HotForex Forex News

11:09 AUD/USD sits at session tops near mid-0.7900s

After Friday's sharp pullback, the AUD/USD pair regained traction at the start of a new week and is now inching back closer to 26-month highs touched last week. 

Currently trading around mid-0.7900s, the pair continued scaling higher through early European session despite a modest US Dollar recovery. Traders even shrugged off the prevalent positive tone around the US Treasury bond yields, which tend to drive flows away from higher-yielding currencies - like the Aussie. 

Meanwhile, the recent rebound in commodity prices, especially copper and gold continued underpinning the sentiment surrounding commodity-linked currencies and is turning out to be an exclusive driver of the pair's up-move back closer to the highest level since May 2015 touched last Thursday. 

It, however, remains to be seen if the pair is able to build on the up-move or once again fails to conquer the key 0.80 psychological mark ahead of the next big event risk - FOMC decision on Wednesday.

Today’s US economic docket features the release of flash PMI print and existing home sales data, which would be looked upon for to grab some short-term trading impetus later during the NA session.

Technical levels to watch

Bulls would be eyeing for a clear break through 0.7990-0.8000 immediate strong hurdle, above which the pair is likely to extend the near-term strong bullish trajectory towards 0.8025-30 intermediate resistance en-route 0.8075-80 region.

On the flip side, 0.7915-10 area now seems to protect the immediate downside, which if broken would turn the pair vulnerable to break below Friday’s swing lows support near 0.7875 level and head towards testing its next support near 0.7830-25 zone.
 


11:06 EUR/USD within range post-PMI, around 1.1640

The single currency keeps the negative tone on Monday following the release of EMU’s PMI, with EUR/USD navigating the lower end of the range around 1.1640/30.

EUR/USD offered on PMI, USD-buying

The renewed albeit tepid recovery in the demand for the greenback is forcing spot to recede from highs near 1.1690 seen during overnight trade to the current 1.1640/30 band.

The down move is reinforced by poor prints from the advanced PMIs in both Germany and the euro bloc for the current month, while France’s results came in mixed.

The ongoing squeeze lower is somewhat expected by market participants in light of the sharp ascent of the pair as of late, overbought levels gauged by the daily RSI and activity in EUR futures markets.

However, the underlying bullish sentiment around EUR also stays underpinned by the positioning front, where net longs kept rising in the week to July 18 as per the latest CFTC report, this time to the highest level since late December 2011.

EUR/USD levels to watch

At the moment, the pair is losing 0.20% at 1.1641 facing the immediate support at 1.1523 (10-day sma) followed by 1.1477 (low Jul.20) and finally 1.1442 (21-day sma). On the upside, a breakout of 1.1684 (high Jul.24) would target 1.1713 (monthly high Aug.24) and then 1.1800 (psychological level).


11:01 European Monetary Union Markit Manufacturing PMI registered at 56.8, below expectations (57.2) in July


11:00 European Monetary Union Markit PMI Composite registered at 55.8, below expectations (56.2) in July


11:00 European Monetary Union Markit Services PMI below forecasts (55.5) in July: Actual (55.4)


10:51 Australia: Expect a moderate 0.5% q-o-q rise in Q2 CPI inflation - Nomura

Analysts at Nomura are forecasting a moderate 0.5% q-o-q rise in Australia’s headline CPI inflation in Q2, based on mixed partial data so far.

Key Quotes

“AUD fell a little in Q2 but is still higher than a year ago, which suggests little in the way of imported price pressures. Automotive fuel prices look to have fallen by around 2.5% q-o-q in Q2, based on industry data, while Q2 inflation data for New Zealand – which tend to correlate with Australia’s – also show little inflation pressure in aggregate. Against this, private sector survey data show a modest pick-up in capacity utilisation and cost measures.”


10:49 GBP futures: market still poised for consolidation

According to CME Group, preliminary figures for open interest on Friday show traders scaled back their positions by just over 200 contracts from Thursday’s 198,875 contracts, while volume decreased by over 39K contracts.

GBP/USD further gains unlikely

Cable is posting gains for the second straight session so far today, coming up after last week’s drop to as low as the 1.2930 zone. The rebound, however, comes with dwindling open interest and volume, removing sustainability to the up move. All in all, the recent fresh cycle top near 1.3130 could act as the upper bound of the expected trading range, while decent support should emerge in the boundaries of 1.2930.


10:46 GBP: Still too early to price any Brexit transitional deal hopes - ING

The growing consensus within PM May's cabinet for a post-Article 50 transitional arrangement is indeed good news for GBP in the broad scheme of things, feels Viraj Patel, Research Analyst at ING.

Key Quotes

“A two or three year “implementation phase” starting in April-19 would avoid the risk of a cliff-edge Brexit – that is trade between the UK and EU defaulting to WTO rules, which is arguably one of the biggest uncertainties clouding GBP markets. The question for us, however, is whether it is too soon for markets to begin pricing in such a scenario.”

“In our view, yes; while the wind may be blowing in the direction of a transition deal, recent Brexit negotiations highlighted the number of “divorce” stumbling blocks that need to be overcome before any transitional arrangement is signed, sealed and delivered. Until then, we think GBP will continue to trade with a negative bias; 2Q UK GDP data is set to confirm a weak quarter of activity (we expect +0.3% QoQ), which should dent hopes of a 2017 BoE rate hike.”


10:38 EUR/USD be at 1.20 by ECBs September meeting - SocGen

If Mario Draghi was hoping for peace and quiet over the holidays, recent FX market response to the ECB meeting may have come as a disappointment, according to Kit Juckes, Research Analyst at Societe Generale.

Key Quotes

“There are echoes of 2012-2014 in the way EUR/USD is trading, and they suggest it may be at 1.20 by the time the ECB meets again in September.” 

“EUR/USD continues to move higher in tandem with narrowing yield differentials between the US and the euro area but the currency is moving ahead of the yield differential. How worried should I be? Mr Draghi’s ‘Whatever it takes’ speech in 2012, in particular, reversed the widening we had seen in spreads, and that sent EUR/USD to 1.40. A return to a significant correlation between spreads and the currency would make sense once the QE era ends. If it has already happened, we shouldn’t expect this EUR rally to run out of steam very soon.”

“The combination of asset purchases and negative rates allowed the ECB to break the link between peripheral spreads and the exchange rate, and drive the euro to significant undervaluation. But if the ECB doesn’t want to go on buying assets just to keep the currency down, that creates a dilemma for itself. The currency can’t stay this undervalued if they are going to taper (even if they aren’t going to act imminently), but the appreciation towards fair value will be a drag on inflation. How Mr Draghi and the ECB tackle his euro-dilemma may be the biggest driver of FX trends in 3Q.”

“Real 10yer Bund yields have risen from -115bp at the end of last year, to -79bp today. If US real yields merely remain in this low range as the Fed edges rates up in line with expectations, any further rise in real yields in the euro area is likely to be EUR-supportive.”


10:33 Gold retreats from near one-month tops, but holds above $1250 level

Gold surrendered early gains to near one-month highs and has now drifted into negative territory, albeit continues holding above $1250 level.

A modest greenback recovery, with the key US Dollar Index bouncing off its lowest level in over a year, seems to be the only factor that could be attributed to the metal's pull-back from higher levels. A stronger dollar tends to weigh on dollar-denominated commodities - like gold. This coupled with a pickup in the US Treasury bond yields further collaborated towards keeping a lid on the non-yielding commodity's up-move.

However, weaker sentiment around global equity markets and political uncertainty in the US was seen lending support to traditional safe-haven assets, including the precious metal, and limiting further downside, at least for the time being.

Moreover, investors also seemed to opt for a wait and watch strategy ahead of this week's key event risk - FOMC meeting, which would provide fresh insight over the timing of the next Fed rate hike action and help determine the next leg of directional move for the metal.

With a relatively thin US economic docket, featuring the release of flash PMI prints and existing home sales data, broader market risk sentiment and the USD price dynamics would remain key determinants of the metal's movement at the start of a new week. 

Technical levels to watch

Weakness below $1250 level is likely to find support at 100-day SMA near $1247 region, below which the commodity could extend the corrective slide towards $1241 horizontal support. On the upside, $1256-57 area could act as an immediate hurdle, which if cleared should accelerate the up-move towards $1265-67 horizontal resistance with some intermediate resistance near $1262 level.
 


10:31 Germany Markit Manufacturing PMI below expectations (59.2) in July: Actual (58.3)


10:31 WTI: Bullish bets raised to the highest level since late-April - CFTC

The latest US Commodity Futures Trading Commission (CFTC) data showed, the speculator group raised its combined futures and options position in two major NYMEX and ICE markets by 36,267 contracts to 238,673 in the week to July 18, Reuters reports.

Hedge funds and money managers raised their bullish wagers on WTI for a third straight week, raising their gross long positions to the highest level since late April.


10:31 Germany Markit Services PMI registered at 53.5, below expectations (54.3) in July


10:30 Germany Markit PMI Composite registered at 55.1, below expectations (56.3) in July


10:29 EUR/USD remains bid near term Commerzbank

In view of Karen Jones, Head of FICC Technical Analysis at Commerzbank, the outlook on EUR/USD stays positive for the time being.

Key Quotes

EUR/USD is positive: No change, the market remains bid and although we are cautious due to the second 13 count, further gains look likely. Nearby support is provided by the short term uptrend at 1.1384 and the accelerated uptrend at 1.1481 and while above here, there is scope for 1.1713/36 the August 2015 high and long term Fibo, here we would look for signs of profit taking. The 200 week ma is also found in this vicinity at 1.1797”.

“Above the 200 week ma would introduce scope to 1.2170, the 50% retracement from the move down from the 2014 high”.


10:28 EUR: Inflation-sensitive ECB may be worried about a sustained rally - ING

The big question for EUR/USD this week is whether we'll get a topside breakout of a trading range that has held since the onset of the ECB's QE programme in Jan 2015, according to Viraj Patel, Research Analyst at ING.

Key Quotes

“Potential catalysts for a breach of the 1.1714 resistance level include constructive EZ data (PMI releases today), a more dovish-than-expected Fed, a 2Q US GDP miss or an increase in US political uncertainty. While there are good reasons to see EUR/$ reaching new multi-year highs, we may need to see some combination of all of these factors to get a close above 1.1780/90 this week.”

“The latest CFTC data – collated prior to the ECB meeting – shows that net long EUR positions are just shy of their 5-year high; given the rapid positioning adjustment, the risks are that we get a short-term consolidation in the EUR. Indeed, investors may also be wary that EUR strength doesn’t come without any economic costs – possible ECB caution is another reason to expect some corrective risks to 1.16.”


10:24 FOMC and more Trump in the US docket UOB

FX Strategists at UOB Group revised the upcoming salient events in the US calendar ahead in the week.

Key Quotes

“The Federal Reserve will be the central bank of attention as it will be the only major central bank with monetary policy decision this week on 25/26 July but there is little expectations of any rate hike taking place in July and it is also without a scheduled press conference from FOMC Chair Yellen or any updated economic forecasts”.

“Post-FOMC decision, Minneapolis Fed President Neel Kashkari (voter in 2017 FOMC) is the only Fed Reserve official speaking in public in a town hall on Friday”.

“President Donald Trump nominated Randal Quarles to the Federal Reserve board, filling in the role of regulator of the US banking system, a role vacated by former Fed Governor Daniel Tarullo, and Quarles will have his nomination testimony before the Senate Banking Committee on Thursday”.

“Attention will also be on US domestic politics as US lawmakers may be voting on a bill to repeal Obamacare (without replacement) this week (24-28 July) whilst the key event would be the closed door interview of Jared Kushner, son-in-law of US President Trump, by the US Senate Intelligence Committee”.


10:23 USD longs reduced, EUR longs surge - ANZ

According to the CFTC positioning data for the week ending 18 July 2017, leveraged funds reduced their net long USD positions by USD2bn to USD1bn, the ninth consecutive week of net selling.

Key Quotes

“If this persists, overall net USD position could turn short for the first time since May 2016. This is in line with the weak dollar price action and the ICE net dollar position ahead of the FOMC meeting on 26 July. Q2 advance GDP reading will also be important to gauge the DXY price movement in the coming week.”

“Dollar selling was broad based against the G10 currencies except the JPY and CHF. Leveraged funds increased their net short JPY positions for the fourth consecutive week by USD1.7bn to USD9.7bn, the highest net shorts since August 2015. Funds also reduced their net CHF longs by USD0.6bn to USD0.5bn.”

“Funds remained bullish on the EUR as the ECB stated it was preparing to pull back its support for the economy. With this, funds added USD1.3bn to take their net long EUR position to USD1.4bn, in line with the strong EUR movement in the week.  Reflecting broad USD weakness, funds also reduced their net short GBP positions by USD0.3bn to USD0.3bn, the second consecutive week of net buying.”

“Commodity currencies saw net buying for the eighth consecutive week. This was led by AUD where funds added USD1.3bn to take their net long AUD position to USD4.2bn. Funds turned net long CAD for the first time since March this year after the BoC delivered a hawkish hike. Meanwhile, funds added USD0.4bn to take their net long NZD position to USD2.7bn, a record high.”

“EM currencies had a bullish run in the week. Net MXN longs were increased further to USD2.9bn, the highest net longs since May 2013. BRL and RUB also saw marginal net buying during the week.”

“Fund positioning on crude oil and gold moved together after three consecutive weeks of divergence. Net crude oil longs were increased for the fourth straight week while net long gold contracts saw a pick up after five consecutive weeks of reduction. Meanwhile, net long 10-year UST positions were cut for the fourth successive week, even as yields saw some modest correction lower.”


10:19 USD/JPY stalls recovery from 4-week lows, back below 111.00

The recovery in the USD/JPY lost steam near 111.20 region after the European stocks opened on a mixed note, re-igniting risk-off moods and knocking-off the rate back below 111 handle.

The JPY bulls regained footing, as a renewed risk-aversion wave gripped the European markets, with markets reporting to safety-nets such as the Yen. Moreover, investors remain cautious ahead of Wednesday’s FOMC policy decision, which is very much likely to disappoint the hawks.

Furthermore, renewed USD selling across the board also collaborated to the fresh move lower in the spot, as the European traders continue to sell-off the buck amid looming US political concerns.

Next of relevance for the major remains the US Markit services and manufacturing PMI releases due later in the NA session.

USD/JPY Technical levels                 

To the topside, a daily close above 5-DMA at 111.36 would shift risk in favor of a re-test of 111.98/112 levels (10-DMA/ round figure) beyond which 112.71 (20-DMA) would be back on sight. A break below 110.50 (psychological levels) would open doors for 110 (zero figure). A break lower would yield a test of 109.60 (Jun 12 high). 

 


10:16 USD: Status quo Fed and a rebound in 2Q US GDP could be supportive - ING

Given that very little has changed in the US economy since the Fed last met, Viraj Patel, Research Analyst at ING suggests that they think the market narrative around the July FOMC meeting this week to centre around two things: (1) the Fed's 2H17 policy sequencing and (2) the concerning nature of accommodative financial conditions.

Key Quotes

“The view that the Fed will begin its balance sheet normalisation policy in Sept will likely be supported by the July statement noting that the process could start “relatively soon”. This has certainly been the message from Fed officials over the past month, with even the more conservative members such as Lael Brainard championing this idea. While the Fed will refrain from actually committing to a start date this week, we see plenty of reasons to start the balance sheet run-off process sooner rather than later – not least the fact that financial conditions are evidently becoming unresponsive to adjustments in the short-term policy rate.”

“The front-end of the US rate curve seems to be priced correctly for such a Fed policy sequencing, with markets still erring over a Dec hike; a status quo Fed statement could be mildly supportive for a politically plagued $. For global markets, we are shifting to the idea that a rise in long-term yields driven by a pick-up in the term premium may be the lesser of two evils; risky assets stand a better chance of withstanding such a bond market adjustment, rather than one due to a sharp re-pricing of policy rate expectations.”


10:15 EUR futures: markets still wait for a correction

CME Group’s preliminary data for Friday showed open interest decreased by more than 2K contracts from Thursday’s 452,997 contracts (monthly high). Volume followed suit, dropping by over 167K contracts.

EUR/USD: correction lower on the cards

Friday’s test of 2-year tops in the 1.1680/85 band and the subsequent pullback seems to have opened the door for a long-waited correction lower. The decrease in open interest plus the significant drop in volume supports that scenario in the very near term. Occasional drops, however, should prompt dip-buyers to step into the market, as the underlying sentiment around the European currency still is clearly bullish.


10:12 US: Tax cuts likely, tax reform not Nomura

The analysis team at Nomura expects a modest personal tax cuts in US while they think that business tax reform is unlikely and expects only a slight response from the Fed.

Key Quotes

“Rhetoric and speculation about tax policy are now likely to increase in view of the dimmed outlook for passing health care reform. By using reconciliation for tax reform, Republicans will need to include reconciliation instructions in the upcoming FY 2018 budget.”

“The incentives and hence likelihood that Congressional Republicans will pass a tax package before the next mid-term elections have increased.”

“However, we expect tax cuts, not reform. Significant tax reform has not occurred since 1986 (31 years ago), and the political landscape today is likely to keep that clock ticking. Passing comprehensive tax reform takes considerable time, and a high-level agreement has yet to be reached within the Republican ranks. Moreover, passing reform requires near unanimous agreement within the Republican caucus, a high bar given that special interests would lobby aggressively against any roll-backs of existing tax preferences, a key ingredient to true tax reform.”

“We are sticking with our forecast of top-line modest tax cuts of 0.5% of GDP per year (about $100bn/year), in line with history.”

“Factors limiting the push for larger tax cuts include the state of the economy (unemployment, currently at 4.4%, and many, including us, forecast it to drift lower) and the deteriorating deficit/debt outlook. Historically, sizable tax cuts have been passed either to ameliorate an economic downturn or because the fiscal outlook was much more favorable.”

“We expect the tax cuts to center more on individuals than on businesses and the package to be signed into law by late 2017 or early 2018.”

“A tax cut of 0.5% of GDP would have little to no supply-side effects on the economy, and instead would have modest effects on growth, financial markets, and on Federal Reserve policy. Based on simulations, we find:

  • GDP would be boosted by 0.1pp in Q1 2018, with diminishing effects thereafter.
  • Yields on 10yr Treasuries would increase less than 10bp, but it is unclear the extent to which that is already priced into the market.
  • Tax cuts would raise the expected Federal Funds rate by 10bp by the end of 2020.”

10:02 France Markit Services PMI came in at 55.9, below expectations (56.7) in July


10:02 France Markit PMI Composite came in at 55.7, below expectations (56.4) in July


10:02 France Markit Manufacturing PMI came in at 55.4, above expectations (54.6) in July


09:49 Eurozone: Expect mixed results from flash PMIs - TDS

Analysts at TDS are looking for mixed results from today’s flash PMIs and expect Germany’s manufacturing PMI to hold at 59.6 in July (mkt 59.2), as upside signals from most other survey data are washed out by concerns over the rise in the euro.

Key Quotes

“Meanwhile, we look for the French services PMI to slip to 56.2 as momentum in France seems to be slowing a bit after an unsustainably strong pace earlier in the year. Also today, the ECB’s Director General of Economics Frank Smets is due to speak on “The ECB’s Monetary Policy since 2014” at 5pm BST.”

 


09:48 ECBs Mersch: As conditions normalize, it is unlikely that unconventional policies will remain necessary

The European Central Bank (ECB) Governing Council member Yves Mersch crossed the wires last minutes, via Reuters, speaking on speech entitled "Central banking in times of technological progress" at Bank Negara, Malaysia.

Key Headlines:

As conditions normalize, it is unlikely that unconventional policies will remain necessary 

“The first important consideration for monetary policy relates not to any particular technology, but to the overall rate of technological progress. As the technological frontier shifts outwards, and that knowledge diffuses across the economy, overall productivity increases. That increased productivity affects the rate of return on investment and hence the level of real equilibrium interest rates.”

“Since monetary policy aims to vary short-term real rates around that equilibrium to meet our price stability mandate, changes in the overall rate of technological progress affect the interest rates central banks set. As such, policymakers need to adjust policy settings to adapt to changes in the real economy.”


09:38 When are German/ Eurozone flash PMIs and how could they affect EUR/USD?

German/ Eurozone flash PMIs Overview

Amongst the Euro are economies, the PMI reports from Germany and Eurozone as an entire bloc hold more relevance, in terms of its impact on the European currency and the markets as well.

The forecast for the Eurozone flash manufacturing PMI shows 57.2 for July, slightly lower than the 57.4 recorded a month ago, and the Eurozone services sector is expected to come in a tad higher at 55.5 versus 55.4 seen in June.

The flash manufacturing PMI for Germany is expected to tick lower to 59.2, when compared to the final 59.6 result booked previously. While, the index for the services sector is expected to improve to 54.3 in July, against 54.0 last.

How could affect EUR/USD?

A positive surprise in the manufacturing PMI reports could offer the much-needed impetus to the EUR bulls, taking the rate back to 1.1685 (2-year tops), beyond which 1.1700 (round number) could be tested, paving way for a test of 1.1715 (Aug 2015 high). 

On the flip side, if the readings disappoint, the spot could drop below 1.1629/18 (5-DMA/ Jul 21 low), below which 1.1552 (10-DMA) could be tested.

Key notes

Eurozone and US PMIs amongst market movers today – Danske Bank

EUR/USD recedes from 2017 tops at 1.1685, EZ PMIs eyed

About German/ Eurozone flash PMIs

The Manufacturing Purchasing Managers Index (PMI) released by the Markit Economics captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the manufacturing PMI is an important indicator of business conditions and the overall economic condition in the Euro Zone. Usually a result above 50 signals is bullish for the EUR, whereas a result below 50 is seen as bearish.

 


09:37 US Dollar moves higher to 93.80, daily highs

The greenback, in terms of the US Dollar Index, seems to have recovered the smile (or part of it) at the beginning of the week, currently hovering over the 93.80/85 band.

US Dollar focus on the FOMC

Despite the current tepid recovery, the index stays depressed and well into the bearish territory after hitting a fresh multi-month low once again in the vicinity of 93.60 during overnight trade.

Long positions in the buck continue to unwind and there still no sight of any recovery in the sentiment in the short term at least. Not unless the political effervescence in the US is dialed down, the Federal Reserve shifts to a more aggressive (hawkish) tone or convinces investors of its (clear?) intentions to start reducing its balance sheet later this year as well as continuing its tightening cycle.

Poor results in the US docket as of late and recent Fedspeak advocating for a more gradual approach when comes to tighten the monetary conditions continue to support the above, playing against any recovery in the demand for the buck.

Adding to the worrying scenario, USD speculative net longs remained on the downside during the week ended on July 18, this time retreating to levels last seen in mid-June 2014 according to the latest CFTC report.

In the US data space, July’s advanced manufacturing/services PMI and June’s existing home sales are due next.

US Dollar relevant levels

The index is gaining 0.05% at 93.83 facing the next up barrier at 94.69 (10-day sma) seconded by 94.98 (high Jul.20) and finally 95.32 (21-day sma). On the downside, a break below 93.65 (2017 low Jul.24) would open the door to 93.41 (low Jun.8 2016) and finally 93.03 (low Jun.23 2016).


09:16 FX option expiries for July 24 NY cut

FX option expiries for July 24 NY cut at 10:00 Easter Time, via DTCC, can be found below.

- EUR/USD: $1.1310(E299mn), $1.1400(E457mn), $1.1450(E476mn), $1.1500(E2.64bn),    $1.1550-55(E728mn), $1.1700(800mn)  

- USD/JPY: Y111.00 ($337mn), Y111.20-25($670mn), Y114.00($838mn)  

- GBP/USD: $1.3000(Gbp541mn)  

- AUD/USD: $0.7775(A$431mn), $0.7540-45(A$1.77bn) 

- USD/SGD: S$1.3700($340mn),  

- USD/CNY: Cny6.8000($1.45bn)  


09:13 BoE: Hawkish pressure going o - Deutsche Bank

The weaker than expected UK’s June inflation print lowers the probability of the MPC moving at the August meeting given reduced concern of faster than expected inflation pass-through, according to Jack Di-Lizia, Strategist at Deutsche Bank.

Key Quotes

“Nevertheless, the BoE’s near term inflation projections will still need to be marked modestly higher at the Inflation Report. However, taking stock of the inputs to the MPC’s forecasts, revisions to the path further out should be limited.”

“Progress in the UK-EU negotiations has been modest so far, giving little signal that a transitional agreement can be announced in the near term. Together with the weaker data, this will help take pressure off the BoE to move over upcoming meetings.”

“We maintain the received Nov-17 MPC Sonia vs. Jan-18 Fed Funds. The risk reward to fading the recent flattening of the very front end is attractive, we add a Feb 18 – Aug 18 MPC steepener.”

“Further out, relative valuations suggest the 5s10s slope has more room to flatten than 10s30s in a carry positive environment. Together with index extensions and limited supply, the medium sector will be further supported by the upcoming BoE reinvestments, likely to be announced at the August IR. We go long the belly of the UKT 5s10s30s fly.”

“We stay long 2Y ASW vs. 5Y and maintain the short 30Y UK vs. Germany. We exit the 1Y1Y-2Y1Y Sonia steepener given limited catalysts for the market to price a more hawkish BoE path in the run up to the August IR.”


09:09 AUD/USD Risk reversals - Corrective forces gathering strength

The AUD/USD pair witnessed a bearish reversal - Thursday Doji and a bearish follow through on Friday on the daily chart. The candle stick pattern says the rally from the low of 0.7572 (July 7 low) may have topped out at 0.7988 levels (Doji candle high)

The decline in the one-month 25 delta risk reversal adds credence to the bearish reversal seen on the daily chart.

As seen in the chart above, Friday’s decline in the spot was accompanied by a similar drop in the one-month 25 delta risk reversal to -0.55 from the previous day’s figure of -0.475. The drop in the risk reversal indicates increase in demand for the downside bets - Put options. 

What’s next for the Aussie?

The gains seen in Asia could be short lived as suggested by bearish technicals and falling risk reversal. The spot could test the 10-DMA support level of 0.7833. The move is likely to be dull as suggested by the decline in the one-month ATM option volatility 


09:07 AUD/USD testing key resistance near 0.7930/35 en route 0.7990

The AUD/USD pair extends its range-trade into a second day today, as the bulls continue its consolidative mode near two-year highs of 0.7990 reached last Thursday.

AUD/USD eyes on Aus CPI, Fed

The Aussie resumes its bullish momentum on Monday, after a temporary reversal seen last Friday, as upbeat Aus fundamentals and broad USD softness continue to lend support to the bulls.

Markets continue to cheer stronger-than expected Aus full-time employment numbers, while the US political turmoil amid renewed concerns over Trump’s ability to deliver on his promised on tax reform plans, continue to keep the greenback under pressure against its major rivals.

Moreover, the recent rebound in gold and copper prices also keeps the sentiment underpinned around the resource-linked AUD. Gold prices booked its biggest weekly gain in two months on softening US rate-hike outlook and US political uncertainty.

Later today, the spot will take cues from the broader market sentiment and US macro releases, while the main risk event for AUD/USD remains the Australian CPI figures and FOMC policy decision due out this Wednesday.

AUD/USD Levels to watch   

At 0.7932, the pair finds the immediate resistance at 0.7987 (2-yr highs) above which gains could be extended to the next hurdle located 0.8000 (round figure) and 0.8050 (psychological levels). On the flip side, the immediate support is located at 0.7900 (round figure). Selling pressure is likely to intensify below the last, dragging the Aussie to 0.7883 (classic S3) and below that 0.7839 (Jul 14 top).

 

 


08:53 All-Japan core CPI to rise 0.4% y-y in June - Nomura

Analysts at Nomura forecast the all-Japan core CPI (all items excluding fresh food) to rise 0.4% y-y in June, the same rise as in May.

Key Quotes

“While we expect a boost from energy prices, we also look for a negative contribution from the core component, owing to a fall in the prices of accommodation and overseas package tours. We forecast a 0.3% y-y decline in the June all-Japan core CPI (all items excluding energy and food, except alcoholic beverages), which would mark a steeper drop than the 0.2% fall in May. For the all Japan CPI excluding fresh food and energy (the BOJ's core inflation metric) we forecast a 0.1% decline, versus a 0.0% change in May.” 

“We forecast a 0.0% y-y change in July core inflation in the Tokyo area, the same rate of growth as in June. We expect the rebound in energy prices to continue to support core inflation. Moreover, for July we forecast Tokyo area core inflation of -0.4%, and Tokyo area inflation excluding fresh food and energy (BOJ core inflation) of -0.2%, in both cases unchanged from June levels.”


08:53 GBP/USD flirting with tops near 1.3020

The British Pound has started the week on a firm note, lifting GBP/USD further north of the 1.3000 handle ahead of the opening bell in the Old Continent.

GBP/USD tests 2-day highs

Cable is advancing for the second session in a row so far on Monday, always against the backdrop of the persistent selling bias around the greenback. The US Dollar Index, in the meantime, stays depressed in the area of 93.65/60, levels last seen in June 2016.

After bottoming out in the 1.2930 region last week, the pair managed to regain some buying interest and retake the psychological 1.3000 limestone, as concerns over Brexit and UK politics seem to have taken a breather.

Sustaining the momentum in GBP, the speculative community trimmed their net shorts to the lowest level since early November 2015 during the week ended on July 18, as per the latest CFTC report.

Further news from the UK cited the government remains focused in clinching the best deal with the EU.

GBP/USD levels to consider

As of writing the pair is gaining 0.19% at 1.3019 and a break above 1.3038 (high Jul.20) would open the door to 1.3115 (high Jul.14) and finally 1.3127 (2017 high Jul.18). On the downside, the immediate support aligns at 1.2987 (10-day sma) followed by 1.2948 (21-day sma) and finally 1.2930 (low Jul.20).

Furthermore, the daily RSI (14) stays around 57, while the MACD remains within the positive territory.


08:42 EUR/USD recedes from 2017 tops at 1.1685, EZ PMIs eyed

The bulls face exhaustion as we head into early Europe, prompting a minor-retreat in the EUR/USD pair from fresh two-year highs posted at 1.1685 during early Asia.

EUR/USD: Aug 2015 highs at 1.1715 still on sight

The spot is seen defending minor-bids in the early European trading, as markets await the Eurozone and German manufacturing and services PMI releases for the next move.

The Eurozone and German manufacturing sector activity is expected show a slowdown in July, which could provide the EUR traders an excuse to take some profits off the table, after recent solid gains backed by hawkish ECB and renewed US political uncertainty.

Also, the bulls turn slightly nervousness ahead of the FOMC policy decision due later in the week ahead, which could throw fresh light on the future course of the Fed’s monetary policy stance, in turn setting up the next direction in the buck.

EUR/USD Technical Set-up  

According to Omkar Godbole, Analyst at FXStreet, “A break above 1.1685 (23.6% Fib R of 2008 high - 2017 low) would open doors for 1.1713 (Aug 2015 high). Two consecutive daily close above the same could yield 1.1890 (monthly 50-MA) levels. On the downside, breach of support at 1.1660 (session low) would open up downside towards 1.1607 (5-DMA) and 1.1576 (1-hour 100-MA).” 


08:40 Eurozone and US PMIs amongst market movers today Danske Bank

Analysts at Danske Bank suggest that today, focus will be on global PMI figures for July which are likely to garner maximum investors attention.

Key Quotes

“In the euro area, we look for a slightly weaker manufacturing PMI although it should stay at a high level, signalling continued robust GDP growth. The service PMI should also be a bit weaker but still points to ongoing solid demand from consumers.”

“In the US, we estimate PMI manufacturing rose slightly as it has been much weaker than ISM and regional PMIs recently. Still, the level is likely to stay lower than the peak earlier this year.”

OPEC is due to meet today to discuss the oil output cut deal amid higher production in Nigeria and Libya.”

“Jared Kushner, Senior Adviser to President Trump and married to Ivanka Turmp is due to appear before the Senate Intelligence Committee in connection with the Russian probe today. However, the hearing will not be public, so there will be no headlines.”

“The main event this week is the FOMC meeting on Wednesday. We do not expect any policy changes (and no announcement on quantitative tightening yet) at this meeting, although risks are skewed towards a slightly more dovish statement given inflation continues to disappoint.”

“Focus will also be on German Ifo expectations, Q2 GDP growth figures in the UK, US and France as well as German HICP inflation. In Scandi markets, the key data releases will be Norwegian unemployment and Swedish GDP growth in Q2.”


08:30 Buy EUR/GBP vol against cable vol SocGen

In view of Olivier Korber, Research Analyst at Societe Generale, GBP/USD 1y implied vol is trading above EUR/GBP 1y vol, but EUR/GBP vol is now likely to outperform it which makes buying the spread a real opportunity.

Key Quotes

“The 3m realised vol spread is now turning positive in favour of EUR/GBP vol. Volatility term structures tend to be essentially driven by the 3m realised vol for all tenors.”

“The implied vol spread is driven by EUR/USD vol (GBP risk cancelled out in the spread), which is expected to rise from depressed levels.”

“EUR/GBP volatility to benefit from euro strength, as per the positive options 1y skew. Also, the options market is likely to bid EUR/GBP vol in a larger proportion than what the skew is predicting, if the spot breaks above 0.90 as we expect.”

“Expression Long/short of volatility swaps

As a pure volatility trade, we recommend getting pure volatility exposure via a long short of volatility swaps. This allows for getting rid of systemic delta hedging and more generally of most of the gamma risks. The pay-off of these instruments depends on realised volatility, but their market to market (vega) is sensitive to implied volatility as well.”

“Mechanics 

  • Go long EUR/GBP 1y volatility swap                       
  • Go short GBP/USD 1y volatility swap

Indicative bid for the spread: 0.2 vols (GBP notional for both swaps)”

"Risks: Cable vol exceeding EUR/GBP vol

A volatility swap is exposed to the difference between the traded volatility and the realised volatility observed at the expiry of the contract. Investors therefore face potentially unlimited losses if the spread between GBP/USD and EUR/GBP 1y realised volatilities exceeds 0.2 vols in one year.”


08:23 UK Govt Spox highlights the need to ensure they get the very best deal with the EU

A spokesman for the UK Government came out on the wires now, via BBC, replying to the IMF's GDP forecast cut for 2017.

Key Headlines:

Highlights the need to ensure we get the very best deal with the EU

Underscores need to increase productivity

 


08:23 BOJ lowers inflation projections for FY17-19 - Nomura

Analysts at Nomura note that the BOJ released Outlook for Economic Activity and Prices ("Outlook Report") on 20 July, lowering its inflation projections for FY17–19.

Key Quotes

“The median forecasts among BOJ policy board members for core CPI inflation (y-y, excluding impact of consumption tax hike) were revised down from +1.4% (FY17), +1.7% (FY18), and +1.9% (FY19) as of its April report to +1.1%, +1.5%, and +1.8%, respectively. It also pushed back the timetable for achieving its 2% inflation target from sometime in FY18 to sometime in FY19.”

“Looking at the BOJ's recent pattern of revisions, it tends to set bullish inflation targets at the start of the fiscal year before sharply lowering its outlook around the middle of the fiscal year, and its most recent revision appears to confirm this trend.”

Continued gap in outlook for prices between BOJ and Nomura

While the BOJ has lowered its inflation projections they are still more bullish than both our forecasts and the market consensus. Market forecasts also differ widely, with the average forecast of the eight most bullish institutions differing markedly from the average outlook of the eight most bearish institutions in the July 2017 ESP Forecast survey. The BOJ's inflation outlook is slightly ahead of the average outlook for the most bullish institutions, while our forecast is largely in line with the average outlook for the most bearish institutions.” 

“The BOJ expects improvement in the output gap and a rise in medium- to long-term inflation expectations to boost inflation, but we think these factors will have only a limited impact. We think external factors such as forex rates and crude oil prices, along with the output gap, have played a bigger role in affecting inflation, and we think our differing views on the impact of these factors account for the gap between our inflation outlook and that of the BOJ.”

“In the near term we expect a continued boost to inflation from energy prices and a gradual recovery in the core portion. We assume a moderate economic recovery driven by external demand, and think the output gap will also narrow as a result. We think that will in turn boost the core inflation rate.”

“In recent years, the degree of market penetration by imports has risen, principally in durable consumer goods, making consumer prices in Japan more sensitive to exchange rate effects. As such, we think the rise in import prices owing to yen depreciation since the end of 2016 will gradually start to boost core inflation as the rise is passed on to prices for customers.” 

“As a result, we expect the core inflation rate to rise to nearly 1% y-y in the second half of 2017. After that, we think the inflation rate will gradually fall as the boost from energy prices disappears along with the disappearance of the inflationary impact of higher import prices stemming from the yen's depreciation.”

“If inflation were to fall in 2018 and beyond, in line with our forecasts, we think this would make it increasingly hard to attain the BOJ's 2% inflation target by its new timetable of sometime in FY19, prompting renewed speculation among market participants that the BOJ will embark on additional easing.”


08:02 Forex Today: Risk-off dominates Asia FX, PMIs in focus

Forex today was driven by risk-off trades during the Asian session this Monday, as the US political uncertainty combined with Brexit jitters continue to dent investors’ sentiment towards risk assets. Hence, the safe-haven Yen was broadly boosted, while the Kiwi suffered the most amid negative Asian equities and oil prices.

Among other majors, the GBP/USD pair stalled its recovery below 10-DMA at 1.3025 amid risk-aversion and latest downward revision to the UK growth forecasts by the IMF. EUR/USD clocked fresh two-year tops and remains on track to conquer 1.17 handle.

Main topics in Asia

Brexit effect: Household financial conditions deteriorate fastest in 3 years

An IHS Markit survey results released today showed the British households’ financial conditions deteriorated at the fastest rate in three years in July as inflation continues to rise faster than wages.

China Q3 GDP may grow 6.8% y/y - CASS

Chinese Academy of Social Sciences (CASS) exepcts the economt to expand 6.8% y/y/ in the third quarter. 

President Trump to deliver statement on health care reform today

White House says President Trump will deliver a statement on health care at 3:15 p.m. ET.

Japan manufacturing PMI hits eight-month low

On Monday, a preliminary private survey published by Markit/Nikkei showed that the Japanese manufacturing sector activity grew at the slowest pace in eight months in July.

IMF keeps global growth forecasts unchanged at 3.5% for 2017

In its latest World Economic Outlook report for 2017, the International Monetary Fund (IMF) maintained its global growth forecast at 3.5%.

Key Focus ahead

Stepping into a new week, the EUR calendar remains eventful, with a raft of services and manufacturing PMI reports lined up for release from the Euro area economies, followed by the release of the German Bundesbank (Buba) monthly report. In the NA session, the Canadian wholesale sales data will be published, while from the US docket, the manufacturing and services PMIs will be reported by Markit ahead of the existing home sales release.

EUR/USD clocks fresh 2-year high, all eyes on German & EZ PMIs

The EUR/USD rose to a fresh two-year high of 1.1284 in Asia as the political uncertainty in the US continued to weigh over the greenback.

The week ahead Euro area - Nomura

The analysts at Nomura offered their European outlook for the week ahead ...

USA events: Fed and GDP eyed- Nomura

Nomura's analysts preview for the USA schedule this week ... 

No policy changes expected at the July FOMC meeting – Goldman Sachs

Economists at Goldman Sachs published a client note, citing their expectations on the FOMC policy decision due on the cards this Wednesday.

                                        

 


08:02 Japan Coincident Index: 115.8 (June) vs 115.5


08:02 Japan Leading Economic Index declined to 104.6 in June from previous 104.7


08:01 Singapore Consumer Price Index (YoY) down to 0.5 in June from previous 1.4


07:55 ECB: Not even a tiny step - Commerzbank

Analysts at Commerzbank explain that contrary to what they too had expected, the ECB has not taken any step towards normalising its monetary policy at its latest meeting as it left its forward guidance unchanged and there were cosmetic changes at most to President Draghi’s statement.

Key Quotes

“We see in this the ECB’s desire to keep as much flexibility as possible for as long as possible. We still expect it to announce a reduction of its bond purchases for the beginning of 2018 at the next meeting in September.”

“Not only we had expected the ECB to slowly prepare the markets for a tapering of its bond purchases at today’s meeting. But this was not the case. The central bank once again stressed its readiness to not only prolong but also expand its bond buying if need be. According to Draghi, there was unanimous agreement on this. The same applies to the decision not to announce a date for reviewing the further course of action regarding QE. The staff was not even asked to look at the options here. And the statement read out by Draghi essentially matched what was said six weeks ago. The only halfway relevant change was the comment that the recovery is not only strengthening but also broadening.” 

“In the discussion that followed, Draghi pointed out that – contrary to the market view – there had been no differences between his comments after the last governing council meeting and what he said at the conference in Sintra. The economy was doing well but the development of consumer prices, and thus also of wages, was decisive, and the weakness here had not changed at all. On the other hand, Draghi seemed little impressed by the stronger euro and higher yields. He described financing conditions as still good.”

“Consequently, the ECB has not even taken a small step towards a somewhat less expansionary monetary policy. It clearly wants to keep its flexibility for as long as possible despite the improved growth outlook. Even so, we still expect an announcement in September to reduce bond purchases from the beginning of 2018. The press conference has shown once again that this decision will be based less on a positive development for the ECB but will be forced solely when the ECB otherwise sees itself in danger of breaching the 33% limit that it had set itself.” 


07:40 Oil: Focus on OPEC and non-OPEC ministers meeting - ANZ

A meeting of some OPEC and non-OPEC ministers tonight comes at an interesting time for oil markets and will be a key event for oil prices going forward, according to analysts at ANZ.

Key Quotes

“Not only are oil prices heading south again, but some analysts are actually predicting a rise in OPEC supply over the coming months, despite an agreement to do the opposite. While this partly reflects increased supply from Libya and Nigeria (two countries not part of the production cuts), that is not solely the reason. When it comes to OPEC it still seems to be a case of ‘watch what I do, not what I say’.”


07:37 Aggregate USD position deteriorates, CAD now held net long - Scotiabank

Analysts at Scotiabank note that bearish USD positioning continues to build on the back of an improvement in sentiment toward all of the reporting currencies with the exception of JPY (this week joined by CHF), as per the CFTC data which cover up to Tuesday July 18 & were released on Friday July 21.

Key Quotes

“Fresh positions are being added (rather than existing ones being covered) with bulls driving notable w/w swings in CAD, AUD and EUR as bears drive the bulk of the $1.9bn w/w deterioration in JPY. The aggregate USD short has widened $2.8bn to $7.8bn, its most bearish since February 2013. EUR, AUD, MXN, NZD and CAD are now held net long, with modest shorts in CHF and GBP. JPY is the only notable short.”

“CAD positioning has drifted into bullish territory for the first time since mid-March with a positive $1.3bn w/w swing pushing the net (now long) to $0.6bn. Gross longs drove the bulk of the w/w improvement in both CAD and AUD, the latter also seeing a $1.3bn w/w build to a $4.1bn net long.”

“EUR bulls are in control driving a $1.2bn w/w build in the net long to $13.2bn—a fresh multi-year high. In terms of details, gross longs are at a fresh record (200K contracts) and gross shorts are at the narrower end of their multi-year range.” 

“JPY is the largest—and only notable—short. Bearish positioning widened $1.9bn w/w to $14.1bn on the back of a sizeable build in gross shorts ($1.6bn) and modest covering of longs ($0.3bn). In terms of details, gross shorts have climbed to 164K contracts at their highest level since 2007.”


07:27 Canada: Odd one out? - ANZ

Analysts at ANZ explain that it had felt like downside inflation surprises had become the flavour of the month, with a number of countries (including New Zealand of course) seeing their latest inflation prints undershoot expectations, but Canada appears to have bucked that trend, with its measure of core inflation rising in June.

Key Quotes

“And it was also not just a commodity price story, with core inflation continuing to look mediocre, or even rolling over a little further for some. But Canada appears to have bucked that trend, with its measure of core inflation rising in June. At 1.4%, the level seems hardly high, and it’s not. But for the Bank of Canada and Governor Poloz, who went out on a limb last week by hiking rates and expecting inflation weakness to be temporary, it will provide a little vindication. It also means that in some pockets of the world, inflation is not completely dead. It has seen the market firm up pricing for another rate hike before year’s end. Australian CPI figures this week are the next focus.”


07:16 PBOC Adviser: Yuan may appreciate in H2 2017 - BBG

On Monday, Bloomberg carries a piece written by a People's Bank of China (PBOC) adviser, noting that the Yuan may appreciate in the second half of this year.


07:09 GBP/USD: Will buyers retain control above 1.30 ahead of a Big week?

The GBP/USD pair maintained its last week’s recovery mode in the Asian trades this Monday, although struggles to extend gains above 1.30 handle, as the bulls turn cautious ahead of the key risk events lined up for release later this week.

GBP/USD: Brexit jitters continue to weigh

The spot caught a fresh bid-wave in Asia opening trades, and from there resumed the recovery from last week’s sharp drop to 1.2930 levels, despite widespread risk-aversion and latest IMF’s World Economic Outlook report release, which showed that the Washington-based cut its 2017 growth forecasts for the UK economy, in the wake of the Brexit issue.

The latest leg up in the major is largely on the back of renewed USD selling, as the latest US political saga over Trump’s Presidency continue to haunt the US currency.

Looking ahead, Cable will continue to get influenced by the risk trends and USD dynamics, as attention shifts towards the US consumer confidence, UK GDP figures and FOMC decision for fresh impetus on the spot.

Meanwhile, the US Markit manufacturing and services PMI data, followed by the existing home sales release will keep the US traders busy in the NA session today.

GBP/USD levels to consider             

To the upside, resistances are aligned at 1.3038/53 (Jul 20 & 19 high), 1.3100 (round figure) and 1.3150 (psychological levels). On the flipside, 1.2971 (20-DMA) guards the next support of 1.2876 (50-DMA), below which 100-DMA support at 1.2824 lie.

 


06:43 EUR/USD clocks fresh 2-year high, all eyes on German & EZ PMIs

The EUR/USD rose to a fresh two-year high of 1.1284 in Asia as the political uncertainty in the US continued to weigh over the greenback.

Tests 23.6% Fib R of the sell-off from 2008 high

The 23.6% Fibonacci retracement level of the sell-off from 1.6038 (2008 high) to 1.0341 (Jan 2017 low) stands at 1.1285. The currency pair almost tested the key level in Asia and may convincingly break the same in favor of 1.1713 (Aug 2015 high) if the preliminary German and Eurozone manufacturing PMI beats estimates. 

It’s all about PMI

The above chart clearly shows - the spike in the German manufacturing PMI and EZ PMIs in general in late 2016 boosted the appeal of the EUR as a growth currency, resulting in a five-month rally in the EUR. 

The EUR/USD 14-day RSI is currently most overbought since August 2015. The weekly RSI is overbought as well. Hence, the continuation of the rally would require a better-than-expected German and EZ PMI numbers.

The preliminary German PMI, due at 7:30 GMT, is expected to show a slight slowdown in the pace of expansion of the manufacturing activity in July (expected 59.2, previous 59.6). Later in the day, the broader market sentiment and the US political situation would once again come into play. 

EUR/USD Technical Levels

A break above 1.1685 (23.6% Fib R of 2008 high - 2017 low) would open doors for 1.1713 (Aug 2015 high). Two consecutive daily close above the same could yield 1.1890 (monthly 50-MA) levels. On the downside, breach of support at 1.1660 (session low) would open up downside towards 1.1607 (5-DMA) and 1.1576 (1-hour 100-MA). 


06:18 IMF keeps global growth forecasts unchanged at 3.5% for 2017

 In its latest World Economic Outlook report for 2017, the International Monetary Fund (IMF) maintained its global growth forecast at 3.5%, while slashed the UK GDP growth outlook, in the wake of Brexit.

Key Points:

Keeps global growth forecasts unchanged at 3.5 pct for 2017, 3.6 pct for 2018

Eurozone growth forecasts increased 0.2 percentage point to 1.9 pct for 2017, 0.1 percentage point to 1.7 pct for 2018

China growth forecasts increased 0.1 percentage point to 6.7 pct for 2017, 0.2 percentage point to 6.4 pct for 2018

US forecasts unchanged from June revisions at 2.1 pct for both 2017 and 2018

IMF says 2017 Japan growth forecast increased 0.1 percentage point to 1.3 pct; 2018 Japan growth forecast unchanged at 0.6 pct

And cuts 2017 UK growth forecast by 0.3 percentage point to 1.7 pct; 2018 UK forecast unchanged at 1.5 pct

"While risks around the global growth forecast appear broadly balanced in the near term, they remain skewed to the downside over the medium term"

Revised down its 2017 forecast for the UK by 0.3 percentage point to 1.7 percent, citing weaker-than-expected activity in the first quarter. It left its 2018 forecast unchanged at 1.5 percent

Canada gets the nod from the IMF as their expected strongest G7 currency in 2017, the Fund expects GDP at 2.5% (1.7% prior)

 


06:10 No policy changes expected at the July FOMC meeting Goldman Sachs

Economists at Goldman Sachs published a client note, citing their expectations on the FOMC policy decision due on the cards this Wednesday.

Key Quotes:

“We do not expect any policy changes at the July FOMC meeting and expect only limited changes to the post-meeting statement.

The statement is likely to upgrade the description of job growth, but might also recognize that inflation has declined further.

We think the statement is also likely to acknowledge that the balance sheet announcement is now closer at hand. 

We continue to expect the FOMC to announce the start of balance sheet normalization in September.

We see a 5% probability that the next rate hike will come in September, a 5% probability that it will come in November, and a 50% probability that it will come in December, for a 60% cumulative probability of at least three hikes this year.”


05:59 Gold - Risk reversals add credence to spot rally, Vols rise

Gold prices rose to a 4-week high of $1257.18 in early Asia, tracking the weakness in the USD index and the Asian equities. 

The metal has rallied more than 3% from the recent lows around $1210 levels, mainly on account of the sharp sell-off in the USD. The greenback continues to trade around 13-month low against a basket of major currencies as US political woes dampened hopes for quick passage of President Donald Trump's stimulus and tax reform agendas. 

Risk reversals rise

The one-month 25 delta risk reversal is closely following the rise in gold prices, suggesting investors see the rally as sustainable. Rising risk reversals is the result of the falling demand for downside protection (put option). 

The one-month ATM volatility is showing signs of life as well. Vol is back at levels last seen a week ago (9.13). 

Gold set to extend the rally

The combination of the rising risk reversal and ATM volatility indicates the gold rally is here to stay. On the higher side, the key levels to watch out for are $1261/1274.  


05:53 Iran replaces Riyal with Toman as its currency - ILNA

The Iranian Labor News Agency (ILNA) reported on Monday that Iran replaced Riyal with Toman as its currency.

The Iranian currency was known as the Toman until the 1930s, when the name was changed to the Riyal at a rate of 10 Riyal to a Toman. 


05:47 NZD/USD on a retreat from 10-month tops, risk-off weighs

The NZD/USD pair kicked-off the week on a weaker note, having stalled its four-day rally, as the bulls take a breather heading into the FOMC week.

NZD/USD: Will it take-out 0.7460?

The spot is seen extending its retreat from multi-month tops amid ongoing recovery seen in the US dollar versus its main competitors, while persisting risk-off trades on the back of negative Asian equities and subdued oil prices, also weighs down on the sentiment around the higher-yielding currency Kiwi.

The downside, however, appears to lack follow-through as the recent upbeat remarks from the NZ Finance Minister Joyce continue to remain NZD-supportive.  NZD at current levels reflect a strong economy.

Moreover, lingering uncertainty surrounding the US political scenario could also keep a check on the USD recovery, as markets continue to remain concerned over the Trump administration and its ability to deal with reforms.

Markets now await the US manufacturing PMI release, existing homes sales data for fresh impetus on the major ahead of NZ trade figures and the crucial FOMC policy decision.

NZD/USD Levels to consider                                                                              

NZD/USD holds well above 0.7400, with a test of 0.7461 (multi-month highs) still on the cards, which could open doors towards.7500 (psychological levels). To the downside lies 0.7421 (5-DMA) still guarding 0.7380 (10-DMA) and a break back below 0.7330 (20-DMA) are key near-term downside areas.


05:28 WTI-Brent Spread steady ahead of OPEC/Non-OPEC meeting

WTI-Brent spread is flat lined around minus $2.3 in Asia after having recovered from the low of minus $2.38 to minus $2.29 on Friday. 

Eyes OPEC/Non-OPEC meeting

Reuters report says, “Six OPEC and non-OPEC ministers will meet on Monday in St Petersburg to discuss the market outlook and compliance with output cuts. They may recommend a conditional cap on Nigerian and Libyan oil production.”

The spread may drop to June low of minus $2.55 (Brent oil rally) if Nigeria and Libya are brought under the production cap. 

Reports are also doing the rounds that the joint OPEC/non-OPEC ministerial committee could also discuss a deeper cut in production. 

At the time of writing, WTI was trading flat lined around $45.73/barrel. Brent was flat lined around $48.05/barrel. 


05:23 Japan manufacturing PMI hits eight-month low

On Monday, a preliminary private survey published by Markit/Nikkei showed that the Japanese manufacturing sector activity grew at the slowest pace in eight months in July.

The Markit/Nikkei Japan Flash Manufacturing Purchasing Managers Index (PMI) fell to 52.2 in July on a seasonally adjusted basis from a final 52.4 in June.

Paul Smith, senior economist at IHS Markit, which compiles the survey, noted: "The slowdown was driven by stagnation in export orders, amid reports of weaker demand from South East Asia markets. Nonetheless, the sector continues to add jobs, with employment growth remaining amongst the best since the financial crisis."


05:15 EUR/USD RSI warns of a completion of an impulsive wave

Aside from the bullish signature taken from a 4hr chart, where the 50- and 200-period moving averages are well distanced from each other, this overextended upward movement can be seen as an opportunity to lighten up positions.

A recent rip higher in the spot rate has pushed the RSI above the 75% level. In Elliott terms, this technical event is often associated with 5th waves, prior to the development of a corrective phase. The EUR/USD spot would have to gravitate towards the 50 SMA at a minimum to alleviate immediate upside pressures.

05:10 Russias Novak: Libya and Nigeria should cap output when their output stabilizes

The Financial Times (FT) carried comments from the Russian Energy Minister Novak earlier today, saying that Libya and Nigeria should cap output when their output stabilizes.


05:09 EUR/NOK undergoes corrective process

An upward and over extended market, set against the backdrop of a downtrend may swing the EUR/NOK buyer-seller pendulum back towards the bears again.

EUR/NOK was in sell mode until a recent move changed the shape of the price structure. The 4hr RSI was on average printing below 50% over the last three weeks and recently broke above the 60% mark. This can be considered overbought territory in the context of a full-fledged bear market. Therefore, the present corrective rally is vulnerable for a turnaround from here.

Further, the 50SMA is still below the 200SMA on 4hr charts. However, should the pair extend its recovery from multi-week lows into a new trend, traders may require a contingency plan in place.

05:06 AUD/NZD: 1.0550 on the cards? - Westpac

Analysts gave their outlook for the antipodeans and rates.

Key Quotes:

"AUD/NZD 1 day: The two-day old correction could extend further, to the 1.0550-1.0600 area.

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

AU swap yields 1 day: The 3yr should open around 2.09%, the 10yr around 2.88%.

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

NZ swap yields 1 day: NZ 2yr swap rates should open unchanged at 2.21%, the 10yr down 1bp at 3.26%.

NZ swap yields 1-3 month: The RBNZ has signalled the next cycle – a tightening one – will not start until the end of 2019. That will anchor the short end, although markets will not abandon their expectations for tightening as early as mid-2018 which means occasional spikes in the 2yr will be likely. A 2yr swap range of 2.10%-2.60% is expected. The long end will continue to follow US yields, which we expect to rise by year end. (30 Jun)."


05:05 AUD/JPY momentum switched to negative

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

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

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

05:03 EUR/NOK momentum is supportive for attempt higher

On the 4hr EUR/NOK chart, the MACD has moved above zero making the near-term structure supportive for an attempt higher.

Such a momentum indication, unseen for at least for 30 periods, indicates that key price breaks are on the horizon. There is a real threat of EUR/NOK rate moving now considerably higher as buyers may get aggressive in the short term.

05:01 USD/JPY - Recovery fails to gather pace as BOJ trims QE purchases

The technical recovery in the Dollar-Yen pair fell apart at 111.00 levels as the Bank of Japan (BOJ) trimmed QE purchases. The spot fell back to 110.81 levels and was last seen trading around 110.90 levels. 

Session lows unchallenged

The intraday low of 110.77 remains intact despite the BOJ news, suggesting the bears could be facing exhaustion following the recent sell-off from the high of 114.49. 

Fresh intraday lows have also been avoided due to data showing the decline in the Japanese manufacturing growth to eight-month low. 

Ahead in the day, the focus will be on the broader market sentiment. S&P 500 futures are down 0.15%, while major European index futures - DAX and FTSE 100 are down 0.20% and 0.14%, respectively. The losses in the equity markets would keep the Japanese Yen well bid. 

USD/JPY Technical Levels

The 1-hour RSI is oversold. A break above 111.05 (1-hr 10-MA) would open up upside towards 111.59 (5-DMA) and 111.68 (100-DMA). On the other hand, a breakdown of support at 110.77 (intraday low) would expose 110.23 (May 18 low) and 110.00 levels. 

 


04:33 Commodity currencies in view - ANZ

Analysts at ANZ suggested it had felt like downside inflation surprises had become the flavour of the month, with a number of countries (including New Zealand of course) seeing their latest inflation prints undershoot expectations. And it was also not just a commodity price story, with core inflation continuing to look mediocre, or even rolling over a little further for some. 

Key Quotes:

"But Canada appears to have bucked that trend, with its measure of core inflation rising in June. At 1.4%, the level seems hardly high, and it’s not. But for the Bank of Canada and Governor Poloz, who went out on a limb last week by hiking rates and expecting inflation weakness to be temporary, it will provide a little vindication."

"It also means that in some pockets of the world, inflation is not completely dead. It has seen the market firm up pricing for another rate hike before year’s end. Australian CPI figures this week are the next focus."


04:23 BOJ reduces purchases of 5-10 yr JGBs

Bank of Japan (BOJ) has reduced the purchases of 5 to 10 year Japanese government bonds to JPY 470 billion from the previous figure of JPY 500 billion.

BOJ retained the yield curve control with QQE policy last week and reiterated commitment to meet the inflation target.


04:18 President Trump to deliver statement on health care reform today

White House says President Trump will deliver a statement on health care at 3:15 p.m. ET.


04:16 PBOC sets the Yuan reference rate at 6.7410

The People's Bank of China (PBOC) set the Yuan reference rate at 6.7410 vs. Friday's fix of 6.7415


04:08 USD/CNY fix projection - Nomura

Analysts at Nomura offered their USD/CNY fix projection

Key Quotes:

"Our model1 projects the fix to be 183 pips higher than the previous fix (6.7598 from 6.7415) and 83 pips lower than the previous official spot USD/CNY close of 6.7681. The basket implied change is 100 pips lower than the previous official spot USD/CNY close (6.7581 from 6.7681).


04:03 NZD/USD is hitting a ceiling

Although the 50- and the 200-period SMAs are positively aligned, the upside in NZD/USD has stalled in recent trading.

A 4hr stochastic above its median line don’t necessarily favours a liquidation of long-term buy positions, but the 1-hour stochastic is increasingly pointing that it could be necessary soon.

The oscillator has been precariously perched above the 70% level for more than eight hours and has just abandoned overbought territory with the recent hourly close. We see bias for a roll back lower in the short-term.

04:03 Oil market rebalancing will speed up in the second half of the year - OPEC s Barkindo

OPEC's Secretary General Mohammad Barkindo said on Sunday - "We are pretty sure that the rebalancing process may be going at a slower pace than earlier projected, but it is on course. It is bound to accelerate in the second half".

Reuters report says, "Barkindo cited strong oil demand growth, conformity with a global pact by OPEC and non-OPEC countries to cut output as well as an inventory draw in the United States as reasons why a rebalancing of the oil market would speed up."


03:51 Brexit effect: Household financial conditions deteriorate fastest in 3 years

An IHS Markit survey results released today showed the British households’ financial conditions deteriorated at the fastest rate in three years in July as inflation continues to rise faster than wages.

Key quotes by Tim Moore, Senior Economist at IHS Markit

There are signs that squeezed household budgets and worries about earnings have started to spill over the consumer spending patterns

July’s survey highlights that the recent moderation in inflationary pressures has yet to provide much relief
 


03:51 Eyes on OPEC - ANZ

Analysts at ANZ note that a meeting of some OPEC and non-OPEC ministers tonight comes at an interesting time for oil markets. 

Key Quotes:

"Not only are oil prices heading south again, but some analysts are actually predicting a rise in OPEC supply over the coming months, despite an agreement to do the opposite.

While this partly reflects increased supply from Libya and Nigeria (two countries not part of the production cuts), that is not solely the reason.

When it comes to OPEC it still seems to be a case of ‘watch what I do, not what I say’."


03:43 AUD/JPY - Correction gathering pace below 1-hr 200-MA

AUD/JPY is looking heavy following an early failure to hold above 1-hr 200-MA of 88.05 levels this Monday morning in Asia. The cross is currently trading around 87.80 levels; down 0.20% on the day. 

Bearish reversal confirmed

Thursday’s Doji (indecision) candle was followed by huge red candle, suggesting the rally from the low of 81.78 may have found the top at 89.32. Furthermore, the 1-hour chart now shows a bearish crossover between 50-MA & 100-MA. 

Thus, correction could gather pace, although as of now, a weaker-than-expected Japanese PMI release is capping losses around 87.75 levels. 

Signs of weakness in the AUD/JPY cross often serve as an advance warning of the risk aversion in the equity markets. It remains to be seen if the weakness in the AUD/JPY ends up pushing the Stoxx 50 index below the head and shoulders neckline support today. 

AUD/JPY Technical Levels

The immediate support is seen at 87.54 (23.6% Fib R of 81.78-89.32) ahead of 87.35 (weekly 5-MA) and 87.20 (4-hr 100-MA). On the higher side, a break above 88.05 (1-hour 200-MA) would open up upside towards 88.56 (1-hour 50-MA) and 88.62 (1-hour 100-MA). 

 


03:41 USD/JPY: bears keep up the pace below 111 handle

Currently, USD/JPY is trading at 110.84 having posted a daily high at 111.17 and low at 110.82

USD/JPY starts out on the defensive having lost the 111 handle after US 10yr treasury yields fell from 2.26% to 2.22% at the end of last week's US session.

USA events: Fed and GDP eyed- Nomura

Analysts at Westpac noted that apart from oil prices, the resignation of the White House press secretary also attracted market attention and highlighted that Fed fund futures yields priced the chance of a December rate hike at around 43%. Posting one-month lows here, the week ahead will be key for the US dollar with the Fed and GDP data on the cards and while the 114 double top remains a compelling bearish scenario.

USD/JPY levels

Valaria Bednarik, chief analyst at FXStreet notes that the daily chart shows that the pair stands a few cents above the 61.8% retracement of its latest weekly advance at 110.90 the immediate support, having broken below its 100 DMA, adding, "technical indicators head sharply lower within bearish territory, all of which support a bearish extension. In the 4 hours chart, technical indicators have bounced modestly from oversold readings, but are far from supporting an upward correction, with the price also developing below its moving averages."


03:32 Japan Nikkei Manufacturing PMI fell from previous 52.4 to 52.2 in July


03:10 China Q3 GDP may grow 6.8% y/y - CASS

News crossing the wires via Bloomberg - 

Chinese Academy of Social Sciences (CASS) exepcts the economt to expand 6.8% y/y/ in the third quarter. It also sees Q4 and full year GDP rising 6.7% and 6.8%, respectively and expects growth to stabilize as structural reforms take effect.


02:43 RBNZ: hike next year? - Westpac

Analysts Westpac argued that if the RBNZ was “firmly neutral” in its last review, it is hardly going to be mulling the timing of interest rate hikes this time around.

Key Quotes:

"We think that the market is off-base in pricing in an OCR hike for next year, even if the timing has been pushed out from June to August since the CPI figures."

"In contrast, we don’t expect an OCR hike before 2019, and that sort of horizon is too far out to be specific about the timing."


02:33 AUD/USD: 0.80 s are still the technical bias

Currently, AUD/USD is trading at 0.7915 having posted a daily high at 0.7917 and low at 0.7906.

AUD/USD starts the week out as one of the main focusses with Oz Q2 CPI and the Fed meeting that are key risks for the pair next week. There is a special focus on the Aussie right now considering its recent road block after a two-week surge.

USA events: Fed and GDP eyed- Nomura

"The Bank’s thinking about the AUD is measured. The increase in the AUD from USD0.76 to USD0.79 (4%) has been partly due to USD weakness. But the trade weighted Index has also appreciated from 65.1 to 67.3 (3.4%) so the majority of the boost has been commodity prices and this perceived hawkish stance from the RBA," say analysts at Westpac, adding, "The Bank will regret the degree to which the latter is a factor while also eschewing higher commodity prices since the major beneficiaries (the mining companies) are not expected to boost investment or employment in the wake of higher expected profits. In effect there is no offset to the reduced competitiveness stemming from a higher AUD."

AUD/USD levels

"The market is poised to encounter the 0.8018 200 week ma and very near term there is a 13 count on the daily chart and a TD perfected set up and we suspect it has started to correct lower," argued analysts at Commerzbank, " Currently the corrective zone is indicated to be circa 0.8820-.7750. While above the uptrend at 0.7673 we will assume it is capable of further gains."


02:03 EUR/NOK clears overhead resistance

The EUR/NOK 200 SMA, immediate resistance on 4-hour chart, was cleared in recent trading.Quoting below this dynamic hurdle for multilple sessions, EUR/NOK is now targeting the 800-SMA on the upside.

02:00 The week ahead Euro area - Nomura

Analyst's European outlook for the week ahead ...

Key Quotes:

"July flash PMIs, German inflation and UK GDP data are in focus this week. 

Euro area July flash PMIs (Monday): We expect the euro area composite PMI to increase to 56.7 in July from June’s 56.3. At the sector level, we expect the regional manufacturing PMI to rise to 57.9 from 57.4. We forecast the services PMI to increase to 55.7 from 55.4. These readings would indicate that the likely strong momentum for euro area GDP growth in Q2 – we are expecting a quarterly gain of 0.7% – has carried over to the early weeks of Q3. 

German Ifo (Tuesday): We expect the German Ifo business climate index to increase to 115.5 in July from 115.1 in June. We forecast the current situation and expectations indices to pick up to 107.1 (from 106.8) and 124.5 (from 124.1) respectively. 

UK CBI industrial trends survey (Tues): The business optimism balance fell to almost zero in Q2 – the focus will be on whether it can remain above water in this Q3 survey. Other balances of particular interest relate to new orders, output and employment, capex over the coming 12 months (how it responds to Brexit concerns), capacity and whether the availability of labour is limiting activity. UK GDP, first estimate Q2 (Weds): Economic growth slowed to just 0.2% q-o-q in Q1, but the PMI surveys suggest that Q2 should be around the 0.5% mark. With industrial production having been weak and construction growth falling (at least according to the official data), we think economic growth is likely to be a little weaker than what the surveys are pointing to, and forecast a 0.4% q-o-q rise in the initial print for Q2.

UK CBI distributive trades survey (Thurs): The slowdown in retail sales is the story of the moment, resulting largely from sterling’s past fall and the consequent rise in inflation. The CBI’s survey measures sales volumes vs a year ago, the balance having been in positive territory for the past five months now. The question is whether it will remain there. A weaker inflation print in June may be helpful in this respect. 

Germany, preliminary July inflation (Friday): We expect the flash reading of German HICP inflation to decline to 1.4% y-o-y in July from 1.5% y-o-y in June partly due to a decrease in clothing prices and the unwinding of seasonal distortions in package holiday prices."

USA events: Fed and GDP eyed- Nomura


01:50 USA events: Fed and GDP eyed- Nomura

Nomura's analysts preview for the USA schedule this week ... 

Key Quotes:

"Existing home sales (Monday): Despite a lean supply of previously owned homes for sale, steady demand for housing has remained supportive for sales. In May, existing home sales increased by 1.1% m-o-m to an annual rate of 5.62mn, with healthy increases in both single and multifamily homes. For June, we forecast a 1.1% m-o-m decline to a 5.56mn annual pace. The forecasted decline reflects a slowdown in pending home sales in recent months, which tend to lead existing home sales by a month or two. Moreover, it is possible that the low supply of homes for sale on the market may have continued to weigh on pending home sales (contract signings), lowering existing home sales (contract closings). In May, previously-owned homes available for sale fell by 8.4% y-o-y continuing a prolonged decline. Yet, we think underlying demand for existing homes remains healthy. Consistent with this view, mortgage application volumes for home purchases increased by 3.5% in June. Further, labor markets have been improving solidly with strong job gains and low unemployment, which should be supportive of a steady increase in housing demand.

Case-Shiller home price index (Tuesday): Low inventory levels of homes for sale amid strong demand may have contributed to a recent acceleration of home prices. In April, the Case-Shiller 20-city home price index eased slightly to 5.67% y-o-y from 5.88% in March. The latest reading is still above the average year-on-year rate in 2016 (5.24%). Strong job gains so far in 2017 and an influx of younger new home buyers may have contributed to increased demand in a low-inventory housing market, pushing up prices. As the supply shortage continues, it is likely that home prices continued to rise at a steady pace. An additional acceleration in home price growth may have the potential to further exacerbate affordability.

Conference Board’s Consumer Confidence (Tuesday): The June Conference Board Report showed continued heightened optimism but consumers’ assessment of future conditions deteriorated slightly. We expect the Conference Board’s consumer confidence index to fall slightly to 117.0 in July from 118.9 in June. Although our forecast for July still implies heightened sentiment, it reflects our view that recent downward shifts in expectations regarding the Trump administration’s policy promises may have dampened optimism. In line with this view, the preliminary July estimate of the University of Michigan consumer sentiment index fell 2.0pp to 93.1, driven by a drop in the future expectations index. The decline in this forward looking index may have been a reflection of the decreasing likelihood of major policy promises being delivered. In particular, according to the Michigan survey, self-identified Republicans and independents have become increasingly skeptical of the current administration’s ability to enact its agenda. Recent setbacks in Congress with Republican’s efforts to repeal and replace the Affordable Care Act make it less likely for consumer confidence to improve further from currently high levels or even have the potential to weigh it down. 

FOMC meeting (Wednesday): For the July FOMC meeting, we expect no changes in interest rates and no major announcements on the balance sheet. Based on Chair Yellen’s recent congressional testimony, remarks by FOMC participants and the minutes from the June FOMC meeting, we hold that the timing of the balance sheet roll-off will be made in September, not July. Further, it would not be surprising if the statement included additional signals that the Committee expects to take this decision at the September meeting. For other changes in the statement, we will be looking especially at the language on inflation. During a semiannual testimony before Congress on 12 July, Chair Yellen acknowledged that “the recent lower readings on inflation are partly the result of a few unusual reductions in certain categories of prices.” On the other hand, she also mentioned the uncertainty about inflation – in particular “… uncertainty about when – and how much – inflation will respond to tightening resource utilization” – as one of the key risks to the outlook. Following her testimony, core goods CPI inflation for June, released on 14 July, came in weak despite an absence of external shocks. Against this backdrop, we think the July FOMC statement may provide some additional color on the recent underperformance of inflation in its assessment of current economic conditions. However, we do not expect the FOMC's basic views on the economy to change materially with its 2017 growth pace roughly in line with the Committee’s outlook. On the FOMC’s future economic outlook, we expect balanced risks with no major changes

New home sales (Wednesday): We expect new home sales to increase by 1.6% m-o-m in June to an annual pace of 620k. The permits for single family residential construction declined for three consecutive months from March to May but rebounded strongly in June. Further, despite low inventories of newly built single family homes for sale, consumer demand has been steady, coupled with a low unemployment rate and strong job gains in recent months. Although the NAHB’s index for current sales of single family homes fell moderately by 3.0pp to 72 in June, this was likely reflected a margin squeeze felt by home builders as building material costs continue to rise instead of a material deterioration of consumer demand. That said, continued acceleration in building material costs may possibly contribute to rising new home prices as home builders are pressured to pass increased costs onto consumers.

Initial jobless claims (Thursday): Initial unemployment claims have been within a historically low range for quite a while. For the week ending 15 July, which corresponds to a survey sample period of BLS’ July employment report, initial claims fell 15k to 233k, well below its four-week moving average. A solid decrease in initial claims points to another month of healthy job gains. Continuing claims rebounded slightly in the week ending 8 July, but its four-week moving average remained low. The recent trends in initial and continuing claims highlight strong labor markets with a low rate of involuntary separations. Advance goods trade balance 

(Thursday): We expect the advance goods trade balance to post a deficit of $67.2bn in June, a slight widening of the trade gap from May ($66.3bn deficit). For June, based on outbound container data at ports, we expect a decline in goods exports after a decent increase in May. For imports, inbound container data suggest that goods imports fell in the month. Yet, on balance, the decline in goods exports may likely have outpaced the decline in imports, widening the trade gap. If realized, our forecast suggests that goods exports were somewhat weak in Q2 compared to Q1. In Q1, a healthy rebound in goods exports with modest increases in imports contributed positively to topline GDP growth. However, for Q2, we expect a moderate drag from net exports

Durable goods orders (Thursday): Incoming data suggest manufacturing activity has been improving steadily. For June, we forecast a healthy 0.5% m-o-m increase in core durable goods orders (excluding transportation goods), following a steady gain of 0.3% in May. Our forecast reflects a solid rebound in industrial production of durable goods excluding transportation components in June, following a weak reading in May. Further, the new orders index of the ISM manufacturing survey was elevated at 63.5 in June, highlighting continued momentum in the sector. Moreover, we expect a strong rebound in volatile transportation goods orders. Civilian aircraft and parts orders, which fell sharply in May, likely rebounded strongly in June considering new orders data from the industry. The orders of defense aircraft likely have reverted to their mean following a sharp 30.8% drop in May. In addition, we think the motor vehicles and parts orders increased modestly by 0.7%, based on a healthy increase in real vehicle assemblies during the month. Consumer light vehicle sales have slowed in recent months, but new orders of vehicles at factories (which include orders from all sectors) suggest that the production of autos may not decelerate quickly in the near term. Altogether, we expect a 1.8% increase in topline durable goods orders for June.

 Employment cost index, Q2 (Friday): From the BLS’ Establishment Survey, average hourly earnings for production and nonsupervisory workers picked up slightly in Q2, increasing 0.6% q-o-q compared to 0.5% in Q1. However, on a y-o-y basis, wages have decelerated recently, decreasing to 2.3% in Q2 compared to 2.4% in Q1 2017. Labor markets have tightened further in 2017, with the unemployment rate decreasing to 4.4% in Q2 compared to 4.7% in Q1 2017. Further, nonfarm payroll job gains have been strong in Q2, averaging 194k. Reflecting these trends, we expect the wages and salaries component of the ECI to increase by 0.6% q-o-q, resulting in a 2.4% y-o-y increase, unchanged from Q1. For the topline index, 70% of which comes from wages and salaries, we expect a similar reading of 0.6% q-o-q, which is equivalent to 2.4% y-o-y.

Q2 GDP, first estimate (Friday): We expect real GDP growth to accelerate to 2.5% q-o-q saar in Q2 from 1.4% in Q1. The Q1 growth was on the back of a solid 2.6% increase in final sales, which were boosted by a sharp 22.6% increase in private investment in structures. This increase in structures investment was driven by an outsized gain in investment in mining, exploration, shafts, and wells. Based our analysis, we think this subcategory will continue to increase robustly in Q2 considering the persistent upward trend in active rig counts and drilling support activity, but it is unlikely to see another unusually strong jump. Thus, we expect only a modest increase in aggregate structures investment. Moreover, we expect some acceleration in personal consumption expenditures (PCE) relative to Q1. The growth in non-energy goods spending has been only modest during Q2. In particular, given slowing light vehicle sales, spending on autos will likely remain subdued in Q2, which deducted 0.6pp from PCE growth in Q1. On the other hand, incoming data suggest service spending increased steadily and would likely contribute robustly to Q2 PCE growth. Elsewhere, we think inventories likely contributed moderately to topline Q2 GDP growth in as they recover from unsustainable weakness in Q1 that reduced Q1 growth by 1.1pp. A soft patch in Q2 GDP would be weak residential construction growth. Incoming data suggest multifamily construction decelerated notably although single family construction increased at a steady pace in Q2. On balance, we expect a modest drag on growth from residential investment in Q2. Altogether, our topline forecast of 2.5% suggests 1.9% average growth in H1 and 2.1% average y-o-y growth in 2017. This is consistent with our view that the economy continues to grow above potential, a trend we expect to continue in the medium term.

University of Michigan consumer sentiment (Friday): In the preliminary report for July, the University of Michigan of consumers sentiment index declined by 2.0pp to 93.1, driven mostly by a decline in the expectations index. Given that this drop was most acutely seen in responses from respondents who identified themselves as Republicans, recent setbacks at a Republican-controlled Congress to repeal the Affordable Care Act may continue to weigh down consumer sentiment. Inflation expectations for the preliminary July reading increased 0.1pp at both the 1-year and 5-year horizon to 2.7% and 2.6%, respectively. These readings, while within a steady range, point to a slight uptick from near-historical lows over the past few months."


01:38 Dollar ending soft in US close - ANZ

Analysts at ANZ's market wrap in a snapshot ...

Key Quotes:

"Global equities were sold, the USD remained on the back foot, yields were lower, and commodities (ex-gold) dropped. European bourses led losses, with DAX down 1.7%, CAC 40 off 1.6%, and Euro Stoxx 50 down 1.4%. Declines were across all industries. 

Falls were more modest in the US, with major bourses 0.0%-0.2% lower. Energy stocks weighed as oil fell around 21⁄2%. OPEC crude supply this month is expected to be the highest since December, according to a tanker-tracking firm. 

Treasury yields declined 1-2bps across the curve while European yields were also generally lower. In currencies, AUD was able to hold the 0.79 handle, although it underperformed in the G10. JPY is now close to testing 111, CAD comfortably broke through 1.26, EUR is closing in on 1.17, and NZD starts the week above 0.7450. Gold rose above $1250/oz."


01:29 NZD/USD: 0.7480 s on the cards?

Currently, NZD/USD is trading at 0.7403, up 0.08% on the day, having posted a daily high at 0.7408 and low at 0.7395.

NZD/USD continues to ride the peripheral weakness in the greenback and analysts at Westpac suggest for today's outlook there is potential to continue this rally to 0.7485 (Sep 16 peak) during the next few days.

RBNZ expected to remain sidelined until H2 2018 – UOB

NZD/USD 1-3 month:  

On a wider outlook, the analysts figure that the Fed’s tightening cycle plus US fiscal expansion should eventually reassert upside pressure on US interest rates and the US dollar, pushing NZD/USD to 0.6800 by year end. US factors should outweigh local factors which are mostly supportive (25 May).

Moreover, the analysts finished, " We think that the market is off-base in pricing in an OCR hike for next year, even if the timing has been pushed out from June to August since the CPI figures. In contrast, we don’t expect an OCR hike before 2019, and that sort of horizon is too far out to be specific about the timing."

NZD/USD levels

Support: 0,7430,0.7386, 0.7280, (11th July high), 0.7205/06 June 22/21 lows; 0.7186 June 15 low; 0.7150 June 5 high; 0.7127 June 6 low. On the wide, on a break below 0.7080/00 opens 0.6970. Resistance: 0.7415, 0.7480, 2nd Sep high.

"Longer term, if NZ-US yield spreads decline towards zero by year end, then NZD/USD should retreat to 0.70 or lower," explained the analysts at Westpac.


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