM) up to 0% in May from previous -0.3%


10:29 WTI catches fresh bids, jumps to test $ 44 ahead of API report

Oil futures on NYMEX are on a four-day winning streak, now accelerating the advances in a bid to conquer 44 handle, as investors expect a big drop in the US crude inventories data due to be published by the API later tonight.

After a brief phase of consolidation almost throughout the Asian trades, the bulls regained poise as markets resort to unwinding their oil shorts ahead of the crucial US supply reports.  

However, the recovery appears limited amid persistent supply glut worries, especially after the Libyan oil source reported this morning that the country’s oil output rose to 935k bpd versus 885k bpd seen last week.

Focus now remains on the private sector oil reserves data and official US government figures on the crude stockpiles due later today and tomorrow for fresh direction on oil. At the time of writing, WTI trades -0.80% lower at $ 43.13, while Brent drops -0.78% to $ 45.66 mark.

WTI technical levels 

Mathew Ashley, FX Research Analyst Blackwell Global Investments Limited noted: “One final thing worth mentioning is just how close oil prices are to dipping back into oversold territory as this will be reinforcing support around the $43 handle and capping downside risks. All things considered, there is a decent likelihood of us seeing gains extend moving ahead which now begs the question, where can we expect resistance to come back into play? As shown above, a key resistance level exists around the $46 mark which could prove to be a near-term peak for oil. ”


10:26 ECB: Expect a gradual taper through 2018 and no rate rises - HSBC

Analysts at HSBC still expect a gradual taper from ECB through 2018 and no rate rises at the moment.

Key Quotes

“Despite stronger growth, our view on the ECB remains little changed.  When the current QE programme expires in December we expect it to taper its asset purchases, initially to EUR40bn per month.  We expect a further reduction, to EUR20bn, in Q3 2018 and by the final quarter of next year we think the ECB will no longer be making net purchases.  But we think its key policy rates will stay on hold through this period, in line with its forward guidance.”    

“In theory, the reductions to the ECB's inflation forecast in June (to average just 1.6% in 2019) shift the balance of risks toward a later tapering than in our central case.  However, there are practical reasons why QE may need to ramp down.  The ECB's own rules limit what it can buy and in some cases (such as the 33% issuer limit) these reflect hard legal constraints.  At some point, a QE exit may be a necessity.  Moreover, the jury remains out on whether additional QE is actually doing much to raise underlying inflation.”


10:17 Gold stages a goodish recovery after yesterdays slump to one-month low

Gold staged a goodish recovery on Tuesday and recovered part previous session's sharp fall to over one-month lows, near the very important 200-day SMA. 

Currently trading around $1250 region, the precious metal benefitted from a mildly weaker tone surrounding the greenback. Yesterday's downbeat US durable goods orders data signaled a slowdown in the manufacturing sector and held investors back from buying the US Dollar, which was eventually seen boosting demand for dollar-denominated commodities - like gold.

Adding to this, a slight deterioration in investors' risk appetite, as depicted by weaker opening in the European equity markets, provided an additional boost to the yellow metal's safe-haven appeal and collaborated to the ongoing recovery move of over 1% from yesterday's swing lows to the lowest level since May 17. 

Investors now turn their attention to much awaited speech by the Fed Chair Janet Yellen, due later during the NY trading session, for fresh insight over the central bank's monetary policy outlook, which would eventually provide some fresh impetus for the non-yielding commodity.

   •  US: Economy faced with inflation slump? - AmpGFX

Technical levels to watch

Any further recovery now seems to confront strong resistance near $1255-56 region, above which a fresh bout of short-covering has the potential to continue lifting the metal further beyond $1260 level towards its next resistance near $1265-66 region.

On the flip side, $1244 level now seems to protect immediate downside, which if broken could drag the metal back towards 200-day SMA support near $1236-35 region.


10:16 US Dollar offered, clings to 97.00

The US Dollar Index, which gauges the buck vs. its main rivals, is trading on a soft note today although it so far manages to stick to the 97.00 neighbourhood.

US Dollar attention to Yellen, data

The index is extending its choppy trade during the first half of the week, gravitating around the 97.00 handle after being rejected once again from the 97.50 area last week.

The buck stays under pressure amidst the current down move in US yields, specially the 10-year benchmark, which is hovering over the 2.13% level, at shouting distance from weekly lows.

In the meantime, Trump’s plans to replace Obamacare seem to face further obstacles after Republicans said on Monday they will reject the healthcare bill as it is currently written.

In the US data space, home prices measured by the S&P/Case-Shiller index are due later seconded by CB’s consumer confidence and speeches by Chief J.Yellen, Philly Fed P.Harker (voter, hawkish) and Minneapolis Fed N.Kashkari (voter, dovish).

US Dollar relevant levels

The index is losing 0.07% at 97.04 facing the next hurdle at 97.16 (high Jun.26) followed by 97.56 (high Jun.15) and finally 97.63 (38.2% Fibo of the May-June drop). On the other hand, a breach of 96.81 (low Jun.26) would open the door to 96.31 (2017 low Jun.14) and finally 95.91 (low Nov.9 2016).


10:13 US: Economy faced with inflation slump? - AmpGFX

In view of analysts at Amplifying Global FX Capital, US CPI inflation has been much weaker than expected in recent months. 

Key Quotes

“Fed officials, including Yellen in her recent June 13 FOMC meeting, tended to dismiss this as related to special factors, such as a competitive price war on telecommunications.”

“San Francisco Fed President Williams on Monday reinforced these views saying “Some special transitory factors have been pulling inflation down,”….. “But with some of these factors now waning, and with the economy doing well, I expect we’ll reach our 2 percent goal some time next year.” ….  “The very strong labor market actually carries with it the risk of the economy exceeding its safe speed limit and overheating, which could eventually undermine the sustainability of the expansion”

“Nevertheless, various core measures that are designed to strip out the effects of individual outlier components show a significant fall in underlying inflation in recent months.”

“Market-based inflation expectations have also fallen in recent months.  The Fed has simply said, since January, that “market-based measures of inflation compensation remain low”.”

“The 5yr5yr forward measure of inflation compensation from inflation-linked securities and derivatives suggests that expectations have reversed all the gains since the election of Trump.”

“Expectations for Personal Consumption Expenditure and PCE Deflator data due on Friday are low, based on recent weak CPI and retail sales data.”


10:04 Draghi Speech at the ECB Forum Live

ECB President Mario Draghi is expected to give an introductory speech at the ECB Forum on Central Banking in Sintra (Portugal) at 8GMT.

This year’s ECB Forum on Central Banking is focused on investment and growth in advanced economies, with central bankers, journalists and academics expected to exchange views on the subject during two days.

 

 

Key Notes

EUR/USD looks to regain 1.1200 ahead of Draghi, Yellen

After a positive start on Tuesday, the pair is once again aiming to test and surpass the key barrier at 1.1200 the figure.

EUR/USD risks tilt to the downside on Draghi-Yellen divergence

Spot deflated from tops following words by President Draghi on Monday, brierfly testing the 1.1180 region ahead of the continuation of the ECB Forum today.

 

About Mario Draghi
The European Central Bank's President Mario Draghi was born in 1947 in Rome, Italy. Graduated of the Massachusetts Institute of Technology (MIT), Draghi became the president of the European Central Bank in 2011.  Usually, if he shows a hawkish outlook, that is seen as positive (or bullish) for the EUR, while a dovish is seen as negative (or bearish).


10:01 Depressed USD/RUB falls below key SMA

USD/RUB has just crossed below its 200-hour SMA. The last such price-indicator cross has been registered at least over a week ago on this time frame, accentuating its significance.

Traders maintaining a downside bias, extend their projections to the 800-SMA, which corresponds to the 200-SMA on 4hr charts.

10:01 Denmark Retail Sales (YoY) up to 1.6% in May from previous -0.8%


09:49 Nigeria may soon join the OPEC oil output cut deal

An article carried by Daily Trust on Tuesday, highlighted that Nigeria is closer to join the oil output cut deal reached by the OPEC, following the continuous recovery of the country’s crude oil production.

Key Quotes:

“Nigeria, which is exempt from the current OPEC cuts, alongside Libya and Iran, has witnessed improvement in oil production to its highest level in more than a year.

Oil production tumbled to 30-year lows of around 1.2m barrels per day (b/d) in 2016, from 2.2m b/d, as attacks on oil facilities in the Niger Delta increased.

But following extensive engagement with militants by the Federal Government, as well as the return of the Forcados terminal, a key Nigerian crude oil pipeline, production has lifted export towards the 2 million b/d mark and is expected to increase even further.

With production now near its full capacity of 2.2m b/d, Nigeria could be asked to join the OPEC cut deal.”


09:40 US: Labor market tighter - AmpGFX

The labor market is probably the most important indicator underpinning the Fed’s forecast for further policy tightening and Fed members including Yellen are now describing the labor market as tight, notes the analysis team at Amplifying Global FX Capital.

Key Quotes

“With many other economic indicators suggesting growth may be stalling, the onus will be even more on the labor data to sustain the Fed’s policy tightening regime.”

“Payrolls growth has slowed this year, averaging 121K over the last three months to May.  However, this slowdown may be indicative of a tightening labor market, with less suitable skilled workers to fill jobs.”

“Unemployment has fallen to 4.3%, below the Fed’s downwardly revised estimate of neutral unemployment of 4.6%.  Weekly unemployment claims 4-week moving average, at 245K in the 4-weeks to 16 June, is still arguably trending lower, although up from a low of 236K in the 4-weeks to 19 May.  The monthly payrolls data are due next week.”

 


09:36 AUD/USD surges through 0.76 handle to hit fresh one-week high

The AUD/USD pair continued gaining traction for the third consecutive session and has now jumped to one-week highs near 0.7610 region.

A mildly weaker US Dollar, led by subdued action around the US Treasury bond yields helped the pair to build last week's sharp recovery move from the very important 200-day SMA. Moreover, Monday's disappointing US durable goods orders data also gave investors reason to be cautious about buying the greenback and remained supportive of the pair's up-move for the third consecutive session.

Adding to this, positive trading sentiment surrounding commodity space provided an additional boost to commodity-linked currencies and further collaborated to the pair's move back above the 0.7600 handle. 

It, however, remains to be seen if the pair is able to attract any follow through traction amid expectations of hawkish scripts from Philadelphia Fed President Patrick Harker and the Fed Chair Janet Yellen, scheduled to speak later during the day.

On the economic data front, the release of Conference Board's Consumer Confidence Index would also be looked upon for some trading impetus during early NA session.

In the meantime, the RBA Assistant Governor Debelle’s speech, due during the European session, would be looked upon for fresh insight over the RBA's monetary policy outlook and should also influence sentiment surrounding the major.

Technical levels to watch

Momentum beyond 0.7615 level could get extended back towards two-month highs resistance near 0.7630-35 region, above which the pair seems all set to head towards testing 0.7675-80 horizontal resistance before aiming to reclaim the 0.7700 handle.

On the flip side, 0.7585-80 region now seems to protect immediate downside, which if broken would turn the pair vulnerable to break below mid-0.7500s intermediate support and challenge 200-day SMA important support near 0.7530 region.


09:24 EUR futures: a top in place?

Monday’s preliminary figures for open interest in the EUR futures markets showed traders slightly trimmed their positions by more than 1K contracts to 381,683 contracts vs. Friday’s final figures.

Interim resistance above 1.1200

The current inability of EUR/USD to surpass the low-1.1200s on a more sustainable fashion and the somewhat stabilized performance of open interest in past sessions allow us to infer that a potential top could be in place in the near term.

The view is reinforced by the lack of relevant news or events around spot, which continues to be driven by USD-dynamics and US yields.


09:21 Forex Today: Antipodeans firmer in Asia, ECB Draghi, BOE Carney in focus

A quiet Asian affair this Tuesday, with most major currencies trading in tight ranges, as cautious trades intensify ahead of the a mix of central bankers’ speeches. Amongst the Asia-pac currencies, the yen was weakest amid better risk sentiment and increased hopes of Fed tightening its policy sooner than later. USD/JPY hit fresh one-month highs and popped briefly above 112 handle, before reversing to now trade around 111.80.

Meanwhile, the Antipodeans emerged the top gainers in Asia, as the US dollar reversed a part of yesterday’s rebound, while higher oil prices also supported the commodity-currencies.

Attention now turns towards a spate of central banking events that are likely to dominate the fx space today, with the speech by the ECB President Draghi expected to kick-off the European session, followed by the RBA Assistant Governor Debelle’s speech. The BOE’s Financial Stability report and Governor Carney’s speech will also steal the limelight in Europe.

 In the NA session, the US CB consumer confidence data combined with Fed Chair Yellen’s speech will wrap up an eventful trading session today.

Main topics in Asia

NZ: Trade surplus down to NZD103m - Rabobank

Today we saw NZ trade data, where exports did well but imports surged, taking the trade surplus down to just NZD103m from a prior NZD536m.

China’s Li: Will not resort to massive stimulus measures

Additional headlines hitting the wires from the Chinese PM Li’s speech delivered during the opening ceremony of "Summer Davos" Forum in Dalian.

Quarterly Flow of Funds report: BOJ keeps snapping up bonds

The Bank of Japan (BOJ) published its quarterly Flow of Funds report earlier this Tuesday, highlighting that the Japanese central bank’s pace of buying in the government debt has slowed dramatically…

China’s industrial profits increase 16.7% in May

The National Bureau of Statistics (NBS) reported the latest Chinese industrial profits data for the month of May, noting that the industrial profits climbed 16.7% y/y last month versus +14% y/y seen last.

US Comm Dept.: Canadian softwood will face duties up to 30.88%

The US Commerce Department came out with a statement earlier today, via Reuters, announcing duties on the softwood lumber exports from Canada.

Key Focus ahead

UK: FSR in focus today - TDS

The Bank of England releases its Financial Stability Report, which is followed by a press conference by Governor Carney at 11am BST.

US: Consumer confidence may ebb - AmpGFX

Today, in the US, the Conference Board Consumer Confidence report is released and analysts at Amplifying Global FX Capital suggest that we may be on the cusp of some correction in sentiment surveys. 

US consumer confidence and Fed speak amongst market movers today – Danske Bank

Today is another quiet day in terms of data releases with the Fed's Williams (non-voter, neutral) speaking this morning and later today it is time for US consumer confidence for June will be the only key events, suggests analysis team at Danske Bank.

EUR/USD looks to regain 1.1200 ahead of Draghi, Yellen

Having found some support near 1.1175 region, the EUR/USD pair has embarked upon a minor-recovery mode, as the bulls look to regain 1.12 handle ahead of key central bankers’ speeches.

 

 

 


09:06 GBP/USD flirting with session highs near 1.2730

The Sterling is posting moderate gains vs. the buck on Tuesday, lifting GBP/USD to the area of daily highs around 1.2730.

GBP/USD eyes on BoE, Brexit

Cable keeps the rally well and sound so far this week, advancing for the fifth consecutive session despite the effervescence in the domestic political scenario and amidst mixed headlines from the Brexit negotiations.

Against the backdrop of the current up trend, GBP should be under scrutiny today in light of the release of the BoE’s financial stability report (FSR) and subsequent press conference by Governor M.Carney.

Consensus among investors expect Carney to pour some cold water over expectations of potential tightening by the ‘Old Lady’ sooner than initially estimated, particularly following last week’s hawkish comments by A.Haldane.

In the data space, CBI’s survey is only due. Across the pond, US home prices tracked by the S&P/Case-Shiller index are due seconded by CB’s consumer confidence and speeches by Chief J.Yellen, Philly Fed P.Harker (voter, hawkish) and Minneapolis Fed N.Kashkari (voter, dovish).

GBP/USD levels to consider

As of writing the pair is up 0.07% at 1.2732 and a breakout of 1.2759 (high Jun.26) would open the door to 1.2786 (20-day sma) and then 1.2832 (55-day sma). On the other hand, the next support aligns at 1.2640 (100-day sma) followed by 1.2587 (low Jun.21) and finally 1.2548 (200-day sma).


09:05 Canada: Mixed signals TD Economics

Those trying to time the next Bank of Canada move received mixed signals from Canada’s economic releases in the past week, according to Diana Petramala, Economist at TD Economics.

Key Quotes

“Retail sales in April started the second quarter off on a strong note, suggesting the continuation of strong economic momentum. But, then Friday’s weaker-than-anticipated consumer price report showed that inflation continued to decelerate into May. Most of the Bank of Canada’s preferred measures of inflation eased for a fifth straight month, and are well below the Bank’s 2% target. While the soft inflation report helped curb enthusiasm over the possibility of a July rate hike, there are still grounds to believe the Bank of Canada will begin raising interest rates in October.”

“Looking forward, a healthy pace of consumer spending is likely to continue to underpin robust economic momentum. While housing related items were at the top of household shopping lists, consumers have been spending on just about everything at a healthy rate – a trend that will likely continue through most of 2017. Households are still carrying a lot of debt, but the low interest rate environment has kept the carrying costs of that debt low, giving them some financial wiggle room to continue to support retail spending. Meanwhile, the strength in housing activity through the last quarter of 2016 and into early 2017 is likely to continue to boost spending on house-related items as those buyers renovate and furnish their homes. The slowdown in housing activity currently underway will likely not feed into a slower pace of retail spending until the end of this year and early next year.”

“Overall, the low inflation backdrop is likely to keep the Bank of Canada on hold through July’s rate announcement, but given that monetary policy acts with a long and variable lead, improving economic conditions are likely to give the central Bank motivation to start gradually raising rates in October of this year.”


09:02 USD/JPY surrenders early gains to 1-month highs, back below 112 mark

The USD/JPY pair struggled to sustain its move beyond 100-day SMA hurdle and has now surrenders all of its early gains to one-month high near 112.10 region.

The pair on Monday caught some strong buying interest and surged to its highest level since May 25 despite of the disappointing release of durable goods orders data from the US and a sharp reversal in the US equity markets, which tends to derive the Japanese Yen's safe-haven demand.

   •  USD longs steady, JPY shorts edged lower - Rabobank

The pair struggled to build on previous session's strong up-move and retreated around 30-pips from session tops, to currently trade near 111.80 region, amid a mildly weaker tone around the key US Dollar Index

However, a modest up-tick in the US Treasury bond yields and a mildly positive sentiment around Japanese equity markets was seen lending some support and collaborated towards limiting any immediate sharp downslide for the major.

Later during the NA session, the release of CB Consumer Confidence Index would now be looked upon for some short-term trading impetus ahead of speeches by Philadelphia Fed President Patrick Harker and the Fed Chair Janet Yellen. 

   •  US: Consumer confidence may ebb - AmpGFX

Technical levels to watch

Omkar Godbole, Analyst and Editor at FXStreet writes: "Repeated rebound from 111.00 region established a higher bottom formation on the 4-hour chart. The subsequent inverse head and shoulder breakout has opened doors for 114.82 (target as per the measured height method). However, the 4-hour RSI is close to being overbought; hence the bullish move may run out of steam around 112.79 levels. On the downside, only a daily close below 111.00 would signal bullish invalidation."


08:59 USD longs steady, JPY shorts edged lower - Rabobank

According to IMM net speculators’ positioning as at 20 June, 2017, USD longs held steady, holding just above their late May levels which were their lowest levels since last Oct – ahead of the Trump win in the Presidential election, explains the research team at Rabobank. 

Key Quotes

“The relatively soft level in long positions reflects domestic political concerns and some disappointments in domestic economic data. The more hawkish than expected tone of the FOMC last week could lend some support in the next release.”

Bearish bets against the pound increased for a third week marking a clear break from the trend that prevailed for the previous six weeks. The weaker tone of GBP is a response to the Government’s failure to hold its majority at the June 8 general election. Opinions polls had been suggesting that the Labour opposition was gaining momentum ahead of the election. While this increases the likelihood of a more messy Brexit process, GBP has found some support on speculation that a ‘soft’ Brexit may now be more likely.”

For an eighth consecutive week, EUR longs have remained on their upward path. Macron’s success in the French parliamentary election has strengthened the better tone, although the dovish tone of the ECB at the June policy meeting could temper the bullish tone. EUR positions are at their strongest level since May 2011.”

JPY shorts edged lower but remained within recent ranges. The BoJ retained a dovish tone at its June policy meeting. Irrespective, changing demand for safe haven remains a primary influence. Geopolitical uncertainty in the Gulf region, political uncertainty in the US or further testing of nuclear missiles by N. Korea could offer support to the JPY going forward.”

CHF shorts dropped for a fourth consecutive week. The improvement in the Eurozone economy should over time reduce safe haven demand for the CHF. However, for now the CHF appears to be moving in the same direction as the EUR.”

CAD shorts dropped for a third week, in contrast to the twelve week trend that dominated the spring. Some hawkish comments from the BoC could lend support, but the outlook for price of oil remains a key influence. AUD positions held their position in negative territory despite better than expected Australian Q1 GDP growth data.”


08:53 US: Consumer confidence may ebb - AmpGFX

Today, in the US, the Conference Board Consumer Confidence report is released and analysts at Amplifying Global FX Capital suggest that we may be on the cusp of some correction in sentiment surveys. 

Key Quotes

“The Preliminary University of Michigan Consumer Sentiment survey released on 16 June showed confidence slipping in June to a low since November last year.  The weekly Bloomberg consumer comfort index also slipped last week to a low since February.”

“Overall consumer sentiment remains at a high level.  However, we may be on the cusp of some correction in sentiment surveys.  This would not surprise in light of the slipping credibility in the Trump administration and capacity of Congress to pass key legislation on health, tax and infrastructure.”


08:50 FX option expires for June 27 NY cut

FX option expires for June 27 NY cut at 10:00 Easter Time, via DTCC, can be found below.

EUR/USD: $1.1100(E877mn), $1.1200-10(E500mn), $1.1230 35(E330mn), $1.1350(E405mn) 

- USD/JPY: Y110.28 ($500mn), Y111.50-53($318mn), Y112.00($412mn) 

- AUD/USD: $0.7300(A$595mn), $0.7600-05(A$533mn) 

- NZD/USD: $0.7040(NZ$232mn) 

- USD/CAD: C$1.3250($511mn) 

- EUR/GBP: Gbp0.8815-20(E534mn) 


08:29 USD/CAD placed at session tops, above mid-1.3200s

The USD/CAD pair built on overnight recovery move from 1.32 neighborhood and eroded majority of previous session's losses led by disappointing US durable goods orders data. 

Currently placed near session tops, around 1.3255-60 region, the Canadian Dollar is being weighed down by the US Commerce Department's statement on Tuesday to impose duties up to 30.88% on the softwood lumber exports from Canada.

   •  US Comm Dept.: Canadian softwood will face duties up to 30.88%

The pair moved higher despite of a subdued action around the greenback, with the key US Dollar Index consolidating in a range just above the 97.00 mark. Traders even shrugged off a modest up-tick in crude oil prices, which tends to underpin demand for the commodity-linked currency - Loonie.

Today's US economic docket features the release of Conference Board's Consumer Confidence Index, during early NA session. Investors focus, however, would remain glued to key speeches by Philadelphia Fed President Patrick Harker and the Fed Chair Janet Yellen, which would be looked upon for clues over the timing of next Fed rate-hike action and eventually might help determine the pair's next leg of directional move.

   •  US consumer confidence and Fed speak amongst market movers today – Danske Bank

Technical levels to watch

A strong follow through buying interest beyond 1.3265-70 region has the potential to lift the pair further towards the 1.3300 handle en-route its next major hurdle near 1.3335-40 area.

On the downside, 1.3215-10 region remains immediate strong support to defend, which if broken is likely to accelerate the slide back towards 4-month lows support near 1.3165 level.


08:25 UK: FSR in focus today - TDS

The Bank of England releases its Financial Stability Report, which is followed by a press conference by Governor Carney at 11am BST and are going to be the key economic event for the UK markets, according to the analysts at TDS.

Key Quotes

“While it’s unlikely we’ll hear much on the monetary policy front, Governor Carney may take the chance to push back against the two hawkish MPC speeches last week. The CBI retail sales index for June is released.”


08:22 US consumer confidence and Fed speak amongst market movers today Danske Bank

Today is another quiet day in terms of data releases with the Fed's Williams (non-voter, neutral) speaking this morning and later today it is time for US consumer confidence for June will be the only key events, suggests analysis team at Danske Bank.

Key Quotes

“We look for a small decline in line with what we have seen in the consumer survey from University of Michigan. The post-Trump consumer euphoria seems to have faded a bit. Tonight, more Fed speakers will be available (Kashkari and Harker).”


08:11 EUR/USD looks to regain 1.1200 ahead of Draghi, Yellen

Having found some support near 1.1175 region, the EUR/USD pair has embarked upon a minor-recovery mode, as the bulls look to regain 1.12 handle ahead of key central bankers’ speeches.

EUR/USD: Recovery appears limited on policy divergence

The spot is seen consolidating the Asian recovery as we progress towards the European morning bells, although remains in the upper bound of today’s trading range. The greenback retraces late-Monday’s rebound against most of its major peers, as the bulls turn defensive ahead of the crucial US consumer confidence data and Fed Chair Yellen’s speech.

Despite the upbeat tone seen around the EUR/USD pair, investors remain wary whether the spot would extend the recovery above 1.12 handle, as monetary policy divergence between the ECB and Fed remains on top of the mind ahead of the speeches by the ECB President Draghi and Fed Chief Yellen.

Meanwhile, the EUR/USD pair maintains the bid tone as solid German IFO surveys continue to underpin the Euro, while downbeat US durable goods data add to the negative bias seen around the buck.

EUR/USD Technical Levels

According to Valeria Bednarik, Chief Analyst at FXStreet: “Technically, the pair has faltered once again around 1.1210/20, having been rejected from the area multiple times since June 14th. To the downside, a major Fibonacci support stands around 1.1120 while a relevant low comes at 1.1109, the price to break lower to confirm further slides ahead.”


08:07 China: Growth has passed its peak - Rabobank

Michael Every, Senior Asia-Pacific Strategist at Rabobank, points out that two leading PMI-style measures of Chinese growth are showing that growth is past its peak.

Key Quotes

“That is something we have been flagging as likely to occur soon- with an SME confidence index at its lowest in 16 months, while still far from poor at 54.7, and the ‘SpaceKnow China Satellite Manufacturing Index’ (yes, it’s a thing now) at 49.6.”

“On the other hand, Chinese sales managers are feeling more German(e) about downside risks, with their monthly survey of sentiment at 52.5, a 20-month high.”


07:48 AUD/USD pops above 0.7600 briefly, RBAs Debelle eyed

The bulls extended their control in Asia, having taken AUD/USD further northwards in a bid to print fresh six-day tops just ahead of 0.76 handle.

AUD/USD trades above all major DMAs

The spot is on a rising trend so far this week, extending Friday’s solid rebound, in response to a steady recovery in oil prices and broad based US dollar softness. Additionally, stronger China’s industrial profits data for May also added to the renewed bullish momentum seen in the major.

However, over the last hours, the Aussie struggles to extend the break above 0.76 handle, as mixed Asian equities combined with weaker copper and oil prices weigh negatively on the higher-yielding commodity currency.

Attention now turns towards the RBA Assistant Governor Debelle’s speech due out in the European session for fresh light on the RBA’s monetary policy approach going forward. Also, the US dataflow followed by Fed Chair Yellen’s speech will also hog the limelight later today.

AUD/USD Levels to watch   

At 0.7601, the pair finds the immediate resistance at 0.7630-40 (key resistances) above which gains could be extended to the next hurdle located 0.7680 (Mar 30 high) and 0.7700 (zero figure). On the flip side, the immediate support is located at 0.7550 (psychological levels). Selling pressure is likely to intensify below the last, dragging the Aussie to 0.7533 (100-DMA) and below that 0.7509/0.7497 (200-DMA/ Jun 7 low).

 


07:48 NZ: Trade surplus down to NZD103m - Rabobank

Today we saw NZ trade data, where exports did well but imports surged, taking the trade surplus down to just NZD103m from a prior NZD536m, and vastly below to NZD419m expected, notes Michael Every, Senior Asia-Pacific Strategist at Rabobank.

Key Quotes

“On a 12-month rolling basis that saw the deficit blow out to –NZD3,754m from –NZD3,514m. Not that the much-mentioned NZD has reacted much to the news.”


07:43 TWD: July weakness on dividend payment season? ANZ

The New Taiwan Dollar (TWD) is the best performing Asian currency so far this year, but the month of July tends to see the TWD weaken due to dividend repatriation flows, explains Khoon Goh, Head of Asia Research at ANZ.

Key Quotes

The 6.3% appreciation in the TWD for the year-todate makes it the best performing Asian currency. TWD’s appreciation is on par with the EUR, which is the best performing G10 currency so far this year. Strength in the TWD has been primarily driven by strong foreign inflows into the Taiwan equity market, which the Central Bank of the Republic of China (CBC) noted in their monetary policy statement last week. Equity inflows totalled USD8.9bn over the first half of 2017, an increase of 42% over the same period last year. A strong recovery in Taiwan’s export performance and a positive risk environment in global markets underpinned the equity flows.”

“However, we see the TWD unwinding some of its gains in the month ahead due to: (1) dividend repatriation flows, and (2) equity inflows easing off due to stretched valuations and waning growth momentum.”

Payout Time

There is a very distinct seasonal pattern for TWD in the month of July. Looking at the period from 2000 to 2016, we note that the TWD tends to weaken against all G10 and Asian currencies with regular consistency. The average TWD decline against the IDR is the largest at 1.4%. However, the result is skewed by the large rally in IDR in July 2001. In terms of frequency, TWD has a strong tendency to weaken against the KRW and SGD in July, having done so in 14 out of the last 17 years.”

“The reason behind TWD weakness in July is due to the repatriation of dividend payments. Companies listed on the Taiwan Stock Exchange usually start to go exdate starting from June and peaking in July, with dividends largely paid out in July and August.”

“In the absence of further upward growth momentum, it is likely that we will see an easing off in foreign equity inflows over the coming months. USD/TWD has recently moved in line with where the TWSE is trading. A slowdown in equity inflows, or even some outflows on the back of profit taking, will see the TWD weakening, particularly with the seasonal dividend repatriation flows. Hence, we can expect some of the gap between the TWD’s outperformance against the rest of the Asian currencies to narrow in the coming month.”


07:23 US: Durable goods orders for May fell 1.1% m-o-m, below expectations - Nomura

The US topline durable goods orders for May fell 1.1% m-o-m, below expectations (Nomura: -0.1%, Consensus: -0.6%), driven by a sharp 3.4% decline in transportation equipment orders.

Key Quotes

“The prior month was revised down to a 0.9% decline from a 0.8% decline. Within transportation components, auto and parts orders increased 1.2% following a 0.5% increase in April, suggesting that autos production may not slow quickly amid flagging consumer vehicle sales. Civilian aircraft orders dropped 11.7%, exacerbating a decline in topline orders. Excluding volatile transportation components, durable goods orders were mixed, increasing only moderately by 0.1% (Nomura: -0.5%, Consensus: 0.4%), after a 0.5% decline in the previous month.”

“Core capital goods shipments, a concurrent indicator of manufacturing activity and a component for GDP accounting, fell 0.2% after a modest increase of 0.1%. While month-to-month fluctuations can be somewhat volatile, recent weak readings in this measure increase the risk of seeing a less of a boost from business investment in Q2.”

GDP tracking update: The weaker-than-expected core shipments, a proxy of business equipment investment, led us to revise down our Q2 GDP tracking estimate by 0.1pp to 2.6% q-o-q saar from 2.7%. Among a number of different forecasters such as Atlanta Fed’s GDP Nowcast and Macroeconomic Advisers, equipment investment estimates for Q2 range from a 2.3% decline to a 2.1% increase. However, the range of these estimates is well-below the 7.1% increase in Q1, indicating some slowdown in equipment investment growth.”


07:03 Chinas Li: Will not resort to massive stimulus measures

Additional headlines hitting the wires from the Chinese PM Li’s speech delivered during the opening ceremony of "Summer Davos" Forum in Dalian.

Key Points:

China will keep macro-policies stable, implement proactive fiscal policy, prudent monetary policy

Will not resort to massive stimulus measures

China will push structural supply-side reforms, cut taxes, fees for firms


07:00 Quarterly Flow of Funds report: BOJ keeps snapping up bonds

The Bank of Japan (BOJ) published its quarterly Flow of Funds report earlier this Tuesday, highlighting that the Japanese central bank’s pace of buying in the government debt has slowed dramatically since the introduction of yield-curve control in September 2016, Bloomberg reports.

Key Points:

The central bank owned 39.5 percent of Japan’s bonds and treasury bills, up from 13.1 percent when Haruhiko Kuroda took over as governor in March 2013

BOJ says held 39.46% of JGBs end-Q1

Foreign investors 10.75% flow of funds report shows household assets rise 2.7pct y/y

Today’s data shows the value of the debt at the current market price, to allow a comparison of what the BOJ owns with what banks, pensions funds and others possess.


06:44 Chinas Li: Not easy for China to maintain medium to high-speed economic growth rates

More comments hitting the wires from the Chinese Premier Li, as he addresses Chinese the opening ceremony of "Summer Davos" Forum in Dalian.

Headlines:

China's economy maintains steady, improving momentum in Q2

Domestic demand has become a key pillar for China's economy

China's economy still faces many challenges

China fully capable to achieve full-year growth target

China will continue to push capacity cuts in steel, coal sectors

China will ease market access for services, industrial sectors

Will make it easier for foreign firms to register new companies in China

No restriction on foreign firms repatriating profits from China

China is able to control systemic risks in its economy

China is fully capable to control various risks, keep economic growth within reasonable range

 


06:34 EUR/USD risks tilt to the downside on Draghi-Yellen divergence

The EUR/USD pair rose to a high of 1.1219 in the North American session following the release of the dismal US data before ECB’s Draghi poured cold water on expectations of QE taper and pushed the spot lower to 1.1182 levels. The currency pair traded around 1.1185 levels in Asia.

ECB President Draghi speech is scheduled at 8:00 GMT today. The central bank head is likely to reiterate the positives of lower rates and once again squash hopes of reduction in the monetary easing.

Focus on Yellen speech

Fed Chair Yellen is set to deliver a speech in Europe on Tuesday. Traders expect her to defend the outlook for three rate hikes this year, despite the deterioration in the economy.

Fed’s hawkish rate hike earlier this month did catch markets off guard, but the subsequent rally in the USD has been very slow and the treasury yield curve continued to flatten. Moreover, the action in the treasuries suggests the bond traders are not buying the Fed’s hawkish view.

Nevertheless, hawkish comments from Yellen today would not only underscore the growing divergence between the Fed and the ECB, but would also add credence to BIS’ argument that central banks should go ahead with the great unwind (undo what has not worked). Thus, EUR/USD may feel the pull of the gravity.

On the other hand, the dovish surprise from Yellen may push EUR/USD back above the rising trend line (sloping upwards from Apr 17 low and May 11 low).

EUR/USD Technical Levels

Last two weekly candles were Doji. The first one had a long upper shadow (bullish exhaustion), while the second one was a long legged one (dip demand/bearish exhaustion). The spot is thus trading in a no man’s land - range of 1.1296 (high of the weekly candle with a long upper shadow) - 1.1119 (low of last week’s Doji candle). The weekly chart also shows repeated failure at 1.1284 (161.8% Fib expansion of Dec low - Jan high - Feb low).

A daily close above 1.1296 would open doors for 1.1366 (Aug 2016 high) and 1.1428 (June 2016 high). On the lower side, a daily close below 1.1119 could yield a sell-off to 1.1074 (50-DMA) and 1.10 (zero figure).

 


06:32 GBP/USD: A phase of consolidation ahead of BOE FSR, Carney

The GBP/USD pair found buyers near 1.2710 levels in the overnight trades, and since then has entered a phase of downside consolidation, as investors await the release of BOE’s Financial Stability Report (FSR) and Governor Carney’s speech for the next direction.

GBP/USD capped below daily pivot at 1.2729

The subdued trading activity seen behind cable is mainly driven by increased cautiousness, as investors remain wary over the outcome of the BOE FSR report on the financial markets, in the wake of the UK election and Brexit uncertainty.

Moreover, mixed sentiment prevalent around the Asian markets, with investors fearing that the Fed may continue with its policy normalization plans, as suggested by the Bank for International Settlements (BIS) report released over the weekend.

Meanwhile, the US dollar is reversing yesterday’s late-rebound, backed by Trump administration’s victory over the travel ban, which helps keep the spot underpinned. Also, the pound remains buoyed after yesterday’s reports of the UK May’s Conservatives Party having struck a deal with the DUP to form a minority government.

Looking ahead, the immediate focus remains on the BOE FSR and Carney’s speech, which will be followed by the CBI realized sales data during the European session. Meanwhile, the US docket also remains eventful, with the CB consumer confidence data and speeches by the FOMC officials Harker and Yellen.

GBP/USD levels to consider             

Valeria Bednarik, Chief Analyst at FXStreet offers key technical levels for the spot: “Technically, the 4 hours chart shows that intraday slides were contained by buying interest around a bullish 20 SMA, now around 1.2705 the immediate support, whilst the Momentum indicator remains directionless within positive territory, and the RSI retreats, currently around 52, overall suggesting the pair can end its rallying streak this Tuesday. Support levels: 1.2705 1.2665 1.2635 Resistance levels: 1.2760 1.2800 1.2840.”


06:16 Chinas Li: Momentum of world economic recovery insufficient

Chinese Premier Li Keqiang crossed the wires last minutes, via Reuters/ Bloomberg, expressing his take on the economy.

Key Headlines:

Anti-globalisation voices emerging

World political risks on the rise

Momentum of world economic recovery insufficient

Economic growth needs to ensure fairness, sustainability

Limiting trade freedom leads to lack of fairness

China will fulfil its promises on tackling climate change

China maintained stable growth as its more inclusive

China prioritises employment in economic growth, aims for relatively full employment


05:46 Brent oil - Technical correction gathers pace, eyes US inventories data

The technical correction in oil prices gathered pace, with Brent contract now attempting a bullish break of the falling channel. 

The front month contract was last seen trading around 45.90/barrel. Prices jumped to a high of $46.19 on Monday after reports hit the wires that Saudi Arabian crude export loadings in April had dropped materially. Saudi exports to US have dropped below one million barrels per day for the first time since last November.

However, the sentiment still remains bearish as the glut still persists and the market isn’t likely to rebalance anytime soon. Oil traders await the weekly US inventory data release. Markets are expecting a 4.5 million drop in oil supply and a 3 million drop in the gasoline inventories. 

Brent Technical Levels

The 4-hour chart shows the prices are attempting a bullish break of the falling channel. The RSI has turned bullish and is sloping upwards, pointing to scope for further gains in oil prices. A break above $46.19 (previous day’s high) would expose $46.68 (May 5 low) and $47.00 (zero levels). On the other hand, a break below $45.43 (June 20 low) would open doors for $45.01 (previous day’s low) and $44.34 (June 21 low). 


05:33 2017 Iron-ore forecast cut 15% to USD 63/ton Morgan Stanley

In its latest note published on Tuesday, the analysts at Morgan Stanley, the US investment bank, slashed the price-forecasts for iron-ore for this year.

Key Details:

Iron ore Q3 forecast cut 23% to USD 50/ton

2017 forecast cut 15% to USD 63/ton

The view downgrade by Morgan Stanley can be considered a negative input for the resource-linked AUD.


05:24 Irans largest oil terminal boosts capacity to 8 million bpd

Oilprice.com reported weekend’s comments by Pirouz Mousavi, the managing director of the Iranian Oil Terminals Company (IOTC), late-Monday, citing that the Kharg oil terminal in Iran has increased its crude oil loading capacity to 8 million barrels per day (bpd).

According to official data quoted by Iranian economic daily Financial Tribune, Iran’s exports are currently more than 2 million bpd of crude oil, plus another 600,000-700,000 bpd of condensates.

The Kharg oil terminal crude loadings account for 95% of Iran’s total crude oil exports, Mousavi added. 

Meanwhile, both crude benchmarks trade steady, with WTI around $ 43.50, while Brent keeps $ 46 mark.


05:14 NZD/USD remains capped below 0.7300 on China industrial profits

Despite solid Chinese industrial profits data release, the rebound in NZD/USD remains capped just below 0.73 handle, as poor NZ trade figures combined with latest headlines from White House weigh.

NZD/USD: Risk-on falters?

The spot is seen struggling hard to regain the bids over the last hours, but in vain, as resurgent USD demand across the board amid higher treasury yields limit the recovery.

The USD index continues to keep its range around 97.15 levels, while shorter duration T-yields lead across the curve, in the wake of the latest BIS, which suggested that the Fed should remain on track with tightening the monetary policy this year.

More so, latest statement published by the White House on potential preparations for chemical weapons attack in Syria, also keeps a lid on the prices. However, the recovery mode remains intact amid upbeat Chinese industrial profits data and better appetite for risk assets. China’s industrial profits increase 16.7% in May

Earlier on the day, the Kiwi fell sharply to 0.7276 levels, after the NZ trade data showed a massive shrink in the country’s trade surplus on the back much higher than expected rise in the imports.

All eyes now remain on a fresh batch of the US macro releases and Fedspeaks, including Fed Chair Yellen’s speech, due on the cards later today.

NZD/USD Levels to consider                                                                              

NZD/USD managed to take-out 5-DMA at 0.7282 upside target, with a test of 0.7300 on the cards. Beyond which 0.7323 (Jun 14 high) will be on sight. To the downside, 0.7200 guards 0.7145 and a break back below 0.7080/90 are key near-term downside areas.


05:09 USD/JPY jumps to one-month high of 112.07, is this a BIS rally?

The Dollar-Yen pair jumped to a one-month high of 112.07, ignoring the weak US data and flatter yield curve as investors fear the Fed may continue to push forward with policy normalization as suggested by the Bank for International Settlements (BIS).

The key measures of the treasury yield curve dropped to the lowest since 2007 on Monday as investors switched to the long-end of the curve following the release of the dismal US durable goods orders data and regional manufacturing data.

The dollar did suffer minor losses, but quickly regained poise, indicating the investors do not see Fed deviating from its policy normalization plans despite weak data. Investors also fear that Fed Chair Yellen would reiterate her hawkish stance last this week.

BIS asks central banks to go ahead with the great unwind

Over the weekend, the BIS asked major central banks to go ahead with the policy normalization, given the global economy looks stable, while the ultra easy policy has largely failed to boost inflation. The Fed’s decision to maintain the outlook for three rate hikes earlier this month also suggests the central bank is no longer as data dependent as it used to be.

USD/JPY Technical Levels

The spot was last seen trading around 111.95 levels. A break above 112.53 (38.2% Fib R of Dec high - Apr low) would open up upside towards 112.60 (Jan 17 low) and 113.00 (zero levels). On the downside, breach of support at 111.81 (session low) would expose 111.34 (50-DMA) and 111.00 (zero levels).

 


05:06 USD/RUB Bulls are losing momentum

USD/RUB sellers stood their ground and buyers retreated in recent sessions as MACD (26, 12, 9) has fallen off below its median line.

On a 4hr chart, this technical condition may be taken by many trend-following traders as a trigger to liquidate long positions.

The fact that the MACD hasn't been under zero for at least one week of trading, reinforces the argument that room for further USD/RUB depreciation is there.

05:02 USD/HUF momentum switched to negative

Increased downward momentum in the USD/HUF has brought the 4hr MACD to step in the red zone.

This technical condition would certainly not be of much help if the MACD hasn't been under zero for at least one week of trading. This reinforces the argument that room for further USD/HUF depreciation is there.

The signal may be either taken by trend-following traders as a trigger to liquidate long positions as by potential sellers to prepare their short commitments.

04:57 White House: US has Iidentified potential preparations for chemical weapons attack in Syria

Reuters out with the latest statement issued by the US White House last minutes, noting that the US has identified potential preparations for another chemical weapons attack by Syrian government.

Key Details:

Preparations similar to those made before April 4 chemical weapons attack

US says if Syria's Assad conducts another attack using chemical weapons, "He and his military will pay a heavy price" 


04:50 Chinas industrial profits increase 16.7% in May

The National Bureau of Statistics (NBS) reported the latest Chinese industrial profits data for the month of May, noting that the industrial profits climbed 16.7% y/y last month versus +14% y/y seen last.

Industrial profits surged 22.7% in the first five months, according to the bureau.
 


04:46 Nikkei approaching two-year highs as Yen weakens

The Japanese stock markets remain well bid on the back of Yen weakness with the benchmark index eyeing fresh two-year highs above 20,318 levels. 

The index was last trading at 0.32% or 64 points higher on the day around 20,217.50 levels. A weaker Yen is lifting the exporter issues. 

The USD/JPY pair rose to 111.94 on Monday despite the weak US durable goods and regional manufacturing data and extended gains to 112.07 (highest since May 24).

The sentiment remains cautious in the markets outside Japan. Australia’s S&P/ASX 200 is down 0.40%, while South Korea’s Kospi is flat lined. 


04:38 US Comm Dept.: Canadian softwood will face duties up to 30.88%

The US Commerce Department came out with a statement earlier today, via Reuters, announcing duties on the softwood lumber exports from Canada.

Key Points:

Canadian softwood will face duties up to 30.88%

This is due to finding of dumping and prior finding of subsidies

A final ruling will come on September 7th


04:16 PBOC sets the Yuan reference rate at 6.8292

People's Bank of China (PBOC) set the Yuan reference rate at 6.8292 vs. Monday's fix of 6.8220.

The central bank has decided to skip the Open Market Operations (OMO). 


04:06 Fed s Williams and Dudley hinted to continue normalising policy - ANZ

Analysts at ANZ explained that over the past 24 hours, the Fed’s Williams and Dudley, again both hinted at a desire to continue normalising policy. 

Key Quotes:

"Williams noted that “some special transitory factors have been pulling inflation down... But with some of these factors now waning, and with the economy doing well, I expect we’ll reach our 2% goal sometime next year.” 

Dudley stated that “Monetary policymakers need to take the evolution of financial conditions into consideration [and] when financial conditions ease – as has been the case recently – this can provide additional impetus for the decision to continue to remove monetary policy accommodation.” 

So at least with regards to these senior Fed members, the message has not changed despite recent data hiccups. All eyes will be on Yellen who speaks tomorrow morning (NZT)."


04:05 US treasury yield curve flattens further, diff between 10-yr & 2-yr yield hits 10-month low

US treasury yield curve flattened further after the data released in the US on Monday showed the durable goods orders dropped 1.1% in May. Manufacturing activity in the Chicago and Dallas regions also fell short of expectations.

The weak data saw investors move into the long end of the treasury yield curve. Thus, the difference between the 10-year yield and the 2-year yield fell to a 10-month low of 0.758 basis points.  

The difference between the 5-year yield and the 30-year yield dropped to 93.1 basis points, the flattest since 2007.

Despite the flattening of the yield curve, the USD remains well bid, especially against the Japanese Yen as investors fear the Fed may ignore weak data and proceed with policy normalization as suggested by the BIS over the weekend.


03:45 AUD/JPY is just short of a 5-day high, eye RBAs Debelle speech

AUD/JPY is just a few pips short of fresh 5-day highs above 84.91 (previous day’s high). The immediate focus is on the speech from RBA’s Assistant Governor Debelle, scheduled at 8:30 GMT.

Nears key trend line hurdle

The trend line sloping downwards from Feb 16 high and Mar 16 high is seen offering resistance around 85.00 levels. The cross remains on the front foot this Tuesday morning in Asia, largely due to the weakness in the Japanese Yen. The 10-year Australian government bond yield is down 1.3 basis points, suggesting the markets do not expect Debelle to drop any hawkish events.

The marginal strength seen in Asia offers little clues regarding the broader market sentiment. Moreover, the overbought RSI conditions on the 1-hour and 4-hour chart might make it hard for the JPY bears to push the cross beyond the critical trend line hurdle.

AUD/JPY Technical Levels

An hourly close above 85.00 (zero figure + trend line hurdle) would open up upside towards 85.24 (Feb 7 low) and 85.77 (Mar 31 high). On the downside, breach of support at 84.52 (May 16 high) could yield a pull back to 84.28 (10-DMA) and 84.00 (zero levels).

 


03:44 USD/CNY fix projection: 6.8365 - Nomura

Analysts at Nomura offered their projections for the USD/CNY fix.

Key Quotes:

"Our model1 projects the fix to be 127 pips higher than the previous fix (6.8365 from 6.8238) and 22 pips lower than the previous official spot USD/CNY close of 6.8387. The basket implied change is 26 pips lower than the previous official spot USD/CNY close (6.8361 from 6.8387)."


03:41 USD/JPY: bulls looking for a break of 112 resistance

Currently, USD/JPY is trading at 111.93, up 0.07% on the day, having posted a daily high at 111.97 and low at 111.82.

USD/JPY has been a choppy open in a tight ten pip range but maintains the better bid tone from overnight's resurgence in the greenback. The US dollar was sold off on the back of the disappointments in the US data (Q1 GDP expectations will be trimmed on that) but was then in demand again across the board and despite lower yields. The DXY recovered two hours later in the US session to end the day up 0.2%.

"US 10yr Treasury yields fell from 2.16% to 2.12%, while 2yr yields fell from 1.35% to 1.33%. Fed fund futures continued to price the chance of a December rate hike at around 45%," noted analysts at Westpac.

USD/JPY levels

The 4 hours chart presents a positive tone, according to Valeria Bednarik, chief analyst at FXStreet. "Technical indicators have managed to bounce after nearing their mid-lines, whilst the price remains above its 100 and 200 SMAs, both lacking directional strength. Nevertheless, the pair needs to break above 112.00, the 38.2% retracement of the latest bullish run to be able to post a more sustainable advance."


03:15 UK consumer confidence tanks on Mays election debacle- YouGov

An index of consumer confidence produced by polling firm YouGov tanked to a level last seen immediately after last year’s Brexit vote victory. 

UK economy dependent on exports

Douglas McWilliams, deputy chairman at the Centre for Economics and Business Research which produces the index with YouGov said, “Our preliminary assessment is that economic growth will fall sharply over the coming months and the country will only be saved from recession by strong international trade”. 

YouGov said the consumers are already feeling the pinch of weaker real wage growth, but the real cause for alarm will be the cooling of the property market, as this is one of the key things that has propped up consumer confidence over the past few years. 


03:03 Central Bank s desire to unwind policy stimulus - ANZ

Analysts at ANZ explained that while most notable in the US, the desire to unwind policy stimulus appears to be becoming a wider theme of late. 

Key Quotes:

"Despite elevated levels of policy uncertainty, patchy data and inflation question marks, there have been hints along these lines from the likes of the BoE, ECB and BoC too."

"Perhaps the latest annual report from the BIS sums up why that is the case, noting that “Even if inflation does not rise, keeping interest rates too low for long could raise financial stability and macroeconomic risks further down the road, as debt continues to pile up and risk-taking in financial markets gathers steam... How policymakers address these trade-offs will be critical for the prospects of a sustainable expansion.”"


02:36 Impact on Japanese inflation should yen appreciation versus USD? - Nomura

 Analysts at Nomura explained the likely impact on inflation in the event of unexpected yen appreciation versus USD.

Key Quotes:

"As the US moves to normalize monetary policy, our scenario for the Japanese economy assumes that the yen will continue to depreciate against the US dollar as a result of the widening gap between interest rates in the US and Japan.

Recently, however, we see signs of a possible slowdown in the pace of US monetary tightening, including weakness in US inflation.

A shift to yen appreciation would likely exert downward pressure on Japan's inflation rate."


02:31 AUD/USD: getting above 0.7635/42 is key for the bulls

Currently, AUD/USD is trading at 0.7582, down -0.04% on the day, having posted a daily high at 0.7588 and low at 0.7580.

Forex today: dollar better bid despite lower yields

AUD/USD has been drifting to the downside from 0.7599 overnight highs with a resurgence in the greenback and despite the data disappointments from the US session. However, for the day ahead, analysts at Westpac argue that there is potential to push beyond 0.7600 to 0.7635.

AUD/USD 1-3 month: 

The analysts at Westpac, on a longer term outlook, explained that the resilience of US equity markets to the distractions of the Trump administration is a positive backdrop for risk-sensitive AUD. "Chinese markets are of course less helpful as the deleveraging push continues, but the uptrend in steel prices suggests potential for recovery in iron ore prices. The rebound in Australian job creation keeps RBA rate cut talk at bay. But multi-month, we expect the ongoing rise in US interest rates to chip away at AUD/USD, leaving it around 0.73 by Q3."

AUD/USD levels

AUD/USD has stabilised at mid-channel having eased back in the middle recently, however, analysts at Commerzbank suggest that, very near term, we are likely to see a rebound from the 200-day ma at 0.7530:

"Above 0.7635/52 will target the top of the triangle at 0.7712. The market is expected to find support at the 200-day ma at 0.7530 and the 55-day ma at 0.7494. Longer term outlook is neutral in the converging range: It is sidelined within the 0.7342-0.7712 limits. Where are we wrong? Above 0.7635/42 should trigger a move to the top of the triangle at 0.7712. Below the 55-day ma targets the bottom of the triangle at 0.7342."


01:50 Durable goods orders disappointments broken down - Nomura

Analysts at Nomura offered a breakdown of the US from overnight.

Key Quotes:

"Durable goods orders: Topline durable goods orders for May fell 1.1% m-o-m, below expectations (Nomura: -0.1%, Consensus: -0.6%), driven by a sharp 3.4% decline in transportation equipment orders. The prior month was revised down to a 0.9% decline from a 0.8% decline. Within transportation components, auto and parts orders increased 1.2% following a 0.5% increase in April, suggesting that autos production may not slow quickly amid flagging consumer vehicle sales. Civilian aircraft orders dropped 11.7%, exacerbating a decline in topline orders. Excluding volatile transportation components, durable goods orders were mixed, increasing only moderately by 0.1% (Nomura: -0.5%, Consensus: 0.4%), after a 0.5% decline in the previous month. Core capital goods shipments, a concurrent indicator of manufacturing activity and a component for GDP accounting, fell 0.2% after a modest increase of 0.1%. While month-to-month fluctuations can be somewhat volatile, recent weak readings in this measure increase the risk of seeing a less of a boost from business investment in Q2. 

GDP tracking update:

The weaker-than-expected core shipments, a proxy of business equipment investment, led us to revise down our Q2 GDP tracking estimate by 0.1pp to 2.6% q-o-q saar from 2.7%. Among a number of different forecasters such as Atlanta Fed’s GDP Nowcast and Macroeconomic Advisers, equipment investment estimates for Q2 range from a 2.3% decline to a 2.1% increase. However, the range of these estimates is well-below the 7.1% increase in Q1, indicating some slowdown in equipment investment growth."


01:49 New Zealand Trade Balance (MoM) below forecasts ($420M) in May: Actual ($130M)


01:46 New Zealand Trade Balance (YoY) came in at $-3.75B, below expectations ($-3.398B) in May


01:46 New Zealand Exports came in at $4.95B, above expectations ($4.93B) in May


01:46 New Zealand Imports registered at $4.85B above expectations ($4.48B) in May


01:38 AUD/NZD: what s the outlook? - Westpac

Currently, AUD/NZD is trading at 1.0411, up 0.03% on the day, having posted a daily high at 1.0418 and low at 1.0401.Analysts at Westpac offered their outlook for the cross and antipodean rates.

Key Quotes:

AUD/NZD 1 day: Yesterday’s technical reversal argues for an extension of this rebound to 1.0425+.

AUD/NZD 1-3 month: Higher towards 1.09. The cross remains below fair value estimates implied by interest rates, commodity prices and risk sentiment, although it is closing the gap. There’s potential for a rebound in iron ore prices this year, given high steel prices (24 May).

AU swap yields 1 day: The 3yr should open around 1.94%, the 10yr around 2.63%.

AU swap yields 1-3 month: Our RBA outlook (on hold for some time) is anchoring front end valuations. We expect 3yr swap rates to remain in a 1.8% to 2.3% range, with core inflation still below 2%. (28 May)

NZ swap yields 1 day: NZ 2yr swap rates should open unchanged at 2.21%, the 10yr down 1bp at 3.13%.

NZ swap yields 1-3 month: The RBNZ has signalled the next cycle – a tightening one – will not start until the end of 2019. That will anchor the short end, although markets will not abandon their expectations for tightening as early as mid-2018 which means occasional spikes in the 2yr will be likely. A 2yr swap range of 2.10%-2.60% is expected. The long end will continue to follow US yields, which we expect to rise. That means the curve steepening trend should continue. (15 May)


01:22 NZD/USD: to penetrate the 0.73 handle again?

Currently, NZD/USD is trading at 0.7284, down -0.05% on the day, having posted a daily high at 0.7291 and low at 0.7284.

NZD/USD is awaiting the trade balance coming up within the hour and has been on the backfoot since being capped at 0.7310 in the US session. Depending on the data, on a positive surprise, there is potential to test the June high of 0.7320, suggested by analysts at Westpac.

Forex today: dollar better bid despite lower yields

 NZD/USD 1-3 month:  

The analysts at Westpac explained that the Fed’s tightening cycle plus US fiscal expansion should eventually reassert upside pressure on US interest rates and the US dollar, pushing NZD/USD below 0.6800 by year end. "US factors should outweigh local factors which are mostly supportive."

NZD/USD levels

NZD/USD managed a score through the 0.7280 level again but fell shy of the recent 0.7318 high. On a continuation of the bid, there is scope for 0.7374 being the high for 2017. To the downside, 0.7250/80 area guards 0.7200 guards 0.7145 and a break back below 0.7080/90 are key near-term downside areas. On the wide, the 0.7375 YTD highs are a key target to the upside and to the downside, a break below 0.7080/00 opens 0.6970.


01:02 U.S. President Trump: Important barriers to U.S. Trade with India will be removed

During a joint press conference with the Indian Prime Minister Narendra, U.S. President Trump stated that he looks forward to creating a trading relationship with India that is reciprocal.

Key headlines from Trump (via Reuters):

  • India has a "true friend" in the White House
  • Says relationship with India has never been stronger, never been better
  • He and Indian PM Modi are "World leaders in social media"
  • Important barriers to U.S. Trade with India be removed
  • Security partnership with india is incredibly important
  • Future of U.S.-india partnership has never looked brighter

Key headlines from Modi (via Reuters):

  • U.S., India have robust strategic partnership
  • Says he and Trump agreed to enhance cooperation in fighting terrorism
  • Talks with Trump were very successful, very fruitful
  • Says he invited Trump to visit India

 


00:25 Market wrap: dollar recovers despite poor data - Westpac

Analysts at Westpac offered a market wrap.

Key Quotes:

"Global market sentiment: US interest rates fell on disappointing US durable goods data. The USD also responded negatively but more than recovered later on.

Interest rates: US 10yr treasury yields fell from 2.16% to 2.12%, while 2yr yields fell from 1.35% to 1.33%. Fed fund futures continued to price the chance of a December rate hike at around 45%.

Currencies: The US dollar index initially fell sharply in response to the weak durable goods orders data, but started recovering two hours later to end the day up 0.2%. EUR initially bounced from 1.1172 to 1.1220 before retracing to 1.1176. USD/JPY initially fell from 111.70 to 111.36 before rebounding to 111.95. The underperforming yen appears to have led the rebound. AUD jumped from 0.7568 to 0.7599 but later retraced to 0.7583. NZD similarly jumped from 0.7262 to 0.7311 before retracing to 0.7287. AUD/NZD consolidated between 1.0384 and 1.0425.

Economic Wrap

US durable goods orders were weaker than expected, falling 1.1% in May (-0.6% expected) and the prior month was revised down a touch. Core capital goods orders and core capital goods shipments were also both weaker than expected, both down 0.2% (+0.4% gain expected). Q1 GDP expectations will be trimmed on this."


00:02 South Korea Consumer Sentiment Index: 111.1 (June) vs 108


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