The Reserve Bank of India is reportedly reviewing its process for allowing local companies to issue debt overseas, notes the analysis team at BBH.
“The bank is apparently concerned that future FX movements may hurt these companies’ ability to repay their external debt obligations. The RBI is also looking more closely at the hedging practices of borrowers. Observers said that the new process has resulted in slower approvals for external debt issuance in recent weeks. Recall that Korean officials are also discouraging external debt issuance by its companies.”
The euro is pressuring another key chart point as the $1.2340 area corresponds to a retracement of the bounce from $1.2200 (Feb 9) to $1.2555 before the weekend, points out the research team at BBH.
“Below there, support is seen near $1.2285, nothing substantial until $1.22. A break of $1.2200 would suggest a more important high is in place for the euro and would warn of the likely push back toward $1.18 (on ideas of a double top). There is a 551 mln euro strike at $1.2365 that expires today.”
UK’s February CBI Industrial Trends Survey suggests that the growth of manufacturing output may have slowed a bit at the start of the year, but the big picture remains that the sector is still performing well by recent standards, explains Finn McLaughlin, Assistant Economist at Capital Economics.
“The decline in the output expectations balance – which has the best relationship with the official manufacturing data – from +24 in January to +16 in February points to a slight slowdown in manufacturing output growth ahead.”
“Indeed, on the basis of past form, the three-month average of the balance points to a slowdown in quarterly manufacturing output growth from its recent rate of 1.3% to around 1%. That said, we wouldn’t read too much into this, as the survey balance has been a rather poor guide to the official figures of late.”
“Meanwhile, although the headline total orders balance also fell a touch from +14 in January to +10 in February (in line with the consensus expectation), it remains well above its long run average of -19. What’s more, despite February’s decline pushing the three-month average of the balance down from +16 to +14 on the month, it remains elevated at levels last seen in 1988.”
“Admittedly, the slight decline in the total orders balance appears to have been driven by a softening of foreign demand, with the export orders balance falling from +19 to +10 – raising concern that the boost from sterling’s drop is fading. But the balance remains elevated by past standards, suggesting that sterling’s slide, alongside solid global growth is still providing ample support for exporters. Finally, while expectations for output prices have cooled after January’s sharp rise, they remain high by past standards.”
“Overall, then, February’s CBI survey points to a slight slowdown in manufacturing growth, but given the volatile nature of the survey, we would caution against reading too much into a single-month’s data. Indeed, we expect sector to put in a solid performance over Q1 as a whole.”
Analysts at BBH note that the German ZEW survey slipped as the measure of the current situation eased to 92.3 from 95.2 and the expectations component fell to 17.8 from 20.4.
“On one hand, the German economy continues to motor along. On the other hand, political uncertainty lingers, and perhaps more importantly, the DAX fell almost 12% from January 23 peak to the low on February 9. The recovery so far has been rather flat, not event reaching a 38.2% retracement of the sudden drop.”
• Persistent USD buying continues to weigh on the major.
• Traders shrugged off today’s upbeat ZEW surveys.
• FOMC/ECB meeting minutes to provide a fresh directional impetus.
The EUR/USD pair remained heavily offered through the mid-European trading session and is currently placed at the lower end of its daily trading range, just below mid-1.2300s.
After yesterday's good two-way moves, the pair resumed with its corrective slide from fresh three-year tops, touched on Friday, and continued losing ground on Tuesday amid a strong follow-through US Dollar buying interest.
The USD recovery move from last week's over three-year lows got an additional boost from a goodish pickup in the US Treasury bond yields and was eventually seen weighing on the major for the third consecutive session.
Meanwhile, the shared currency failed to benefit from better-than-expected German/Euro-area composite Euro-area ZEW Economic Sentiment Surveys for February, with the greenback price dynamics acting as an exclusive driver of the pair's momentum, so far.
Today's US economic docket lacks any major market-moving economic releases and hence, the upcoming monetary policy meeting minutes from the FOMC and the ECB, due on Wednesday and Thursday, would be looked upon to determine the pair's near-term trajectory.
Technical levels to watch
A follow-through selling pressure is likely to accelerate the fall towards the 1.2300 handle before the pair eventually drops to test 1.2245 horizontal support. On the upside, any recovery attempt might now confront fresh supply near the 1.2370-75 region, above which a bout of short-covering could lift the pair beyond the 1.2400 handle towards its next major hurdle near the 1.2430-35 zone.
The pair’s bearish stance remains intact so far, while a test of 105.00 remains on the cards, noted FX Strategists at UOB Group.
24-hour view: “USD traded sideways as expected albeit at a narrower range than anticipated. The daily closing is on the strong side and there is scope for a move above the overnight high of 106.72 even though a sustained move 107.00 seems unlikely (next resistance is at 107.30). Support is at 106.40 followed by 106.10”.
Next 1-3 weeks: “While the recovery from last Friday’s 105.52 low was more resilient than expected, it is too soon to expect an end to the current bearish phase. Only a move back above 107.30 would indicate that a short-term low is in place. Until there, despite being severely oversold, there is still room for the current decline in USD to extend lower towards the next major support at 105.00”.
Senior Analyst at Danske Bank Morten Helt believes the European cross could retreat to the 0.84 area within a year’s view.
“We expect the combination of higher UK interest rates and Brexit clarification to move GBP away gradually from fundamentally undervalued levels. In particular, with the BoE now more firmly signalling a gradual hiking cycle, the case for a lower EUR/GBP has strengthened as we now expect the BoE to ‘out-tighten’ the ECB in the coming 12 months”.
“Consequently, on 8 February, we lowered our EUR/GBP forecast to 0.87 in 3M, 0.86 in 6M and 0.84 in 12M. We see risks skewed towards the cross both breaking lower sooner and considerably lower than our forecast indicates. As the market pricing of a May rate hike already looks relatively hawkish, we see limited downside potential in the short term. We target 0.88 in 1M”.
Karen Jones, Head of FICC Technical Analysis at Commerzbank, suggested the pair could test 0.7773 if 0.7865 is cleared.
“AUD/USD is easing back following last weeks failure at the 61.8% retracement at 0.7991. A slide back below .7865 should be enough to alleviate immediate upside pressure and re-target the 200 day ma at .7773”.
“Only below .7743 (61.8% retracement) will target .7637/78.6% retracement and the .7568 2016-2018 uptrend”.
“We continue to view the recent high at 0.8135 as an interim top. Key resistance lies at .8124/62 (the September 2017 high, the May 2015 high and the long term 50% Fibonacci retracement of the move down from 2014). Only a close above the .8162 level will introduce scope to .8295 the January 2015 high”.
• The ongoing USD recovery supports the up-move.
• Loonie fails to benefit from positive oil prices.
The USD/CAD pair extended its steady climb through the mid-European session and is now looking to build on the momentum further beyond the 1.2600 handle.
The US Dollar continued with its recovery move from last week’s three-year lows and was further supported by a fresh wave of an upsurge in the US Treasury bond yields and was eventually driving the pair higher.
Meanwhile, a consolidative price action around oil markets, with WTI crude oil holding steady with daily gains of around 0.75%, did little to influence demand for the commodity-linked currency - Loonie. Hence, the USD price dynamics is turning out to be an exclusive driver of the pair's up-move, for the third consecutive session on Tuesday.
From a technical perspective, bulls might now be eyeing for a decisive breakthrough 100-day SMA barrier, currently near the 1.2620-25 region, before positioning for any additional near-term appreciating move.
Technical levels to watch
On a sustained move beyond the mentioned hurdle, the pair seems more likely to surpass an intermediate resistance near the 1.2645-50 region and head towards reclaiming the 1.2700 handle.
Alternatively, a reversal from current resistance zone, leading to a subsequent weakness back below 50-day SMA resistance turned support, near the 1.2555 area, might turn the pair vulnerable to slide further towards the key 1.2500 psychological mark.
The dollar is finding better traction today, building on the upside reversal seen before the weekend as the news stream has been light and it seems primarily like an issue of positioning rather than a change in sentiment or the consensus narrative, according to analysts at BBH.
“The focus has shifted from monetary policy and idea that the ECB and BOJ are exiting their extraordinary monetary policy to the return of the twin deficit problem in the US.”
“One of the twins, the budget deficit occupies center stage in the US today. It is not so much the deficit as the paying for it. That is, the US Treasury will raise a boat load of money today. It will issue $96 bln in three- and six-month bills, and $55 bln in a four-week cash management bill. It will also sell $28 bln of two-year notes. In the next two days it will raise another $80 bln in other note sales.”
“The anticipation of this supply has pushed short-term rates higher, but it has yet to appear as a material force in the cross-currency basis swaps. The US debt market appears to have been building in a concession ahead of the new supply. The yield of the entire coupon curve is about three basis points higher. Global yields are mostly firmer. Sweden is a notable exception.”
After advancing to the area of 0.7930 during the Asian trading hours, AUD/USD met a wave of selling orders that forced it to not only give away those initial gains but also to retreat to the sub-0.7900 region, or fresh session lows.
AUD/USD now looks to wage data
Spot paid little-to-nil attention to the RBA minutes released earlier today, as they left no room for surprises, coming in well in line with initial market expectations and noting once again that the labour market, business conditions, activity overseas and commodity prices have all been performing above the central bank’s expectations.
In addition the RBA seems to have now shifted its interest from the exchange rate – view that prevailed in the last couple of years – to the labour market, with wages in the centre of the debate.
In the meantime, the pair is now navigating the negative territory in the 0.7900 neighbourhood, around a cent lower than last week’s peaks in the boundaries of the psychological 0.80 mark and down nearly 3% since 2018 tops in the mid-0.8100s recorded in late January.
Furthermore from the speculative community, AUD net longs dropped to 5-week lows during the week ended on February 13, according to the latest CFTC report.
Looking ahead, and in light of the recent message from the RBA, Wage Price Index for the fourth quarter is due tomorrow, seconded by Construction Work Done during the same period.
AUD/USD levels to watch
At the moment the pair is losing 0.25% at 0.7893 and a breakdown of 0.7882 (low Feb.20) would open the door to 0.7839 (55-day sma) and finally 0.7759 (2018 low Feb.9). On the other hand, the next resistance aligns at 0.7946 (21-day sma) seconded by 0.7991 (high Feb.16) and then 0.8136 (2018 high Jan.26).
Despite one of the most aggressive monetary policies, strong growth and a large current account surplus, the Riksbank has been unable to create inflation, according to analysts at BBH.
“Today, Sweden reported a 0.8% m/m decline in January CPI, which was a bit more than expected, and pushed the y/y rate to 1.6% from 1.7%. The market had expected a small increase. The underlying rate, which uses fixed mortgage interest rates, fell 0.9% (median in the Bloomberg survey was for a 0.7% decline) and the y/y rate eased to 1.7% from 1.9%. This is the slowest underlying rate since March 2017. The krona is the weakest of the major currencies today, losing 1.1% against the dollar and 0.6% against the euro.”
Potential upside risks to Wednesday's UK wage growth data could see markets think more carefully about a May rate hike, according to James Smith, Developed Markets Economist at ING.
“Wage growth data is very much in vogue at the moment. An unexpected surge in US hourly earnings growth has been widely cited as being at least partly to blame for the recent market turmoil. And with the Bank of England increasingly pinning the chances of further rate hikes on accelerating pay growth (alongside Brexit progress), markets will also be watching Wednesday's UK jobs report closely.”
“Alongside a further pick-up in employment growth (185k), we expect the key measure of wage growth (which excludes bonuses) to hold firm at 2.4%, although the risks definitely lie to the upside. A positive surprise would be another sign that pay growth is gaining traction, although what's less obvious at this stage is why exactly the recent trend has been so much stronger, or indeed whether this upward momentum will stand the test of time.”
• Sharp European session recovery turns out to be short-lived.
• A follow-through USD buying prompts fresh selling.
• GBP further weighed down by softer UK macro data.
The GBP/USD pair struggled to build on its European session sharp recovery move and quickly retreated around 30-40 pips from session tops.
The pair's goodish rebound of around 85-pips from an intraday low level of 1.3931 lacked any fundamental catalyst and seemed more like cross-driven strength, stemming out of a sharp fall in the EUR/GBP cross.
The up-move quickly ran out of steam and couldn't sustain above the key 1.40 psychological mark amid a strong follow-through US Dollar buying interest. In fact, the greenback continued strengthening across the board and was seen prompting some fresh selling at higher levels.
Meanwhile, the British Pound was further weighed down by softer UK CBI Industrial Order Expectations, dropping to a four-month low level of 10 in February as against previous month's reading of 14.
There aren't any major market-moving economic releases due from the US and hence, the ongoing USD recovery move, further supported by rising US Treasury bond yields, might continue to exert some downward pressure surrounding the major.
Technical levels to watch
Weakness below 1.3930 area now seems to accelerate the slide towards the 1.3900 handle en-route 1.3840-35 horizontal support. On the upside, 1.4010-15 zone might continue to act as an immediate resistance, above which a fresh bout of short-covering could lift the pair back towards reclaiming the 1.4100 handle.
The turmoil that rocked equity markets earlier in the month was triggered by a spike in inflationary concerns and the prospect of a sharper increase in US rates played on anxieties about USD liquidity and led to a pick up in the value of the greenback, according to Jane Foley, Senior FX Strategist at Rabobank.
“Even though bond yields have remained at higher levels, the DXY dollar index has subsequently given back these gains and dropped to 38 month lows vs. the EUR and to 15 mth lows vs. the JPY. Although higher interest rates are generally a supportive influence for currency markets, the USD is being undermined by a rise in concern about US fiscal discipline. We expect that the coming weeks and months could be a volatile period for the USD as the market attempts to reconcile conflicting influences. We are of the view that the USD will be able to gain ground against a number of high yielding currencies over the medium-term. However, we expect that the strength of Eurozone fundamentals will mean that EUR/USD remains well supported.”
“In the years that followed the global financial crisis, the theme of fiscal discipline tied the hands of governments throughout the G10. This has helped contain budget deficits. In 2017 Eurozone economic growth was the fastest in a decade. The impact of stronger growth alongside fiscal restraint has allowed the budget deficit to GDP ratios in many developed economy to reflect a picture of improved health. These include the previously crisis riddled economies within the Eurozone. Portugal’s budget deficit dropped to just 2% of GDP last year, Ireland’s to just 0.3% of GDP and even Greece managed to exceed the primary surplus target it had set for 2017. By contrast the fiscal outlook for the US has been moving in the opposite direction.”
The UK Brexit Secretary David Davis, during a scheduled in Vienna, was noted saying that Britain doesn’t want to undermine Europe or nearest neighbours.
• UK, EU should both respect fair trade & open competition
• UK, EU companies shouldn’t be able to merge & significantly reduce consumer choice
• Working towards Brexit deal later this year
Although the NZ’s housing market has shown more signs of life of late, analysts at ANZ suggest that they have not changed their overall views of where it goes from here as a number of opposing forces are likely to see prices effectively stay ‘on ice’ for the foreseeable future.
“All else being equal, we expect this to be a headwind for consumption growth going forward, although perhaps to a lesser extent than history would suggest, given that the softer housing market has not been driven by a turn in the interest rate cycle, but rather by a more restrictive credit landscape, including macroprudential policy.”
“Nevertheless, with the household saving rate having deteriorated over recent years (to an unsustainable level in our view), weaker house price performance is expected to see households look to rebuild precautionary saving, and this will be a headwind for overall activity growth. In data this week, the retail trade survey for Q4 is likely to show decent spending growth (perhaps the last hurrah?), while we expect global dairy prices to take a breather.”
In view of analysts at Nomura, EM asset class has held up relatively well to the global equity rout and a simple reason is solid global growth.
“EM has more open economies than DM and exports in particular benefit from solid, synchronised global growth and economic stability in China. Also, at this juncture the ECB and BOJ collective asset purchases remain a sizable counter to the Fed’s QE unwind, which should sustain the global hunt for yield in EM risk assets a while longer.”
“From a month ago, we have raised our aggregate EM 2018 GDP growth forecast from 5.1% to 5.2% due to an upgrade to our China growth forecast as we have been impressed by the smooth progress made so far in financial deleveraging. However, risks remain. In India, we continue to expect a V-shaped recovery, while we are above consensus on growth in Indonesia.”
“In EEMEA, South Africa’s political transition is ushering in a growth rebound, in Russia the stage is set for sizable rate cuts, the CEEs face rising inflation pressure, while we remain concerned about Turkey’s weak fundamentals and geopolitical tensions. In LatAm, we have a rising conviction that a meaningful growth recovery is unfolding in Brazil, while Mexico’s outlook remains highly uncertain due to NAFTA negotiations and the 1 July presidential election.”
“While we are relatively sanguine on EM over the next few months, further out we are more concerned about a deeper and broader EM asset selloff. The simple point is that just as QE was successful in pushing global investors into riskier higher-yielding EM assets, the unwind of QE should have the opposite effect, but probably in a more nonlinear fashion because of the large build-up of EM debt and how quickly market liquidity can evaporate.”
“An early warning indicator that we are monitoring closely is corporate credit spreads – EM’s Achilles heel – as a large widening could see significant EM corporate dead wood rise to the surface after such a protracted period of low interest rates. If we were to hazard a guess we would point to late Q2 or early Q3 as a high-risk period for EM when aggregate QE by the Fed, ECB, BOE and BOJ will be coming to a close, when global growth may start to lose some steam, including in China, and when President Trump likely starts to ramp up America First policies ahead of mid-term elections.”
EUR/USD, having failed to break to new highs last week, is still very much on corrective mode, suggests Kit Juckes, Research Analyst at Societe Generale.
“Broadly, 1.22-1.26 is now a neutral zone and a test of something near 1.22 seems quite likely to me, particularly if tomorrow's PMI data show any signs of topping out and the ECB ‘account' on Thursday doesn't sound too hawkish. None of that alters the longer-term bullish outlook for the Euro.”
February’s small fall in German ZEW investor sentiment reflects the decline in equity prices rather than broader concerns about the economy, and investors still expect economic conditions to improve, according to Jennifer McKeown, Chief European Economist at Capital Economics.
“The dip in the headline Economic Sentiment Indicator (ESI), from +20.4 to +17.8, was smaller than we or the consensus had expected given movements in equity markets over the past month (the consensus forecast was +16.0). Investors do not seem to think that the falls have seriously affected the outlook for the German economy over the next six months. Indeed, the fact that the ESI is firmly in positive territory means that the majority still see conditions improving. The current conditions index fell slightly too, but from a very high level, and it has tended to lag developments in the hard data in the past.”
“With equity prices still higher than a year ago, their recent declines seem unlikely to do too much damage. And while the euro’s strength and the slowdown in China are more worrying for Germany’s prospects, for now export orders are very strong. Meanwhile, the likely formation of a Grand Coalition Government should mean some fiscal support for households over the next couple of years, which, combined with a moderate pick-up in wage growth, should boost household spending. We still expect the Germany economy to expand by an above-consensus 2.7% this year and 2.0% next.”
The offered note stays the same around the single currency on Tuesday and is now forcing EUR/USD to move further south to fresh session lows in the 1.2340 region.
EUR/USD offered on ZEW, looks to ECB
Spot keeps the negative performance during the first half of the week, this time under extra pressure after the German ZEW Survey showed Current Conditions down to 92.3 while Economic Sentiment came in above estimates at 17.8, albeit lower than January’s 20.4.
Following suit, Economic Sentiment in the euro area surpassed consensus at 29.3 although eased from the previous reading at 31.8.
Furthermore, ZEW sources noted that inflation expectations in both the euro area and Germany have commenced to rise, while the German economy is expected to improve in the medium term.
Nothing else data wise from Euroland today apart from the EcoFin meeting, which is expected to yield nothing relevant, as per usual.
Across the pond, nothing scheduled for today while investors should start to shift their attention to the FOMC minutes, to be published tomorrow.
EUR/USD levels to watch
At the moment, the pair is losing 0.54% at 1.2340 facing immediate contention at 1.2276 (low Feb.14) seconded by 1.2206 (low Feb.9) and finally 1.2165 (low Jan.18). On the upside, a breakout of 1.2757 (2018 high Feb.16) would target 1.2598 (61.8% Fibo of the 2014-2017 drop) en route to 1.2886 (high Oct.15 2014).
For many developed economies, the most important data release at present refers to wage inflation and in Australia the key Q4 wage price index is due for release tomorrow, points out Jane Foley, FX Strategist at Rabobank.
“Several major central banks, including the Fed and the BoE, are assuming that an increase in CPI inflation will be driven higher by an increase in demand which will be fed by stronger wage growth. Higher earnings are expected to result from the tight labour market conditions that are prevalent in many major economies at present. A similar dynamic is expected in Australia, though the RBA’s assumptions on domestic wage growth are arguably more cautious than those of its US and UK counterparts.”
“The reason for this is that Australia has been suffered an extended period of extraordinarily weak wage inflation. The minutes of the RBA’s February policy state that “members noted that the Bank's forecast for a modest rise in growth in consumption was predicated on a pick-up in household income growth. There was still a risk that growth in consumption might turn out to be weaker than forecast if household income growth were to increase by less than expected”.”
“Economists throughout the developed world have been scratching their heads during the past few years over why tight labour market conditions are failing to generate much wage inflation. A lack of trade unions power, the replacement or skilled or semi-skilled manufacturing jobs with low-skilled, low paid employment and demographic changes may be some of the contributing forces. For several countries, including Australia, the environment of high household indebtedness may also be playing a part in hindering the traditional pass-through between household income and stronger consumer demand. According to the RBA’s February minutes “in an environment of high household indebtedness, consumption might be particularly sensitive to adverse developments in household income or wealth”.”
“A recent speech by Norges Bank Chief Olsen in which he referred to smaller economies being forced to import low interest rates from recession hit larger economies during the financial crisis in order to maintain exchange rate stability. In turn these low interest rates fuelled house price appreciation and high levels of household debt which have subsequently have had to be controlled by macro-prudential measures. In this respect there are clear analogies between countries such as Norway, Australia and Canada.”
“Central banks of countries where there are high levels of household debt are presented with the dilemma of needing to normalise policy on one hand (in part to deter a further build-up of household debt) while fearing that any move may have an accentuated impact on household spending. The market is carefully watching how impact of the recent three BoC rate hikes plays out on the consumer sector in Canada. Last week BoC Deputy Governor Schembri indicated that policymakers are looking closely at how high levels of debt could pose a challenge to monetary policy. Other central banks are also likely to be watching the impact in Canada also.”
“At the RBA, the tone remains cautious. The February minutes recognise that “growth in consumption had continued at a relatively modest pace, constrained by low household income growth despite stronger-than-expected employment growth and a decline in the unemployment rate over 2017”. The minutes also pointed out that “even with the strength in the labour market, wage growth was yet to pick up”. Overall, the RBA is of the opinion that “the increase in inflation was likely to occur only gradually as the economy strengthened”. This reaffirms the risk that steady policy is likely to persist through 2018. We expect that interest rate differentials will allow AUID/USD to end the year moderately lower this year around the 0.75 level. However, for the time being the AUD/USD is continuing to draw support when risk appetite is elevated.”
Following the release of the German ZEW economic surveys, the ZEW is out with their thoughts on the German and Eurozone economic outlook.
German, Eurozone inflation expectations have started to rise.
German economy seen improving in coming 6-months.
The German ZEW headline numbers for February, showed that the headline economic sentiment improved, coming in at 17.8 versus 16.0 expectations and 20.4 seen last. While the sub-index current conditions rose sharply to 92.3 versus 93.9 expected and 95.2 booked previously.
The buying interest around the greenback stays well and sound during the first half if the week and is now pushing USD/JPY back above the critical 107.00 handle, recording fresh daily highs at the same time.
USD/JPY focused on risk trends, FOMC
The pair is confirming a positive start of the week and extending the bounce off multi-month lows in the mid-105.00s recorded last Friday.
Domestic pressure from Japanese exporters in light of the recent appreciation of JPY coupled with increasing risk-on trade has combined with the better sentiment around the buck to lift spot to new 4-day highs beyond 107.00 the figure today.
It is worth recalling that price action in spot has decoupled from the performance in US yields, particularly the in the 10-year note, which have recovered the top of the range around 2.92%.
Event-wise, the FOMC minutes are due tomorrow and investors will look for further details regarding the Fed’s plans for extra tightening via rate hikes for the current year. Recall that according to CME Group’s FedWatch tool, the probability of higher rates at the March meeting is now at more than 83%, based on Fed Funds futures prices.
USD/JPY levels to consider
As of writing the pair is up 0.54% at 107.17 facing the next hurdle at 107.67 (10-day sma) seconded by 108.55 (21-day sma) and then 110.48 (high Feb.2). On the flip side, a breakdown of 105.53 (2018 low Feb.16) would open the door to 102.54 (low Nov.3 2016) and finally 101.15 (low Nov.9 2016).
Business Insider cites a source familiar with the European Parliament's activities, as saying that the EU Parliament is putting together a 60-paragraph document outlining its desire for an "association agreement" with post-Brexit Britain.
“The Parliament wants the EU to negotiate an 'association agreement' which could give Britain "privileged" single market access and membership of EU agencies.
The resolution marks a break from the position of the EU's chief Brexit negotiator.
The Parliament's plans were revealed to British MPs during meetings in Brussels this week.”
The source said, “The document will be a "very detailed" explanation of the future relationship the Parliament wants to have with Britain after Brexit.”
Oil prices on both sides of the Atlantic traded in opposite direction on Tuesday, with the US oil (WTI) supported on supply disruption while Brent trades on the back foot amid broad-based US dollar strength.
WTI (oil futures on NYMEX) extends its upward correction into a fifth day, with thin markets fuelling the gains while ongoing supply reductions from Canada to the US due to pipeline reductions also remain supportive of the US oil.
Both crude benchmarks continue to derive support from increased expectations of a tighter market this year, as the OPEC output cuts deal extends its positive impact on the oil markets.
The latest headlines reported by Bloomberg cites the Joint Technical Committee of OPEC and non-OPEC members see the pace of oil rebalancing quickening. Meanwhile, the UAE Energy Minister noted that he expects the OPEC oil output deal to extend beyond 2018
Markets now eagerly await the US API crude stockpiles report for fresh insights on the US supply-side scenario, which will shape up the next direction for the prices.
WTI Technical Levels
At $ 62.05, the resistances are aligned at $62.64 (4-day tops) ahead of $63 (round figure) and $63.77 (Jan 19 low). On the downside, the supports are located at $ 61.83 (5-DMA), $60.27 (Feb 8 low) and $ 60 (psychological support).
Analysts at NAB have adjusted their AUD forecasts lower, after in November when they suggested AUD/USD was heading into a 0.70-0.75 range, the USD was 5% stronger and the AUD/USD 0.76.
“The sharp AUD appreciation in recent months (despite falls in the past few weeks) has challenged this view. We do however still anticipate a drop to at least the 75 cents area by end-18 (from 73 cents). NAB’s view that the RBA will be lifting rates in H2 2018 doesn’t meaningfully alter this given what is already priced into rates markets and risks the Fed may need to do more on policy than currently priced. At the same time, we cannot rule out that the US dollar continues on its recent indiscriminate downtrend, supporting further commodity price strength and the AUD along the way - this is a (fairly fat) tail risk, but not our central forecast.”
“In the rise in AUD/USD from 0.75 in early December to above 0.81, commodity prices were key. They swamped the influence rates differentials and risk sentiment. Yet to a large extent, commodity price gains are simply the flip-side of broad USD weakness and as such are really just acting as a USD proxy. Whether the strength of this negative correlation persists will be important in determining whether the AUD can divorce itself from the broader USD downtrend through the year. From a ‘fundamental’ perspective we see good reasons for iron ore and coal prices to come off this year, and our expectation for a somewhat softer overall terms of trade is one key factor behind our forecast for AUD cross-rate underperformance.”
• USD recovery gains traction from rising US bond yields.
• Improving risk appetite weighs on CHF’s safe-haven appeal.
The USD/CHF pair built on its recent recovery move from Friday's 20-month lows and strengthened further beyond the 0.9300 handle.
The pair continued gaining positive traction for the third consecutive session and has now gained around 150-pips, supported by a strong follow-through US Dollar buying interest.
Against the backdrop of growing market expectations that the Fed might opt for a faster monetary policy tightening cycle, a fresh wave of an upsurge in the US Treasury bond yields provided an additional boost to the greenback's ongoing recovery move from over 3-year lows and was seen as one of the key factors behind the pair's up-move.
Meanwhile, improving investors' appetite for riskier assets, as depicted by a positive trading sentiment around European equity markets, was seen weighing on the Swiss Franc's safe-haven appeal and further collaborated to the pair's strong up-move to 4-day tops, near mid-0.9300s.
There isn't any major market-moving economic data due for release on Tuesday and hence, the USD price dynamics and broader market risk sentiment might continue to act as key determinants of the pair's momentum.
Technical levels to watch
On a convincing break through 0.9350-55 area, the pair seems all set to aim towards reclaiming the 0.9400 handle before eventually darting back towards its next major supply zone near mid-0.9400s.
On the flip side, 0.9320 level, closely followed by the 0.9300 handle, now seems to protect the immediate downside, which if broken might turn the pair vulnerable to drop back towards the 0.9200 handle.
The United Arab Emirates (UAE) Energy Minister Suhail Al Mazrouei is out on the wires, via Reuters, saying that cooperation between OPEC, allies to continue beyond 2018.
• Future cooperation could help avoid oil glut, shortage
• Monitoring oil market beyond 2018 is minimum we can do
• Need approx $10 Tln of oil investment by 2040 to meet global demand
With cryptocurrencies taking a center stage of the mainstream business press, the chance of some projects being the criminal activity, in fact, rises.
Projects like Biconnect are typical examples with investors now trying to get their money back and sue Bitconnect. But whether the money will ever come back, it's an open question.
Many people associated with cryptocurrency community had been warning of Bitconnect on the basis of Bitconnect promising investors to earn 1% per day, try to avoid it. Since the essence of the cryptocurrency market is not based upon fundamentals like the GDP, inflation or unemployment, it is very difficult to predict its price movement. Promising “sure” profits is therefore fake and unreal.
The world of cryptocurrencies is not about Bitconnect only. It is possible that dozens of fraudulent projects with Bitconnect being the only one to stand out as the most famous although it is not far ago that Bitconnect bubble burst.
Basic characteristics of Ponzi scheme in cryptocurrencies:
Livesquawk reports comments from Germany’s Finance Minister Altmaier, noting that the EU will keep a close eye on the US tax reforms.
Elsewhere, the European (EU) Commissioner for Economic and Financial Affairs Pierre Moscovici was reported as saying that he has questions about the US policy and WTO rules.
The Swedish Krona is depreciating further vs. its European peer on Tuesday, lifting EUR/SEK to test the area of daily highs in the boundaries of the 9.9600 handle.
EUR/SEK higher post-CPI
SEK lost extra momentum today after inflation figures in the Scandinavian economy came in below consensus for the month of January.
In fact, consumer prices tracked by the CPI contracted at a monthly 0.8% (vs. -0.7% forecasted) and advanced 1.6% on a yearly basis (vs. 1.8% expected.
Furthermore, CPIF (CPI at constant interest rates) dropped 0.9% inter-month and 1.7% over the last twelve months.
The now move lower in the Krona could follow market expectations of a rate hike by the Riksbank later than initially expected in response to inflation losing upside momentum in recent months. In addition, the Nordic central bank keeps monitoring the housing market.
Later in the session, Deputy Governor M.Floden is due to speak.
EUR/SEK levels to consider
As of writing the cross is up 0.40% at 9.4961 facing the next up barrier at 9.9585 (high Feb.20) seconded by 10.0041 (2018 high Feb.9) and finally 10.0349 (2017 high Dec.11). On the other hand, a breach of 9.8751 (low Feb.19) would expose 9.8648 (21-day sma) and then 9.7419 (2018 low Jan.31).
According to a Bloomberg report, citing people familiar with the matter, the latest discussions of the Joint Technical Committee of OPEC and non-OPEC nations have concluded that the oil glut is dissipating at a faster pace and the market will now rebalance between Q2 and Q3.
• Previous discussions concluded that the rebalancing would only occur in Q3 earliest.
• The scenario assumes that Libya and Nigeria keep output at January levels and other participants in the deal maintain full compliance with cuts.
The EUR/USD pair is seen making minor-recovery attempts from a brief dip below the midpoint of the 1.23 handle, as the bears take a breather ahead of the German ZEW economic surveys.
EUR/USD reverts 10-DMA at 1.2367
The spot extended its bearish momentum for the third straight session and went on to hit fresh four-day troughs at 1.2346, mainly in response to the ongoing upward correction in the US dollar against its main competitors.
The strengthening sentiment around the greenback is largely due to the renewed buying interest seen around Treasury yields, especially with the shorter-duration Treasury yields outperforming in anticipation of hawkish FOMC minutes due to be published later on Wednesday. The USD index jumps +0.40% to 89.44, having posted multi-day tops of 89.55 while 2-year Treasury yields trade near the highest levels seen in a decade at 2.248%.
However, over the last hour, the major stalled its downward spiral and swung back towards the 10-DMA support-turned-resistance of 1.2367, as cautious sentiment prevalent around the European equities lift the demand for the funding currency EUR.
Meanwhile, markets remain expectant of a positive surprise in Germany’s ZEW economic sentiment surveys, especially after upbeat German PPI figures, which in turn offers some respite to the EUR bulls.
GBPUSD levels to watch
Karen Jones, Analyst at Commerzbank, notes: “Intraday rallies are indicated to fail circa 1.2425. Nearby support is now 1.2165, the 18th January low, this guards the 2017-2018 uptrend, which lies at 1.2044 and a close below here will be needed to confirm the end of the move higher. Above the 2008-2018 resistance line at 1.2680 would target 1.3190 the 50% retracement of the move down from 2008”.
• Continues to find some dip buying below 0.79 mark.
• Rising US bond yields/follow-through USD demand capping gains.
• Focus remains on Wednesday’s FOMC meeting minutes.
The AUD/USD pair lacked any firm directional bias and seesawed between tepid gains/minor losses around the 0.7900 handle.
The pair once again managed to find some buying interest near the 0.7890 region and showed some strength after neutral RBA meeting minutes. Further gains, however, remained capped near the 0.7935 area amid a strong follow-through greenback buying interest.
The recent US Dollar recovery move got an additional boost from rising US Treasury bond yields, which was eventually seen keeping a lid on any additional gains for higher-yielding currencies - like the Aussie.
Adding to this, heavy selling pressure surrounding copper prices was also seen denting demand for the commodity-linked Australian Dollar and contributed to the pair's retracement of around 20-pips from session tops.
In absence of any major market moving economic releases, the pair remains at the mercy of the USD/US bond yield dynamics as the focus remains on Wednesday's FOMC meeting minutes.
Technical levels to watch
Bears would be eyeing for a clear breakthrough 0.7890 immediate support, below which the pair is likely to accelerate the fall towards 0.7860-55 intermediate support en-route 100-day SMA support near the 0.7825-20 region.
On the upside, 0.7935 level now seems to have emerged as an immediate barrier, which if cleared decisively could assist the pair to make a fresh attempt towards conquering the key 0.80 psychological mark.
Analysts at Nomura have raised their global growth, inflation and policy rate outlook thanks to a more procyclical thrust to fiscal policy.
“Although the recent bout of volatility in financial markets is an important risk, we remain upbeat about the outlook for the world economy. Indeed, this month we have revised up our outlook for global growth for 2018 from 3.9% to 4.1% off heightened optimism about the US and Eurozone economies. Those revisions can mostly be traced to a procyclical thrust to fiscal policy, particularly in the US. But since that thrust has occurred at the same time as capacity pressures have become more acute, as optimism among companies has been at (or close to) multi-year highs and as corporate profitability has remained strong, capex has additionally been a key source of the world economy’s unexpected vigour. Indeed, we expect that firmer capex and higher productivity to lay the foundations for even stronger growth in the coming months.”
“In light of those growth revisions, we now expect inflation and monetary policy to normalise a little more rapidly relative to our previous forecasts, as well as relative to market expectations. More specifically, on monetary policy we now expect the Federal Reserve to raise short-term rates four times this year and twice more in 2019. We had previously expected three hikes in 2018 and only one in 2019. We still expect the ECB to cease its asset purchase programme from September and to raise short-term rates by 10bp in December, and we expect the Bank of England to raise rates by a cumulative 50bp in 2018. An important and notable exception to this global trend is likely to be Japan, where we still see little scope for the BOJ to withdraw policy stimulus.”
“Peering through the specifics and looking at the bigger picture, the key issue in our view at present is that fiscal policy is becoming more expansionary at a time when many economies are already at (or close to) full employment. That is unusual. But this comes at a time when monetary policy settings are still very accommodative and at a time too when that pro-cyclical thrust to fiscal policy is occurring when government indebtedness is still very high. It almost goes without saying that against that backdrop, the risks to our inflation and interest rate forecasts are skewed to the upside.”
Another healthy rise in Australian employment in December completed a year of strong labour market improvement in 2017, explains the research team at NAB.
“Employment grew by 35k in December in seasonally adjusted terms, the 15th consecutive month of increases. Over 2017, employment grew by a robust 403k, 303k of which full time employment. The strong employment outcomes saw another rise in the participation rate, overall seeing the unemployment rate up slightly to 5.5%, from 5.4% in November.”
“The official trend employment growth was 25k per month. The NAB Business Survey employment index, on the other hand, has not experienced the same wild swings in recent years, and tends to suggest the official figures may be currently overstating the degree of job creation. The NAB employment index implies employment growth of a little less than 300K at present, and a slowdown to around 240K per annum over the next 6 months, or a monthly pace of around 20K per month. This should still be sufficient to see the unemployment rate inch downwards, assuming no further large increase in the participation rate. We currently forecast the unemployment rate to gradually drift lower in 2018, as the labour market continues to improve, to around 5.1% by the end of the year.”
“Trend employment growth was positive across all states and territories apart from SA. NSW has been driving most of the employment growth, while the strong growth in VIC has slowed down somewhat. Encouragingly, WA has been reporting positive employment growth, suggesting the worst of the mining job cuts is now behind us. According to the NAB survey, the employment conditions indices have been trending down since the second half of 2017, albeit remaining at positive levels, apart from in WA. The NAB survey also suggests NSW will be leading the nation in jobs creation while VIC has fallen below national average. The NAB Survey has also seen more firms report it is more difficult to find suitable labour, a clear trend since around mid 2015.”
“Despite declining during 2017, the underemployment rate remained high at 8.3%, above historical average. While there is still a fair degree of labour market slack, there might be a deficit of workers with the right skills to match employers’ needs.”
“Perhaps due to the remaining slack in the labour market, wages growth has been subdued. The NAB survey labour costs measure rose slightly in January, to 0.9% (a quarterly rate, previously 0.8%) and has recently trended upwards. As a labour cost measure however, this is being supported by employment growth – a proxy which adjusts for this suggests there has not been an upward trend recently, but that wages growth is stronger than official measures suggest. Overall we expect to see wage growth eventually pick up as the labour market improves further.”
Following the past two weeks of increased financial market volatility and because of the implied tightening of financial conditions, analysts at Nomura expect the German ZEW Index to decline to a 12.3 (from 20.4 in January).
“This would reflect greater concerns among German analysts about financial market volatility rather than greater angst about the outlook for Germany’s economy. The fundamentals for the German economy, after all, remain sound in our view.”
Jens Sorensen, Chief Analyst at Danske Bank, believes the Japanese safe haven could gather extra traction in the next 1-3 months.
“USD/JPY has stabilised after past weeks’ sell-off. 25 delta USD/JPY risk reversals have bounced higher, which could indicate near-term stabilisation in the cross”.
“However, we still expect the cross to trade lower going into end of the fiscal year in Japan (31 March) driven by portfolio flows, fragile risk environment and stretched short JPY positioning. We target 104 in 1-3M”.
Analysts at NAB are gradually becoming more confident that infrastructure spending and non-mining business investment should help the Australian economy navigate the challenges of peaking LNG exports and dwelling construction.
“While growth will slow after reaching a peak of 3.2% y/y in Mar-18, our forecasts for 2.4% y/y in Dec18 and 2.6% in Dec-19 are in keeping with our estimates of potential growth for the Australian economy of ~2½%.”
“We now forecast economic growth of 2.9% in 2018 and 2.8% in 2019 (previously 2.9% and 2.6% respectively). This change owes to a stronger global growth outlook (assuming current financial market volatility does not extend too far and undermine the recovery), some delays in LNG exports hitting the market (especially after a disappointing Q4 2017), greater confidence in the outlook for business investment and employment (although the latter must slow from current rapid rates), and annual averaging effects from what is shaping up to have been a slightly disappointing Q4 2017 (our preliminary forecast is 0.7% q/q).”
“Tepid consumer spending (~55% of GDP) amidst low and only gradually rising wages growth however tempers the outlook, and is a key uncertainty for monetary policy. That said, growth is likely to exceed potential (~2.5% on our estimates) this year, which will continue to put downward pressure on the unemployment rate to just over 5% by end-18 and holding there in 2019.”
“Key components of our economic forecasts in 2018 are:
The pair keeps the neutral bias for the time being, while it should clear the mid-1.2500s in order to sustain another leg higher, commented FX Strategists at UOB Group.
24-hour view: “In line with expectation, EUR moved below last Friday’s 1.2392 low but the down-move was checked by the 1.2360 support (overnight low has been 1.2367). Despite the bounce from the low, the undertone is still weak and another attempt to move towards 1.2360 seems likely (before a more sustained recovery can be expected). Further down, the next support at 1.2320 is unlikely to come into the picture. Resistance is at 1.2435 followed by 1.2470”.
Next 1-3 weeks: “EUR edged above the January’s 1.2536 top last Friday but slumped after briefly touching a high of 1.2555. The rally from late last week appears to be running ahead of itself and we are not convinced that the up-move can be sustained. The neutral phase that started more than a week is still intact and we view the current movement as part of a broad 1.2320/1.2555 consolidation range. Looking further ahead, EUR has to ‘punch’ clearly above 1.2555 in order to suggest that it has enough momentum to continue to march higher in the coming days and weeks. At this stage, the odds for such a move are not high”.
In light of the ongoing recovery, the pair’s down move could be drawing to an end, suggested Karen Jones, Head of FICC Technical Analysis at Commerzbank.
“USD/JPY is recovering. Last week the market eroded but did not close below the 105.73 200 month ma. We note the 13 count on the daily chart and the complex divergence of the daily RSI and this is usually regarded as a warning signal for the end of the move lower. Initial resistance lies 107.32, the September low”.
“Failure at 105.55 would trigger losses to the 100.70/99.00, the 2016 low. Intraday Elliott counts are suggesting that rallies will now struggle 106.75/107.15”.
“USD/JPY will remain offered while capped by the 110.48 February high. Above here lies the 200 day ma at 111.48 presently”.
• Stronger USD helps regain positive traction.
• Loonie fails to benefit from bullish oil prices.
The USD/CAD pair caught some fresh bids on Tuesday and might now be eyeing to move back above the 1.2600 handle.
On Monday, the pair did breakthrough 50-day SMA barrier but failed to build on the up-move, amid subdued trading conditions on the back of a holiday in the US.
A fresh wave of US Dollar buying interest largely offset bullish crude oil prices, which tends to underpin demand for the commodity-linked currency - Loonie, and helped the pair to regain traction on Tuesday.
Today's up-move could also be attributed to some follow-through technical buying, especially after yesterday's near-term bullish break. It, however, remains to be seen if bulls are able to maintain their dominant position of the pair continues with its struggle to sustain/build on its momentum beyond 100-day SMA hurdle, currently near the 1.2620 region.
There aren't any major market-moving economic releases due release today and hence, the USD price-dynamics might continue to act as an exclusive driver of the pair's momentum ahead of this week's important releases, including the FOMC meeting minutes and the latest Canadian inflation figures.
Technical levels to watch
Momentum beyond the 1.2600 handle is likely to confront some resistance near the 1.2620 region (100-DMA) and is followed by mid-1.2600s supply zone. A follow-through buying interest has the potential to continue boosting the pair further towards the 1.2700 handle.
On the flip side, the 1.2555-50 region now seems to have emerged as immediate support, which if broken might turn the pair vulnerable to head back towards challenging the key 1.2500 psychological mark.
The greenback, tracked by the US Dollar Index, is trading on the positive ground for the third consecutive session today and is looking to consolidate the recent breakout of the 89.00 barrier.
US Dollar attention stays on the FOMC
The index continues to recover part of last week’s sharp sell off against the backdrop of a softer tone in the risk-associated space, particularly around EUR, GBP and JPY.
The up move in the buck has been pari passu with a recovery in yields of the key US 10-year reference, which managed to retake the upper end of the range around 2.90%, some 5 bps lower than multi-year peaks recorded last week.
In the broader picture, market participants will look for extra details on the prospects of further tightening by the Federal Reserve throughout the year in tomorrow’s FOMC minutes, while attention should also be on Fed-speakers ahead in the week: Kashkari, Quarles, Dudley, Kaplan (Thursday), Mester, Williams (Friday).
What will we be looking at around the buck? In the short term, protectionism, risk appetite trends, renewed deficit concerns, higher inflation and liquidity conditions remain poised to drive the sentiment around the greenback in the medium to longer run.
US Dollar relevant levels
As of writing the index is up 0.35% at 89.52 and a break above 89.64 (10-day sma) would aim for 90.57 (high Feb.8) and finally 91.00 (high Jan.18). On the flip side, the immediate support aligns at 88.26 (2018 low Feb.16) seconded by 88.13 (200-month sma) and finally 86.88 (support line off 72.70).
After the sharp fall in the manufacturing PMI over the last two months, markets are looking for UK CBI orders to slip from 14 to 11, suggests the research team at TDS.
“For an indicator that has a 5-year average of about -1.2, this would still be a solid reading. Last month saw the domestic prices balance rise to +40, its highest level since 1984, so we’ll be watching to see if that sub-index recedes alongside crude oil prices.”
In Sweden we get the January inflation data and there is always some uncertainty related to clothing this month due to sales, but there is also seasonal sales in furniture and electronic equipment, suggests Analyst, Jens Peter Sørensen at Danske Bank.
“Together this results in our expected CPIF m/m change at -0.7% (same as market). More, updates to the CPI basket could as always in January result in surprises. However, over the past few years such surprises have been rare or very small. The CPIF y/y is expected to be 1.9%, which is the same as both consensus and Riksbank’s updated projection.”
“Last week Riksbank expressed concerns over the inflation and especially the recent move lower in service inflation. In fact, Riksbank was, in our view, close to shifting the rate path, i.e. postponing the first rate hike. A lower-than-expected inflation reading today, driven by lower service inflation, could move the market a bit, sending interest rates in shorter maturities lower, since market’s implied repo rate path is close to, or a tad above, the Riksbank’s path.”
Chief Analyst at Danske Bank Jens Sorensen noted the Swedish Krona should remain vigilant on the upcoming inflation figures in the Nordic economy.
“Today it’s all about the SEK in Scandi FX markets. As noted above, our CPIF forecast is in line with the Riksbank. Hence, if our expectations are confirmed it should not have a significant impact on EUR/SEK”.
“However, as always the devil is in the details, and we will be particularly interested in the service inflation as noted above given that the decline in service inflation is a key argument as to why we expect the Riksbank to abstain from raising rates this year and why we have a negative outlook on the krona”.
German ZEW Surveys Overview
The ZEW will release its Economic Sentiment Index for the next six months for Germany, as well as the Current Situation Index at 1000 GMT in the EU session later today, reflecting institutional investors’ opinions.
The headline economic sentiment index is expected to drop to 16.0 in February after a 20.4 figure registered in January. While the current situation sub-index is also like to come in weaker at 93.9 versus 95.2 booked previously.
How could affect EUR/USD?
A positive surprise may offer fresh impetus to the EUR bulls, sending the EUR/USD back the 1.24 handle. However, if the readings show a bigger-than-expected drop, the rate could drop back towards the 1.2350-40 support zone.
Haresh Menghani, Analyst at FXStreet notes: “The short-term technical picture also points to some additional near-term bearish pressure, which could drag the pair towards 1.2335-30 area ahead of the 1.2300 handle. Below the mentioned levels, the downfall could further get extended towards 1.2240 horizontal zone en-route the important 1.2210-2200 support.”
“On the flip side, any meaningful recovery attempt is likely to confront fresh supply near the 1.2430-35 region, above which the pair is likely to make a fresh attempt towards conquering the key 1.2500 psychological mark,” Haresh adds.
Germany: Expect mixed result from ZEW index for February – Danske Bank
EUR/USD flirting with lows near 1.2380 ahead of ZEW
About German ZEW Surveys
The Economic Sentiment published by the Zentrum für Europäische Wirtschaftsforschung measures the institutional investor sentiment, reflecting the difference between the share of investors that are optimistic and the share of analysts that are pessimistic. Generally speaking, an optimistic view is considered as positive (or bullish) for the EUR, whereas a pessimistic view is considered as negative (or bearish).
In view of FX Strategists at UOB Group, Cable could extend the consolidative theme while within the current neutral outlook.
“As highlighted yesterday (19 Feb), the rapid up-move in GBP last week appears to be running ahead of itself. However, a move above last Friday’s 1.4145 peak is not ruled out but a sustained move above 1.4200 is not expected for now”.
“In other words, the neutral phase that started 3 weeks ago is still intact and the price action since then is viewed as part of a rather broad consolidation phase that could last for a while more”.
“Looking further ahead, a clear break below the bottom of the currently expected 1.3920/1.4200 consolidation range would suggest a retest of the 1.3764 low seen earlier this month. The 1.3764 low sits near the rising trend-line support and a break of this rather strong level would indicate that GBP could head much lower in the subsequent weeks”.
Karen Jones, Head of FICC Technical Analysis at Commerzbank, noted the pair keeps the negative bias for the time being.
“EUR/USD has started to erode the 20 day ma at 1.2386. Last week the market saw a minor break to a new high, which was not sustained and the new high has been accompanied by a divergence of the daily and weekly RSI. In addition Fridays price action was a key day reversal which suggests a failure move. And let us not forget that directly above the market lies the long term downtrend at 1.2680. Intraday rallies are indicated to fail circa 1.2425”.
“Nearby support is now 1.2165, the 18th January low, this guards the 2017-2018 uptrend, which lies at 1.2044 and a close below here will be needed to confirm the end of the move higher”.
“Above the 2008-2018 resistance line at 1.2680 would target 1.3190 the 50% retracement of the move down from 2008”.
• USD recovery gains traction and prompts further selling.
• Rising US bond yields add to the downward pressure.
Gold prices continued to slide for the third straight session on Tuesday and dropped to a four-day low level, around the $1340 region.
A combination of negative factors, ranging from a follow-through US Dollar buying interest and diminishing demand for safe-haven assets kept exerting downward pressure on the precious metal.
The greenback has now started showing some signs of a meaningful bounce, after it fell to over three-year lows last week, and has been one of the key factors weighing on dollar-denominated commodities - like gold.
Adding to this, a goodish pickup in the US Treasury bond yields, amid growing expectations that the Fed might opt for a tighter monetary policy tightening cycle in 2018, was further seen driving flows away from the non-yielding yellow metal.
Meanwhile, the prevalent cautious sentiment around equity markets, with major global equity indices breaking their winning streak, did little to revive the commodity's safe-haven demand and stall the slide to near one-week lows.
It, however, remains to be seen if the recent downfall points to the formation of a near-term top or is being utilized as a fresh buying opportunity, as a hedge against concerns over rising inflationary pressure in the US.
Technical levels to watch
A follow-through selling pressure below $1338 level has the potential to drag the metal towards the $1331-30 region en-route $1326-27 horizontal support. On the upside, any recovery attempts might now confront immediate resistance near $1346 area and is followed by $1350 level, above which the commodity seems to head back towards testing $1358 supply zone.
• On bids for the third consecutive session.
• A follow-through USD recovery supportive.
• Wednesday’s FOMC minutes hold the key.
The USD/JPY pair continued gaining some positive traction for the third consecutive session on Tuesday and jumped back to the 107.00 neighborhood.
The pair to build on its recent recovery move from over 15-month lows, set last Friday, and was being supported by a follow-through greenback buying interest. A goodish pickup in the US Treasury bond yields provided an additional boost to the US Dollar's recovery move from over 3-year lows and remained supportive of the pair's steady up-move.
The pair has now gained nearly 150-pips over the past three trading session and seems to have largely ignored the prevalent cautious sentiment around equity markets, which tends to underpin the Japanese Yen's safe-haven appeal.
With the USD price dynamics turning out to be an exclusive driver of the pair's momentum, Wednesday's FOMC meeting minutes will now play a key role in determining the pair's next leg of directional move.
Technical levels to watch
A convincing breakthrough the 107.00 handle, the pair is likely to accelerate the up-move towards 107.45-50 supply zone before eventually darting towards reclaiming the 108.00 round figure mark.
On the flip side, 106.70 level now seems to protect the immediate downside, which if broken could drag the pair back towards testing its next major support near the 106.15-10 region ahead of the 106.00 handle.
Analysts at TDS are looking for a mixed result from Germany’s ZEW index for February.
“With current sentiment rising further to 97.2 (mkt 94.0), but expectations slipping a bit lower to 17.4, reversing last month’s gain (mkt 16.4).”
The sentiment around the shared currency remains depressed during the first half of the week and is now dragging EUR/USD to test the lower end of the weekly range in the 1.2385/80 band.
EUR/USD focused on ZEW, FOMC
Spot is losing ground for the third session in a row on Tuesday in response to a persistent pick up in the demand for the greenback, in turn supported by a rebound in US yields.
In fact, yields of the key US 10-year note regained the 2.90% neighbourhood and above during overnight trade, lending at the same time extra legs to the bid tone surrounding the buck.
Data wise in Euroland, the German/EMU ZEW survey is next on tap along with the Ecofin meeting and the advanced consumer sentiment gauge measured by the European Commission.
Across the pond, nothing scheduled for today while investors should start to shift their attention to the FOMC minutes, to be published tomorrow.
EUR/USD levels to watch
At the moment, the pair is losing 0.23% at 1.2378 facing immediate contention at 1.2353 (10-day sma) seconded by 1.2206 (low Feb.9) and finally 1.2165 (low Jan.18). On the upside, a breakout of 1.2757 (2018 high Feb.16) would target 1.2598 (61.8% Fibo of the 2014-2017 drop) en route to 1.2886 (high Oct.15 2014).
It has been clear since June 2016 that the worst possible backdrop to Brexit negotiations would be a weak euro area economy (especially if it is weaker than the UK) and more euro-scepticism emerging in Europe, according to analysts at Nomura.
“This would have provided the EU leadership with a strong incentive to punish the UK, putting political concerns ahead of economic ones and forcing the UK into the worst possible outcome.”
“In H2 2016, these concerns seemed somewhat justifiable: the euro area growth story was still in its infancy and vulnerable, while concerns about euro sceptics leading governments in Amsterdam (or Hague, check) and Paris were plentiful, with the odd tremble about M5S in Italy also present.”
“Fast forward to H1 2018 and such concerns are far behind us. Euro area growth is strong, looks well-set and easily outstripping that of the UK. In the ranking of G7 economies on latest GDP data, the UK comes last with Germany second and France fourth. France has installed as President arguably one of the most pro-European leaders of modern times and when Germany has a functioning government again we would expect a renewed push on further integration, at least in the eurozone.”
“It isn’t just down to the elites either: the Eurobarometer series shows a growing proEuropean sentiment right across the continent (quite ironically, including the UK). This started in 2015 and is likely down to better economic performance since then, but the point is Brexit did not put a dent in it, and we think it may have even helped it.”
“Against this backdrop, we think the EU has every reason to be generous and to put economic interests ahead of political interests – where quite frankly it doesn’t need to worry. We think the trade talks, when we get onto them, will be tough, difficult and may have moments that cause markets to be concerned. But the UK has, by chance, found itself operating against the best possible backdrop to give it a chance of a decent deal. We will see over Apr-Oct 2018 whether the UK government takes that opportunity.”
In an interview with Reuters, HSBC CEO John Flint noted that he remains “very skeptical” on cryptocurrencies.
As of writing, Bitcoin, the world’s largest cryptocurrency, rallies nearly +10% to trade near $ 11,500 levels while its counterpart, Ethereum, gains +3% to $ 949.
Bitcoin price analysis: Sudden death of South Korean regulator may weight it down
NEO/USD price analysis: Bumped into $140.00 resistance, as speculators taking profit
Analysts at TDS suggest that markets will be keeping a very close eye on today’s CPI data of Sweden, after they think that last week's Riksbank meeting left a very low hurdle to push back the timing of the first rate hike at the next policy meeting in April.
“We look for CPIF to slip to 1.7% y/y in January, below both consensus of 1.9% and more importantly, the Riksbank’s forecast from last week's MPR of 1.9% y/y. A downside surprise would leave the Riksbank on track for further near-term downgrades to the 2018 inflation forecasts at the April meeting, which we think will be enough evidence to allow the Riksbank to push back the first rate hike by one quarter, to Q4 2018. Also today, Governor Ingves speaks at an event in NY at 6:30am ET.”
The Sterling is still lower heading into the Europe session, currently trading just below 1.3980.
Brexit woes are continuing to pile up for the GBP, as a recent report noted that the UK has privately discussed the option of developing a contingency plan if anything goes wrong with UK-EU Brexit negotiations. This report is poorly timed, as the UK is also dealing with the fallout from weekend comments from the European (EU) Parliament’s Chief Brexit coordinator Guy Verhofstadt, who admitted that there will not be a finalized trade deal in place by the time Brexit day finally arrives.
The Sterling has declined against the Greenback for two straight trading days, yet bullish prospects remain high, with the 34 EMA still acting as support from 1.3880. Near-term action will need to either fall below the recent swing low at 1.3762 to establish a bearish breakdown, or to clear the last swing high at 1.4344 to establish a return to the bullish trend.
USD/JPY has stabilised after past weeks’ sell-off. 25 delta USD/JPY risk reversals have bounced higher, which could indicate near-term stabilisation in the cross, suggests Chief Analyst, Jens Peter Sørensen at Danske Bank.
“We still expect the cross to trade lower going into end of the fiscal year in Japan (31 March) driven by portfolio flows, fragile risk environment and stretched short JPY positioning. We target 104 in 1-3M.”
Analysts at TDS explain that the RBA Minutes for February reinforced what the SoMP and testimony had previously mentioned, that global activity, commodity prices, business confidence/conditions and the labour market were all stronger than the Bank expected.
“On inflation, the RBA mentioned "further progress on inflation is likely to be only gradual". The RBA buzz word is now "gradual" reflecting the fact that wages and inflation are only gradually drifting higher from the lows. Last year the RBA's focus was about the exchange rate, but more recently, about wages. Hence, Dec qtr WCI later today is crucial for our view and AUD/OIS etc.”
“Also released, RBA's Bullock, the Head of Financial Stability, spoke today, and generated a single headline about 'relatively low' (actually declining) mortgage stress in Australia. The speech dedicated some time to defining what 'mortgage stress' actually is.”
NZD/USD is spiking ahead of European markets, with the lower bound for the day getting pushed further out as traders lack a directional bias on the Greenback. The pair is currently trading near 0.7355.
The Kiwi is continuing to struggle against the US Dollar, declining this week in thin volumes as China and the US both took the day off to celebrate national holidays; Chinese New Year in China and President's Day in the US.
Little data is slated for the Kiwi this week, but low-impact Retail Sales figures are expected late Thursday at 21:45 GMT. While growth for New Zealand has been sedate but steady, markets have been noticably jumpy lately, with traders dumping risk assets and piling into safe havens at a moment's notice, only to come right back.
The pair's recent slide could be dooming, as a double top has begun to form from resistance at 0.7420. Long-term prospects still look good though, with price still trading well above the 34 EMA and 200-day SMA, and the last swing low pricing in as support from 0.7208. A move lower will run into support at 0.7345 and 0.7315, while bullish moves will be constrained by resistance priced in at the 0.7400 handle and 0.7430.
Indian government policies are shifting from supporting consumers (keeping food price inflation low) to supporting food producers (raising food prices), which has both economic and political ramifications, given low rural income growth and upcoming elections, suggests the analysis team at Nomura.
“These policies have been implemented via larger minimum support price (MSP) hikes (at least 1.5 times the production cost), trade policy (higher import duties/easing of export barriers), fiscal transfers (to ensure farmers reap the MSP benefits) and other state government announcements. We see five key implications of this change in policy.”
“First, our estimates suggest the weighted average kharif (summer crop) MSP hike could double to 12.9% y-o-y in FY19 from 6% in FY18 – with a rise of 11.6% for paddy and over 40% for jowar, ragi and nigerseed. Given rabi (winter crop) mark-ups or margins are already high, the rabi MSP rise should be lower at 6.6% (versus 7.4% in FY18). Thus, MSPs should rise, but by much less than the headline ‘1.5x cost’ suggests.”
“Second, the one-time upward adjustment to MSPs in FY19 could add ~60bp to headline CPI inflation over the next two to four quarters. The shock is likely to dissipate in the second year unless costs escalate sharply. Our concern is that the MSP increases have been announced just as the cobweb cycle started to become adverse.”
“Third, there are fiscal costs to the government, but these should be less than 0.1% of GDP. Transfers could be made via a price deficiency payment scheme (government compensates farmers for losses) or a market assurance scheme (government buys crops to make MSPs effective).”
“Fourth, higher MSPs and increased food-linked fiscal costs are an upside risk to inflation and have increased the likelihood of policy tightening. We currently expect policy rates to be left unchanged through 2018, as the resolution of bank balance sheet stress is ongoing, underlying inflation is ~4.5% and financial conditions have tightened. The next kharif MSP announcement (in May/June) will provide more clarity.”
“Finally, farm incomes should benefit from this change in government policy, but these policies alone are insufficient to significantly lift rural incomes. Thus, reducing agrarian stress while maintaining prudent macro policies will be a test of balance for the government and could also have political ramifications.”
According to the latest monthly Reuters Corporate Survey of the Japanese companies, more than 50% of the country’s firms do not plan to raise base pay in annual wage talks in coming months.
Japan’s PM Shinzo Abe and the Keidanren business group have sought a 3% wage rise to boost consumption and inflation.
“Just less than half said they would raise pay and most in this group said the increase would be similar to last year’s level of about 2 percent.
In the past four years, major companies agreed to raise wages about 2 percent at annual wage negotiations with labor unions, a benchmark that sets the tone for talks across the country.
The bulk of that - about 1.8 percent - comes automatically under Japan’s seniority-based employment system. Anything beyond that is a hike in “base pay.”
But many firms are wary of raising wages as it commits them to higher fixed personnel costs, so they prefer to pay one-off bonuses instead.
The survey was conducted between Jan 31 and Feb 14 on behalf of Reuters by Nikkei Research. Of some 240 companies that responded, 52 percent said they would not raise base pay.“
Japan’s economy recorded an eighth consecutive quarter of growth in Q4, the longest uninterrupted run of expansion since the late 1980s, points out Marcel Thieliant, Senior Japan Economist at Capital Economics.
“Unemployment is very low, inflation has started to pick up, condominium prices have soared and credit growth is the strongest it has been since the 1980s bubble. However, private debt remains low relative to output. And with wages barely rising and inflation likely to remain well below the Bank of Japan’s target for the foreseeable future, this doesn’t add up to overheating.”
“Output and activity indicators show that the economy recorded an eighth consecutive quarter of expansion in Q4 though growth wasn’t as vigorous as in the second half of last year. METI’s new artificial intelligence estimates of industrial production point to a slump in January.”
“Consumer indicators reveal that consumer spending rebounded last quarter. Households remain in high spirits but the Economy Watchers Survey points to a slowdown.”
“Business indicators show that sentiment in the manufacturing sector climbed to multi-year highs last month as external demand remains strong.”
“Labour market indicators show that the labour force has started to slow even though more women are entering the labour market and the number of foreign workers is soaring. And while the labour market is very tight, wage growth remains sluggish.”
“Inflation indicators show that rising capacity utilisation continues to lift price pressures. However, producer prices of consumer goods are now slowing again as the exchange rate hasn’t weakened any further over the past year.”
“Property market indicators show that inventories of unsold properties in Tokyo have started to fall again. This seems to reflect falling supply as sales remain very weak. The surge in condominium prices has run out of the steam.”
“Financial market indicators show that the yen has continued to strengthen against the dollar even though interest rate differentials point to a weaker yen. Meanwhile, the sell-off on global stock markets at the start of the year has now started to reverse. But with valuations looking increasingly stretched, we don’t see much further upside this year.”
Following a decline spurred by US Dollar buying, the Aussie has sprung back heading into European markets, currently testing just below 0.7930.
The pair has sprung back following a decline on US Dollar buying, with the USD climbing against the bloc of major currencies during Asia. AUD/USD has taken back the losses and is now posting a gain heading into European trading. Markets have absorbed the Reserve Bank of Australia's (RBA) recent meeting minutes which stated that the central bank expects inflation growth to be subdued, but ongoing, and have responded by buying up the AUD once more.
The real test for the Aussie will come on Wednesday, when wage growth figures drop at 00:30 GMT. With high household debt and a lack of momentum in wage growth, any positive sign would be a benefit for the Aussie right now, with several key headwinds keeping the Australian economy on a slower growth track than the rest of the world.
The pair is still trading above the 34 EMA on Daily charts, but bullish momentum is constrained, and the pair continues to languish below the recent high of 0.8135 that was reached in March. Bearish action will face support from 0.7907, 0.7866, and 0.7837, while bullish momentum will need to contend with the recent swing high at 0.7988 if a run up the charts is to materialize.
Bloomberg reports headlines cited by Yonhap that the South Korean Finance Minister noted the market will decide the exchange rate.
The RBA’s February minutes out today underlined the new stance that is has towards inflation, which is about as casual as a beachside Sunday BBQ dress-code, explains the research team at Rabobank.
“Inflation is expected to “only gradually” accelerate, and wage pressures to increase, despite the economic outlook being as sunny as the self-same beachside Sunday BBQ. Part of that causal attitude appears to be a recognition that strong retail competition has arrived in Australia; and just in time, perhaps, given private debt levels remains elevated and household balance sheets still warrant careful monitoring. Indeed, rapid rate increases in Australia would make much of the housing market also look like a Mad Max dystopia, and the RBA knows it.”
Analysts at Nomura suggest that the upswing in US domestic demand should have a positive impact on Japanese exports to the US, and they think this impact needs to be discounted somewhat.
“The rise in interest rates stemming from this fiscal spending should also raise interest rates on auto loans and it is unclear how much the increase in US military spending will benefit Japanese exports.”
“We think growth in Japanese exports overall will weaken as exports to Asia slow owing to slower economic growth, mainly in China. Meanwhile, for the US economy, we had already seen capex as being in a recovery phase, but we think the latest fiscal spending will accelerate that further. We forecast that Japanese exports will continue to grow strongly through summer 2018 at least, mainly supported by demand in the US.”
“We think the turmoil seen in financial markets will have only a limited impact on the real economy. International commodity prices have moved only slightly and Japanese companies tend to make smaller changes to local sales prices for products exported from Japan than the change in forex rates.”
Reuters is out with a piece quoting Judith Hacket, chair of the EEF manufacturer's group, who talks about the need for immediate resolution of the Brexit scenario so that manufacturing businesses have time to adapt to the changes after Brexit formally takes place in March of 2019. Hackett provided Reuters with excerpts from a speech she is slated to make to attendees of an EEF conference, which will include UK business minister Greg Clark.
According to Bill Evans, Research Analyst at Westpac, the Minutes of the February Monetary Policy Meeting of the Reserve Bank Board of Australia has provided limited surprises.
“From my perspective, the most important issue is around the Bank’s assessment of the household sector. Recall that in the minutes for the last meeting in December, the Board referred to “household consumption continued to be a significant risk”. Subsequently, they would have been shocked by the national accounts report that consumption grew by only 0.1% in the September quarter. These minutes describe that result as “notably weaker than had been expected”. However, the Board is clearly encouraged by the retail sales data for the December quarter, where volumes have rebounded (up 0.9% in real terms).”
“The Bank’s liaison program is indicating moderate growth in retail sales since then. Despite this more encouraging news, the minutes still emphasise this key risk, “there was still a risk that growth in consumption might turn out to be weaker than forecast if household income growth were to increase by less than expected”. The minutes move on to raise the risk of a negative wealth effect which might be associated with house prices or the equity market, “consumption might be particularly sensitive to adverse developments in household income or wealth”.”
“In that regard, the Board discusses developments in the housing markets, which are described as “had generally eased”. Prices had fallen for detached houses in Sydney and growth in housing prices had slowed considerably in Melbourne, while prices were little changed in Perth and Brisbane. The Board continues to raise the spectre of the sharp increase in supply of new apartments over the next few years.”
“The strength in the labour market over 2017 is recognised with employment growth having registered 3 ¼ per cent, and the unemployment rate falling to 5.5% from 5.75% a year earlier. However, the Board is more cautious about the outlook for employment growth in 2018 with growth slowing to “closer to growth in working age population” (our estimate is 1.6%). With that result, the Board notes that “some spare capacity in the labour market would remain over the forecast period”.”
“Despite that slowdown in employment growth, the Bank expects household income growth to lift. That would be associated with a lift in wages growth, although that expectation does not sit well with the observation that “new enterprise agreements had been lower than the percentage increases incorporated in agreements they were replacing”. Despite that , the Board speculates that wage growth might pick-up “by more than anticipated”. Westpac is more cautious about the outlook for wages growth and hours worked, indicating a less constructive environment for the expected boost to household incomes and consumer spending.”
“This is the first Board meeting since the release of the December quarter inflation report. The report, which showed trimmed mean inflation at 0.4% in the quarter, was described as in line with forecasts, although at an annualised pace of 1.6%, would certainly be disappointing. The Board notes that over 2017, inflation had been brought closer to the target. That is literally true with the trimmed mean annual rate lifting from 1.6% through 2016 to 1.8% through 2017. However, progress in the last six months appears to have stalled with the trimmed mean growing at an annualised pace back to 1.6%. Note that the rate through 2015 was 2.1%. So, despite two years of very easy policy and a strong labour market, progress on restoring inflation to the 2.5% target has been very disappointing.”
“The undisputed positives for the economy are business conditions and the boost in construction, both non-residential and government infrastructure. However, progress in lifting equipment investment has been limited.”
“The Board is more encouraged by the global economy than in December. “The near-term outlook for Australia’s major trading partners had been revised up slightly since November” and “global growth could continue to surprise on the upside” boosting growth and inflation in Australia. The Bank still expects commodity prices to fall over the next few years, although the forecast terms-of-trade had been revised a little higher for the near-term. The recent bout of volatility in global financial markets is discussed but does not appear to be a significant concern, although it is noted “if global inflation were to pick-up by more than expected, it would have implications for financial market pricing and exchange rates”.
“There is no concern about the persistent strength of the Australian dollar against the US dollar. With the usual caveat “an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than forecast”.”
The US dollar upward correction remained the key underlying theme in Asia, as the demand for the buck returned amid thin volumes and minimal volatility on the back of China New Year celebrations. The latest upmove in the buck was mainly driven by upbeat comments from the US President Trump on the US economy and rising shorter-duration Treasury yields. As a result, most majors ran through a fresh selling-wave, with the Yen worst hit, despite tumbling Japanese equity markets.
The Aussie witnessed good two-way price-movement, having found solid support at 0.7890 levels, despite slightly dovish RBA Fed meeting minutes and a broadly stronger USD, now heading back towards the 0.7950 barrier. Meanwhile, its OZ counterpart, the Kiwi, remained better offered, as the bulls were left unimpressed by upbeat NZ factory gate prices.
Main topics in Asia
RBA minutes: wage growth remained subdued
Minutes of the monetary policy meeting of the Reserve Bank of Australia board was released, and as widely expected, this was a non-market event …
Sources: UK has a secret plan to hold Brexit cash if EU refuses to trade - BBG
Bloomberg quoted three people familiar with the matter, citing that some senior British officials have privately discussed the idea of a fallback option that could be triggered if the Brexit negotiations go wrong.
Trump: “U.S. economy is looking very good, in my opinion”
The US President Donald Trump was out on the wires last minutes, via Twitter, talking up the US economic prospects.
Ex-BoJ’s Kiuchi: BoJ to gradually edge away from crisis-mode stimulus
Reuters reports comments delivered by the former BoJ board member Kiuchi late on Monday.
Key Focus ahead
Today’s EUR macro calendar remains relatively eventful, with the German PPI and Swiss trade figures to be released ahead of the European opening bells while the Eurozone and German ZEW economic surveys will keep the EUR, GBP traders busy in Europe. Also, the focus remains on the UK CBI industrial order expectations data, in absence of first-tier economic releases from the UK docket.
The NA session sees the releases of the Canadian wholesale sales, NZ GDT price index and Eurozone consumer confidence data amid a data-empty US calendar.
EUR/USD slinking towards 1.23 ahead of SPD vote, EU ZEW figures
The Euro has declined from recent highs as the US Dollar begins to stage a mild comeback following spikes in Treasury yields, with the 2-year Treasury note hitting 2.2% during the overnight session, the paper's highest figure since 2008.
GBP/USD: Bears target 1.3900, Brexit jitters back in play?
The bearish grip tightened on the GBP/USD pair in the Asian session, as the bears extended the overnight sell-off amid a pick-up in the USD strength and a non-event BOE Governor Carney’s speech.
DXY seen at 85.00 in a year’s time, a 5% fall from current levels – SG
Analysts at Societe Generale (SG) offer the currency forecasts in their weekly FX outlook report.
JP Morgan is out with a note by their Australia economics team, highlighting the growing rift between Australia's economic outlook compared to global trends.
According to the IMM net speculators’ positioning as at February 13, 2018, net short USD positions lessened modestly for a second consecutive week and in the spot market the tone has been more obviously USD bearish as risk appetite has returned to risky assets, notes the research team at Rabobank.
“EUR longs fell last week to their lowest levels since early January. ECB President Draghi had made some attempt to push back against EUR strength at the January policy meeting, though this was judged to be half-hearted. The next ECB policy meeting is scheduled for March 08.”
“Net GBP longs almost halved and retreated to their lowest level since last December. Although BoE rate hike speculation has increased, the market is re-evaluating the assumption made at the end of last year that the agreement between the EU/UK on Brexit legacy issues will set the tone for a smooth set of trade talks. Political uncertainty related to the Brexit transition period could keep a lid on the pound going forward as could confusion caused by the deep divide within PM May’s government.”
“Net JPY shorts crept moderately higher as sentiment in risky assets improved. Interest rate differentials should be negative for the JPY given the BoJ’s commitment to its QQE programme, though the market is doubting how long the Bank will maintain this position.”
“CHF net shorts slipped slightly for a third consecutive time. Net positions have been in negative territory for twenty-eight consecutive weeks. Falls in risk appetite tend to be CHF supportive. Fear of SNB intervention should prevent strong surges in demand for the CHF going forward.”
“CAD longs dropped back after the previous week’s jump. Oil prices and Nafta talks remain in view. AUD positions also fell. Overall sentiment appears to have stabilised in the spot market.”
Analysts at BBH suggest that the final read of the January eurozone CPI is going to be the key economic release for the week as the preliminary report is usually reliable.
“It said that the headline rate fell 0.9% on the month for a 1.4% year-over-year rate. Prices in Europe often fall in January. The 0.9% decline is at the smaller end of the -0.8% to -1.5% range over the past five years.”
“Recall that the headline pace peaked at 2.0% last February, an inflation scare that did not lead to much of a euro rally, ahead of the Dutch and French elections. A Bloomberg survey shows a median expectation that the headline rate may be revised to 1.3%, which would match last year's lows. After holding steady at 0.9% through Q4 17, the core rate edged to 1.0% in the initial estimate.”
“The impulses coming from the exchange rate and oil prices suggest upward pressure on the headline rate and less pressure on the core rate going forward. The euro has appreciated around 5% against the dollar since the staff's last forecast, while oil prices have risen around 2%. Good for German metal workers and engineers who fought for better pay increases and some flexibility in hours, but there are serious questions about how representative the settlement is going to be in Germany and Europe.”
“The initial estimate for February CPI is due February 28, and that will be the last input ahead of the ECB meeting on March 8. That is a few days after the Italian election and the result of the SPD decision whether to accept the deal with Merkel's CDU/CSU and enter a coalition government again.”
“Investors are likely to be sensitive to eurozone inflation data. It is seen as important for the current differences between hawks and doves. That said, there appears to be a consensus currently that accepts a reduction of asset purchases after September, but to conclude at the end of the year. Since the first rate hike (from minus 40 bp deposit rate) will start sometime after the end of purchases, the implication is that pushing the QE to the end of the year means a rate hike likely no sooner than mid-2019.”
USD/JPY has climbed ahead of London markets, testing just beneath 106.80, with the US Dollar peaking at 106.86 in Tokyo trading.
The Dollar is flexing its muscles today, as spikes in bond yields push equities back down and Trump Twitter comments are giving the Greenback a bit of a boost, with Trump highlighting the recent positive figures within the US economy.
The Bank of Japan has been delivering a repetititious series of rhetoric lately in the face of an ever-strengthening Yen that the central bank has no plans to increase rates in the near future, hoping markets would take the hint and settle down their Yen buying. BoJ patience finally wore thin enough last Friday that the institution fired off a warning shot across the market's bow, delivering a thinly-veiled threat of market intervention should the Yen continue to strengthen, with the justification that a strong Yen will hamper economic growth within Japan. After decades of deflationary pressure, Japan is finally experiencing inflation, though much lower than the 2% target they are hoping to achieve. The BoJ remains dedicated to whatever easy monetary policies are necessary to ensure this happens.
The pair is currently rebounding from a 14-month low of 105.55, closing higher for two straight trading days and looking set to do so for a third, if the London session maintains a Dollar-bullish mindset. Daily charts are incredibly oversold, with price far below the 200-day SMA, and Friday's action dropping a bullish hammer candlestick pattern at the day's close. Current support is being provided by 105.67, while resistance is stacked up at 107.51 and 108.49.
EUR/USD has kicked off the Tuesday session by heading lower, currently testing the 1.2380 region. The Euro has declined from recent highs as the US Dollar begins to stage a mild comeback following spikes in Treasury yields, with the 2-year Treasury note hitting 2.2% during the overnight session, the paper's highest figure since 2008.
Germany's Social Democrat Party is holding a ballot today of its 464,000 members, asking the SPD voter base if the SPD should enter into Angela Merkel's coalition government; a middling 'yes' is expected, which would be Euro positive. The SPD has entered into coalitions with Merkel's conservative group in the past, and although final results may not appear on Tuesday, strong indications should become apparent throughout the day.
Europe also has a slew of data on the docket today, beginning with German PPIs and Swiss Trade Balance at 07:00 GMT, Swiss Industrial Prodution at 08:15, Greek Current Account at 09:00, and German ZEW Economic Sentiment Survey at 10:00. Also at 10:00 will be the ZEW Survey February results for the broad Euro-area, and this could be the number to focus on today, with market forecasts calling for a slight decline in the headline number of 28.4, versus the previous figure of 31.8.
Brexit continues to hang over the European continent, with Bloomberg quoting multiple sources today claiming that the UK has privately discussed the possibility of developing a fallback option if Brexit trade negotiations with the EU turn sour. The report is poorly timed, as UK officials are trying to build public trust in the mutual UK-EU negotiation process, with Brexit Secretary David Davis attempting to convince EU member states that the UK won't try to undercut them in trade competition post-Brexit, and Prime Minister Theresa May getting ready to announce her goals for a detailed draft trade accord that will hopefully come into effect following Brexit. As of right now, there is not enough time to develop a full-fledged trade agreement between the two entities before Brexit preparations finalize and the big day happens in March of next year.
The Euro has begun forming a small double top on Daily charts, and with the Dollar rebounding on climbing yields, further downward pressure can be expected for the EUR/USD. Euro bulls have an uphill battle in store for them, and the recent failure to capture the major resistance zone at 1.2520 could see the pair trading at the last swing low of 1.2210 if support at the 34 EMA (1.2275) fails to hold. Near-term support is being provided by the 1.2300 major psychological level, while an upside swing will have to contend with a resistance zone from 1.2448 to 1.2475.
Analysts at Societe Generale (SG) offer the currency forecasts in their weekly FX outlook report.
“Familiar FX/rate/volatility correlations are failing as the global economy moves out of the post-financial-crisis phase of absurdly cheap money.
The combination of rising US yields, rising equities, and a falling dollar reflects a more synchronized global recovery that is luring money away from the dollar, something we last saw for a sustained period in 2004-2007.
What started then as optimism about the global recovery after the Asian crisis ended, of course, in hype, hubris, and excess. Hopefully, we'll not get to that stage again.
We look for a slower pace of dollar decline, with the DXY reaching 85 in a year's time, a 5% fall from current levels.
We think a further 6% euro appreciation will take the dollar back to levels last seen in 2014, and that USD/JPY will make a sharp move lower in 2019/2020 but not in 2018.”
The bearish grip tightened on the GBP/USD pair in the Asian session, as the bears extended the overnight sell-off amid a pick-up in the USD strength and a non-event BOE Governor Carney’s speech.
GBPUSD losing sight of 1.40 handle?
The spot is seen accelerating its declines, now looking to test the next support of 1.3959 (Monday’s low), as the renewed concerns over the EU-UK trade deal hit the GBP markets, after the sources said that the British senior officials are working on a contingency plan to hold the Brexit cash if the EU refuses to trade. This indicates that the UK is already aware that the sentiment could turn sour should the Brexit negotiations go wrong.
Meanwhile, the weekend’s comments from European (EU) Parliament’s Chief Brexit coordinator Guy Verhofstadt continue to weigh on the investors’ minds. Verhofstadt noted that the UK's Brexit trade deal with the EU will not be finalized before exit day.
Moreover, broad-based US dollar buying amid rising Treasury yields and thin markets also collaborate to the latest leg down in Cable. The USD index trades +0.20% higher at 89.26, looking to test three-day tops of 89.36 reached a day before while the shorter-duration -2-year Treasury yields rally +1.53% to 2.223%, the highest levels seen since 2008.
Later today, the major will look forward to the UK Brexit Secretary Davis’ comments, as he is scheduled to outline a fresh Brexit trade deal plan. Also, of note remains the UK CBI industrial order expectations data, as the focus shifts towards the UK jobs and FOMC minutes due on the cards later on Wednesday.
GBPUSD levels to watch
According to FXStreet’s Chief Analyst Valeria Bednarik, “the pair trades with a modest bearish bias, despite its latest bounce, as the pair is below its 20 SMA and the 50% retracement of its latest decline, while technical indicators hover directionless right below their mid-lines. The daily low was set at the 38.2% retracement of the mentioned decline, making of the level a key support, with a break below it opening doors for a steady decline for this Tuesday. Support levels: 1.3960 1.3920 1.3880. Resistance levels: 1.4025 1.4050 1.4085.”
The US President Donald Trump was out on the wires last minutes, via Twitter, talking up the US economic prospects.
“U.S. economy is looking very good, in my opinion.
Even better than anticipated.
Companies are pouring back into our country.
Reversing the long-term trend of leaving.
Unemployment numbers are looking great.
Regulations & Taxes have been massively Cut!
JOBS, JOBS, JOBS.”
Reuters reports comments delivered by the former BoJ board member Kiuchi late on Monday.
A de-facto normalization of monetary policy is already taking place and will continue under a reappointed Kuroda."
“The reappointment was a signal from the government that it wants continuity in monetary policy."
"Policy normalization doesn't mean the BOJ will abandon its ultra-easy policy. It's just about gradually moderating the degree of monetary support."
Fresh bids emerged once again near the 0.7890 support area, allowing a tepid bounce in the AUD/USD pair back above the 0.79 handle, as markets assess the minutes of RBA’s January February meeting.
AUD/USD: Focus shifts to Aus construction and wages data
The spot came under fresh selling pressure last hour and fell back below the 0.79 handle, in a delayed reaction to the RBA’s Feb monetary policy meeting minutes, which reiterated that a rising AUD would impede pick-up in economic growth, inflation while adding that Low rates helping reduce unemployment, lift inflation. These RBA headlines suggested that the Australian central bank could very well remain in a wait-and-see mode in the near-term before future rate hikes.
Moreover, a fresh bout of the USD buying across the board, helped by rising Treasury yields, also knocked-off the major in a bid to test the key support. However, the bulls held on to the technical support, now pushing the rates above the 0.7900 levels.
The pair is likely to get influenced by the USD dynamics and risk trends amid holiday-thinned light trading and a lack of fresh fundamental catalysts until the release of the Australian construction work done and wage price index data due out tomorrow.
AUD/USD levels to watch
Valeria Bednarik, Chief Analyst at FXStreet notes, “Technically, the pair bounced again on an approach to the 0.7890 level, a major Fibonacci support, as the level stands for the 38.2% retracement of the December/January rally, keeping the downside limited as long as the pair remains above it. The lack of volatility has left the intraday picture neutral, as the pair is below a bullish 20 SMA, while technical indicators hover around their mid-lines with limited directional strength. Support levels: 0.7890 0.7850 0.7810. Resistance levels: 0.7930 0.7965 0.8000.”
GBP/JPY is slipping back to test below 149.20 in Tokyo markets as markets knee-jerk react to rising bond yields.
The Sterling managed to gain around 30 pips in the overnight session, but has since given it all back and is once again trading below the 149.20 handle during Tokyo as traders resume jumping into Yen.
Market participants are seeking a safe space following the US 2-year Treasury yield reaching its highest point since 2008, touching 2.2% in the overnight session. Treasuries are up across the board today, cooling risk appetite and keeping the Yen buoyant despite the Bank of Japan desperately trying to keep the JPY from going any higher, even going so far as to deliver a thinly-veiled threat of market intervention last Friday if things don't start going to plan.
GBP is also coming under pressure following the revelation that the UK has explored a fallback plan if Brexit negotations should turn sour. The report is poorly timed, as the UK is putting serious effort into trying to develop public confidence in the Brexit process.
Sterling has lost ground against the Yen considerably recently, declining from a high of 156.60, and is inching closer towards the 200-day SMA, currently sitting at 147.58. Continued declines will see the pair running into support at 148.12, and the 200-day SMA further below coinciding with support from 147.60. Upside resistance is being provided by swing points at 150.20, 150.80, and 151.43.
Bloomberg quoted three people familiar with the matter, citing that some senior British officials have privately discussed the idea of a fallback option that could be triggered if the Brexit negotiations go wrong.
“The proposal comes at a sensitive time, with British ministers seeking in public to build mutual trust with the EU rather than stoke suspicions.
The U.K. is trying to persuade the bloc to cooperate on plans for an ambitious trade agreement, which will come into force after the split.”
Meanwhile, “on Tuesday, Brexit Secretary David Davis will outline his idea for collaboration, promising the other 27 member countries that the U.K. won’t try to undercut them by tearing up regulations when it leaves.
May is planning to announce her goals for a detailed draft trade accord in a major speech next week, with the aim of having a deal drafted by October to be signed soon after Brexit in March 2019.”
NZD/USD is down in Tokyo trading, testing yesterday's low of 0.7353 as of writing.
The pair is slipping as the US Dollar surges in the face of rising bond yields, with the 2-year Treasury note hitting its highest levels since 2008, and the other Treasuries up across the board as well.
Eyes will be focused on the GDT Dairy Auction today, though action may be limited as forecasts are already expecting a slight contraction; meanwhile, the Kiwi was unmoved following an upside beat to Produce Price Index as traders react to broader moves in the global equities markets. NZD will also see Retail Sales figures for the 4th quarter late on Thursday, at 21:45 GMT.
The Kiwi is currently trading near a five-month high against the US Dollar, but a double-top may be forming in the charts following the recent rejection from the 0.7420 region. A continued decline from this area will see support come into play from 0.7315 and 0.7280, while a bullish return will have to contend with resistance priced in at 0.7403 and 0.7436.
Gold is on the decline again, tracking equity indexes and other commodities, slipping into 1,340.00 territory as of writing. Asia session markets will remain subdued through tomorrow, as China markets take a break for the first half of the week to celebrate Chinese New Year.
Gold turned away from a high point near 1,360.00 for the second time recently, as the precious metal loses ground amidst risk aversion in markets that has seen equities take a similiar haircut in the face of rising inflation.
The precious metal has managed to recoup the recent risk-averse slide that saw Gold decline to a low of 1,308.00, but upwards movement remains constrained with bond yields knocking on multi-year highs and equities struggling to hold on to 2018's January growth.
If the decline continues, Gold will soon face support at 1,335.00 and 1,330.00, while a swing upwards will have to deal with mounting resistance at 1,350.00 and 1,360.00 if an upwards trend is to be re-established.
Paul Dales, Chief Australia & New Zealand Economist at Capital Economics noted that the minutes of February’s Reserve Bank of Australia meeting do a good job of summarising the uncertainties surrounding the labour market and wage growth and how they will influence interest rates.
"This is why the RBA has been downplaying the chances of an interest rate hike this year and why we suspect the first hike may not come until the second half of next year.
The minutes restated the comments used in February’s policy statement that the rise in inflation to the 2-3% target was expected to “occur only gradually”. The issue is that “even with the strength in the labour market, wage growth was yet to pick-up”. We will know more when the Q4 wage price index is released tomorrow, but the RBA highlighted two big uncertainties.
First, “members noted that it was uncertain how much spare capacity existed and how quickly it might be eroded”. In other words, how far below the current rate of 5.5% does the unemployment rate need to fall to reach full employment? Second, “uncertainty remained about how employers would respond as spare capacity in the labour market diminished”. So even when full employment is reached, will that boost wage growth much?
Nobody knows the exact answers to those two questions, but the lessons from the US, UK and Japan, who all have much tighter labour markets than Australia, is that the unemployment rate probably needs to fall further than widely expected to generate even modest rates of wage growth.
Add in the acknowledgement by Assistant Governor Michelle Bullock in a speech earlier today that “high debt levels will influence the calibration of interest rate changes” and the combination of low wage growth and high debt will probably keep interest rates in Australia on hold for longer than the financial markets currently expect."
AUD/JPY traded flat in thin Monday markets and is heading into Tuesday testing just beneath 84.50.
Monday saw the US markets taking a break to observe President's Day, and the Asia session will continue to remain subdued with Chinese institutions dark for the first half of the week to celebrate Chinese New Year.
The Reserve Bank of Australia (RBA) dropped their Meeting Minutes today, but little surprises were to be found as all of the information has already been processed and priced in by market participants, with the RBA mostly reiterating what has already been said in recent weeks, with inflation growth expected to remain gradual, and wage growth subdued amid tighter lending and mortgage restrictions and high levels of household debt.
The RBA noted that an increasing Aussie would hamper growth potential within Australia's economy, and with the Bank of Japan (BoJ) rhetoric falling along the same lines, AUD/JPY can expect a battle of wills going forward as both countries' central banks vie to achieve low exchange rates.
The Aussiesunk below the 200-day SMA recently, and the 34 EMA has since crossed over the major indicator, and any gains in the pair are likely to come from markets reacting to BoJ rhetoric talking down the Yen, as the Aussie has struggled to develop real forward momentum amidst middling economic growth. Support is currently priced in at 83.97 and 83.40, while a bullish move will see resistance at 84.65 and 84.82.
While the RBA minutes were not giving us anything new, as expected, the AUD/USD remains sideways within a range of 0.7900 and 0.7930 established overnight. Currently, AUD/USD is trading at 0.7916, up 0.08% on the day, having posted a daily high at 0.7922 and low at 0.7905. The RBA minutes were a complete repeat of the same rhetoric and overcharge, in some cases, that we have heard and read many times over from recent announcements from the Central Bank.
RBA minutes: wage growth remained subdued
The Aussie was unchanged while markets do not expect any change from the RBA in the foreseeable future and with low volumes with China being out, on the back of a dull day with the US and Canada out, we are in for a quiet day ahead.
Valeria Bednarik, chief analyst at FXStreet explained that technically, the pair bounced again on an approach to the 0.7890 level, a major Fibonacci support: "The level stands for the 38.2% retracement of the December/January rally, keeping the downside limited as long as the pair remains above it. The lack of volatility has left the intraday picture neutral, as the pair is below a bullish 20 SMA, while technical indicators hover around their mid-lines with limited directional strength."
Minutes of the monetary policy meeting of the Reserve Bank of Australia board was released, and as widely expected, a non-market event considering how much has already been said from various officials over the last couple of week's and since the previous meeting.
Key statements as follows:
Japan's Economy Minister Toshimitsu Motegi and Finance Minister Taro Aso have been hitting the wires today, providing their outlook on the Japanese economy.
EUR/JPY is trading upwards to kick off the Tokyo trading session, testing testerday's high of 132.37 as of writing.
The pair experienced a sedate Monday, with Chinese institutions closed for the first half of the week to celebrate Chinese New Year, and the US also dark to observe President's Day.
EUR/JPY may have found a floor from 131.76, as the encroaching Yen begins to backoff following Friday's threats from the Bank of Japan (BoJ) that they are "watching FX markets closely", and uttered a willingness to intervene if things get much worse, though they see no need to do so now. The thinly-veiled threat aimed at Yen buyers seemed to turn the trick, with JPY backing off from recent highs.
Europe will see a slew of mid-tier economic data drop today, most notably PPI numbers for Germany at 07:00 GMT, and ZEW Economic Sentiment results for both Germany and the broad Eurozone at 10:00. With the European Central Bank on track to begin lifting interest rates in the near future, positive figures could give Euro bulls the push they need to resume bidding up EUR/JPY and keep the long-term bull trend intact.
The pair has moved lower for two straight weeks from a two and a half-year high of 137.50, and although a floor may have been found here, price is still getting very close to the 200-day SMA currently sitting at 130.97. H4 charts show strong support building at 131.80, and if the Yen continues to ease off its high point, then EUR/JPY could begin challenging resistance stacked at 132.55, the 133.00 major handle, and 133.67.
USD/JPY has taken on the previous hourly resistance and did so just ahead of the Tokyo open with comments from Japanese officials beating the familiar sound on the same 25 inflation drum. Currently, USD/JPY is trading at 106.72, up 0.12% on the day, having posted a daily high at 106.76 and low at 106.56.
The move wasn't much, but relatively, considering how quiet the markets had been overnight with the US out celebrating President's Day and Canada observing Family Day while China is out until Thursday, the move was the biggest we have seen since the round turn in the NY morning between 106.72 and 106.49. The current move was from 106.63 and travelled to 106.75 on the hourly stick. Comments came as follows:
Valeria Bednarik, chief analyst at FXStreet explained that the short-term picture is neutral for the pair, with the risk still skewed to the downside: "In the 4 hours chart, it remains well below bearish moving averages, while the Momentum indicator heads modestly higher around its 100 level, but the RSI keeps consolidating within negative territory, currently around 44."
Analysts at ANZ explained that the Kiwi lost a little ground overnight as topside resistance held firms.
"Locally, the dairy auction tonight shouldn’t move things around much with a relatively benign result (small decline?) expected. Offshore USD forces remain very much in the driving seat.
Support 0.7180 Resistance 0.7420"
AUD/USD traded flat for Monday, currently heading to Tuesday's overnight session testing just above 0.7910.
The Aussie saw thin markets on Monday, with China and the US both on holidays, and with China taking the first half of the week off for Chinese New Year, volatility can be expected to remain subdued in Asia trading.
AUD/USD is recovering coming off a US Dollar correction that has seen the pair slide from an almost three-year high; the Aussie has recovered, yet still remains exposed to US Dollar recoveries.
Middling economic growth and mixed data for Australia has left the Reserve Bank of Australia (RBA) hogtied for future proojections of rate increases. While central banks around the globe prepare to start winding down their easy monetary programs, the RBA is trapped in wait-and-see mode, hoping to see more stable, pronounced growth figures in the future. Most analysts widely anticipate RBA rates to remain on hold until well into 2019 or 2020.
Also weighing down the Aussie are internel stress points for household spending and saving, outlined by the RBA's Michele Bullock: "The historically high levels of mortgage debt in Australia raises questions about the resilience of household balance sheets to a change in circumstances and the ability of the financial system to absorb a widespread increase in household financial stress."
More of the same wait-and-see rhetoric can be expected from the RBA when they drop their Meeting Minutes at 00:30 GMT today, but Wage Growth Index figures on Wednesday at 00:30 could give some insight into how the Australian economy can be expected to perform going forward.
As noted by FXStreet's own Valeria Bednarik in her AUD/USD analysis, "the pair bounced again on an approach to the 0.7890 level, a major Fibonacci support, as the level stands for the 38.2% retracement of the December/January rally, keeping the downside limited as long as the pair remains above it. The lack of volatility has left the intraday picture neutral, as the pair is below a bullish 20 SMA, while technical indicators hover around their mid-lines with limited directional strength.
Support levels: 0.7890 0.7850 0.7810
Resistance levels: 0.7930 0.7965 0.8000
Analysts at Natixis Economic Research asked the question "what developments seem to cause a downward correction in equity markets?' and concluded the following:
"Downward corrections in equity markets in the United States and the eurozone are always linked to (are slightly preceded in time by):
Michele Bullock who is the Assistant Governor Financial System is currently speaking at the Responsible Lending and Borrowing Summit in Sydney.
USD/JPY finished Monday higher for a second day in a row, trading near 106.60 heading into the Tuesday overnight session.
The Yen has gained aggressively lately, closing higher against the US Dollar for five of the last six trading weeks, although the pair may have put in a temporary bottom at 105.55. The Bank of Japan (BoJ) has invested a lot of time trying to sooth-talk the strengthening Yen, and last Friday witnessed the emergence of interventionist rhetoric from the BoJ, with Japan's central bank stating that they are watching FX markets closely, and expressed a willingness to intervene if the Yen continues to appreciate.
The walkback in the Yen coincides neatly with a brief resurgence in the USD this week, with the US Dollar climbing against its major peers in the last two days, though that flame may wink out quickly, as risk aversion is still in play for equities and bond markets, and faith in the US Dollar has continued to be rattled and show weak points as a result.
As FXStreet's Valeria Bednarik noted, regarding the USD/JPY technical outlook: "The short-term picture is neutral for the pair, with the risk still skewed to the downside, as in the 4 hours chart, it remains well below bearish moving averages, while the Momentum indicator heads modestly higher around its 100 level, but the RSI keeps consolidating within negative territory, currently around 44."
Support levels: 106.15 105.70 105.40
Resistance levels: 106.85 107.20 107.60
Analysts at ANZ explained that there is marked disagreement currently about where the USD is headed.
"Since it’s the ‘big half’ of the NZD/USD equation, it matters for New Zealand.
Those arguing the USD will weaken point to the US ‘twin deficits’ – the fiscal deficit is large and will get bigger as tax cuts coincide with an infrastructure spend-up, while the current account deficit is generally expected to grow as a stretched economy meets demand through higher imports.
In addition, the US economic data has started to look a bit softer – particularly for retail and trade. On the other hand those arguing the USD will strengthen point to the Fed’s plans to continue steadily hiking interest rates this year – the resulting yield differentials would traditionally see yield-seeking cash enter the country, pushing up the currency.
But that traditional relationship may be tested, some argue, by the fact that – viewing Treasuries as an asset like any other for a moment – their price is currently very high, and the supply of them is set to lift (fiscal deficits) at the same time that demand is looking weaker for various reasons, including the Fed’s tapering of QE.
Even given price falls (yield increases), demand may be muted if there is a broad expectation that prices will fall further (yields rise further) from here. Add to all that the fact that if global risk appetites were to deteriorate sharply the USD would become a safe haven, and you have a case study for why exchange rates are pretty much unforecastable."
Forex today was a holiday in the US session, following China's celebrations of the Lunar New Year, (mainland China closed until Thursday). Many traders in Canada would have been absent also while observing Canada's Family Day.
However, while markets were closed, it did not stop the DXY from moving within a range of between 88.955 - 89.442, closing +0.13% on the day at 89.21. Also, while the US Treasury market was closed, the futures were still trading. The implied 10yr yield was rising slightly from 2.88% to 2.90% and, in a Bloomberg calculation, Fed fund futures yields are pricing another rate hike on 21 March with a total of four hikes by end-2019, (somewhat less hawkish than where the markets had recently been basing - four hikes by the end of 2018). Stil, the dollar has been in recovery from 88.59 recent lows, being a critical support area.
From a fundamental perspective, there was little to go on since some second-tier European data overnight. In the early part of the US session, and After Ireland's central bank chief Philip Lane pulled out of the race, we had the ascension of Spain's Economic Minister Luis De Guindos who has been selected in as the next ECB VP nominee and to take over from Portugal's Vitor Constancio, leaving in May this year after 8 years of service. Also, Latvia's central bank gov. Ilmars Rimsevics, how had been detained and questioned on corruption charges was released after denying the charges.
BoE's Carney made a speech at 18.45 GMT today at Regents Univerity under the title, "Leadership and Values". However, there was nothing related to monetary policy nor any market reaction. He spoke a little about Bitcoin saying that it has failed as a store of value and that was about it in terms of comments related in any way to the markets.
In terms of other currencies, EUR/USD ended the day flat at 1.2410 after an initial test of 1.2369. GBP/USD followed suit in the sike in the greenback, dropping to 1.3959. However, bulls were committed below the 1.40 handle and the price corrected back to the figure, albeit some margin from the highs of the day at 1.4050. For the cross ears were left to the ground for any political sound bites from various meetings happing across Europe that moved over into the US session with aforementioned movements around the ECB and in terms of Brexit, things were quiet today EUR/GBP was flat trading around 0.8858 having posted a daily high at 0.8871 and low at 0.8840.
USD/JPY was pushing a little higher and away from the recent lows below the 106 handle that were scored last week down at 105.54 - the lowest levels since November 2016 and opening eyes towards a break below 105 and to pre-Trump election territory on the 101 handle. As for the antipodeans, AUD/USD was sideways within a range of 0.7900 and 0.7930 while the Kiwi NZD/USD slipped from 0.7400 to 0.7354.
Key events from US shift:
Funda, political and European market recap: a quiet start with some political sound bites
Key events ahead:
Analysts at Westpac offerd the key event risks ahead:
"The minutes from the RBA’s 6 Feb meeting are released at 11:30am Syd/Mel. There should be little or no market reaction given that since the meeting, we have seen the lengthy quarterly statement, heard speeches and even semi-annual testimony by Governor Lowe.
Hong Kong markets reopen today but mainland China and Taiwan are still closed for lunar new year.
The GDT dairy auction in London trade tonight is priced by futures to result in a 1%-2% rise in whole milk powder prices.
Germany’s federal election may have been in October 2017 but the government remains in caretaker mode until a coalition is formalized. The leaders of the centre-right Christian Democrats and centre-left Social Democrats have agreed to resume their “grand” coalition but the SDP members need to provide their approval. They start voting today.
The February ZEW survey of German investor sentiment is expected to remain very bullish, though maybe just short of January’s record high. US markets reopen from their long weekend but there is nothing of note on the schedule."
Data source: FX Street
Disclaimer:This material is provided by FXStreet as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information presented here.