HotForex Forex News

10:16 EUR/USD slides to 1-1/2 month lows near 1.0500 handle ahead of German IFO

Having failed to build on early tepid recovery bounce to mid-1.0500s, the EUR/USD pair ran through fresh offers and plunged to the lowest level since Jan. 11.

Currently trading around 1.0510-05 region, the pair remained under selling pressure amid ongoing political uncertainty in the Euro-zone. Investors refrained from buying the shared currency on fears of France moving out of the Euro-zone in case of a victory for France’s leader of the far-right National Front Le Pen in the upcoming French Presidential election.

Meanwhile, Tuesday's comments from various Fed official kept hopes alive of a Fed rate-hike action in March and continues to underpin the greenback. In fact, the key US Dollar Index has now risen to the highest level since Jan. 12 (101.60 region) and is further collaborating to the pair's offered tone for third session in the previous four.

On the economic data front, the German IFO business climate, due for release in a short while from now, would be looked upon for some immediate respite. Later during NY session, the Fed monetary policy meeting minutes might turn out to be one of the key factors determining the pair's near-term trajectory.

Technical levels to watch

Momentum below 1.0500 handle could further get extended towards 1.0480 level support, which if broken would open room for continuation of the pair’s depreciating move further towards 1.0400 handle, with some intermediate support near mid-1.0400s.

On the upside, recovery back above 1.0525-30 area now seems to confront resistance near 1.0575-80 region above which the pair is likely to aim towards reclaiming 1.0600 handle. 

 


09:56 US Dollar resumes the upside, near 101.60 ahead of FOMC

The greenback – measured by the US Dollar Index (DXY) – is prolonging its upside bias on wed, now testing session highs in the 101.55/60 band.

US Dollar focus on FOMC minutes

The index is flirting with multi-week tops as it managed to leave behind the negative tone during the Asian trading hours, advancing for the fourth session in a row ahead of the key release of the FOMC minutes.

USD stays well underpinned by rising expectations of a rate hike by the Federal Reserve sooner rather than later, supportive Fedspeak and solid results from the US docket in past sessions.

In fact, Philly Fed P.Harker (voter, hawkish) left the door open for higher rates at the March meeting as long as data accompany. In the same line, Cleveland Fed L.Mester (2018 voter, hawkish) said she is comfortable with higher rates if the economy keeps the current direction, adding that inflation is closer to the Fed’s target.

Looking ahead, US Existing Home Sales are due along with the speech by FOMC’s J.Powell (permanent voter, neutral), all ahead of the key FOMC minutes.

On the positioning front, the speculative community have trimmed further its USD net longs in the week to February 14 as shown by the latest CFTC report, and could somewhat carrying the potential to remove some tailwinds from the up move.

US Dollar relevant levels

The index is gaining 0.11% at 101.56 facing the next resistance at 101.75 (high Feb.15) ahead of 101.95 (23.6% Fibo of the November-January up move) and finally 10296 (low Jan.11). On the flip side, a break below 100.99 (high Feb.20) would aim for 100.52 (20-day sma) and then 100.40 (low Feb.16).


09:45 Spill-overs from EZ politics into G10 and EM FX - ING

Petr Krpata, Chief EMEA FX and IR Strategist at ING, suggests that with the start of the busy EZ political calendar less than one month away (starting with Dutch elections next month followed by the two rounds of French Presidential elections and Italian PD ruling party leadership contest) there are going to be spill-overs from EZ politics in G10 and EM FX – a theme that is likely to gain more traction in coming weeks/months and should exert persistent influence on FX markets.

Key Quotes

“In our view, the concerns about EZ politics will affect world currencies in two ways:

  • The first order effect - relates to direct EZ spill-overs in global FX. We measure this by looking at countries’ exports to EZ as percentage of total exports (direct EZ trade links) and the currencies’ performance during meaningful spikes in EZ risk, gauged by peripheral spreads (direct EZ risk channel).
  • The second order effect - relates to secondary spill-overs from EZ specific risks into global risk sentiment as well as indirect growth spill-overs to the rest of the world. As potential market concerns about the future of the EZ won’t be contained to EZ only, even those currencies less directly linked to EZ may be affected if the global market sentiment is dented. To measure the secondary effects, we look at various countries’ openness of the economy and sensitivities to global risk sentiment (general risk channel).”

09:43 USD/JPY defies resurgent USD demand, drops to session low

The USD/JPY pair snapped two consecutive days of winning streak and traded with bearish bias through Asian session on Wednesday.

The pair remained under some selling pressure as traders seemed to readjust their positions ahead of today's key event risk - the FOMC meeting minutes. Moreover, the pair defied broad based greenback recovery, with the key US Dollar Index reversing early losses and touching multi-week highs near 101.50 region, and touched a fresh session low level of 113.30 during early European session. 

Even the prevalent risk-on mood, as depicted by positive trading sentiment surrounding equity markets, which tends to dent the Japanese Yen's safe-haven appeal, has failed to lend any support and hinder the pair's reversal from three-day high touched on Tuesday.

Investors on Wednesday keenly await the release of minutes from the Fed’s latest monetary policy meeting for fresh clues over the central bank's near-term monetary policy outlook. Today’s minutes would also assist investors gauge possibilities of a rate-hike action at the Fed’s upcoming meeting in March, which would eventually help in determining the pair’s next leg of directional move. 

Technical levels to watch

A follow through retracement below 113.25 level is likely to accelerate the slide towards 113.00 handle ahead of 112.85 horizontal support below which the pair is likely to head towards testing 112.40 strong support area.

On the upside, 113.70-75 region now seems to have emerged as immediate resistance, which if cleared decisively is likely to boost the pair beyond 114.00 handle towards testing its next resistance near 114.25-30 region, en-route 50-day SMA strong hurdle near 114.90-115.00 psychological mark.

 


09:39 Trump wants a weaker USD - AmpGFX

In view of the Greg Gibbs, Director at Amplifying Global FX Capital, a factor that may have caused some weakness in the USD this year is that Trump and his administration officials have at various times continued to imply that major USA trading partners, including China and Germany, have used policies designed to weaken their currencies to take a trade advantage.

Key Quotes

“The implication is that Trump would prefer a weaker USD and certainly might come out and comment against broad further strength in the USD should it occur.”

“It is far from clear that these types of comments would have any lasting impact on the exchange rate.  If Trump and the Republican-led Congress succeed in delivering a corporate tax reform with a BAT, the USD is more likely to rise.”

“However, Trump’s comments on currencies and trade are part of a broader theme of protectionism that tends to threaten confidence in global growth.  At times this might seem to support alternative safe havens like gold and JPY.”

“Risk aversion has been more atmospheric than apparent in broader market developments.  It appears to be seen in some reduction in USD long positions taken initially on hopes of growth-orientated Trump policies. However, emerging market, commodity prices, and currencies have been buoyant, tending to ignore risk factors and respond to evidence of improving global economic growth.”

“At the time of the Abe visit, Trump appeared to soften his attitude towards both Japan and China, suggesting that he may approach trade relations with this two major trading partners in a more measured manner. This, combined with his comments on tax reform, allowed some rebound in the USD.  However, this was soon overshadowed by the controversy surrounding his former National Security Advisor.”


09:36 BCB Preview: Keeping the speed of rate cuts - Rabobank

Mauricio Oreng, Senior Brazil Strategist at Rabobank, suggests that for the Copom policy meeting, they stand along the broad consensus (and market prices) forecasting a cut of 75bps to 12.25% p.a. in the benchmark Selic rate.

Key Quotes

“We expect no major changes in the policy message by the Copom, hinting at more easing (probably at the current pace) ahead.”

“In our view, there has been limited amount of time and evidence for the BCB to override its own signal about a new pace of easing. Back-to-back surprises do not seem to be on the menu for a central bank that has been so keen to improve communication with the market.”

“We continue to see mounting downside risks to our Selic rate projections for both end-2017 (9.50%) and mid-2018 (9.00%). While our long-held single-digit Selic call for 2018 became largely consensual now, the new “terminal” rate could be even lower than we had thought.”


09:30 USD/RUB: Risks remain on the downside - Natixis

Micaella Feldstein, Research Analyst at Natixis, suggests that the risks remain on the downside for USD/RUB pair as downside parallels have emerged on the daily chart and as the weekly MACD remains bearish.

Key Quotes

“Against this backdrop, a return above a resistance at 59 (daily Bollinger moving average) sounds highly unlikely and we rather see a new leg lower to 56.60-56.85 (daily Bollinger lower band).”

“Caution will be in order as a break below these thresholds would signal a strong deterioration in the technical outlooks, unleashing added downside potential to 54.10 (quarterly parabolic) and even 52.35-52.50 (rising trendline). The resistances are at 59-59.30, at 60.90, at 62.80, at 63.90 and at 65.85.”


09:27 US: BAT should cause USD to appreciate - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, notes that the US Tax Foundation argues that the BAT is trade neutral, suggesting that it should have no net impact on the trade balance. 

Key Quotes

“However, it comes to this conclusion with the help of adjustment in the exchange rate and national prices.  The bottom line is that the BAT will cause the USD to appreciate and/or prices in the USA, especially for imports, to rise.”

“All other things equal, a BAT makes importing less profitable, imported goods more expensive, and exporting more profitable.  If there were no exchange rate or price adjustment we would expect the trade balance to narrow and stronger demand for domestically produced goods over imports.  This would tend to cause more generalized inflation.  It might also tend to boost capital inflow as companies sought to bring production onshore.  The combination of narrowing in the trade deficit and more capital inflow would place upward pressure on the exchange rate.”

“In a flexible exchange rate regime, currency appreciation would be expected to make the bulk of the adjustment to rebalance supply and demand.  A higher exchange rate would make exports less competitive and imports cheaper, and reduce the advantage of moving production onshore, tending to offset the effects of the BAT on the trade deficit and balance of payments.”

“From our perspective, as a currency analyst, it would seem that the USA tax overall is, if nothing else, bullish for the USD.  It is perhaps somewhat surprising that the USD has not risen more in response to Trump and Republican tax overhaul plans.”

“This is especially the case since the US equity market has appeared to be more clearly and consistently lifted by the prospect of tax overhaul.  Although to be fair, global equities are higher perhaps in response to stronger global growth indicators; including the PMI data.”


09:24 Australian Govt biggest-ever bond transaction

Bloomberg reports latest headlines on the Australian debt markets, noting that the Aussie government made the biggest-ever bond transaction today.

Key Details:

Australia's government sold A$11 billion of 11-year debt notes

Its biggest-ever bond transaction

The third time in less than six months for a new borrowing record (exceeds A$9.3 billion issued at a sale of December 2021 notes last month & A$7.6 billion from last October's debut 30-year deal)


09:16 EUR/GBP plummets to two-month low ahead of German Ifo and UK GDP

The EUR/GBP cross extended its reversal move from the vicinity of 0.8600 handle, touched last week, and tumbled to its lowest level since Dec. 21 during early European session on Wednesday.

Currently trading around 0.8425 region, the cross remained under intense selling pressure for the third consecutive session amid growing concerns over political developments in the Euro-zone. Investors remained worried about the prospects of Marine Le Pen winning the French Presidential election and withdrawing France out of the common trade bloc.

Traders now look forward to the release of German Ifo Business Climate index for Feb. for immediate respite for the shared currency.

Meanwhile, the British Pound remained a relative outperformer against its European counterpart as market participants await the release of revised UK GDP growth number for additional traction. Also in focus would be speech from BOE Deputy Governor Jon Cunliffe later during European session.

Technical levels to watch

From current levels, the downslide could get extended towards 0.8400-0.8390 strong support below which the cross is likely to head back towards 0.8335 horizontal support ahead of early Dec. lows support near 0.8300 round figure mark.

On the upside, 0.8450 level now seems to act as immediate resistance, which if cleared could lift the cross back towards 0.8500 psychological mark. Further up-move beyond 0.85 mark might continue to be capped at 50-day SMA strong hurdle near 0.8540 region.

 


09:09 Brazil: Expect the BCB to cut by 75bps TDS

Research Team at TDS expects the BCB to cut by 75bps, on the back of both rapidly declining “core” inflation aggregates that have shown increased responsiveness to tight monetary conditions (such as non-regulated, non-tradable inflation) and the sluggish economic recovery.

Key Quotes

“Ultimately we believe that the BCB will aim to get the real (ex-ante) SELIC rate down to somewhere near the average of the past decade (below 6%) before pausing. This implies another 75bp cut after this week’s meeting, with the pace of easing tapering after to 50bps and eventually 25bps to bring us to the end point of 9.75% in the SELIC by the end of the year.”

“We think that there could be some downside risk to this view (more easing) on the end of year rate, and also some risk that the BCB cuts by 100bps. The mid-month February IPCA will be released before the meeting and should help colour the BCB’s communication bias, thought the market is expecting another significant disinflationary print at 5.4% Y/Y.” 


09:08 Sources: BOJ to consider adding specific dates for announcing JGB buying schedules - RTRS

Reuters quoting sources familiar with the BOJ matter, note that the Japanese central bank is considering adding specific dates for announcing JGB buying schedules.


09:06 US: Still waiting for Trumps tax policy - AmpGFX

In view of the Greg Gibbs, Director at Amplifying Global FX Capital, there appears to be a lot riding on the tax plan promised by Trump. 

Key Quotes

“US equities seem to have risen significantly in anticipation of a sizeable corporate tax overhaul that is expected to cut the corporate tax rate from 35% to 20%, or even to 15%, and apply border adjustment to remove tax payable on export revenue but also remove the tax deductibility of import expenses.”

“Trump said during his press conference with Japan PM Abe not quite two weeks ago that “what is happening with the tax structure is going along very well” and there will be “some very big news on tax structure over the next short period of time.”

“He also said that, “I think the US is going to be an even bigger player than it is right now, by a lot, when it comes to trade, a lot of that will have to do with our tax policy which you will be seeing in the not too distant future.  We will have an incentive based policy much more than we have right now.  Right now nobody even knows what policy we have, but we are going to have a very much incentive based policy, working with Congress, working with Paul Ryan, working with Mitch McConnell.  And I think people are going to be very very impressed.”

“This seems to suggest the House Republican plan for a corporate tax cut with a border adjustment tax will be the basis for Trump’s tax policy.”


09:01 GBP/USD upside lost momentum around 1.2500 ahead of data

The bid tone around the Sterling remains well and sound on Wednesday, now sending GBP/USD to the 1.2500 neighbourhood, or daily peaks.

GBP/USD attention to FOMC, data

The pair continues to show a high degree of resilience so far this week, advancing since Monday despite the persistent buying sentiment surrounding the greenback. Gains, however, seem to have found quite a strong resistance just above 1.2500 the figure, where sits the 20-day sma.

The short term scenario stays favourable to the British Pound for the time being, as Brexit concerns appear somewhat alleviated while fundamentals stay solid despite some weakness seen in past weeks.

Another story comes from the speculative front, where GBP net shorts have increased to multi-week highs during the week ended on February 14 according to the latest CFTC report.

Later in the session, another revision of UK’s Q4 GDP is expected to come in at 0.4% inter-quarter and 2.2% on an annualized basis. Across the pond, US Existing Home Sales are due ahead of the speech by FOMC’s J.Powell (permanent voter, neutral) and the FOMC minutes.

GBP/USD levels to consider

As of writing the pair is up 0.14% at 1.2489 and a break above 1.2509 (20-day sma) would open the door to 1.2550 (high Feb.14) and finally 1.2715 (high Feb.2). On the other hand, the immediate support aligns at 1.2379 (low Feb.15) ahead of 1.2344 (low Feb.7) and finally 1.2250 (low Jan.19).


09:01 Norway Labour Force Survey declined to 4.4% in December from previous 4.7%


09:01 UK Q4 GDP and German IFO data release amongst market movers today Danske Bank

The release of Germany’s IFO data and UK’s Q4 GDP will be the key market moving economic releases for today’s session according to the research team at Danske Bank.

Key Quotes

“German Ifo expectations fell from 105.5 in December to 103.2 in January and we expect it to decrease further in February to 102.5. Despite the high level in the survey in Q4 16, pointing towards very strong German GDP growth, actual economic activity was 'just' 0.4% q/q in the first release. Overall, optimism about growth prospects for the start of 2017 could be on the decline.”

“In the UK, the second estimate for GDP growth in Q4 is due out, which is somewhat interesting, as the expenditure components such as private consumption and investments in Q4 are included for the first time in this release. While growth continued at the same pace in H2 16 after the EU vote, we think GDP growth will slow down eventually this year.”


08:57 German IFO and UK Q4 GDP data awaited TDS

Research Team at TDS suggests that following on Tuesday’s strong increases in the euro area PMIs, they see upside risks to the German IFO survey, with both the expectations and current situation indexes posting gains of about 1 point each, against market consensus for very slight declines in both indexes.

Key Quotes

“The final euro area print of January CPI is also out, which will provide further details on the drivers of January’s sharp move up to 1.8% y/y.”

UK: Today we get the second reading of Q4 GDP, with all the expenditure details for the first time. Markets are looking for the Q4 print to remain unchanged at 0.6% q/q, but after the strong IP and construction prints for December, the risks of an upward revision are greater than the risks of a downward revision, and in fact about 1/3 of analysts in Bloomberg are looking for an upward nudge to 0.7%.”


08:55 Russias Novak: Iranian delegation to visit Moscow on March 27th - IFX

The Russian news agency, Interfax (IFX), reported comments from Russia’s energy minister, Novak, citing that the Iranian delegation is expected to visit Moscow on March 27th.


08:53 SEK: Set for gradual appreciation - Natixis

Nordine Naam, Research Analyst at Natixis, notes that since November, the Swedish krona has appreciated sharply against the euro, the EUR/SEK declining from 9.96 to set a low at 9.41 at the start of February.

Key Quotes

“This has taken place when the euro experienced a bout of weakness in reaction to the announcement by the European Central Bank that it would be pressing ahead with its Asset Purchase Programme and to the surge in European political risks, but the main drivers have been the improvement in Swedish economic growth and inflation. After tottering on the edge of deflation, consumer prices have picked up since 2016.”

“The Swedish krona even appreciated in the wake of Riksbank’s December meeting, despite the central bank maintaining a very dovish stance, announcing the extension of its asset purchase programme during the first half of 2017 (for a total of SEK245bn), to keep pace with the European Central Bank’s own programme, and maintaining a downward bias for its forward guidance.”

“The fact is that announcements by Riksbank have failed to dispel expectations of an earlier-than-anticipated tightening of monetary policy given the rebound in inflation to near the central bank’s official 2% target. As a result, the spread between Eurozone and Swedish 2-year interest rates (see left-hand chart below) has tightened. The market is also playing prospects that Riksbank will exit QE sooner (June 2017) than the European Central Bank (end-2017).”

“Yet, when it met on 15 February, Riksbank maintained a rather dovish stance once again, when the market expected it to turn hawkish now that inflation is back near the official 2% target.”

“In sum, Riksbank remains very cautious on inflation. After rising for four consecutive months on the back of crude oil prices, headline inflation slowed to 1.4% in January (from 1.7% in December). Without energy, inflation pulled back to 1.6% in January (from 1.9% in December), expectations being that it will hold at this level until the end of the year, possible dip lower if the Swedisk krona appreciates sharply given the impact this would have on import prices. For these reasons, we do not expect a sharp appreciation of the krona this year, as the central bank will be vigilant, ready to intervene in the foreign exchange market if necessary. We see the EUR/SEK at 9.30 at the year-end, compared with which the 12-month forward currently trades at 9.48.”

“In coming months, there is even the risk that the krona will be buffeted to quite some extent by the rise in European political risks (uncertain outcome of elections in the Netherlands on 15 March and France on 8 May). A possible downturn in European economic activity because of these political uncertainties would seriously affect the Swedish economy, as exports to the Eurozone account for almost 50% of total exports. The krona can also be expected to be penalised by uncertainties surrounding Brexit given Sweden’s significant exposure to the British economy. In coming weeks, the EUR//SEK could recover temporarily towards 9.60 in reaction to the latest inflation data, which we would see as an opportunity to short the EUR/SEK.”


08:38 AUD/USD retreats from 0.7700 neighborhood, Fed minutes awaited

The AUD/USD pair built on Tuesday's bounce off multi-day lows near mid-0.7600s and rose to 0.7700 neighborhood, albeit has retreated few pips from session peak.

Currently trading around 0.7680-85 region, the pair caught some fresh bids on Wednesday in wake of in-line with expected wage price data from Australia. In fact, the wage price index rose 0.5% q-o-q in the fourth quarter of 2016 and shrugged off construction work data, which unexpectedly contracted by 0.2% in December quarter but was better-than previous quarter's 4.4% decline. Against the backdrop of a modest US Dollar retracement, from yesterday's multi-week highs, the data lent some additional support to the pair and lifted it to a three day high. 

The up-move, however, seems to have lost the momentum amid weaker trading sentiment surrounding copper prices, which tends to dent demand for commodity-linked currencies - like the Aussie. Moreover, continuous rise in the US treasury bond yields also collaborated towards capping any further upside as investors now look forward to the release of minutes from the Fed latest monetary policy meeting, due later during NY session.

The FOMC meeting minutes would be look upon for additional clarity over the Fed’s near-term monetary policy outlook and possibilities of a rate-hike action at the central bank’s upcoming meeting in March, which would eventually determine the pair’s next leg of directional move. 

Technical levels to watch

Weakness below 0.7670 level might continue to find support near 0.7650 region below which the pair is likely to aim towards 0.7610 important support before eventually dropping to its next support near 0.7555-50 region. On the upside, sustained momentum above 0.7700 handle could get extended towards 0.7720-30 resistance area ahead of Nov. daily closing highs resistance near 0.7760 region.

 


08:38 German election poll: Merkel s CDU 34% vs Schulz SDP 36% - RTRS

Latest poll on German elections, conducted by Forsa, was published in Germany’s Stern magazine, Reuters reports.

The German elections are likely to be held in September this year.

Key findings:

A sample of 2502 for both Stern and RTL between 13-17 Feb

Merkel's CDU 34% vs Social Democrats 31%

39% would vote for Merkel if there was a direct vote for Chancellor, 1% more than last week

SDP leader Schulz down 1% to 36%

Anti-immigration party AfD down 1% at 8%, lowest level for this poll for 7 months

Far-left Link 8%

Greens 7%


08:25 Forex Today: USD softens in Asia, IFO, UK GDP, Fed - Key

The US dollar corrected lower across the board in the Asian session this Wednesday, as markets resorted to profit-taking after yesterday’s solid rebound, and ahead of the highly-anticipated FOMC minutes. Also, cautious remarks from Fed’s Mester also weighed down on the greenback somewhat.

On the data front, we had unimpressive release of the Australian construction work done and wage price index data, both of which had negligible impact on the AUD/USD’s recovery mode.

In the day ahead, we have a busy calendar across the globe, kicking-off the European session with the German IFO surveys, followed by the UK second estimate GDP figures, Eurozone final CPI and ECB LTRO announcement. The NA session has the Canadian retail sales and US existing home sales data on tap.

Meanwhile, BOE MPC members Shafik and Cunliffe are expected to cross the wires ahead of the US open, followed by Fed’s Powell speech in New York. However, the main risk event for today is likely to be the FOMC minutes, which will provide fresh hints on the central bank’s rate hike prospects.

Main topics in Asia

Australia: Private sector wage growth still slowing – ANZ

David Plank, Head of Australian Economics at ANZ, suggests that while the headline number suggests stabilisation in the Australian Wage Price Index, the private sector measure (ex bonuses) fell to a new record low of 1.8% y/y.

Fed’s Mester: We have to change policy path if economic outlook changes

Additional headlines hit the wires from the Cleveland Fed President Loretta J. Mester, extending her talks on the labour market and fiscal policies.

BOJ’s Kuroda: More easing possible if required to meet price target

BOJ Governor Kuroda is back on the wires now, via Reuters, providing fresh hints on the bank’s monetary policy program going forward.

China home prices: Property curbs are having intended effects - BBG

Bloomberg offers insights into the latest Chinese data release, which showed that home prices in China increased last month in the fewest cities in a year.

Key focus for the week ahead                                                  

When is German IFO and how could affect EUR/USD?

The German Ifo surveys are lined up for release later today at 9GMT. The headline Ifo Business Climate Index is expected to edge lower to 109.6 in Feb. 

Market movers for the day – Rabobank

Research Team at Rabobank lists down the key market moving events from across the globe for today’s session.

FOMC minutes will not signal a March rate hike - Deutsche Bank

Deutsche Bank chief US economist Joseph LaVorgna provides some clues on what to expect from the release of Fed’s meeting minutes, noting that he does not expect the Fed to signal a hike for March in the minutes.


08:17 AUD: Wage price index and construction work done print weak numbers - TDS

Analysts at TDS note that Australia’s Q4 Wage Price Index came at +0.5%/qtr, maintaining its record low of +1.9%/yr, consistent with TD’s and the market forecast.

Key Quotes

“There was little chance that wages were likely to rise given the part time/full time split and hours worked.”

“Q4 Construction Work Done dipped –0.2%/qtr, the weaker print led by Engineering (ie mining) -2.2%. Non-residential was positive at +1.8% after weather induced a –10.9% decline in Q3. The market is unlikely to make any revisions to its GDP forecasts on the back of this release.”

 


08:14 EUR feeling the pinch - AmpGFX

According to Greg Gibbs, Director at Amplifying Global FX Capital, EUR may be starting to feel the pinch from the coming French election and the merry-go-round on the Greek bailout package. (First round of French election on 23 April, final two runoff on 7 May).

Key Quotes

“The betting odds of winning the final French Presidential election for the top three candidates shows that it appears to be an even race, with the favorite Macron’s probability of winning falling back close to Marine Le Pen and Fillon.  It appears likely that Le Pen will make it through the first round of voting to the final run-off.”

“There has again been some widening in Periphery Eurozone Government bond spreads in recent days.  The French spread has risen to a cyclical high.”

“Credit Default Swap indices show under-performance in European investment grade corporate risk (higher CDS) relative to US corporates and emerging markets.”

“EUR failed to draw much support from its preliminary PMI data, rising to new cyclical highs for both services and manufacturing.  Whereas the preliminary Markit USA PMI data were softer.”


08:09 AUD/NZD: Plenty of upside scope for the pair - Westpac

Sean Callow, Research Analyst at Westpac, suggests that relative commodity prices have been arguing for stronger AUD/NZD for months but it took the RBNZ’s meeting this month to fuel a break of 1.06 for the first time since November.

Key Quotes

“The RBNZ remains upbeat on New Zealand’s economy – with good reason – but Governor Wheeler again warned about international risks (including US protectionism) and chided markets for pricing in a rate hike this year. AUD/NZD has rallied 3 cents since this statement.”

“But fair value estimates were already above 1.10 even when markets were fully priced for an RBNZ rate hike by Nov 2017. AUD/NZD has diverged notably from yield spreads since about mid-2016.”

“While the persistence of AUD/NZD below our fair value estimates (now 1.12-1.13) argues for patience, it seems there is still plenty of upside scope for the pair. With support near term from iron ore and coal prices outperforming dairy, AUD/NZD should break important resistance at 1.0765. This would place the pair on track for substantial further gains, with a multi-month target of 1.10.”  


08:03 CHF: SNB likely remains active - Nomura

In view of the analysts at Nomura, the SNB is likely to be active in the FX market as EUR/CHF depreciation pressures increase ahead of euro area political events.

Key Quotes

“Further accumulation of SNB reserves is likely, and its diversification may attract market interest. Our analysis shows that, historically, a month after SNB intervention, JPY and USD tend to outperform, while NOK and NZD tend to underperform.”

“Uncertainty on European politics remains high. As a result, EUR/CHF has been trading heavily, leading us to think the SNB is likely active again in the FX market, attracting market interest.”

“We estimate that the Bank bought CHF9.6bn of foreign currency in January. This is still less than its estimated intervention in November 2016 (CHF21.3bn), but the SNB is likely to be active again after temporarily pausing intervention in December. The SNB sight deposit data show a further increase in the outstanding so far in February, from CHF532.8bn as of 27 January to CHF543.5bn as of 17 February. This leads us think the SNB remains active amid the high political uncertainty.”

“We expect EUR/CHF to continue to face depreciation pressure over the next few months, as 1) political risk increases safe-haven demand, and 2) the real rate in Switzerland is higher than in the euro area. Unless the SNB shows strong determination to avoid CHF appreciation by proactively cutting its policy rate at the next meeting on 16 March, the Bank is likely to be forced to intervene in the foreign exchange market continuously. This intervention could slow the pace of CHF appreciation, but it is difficult to change the trend, in our view. We see a risk of EUR/CHF testing 1.05 and even further downside.”

 


08:01 EUR/USD faces rejection near daily pivot, IFO eyed

The corrective rally in EUR/USD faltered just shy of daily pivot located at 1.0560, sending the rate back towards daily lows struck at 1.0534 in Asia opening trades.

EUR/USD awaits data, Fedspeaks and FOMC minutes

Currently, the EUR/USD pair remains better bid at 1.0544, although looks exposed to downside risks, as the USD bulls consolidate yesterday’s gains and gather pace for the next push higher, with the FOMC minutes likely to emerge the key catalyst for fresh upside in the buck.

The FOMC Feb meeting minutes may reveal the Committee’s optimism on the US economy, which is likely to back the case for further rate rises this year. However, the Fed minutes may not strongly signal a March rate hike.

The common currency may also remain under pressure on the back of falling Germany treasury yields amid increased safe-haven demand for the bunds, in wake of political concerns surrounding French elections. Further, expectations of deterioration in the German IFO surveys could also keep the euro in the backseat against its American counterpart.

EUR/USD Technical Levels

In terms of technicals, the pair finds the immediate resistance 1.0556/60 (daily high & pivot). A break beyond the last, doors will open for a test of 1.0587 (5-DMA) and from there to 1.0600 (zero figure). On the flip side, the immediate support is placed at 1.0520 (Jan 6 low) below which 1.0500 (psychological levels) and 1.0478 (Jan 5 low) could be tested.

 


07:58 Primary budget balances in EMU BBH

According to the analysts at BBH, with the official creditors on their way back shortly to Athens, there is a sense that a repeat of 2015 crisis can be avoided.  

Key Quotes

“There is a collective sigh of relief.  The generic two-year yield was pushing around 10% in the last couple of weeks and now is at 8.16%, the new low for the month.  The generic 10-year yield reached 8.1% at the end of last week and is now 7.22%, also new lows for February.”

“To be sure, Greece is not getting another tranche of aid, but it doesn't really need it until closer to July when a large debt servicing bill comes due.  Still, there is appears to be a window of opportunity, and several European finance minister wants to shift the focus from budget cuts to structural reforms.  The tax system, pensions, and the labor market are the focus of such efforts.”

“However, reports suggest that if the pressure on Greece is somewhat less, it may intensify on Italy.  As early as today, the EC may press Italy harder, and perhaps even threaten action if it does not implement measures to reduce its debt.  Italy's debt-to-GDP ratio reached 132.8% last year and is set to rise to 133.3% this year if everything goes according to plan.  Ironically, there may be concerns Italy's debt is not sustainable, but the EC argues against the IMF that Greece's debt (~180% of GDP) is sustainable.”

“Earlier this month, Italy promised measures to reduce its structural deficit by 0.2% of GDP.  The measures are to be implemented by the end of April.  The soon-to-be-issued warning is a reminder of Italy's commitment.   Italy's structural deficit appears to be moving in the wrong direction.  It was 1.0% (of GDP) in 2015 and rose to 1.6% last year.  It is set to rise to 2.0% this year and 2.5% next year.”

“There are four countries that seem problematic but do not appear to be the subject of much pressure.  France sticks out like a sore thumb.  It is the only eurozone member where a larger primary budget deficit in 2018 than this year is forecast.    Note Finland, Spain, and Estonia also continues to record primary deficits.  There may be several reasons why Spain is growing faster than Italy.  Often Rajoy's labor reforms and the earlier efforts to address the bank system problems are cited.  Spain's primary budget deficit this year is in a modest deficit, while Italy is expected to report among the largest primary surpluses among EMU members this year.”


07:40 Australia: Construction disappoints again in Q4 - ANZ

Analysts at ANZ note that Australian construction work done fell for the second quarter in a row in Q4 and is a disappointing result given a solid rebound had been expected, after the weather-affected weakness in Q3.

Key Quotes

“Although a soft result overall, the increase in privately-funded activity is an encouraging sign, and suggests that we are past the peak drag from the mining sector.”

“The fall in the fourth quarter was driven by the public sector, down 1.6% q/q. These falls were concentrated in non-residential building, which remains weak in the absence of stimulus-induced education and health projects. However, we remain optimistic on the outlook for total public expenditure, with a significant backlog of engineering work to support activity across the roads and rail sectors in particular.”

“On the other hand, privately funded work posted the first quarterly rise in 18 months, albeit a mild 0.2% q/q. Growth was centred in the non-residential building sector, although some of this likely reflects payback after a large decline the previous quarter. Meanwhile, housing construction rose once more, almost entirely due to strength in New South Wales, which leapt 7% to the highest level on record. However, softness across most other regions limited the overall increase in activity, consistent with our view that we are around the peak in dwelling construction. A strong backlog of work is expected to see housing construction remain around historically high levels in coming quarters, but further significant growth appears unlikely.”

“The decline in privately funded engineering construction continued into Q4, down 3.5%. This is likely to persist through 2017, as the remaining mining projects, primarily across Western Australia, Queensland and Northern Territory wind up. However, it does appear that the worst of the drag from the mining sector is behind us, with the quarterly drag on construction now at -2.2%, from a trough of -4.5% in March 2016.”

“Today’s result is certainly on the soft side, and business construction (non-residential building and engineering construction) will likely weigh on next week’s Q4 GDP result. But it is becoming apparent that the declines from the mining sector are easing, and will be less of a drag on overall economic activity going forward.”


07:18 Japans Aso: Monetary policy exit strategy is not PM Abe s job

Japanese finance minister Taro Aso is back on the wires now, via Reuters, noting that monetary policy exit strategy is not PM Abe's job.


07:11 AUD: Irons in the fire - Nomura

According to Peter Dragicevich, Research Analyst at Nomura, the strong rally in Australian-centric commodity prices, such as iron ore, continues to be AUD supportive.

Key Quotes

“The tide should eventually turn, but some underlying developments point to prices remaining elevated for a while longer. Higher price levels are boosting Australia’s terms of trade and generating a shift in the trade and current account balances. These changes are fundamentally AUD positive. When combined with the improved global growth outlook, Asian export momentum and geopolitical risks in the eurozone the bias is for further near-term EUR/AUD downside.”


07:07 Australia: Leading Index sustains recent lift in growth rate - Westpac

Bill Evans, Chief Economist at Westpac, notes that the six month annualised growth rate in the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, fell from 1.36% in December to 1.30% in January.

Key Quotes

“This marks the sixth consecutive month where the growth rate in the Index is at or above trend. That followed a period of fifteen consecutive months where the growth rate had been below trend. That sustained period of below trend growth in the series had been pointing to the weakness we have seen in the economy in the September quarter (although no lead indicator could have prepared us for a negative growth print).”

“However, the run of six consecutive above or at trend readings is signalling a better outlook for the first half of 2017. In particular, whereas over the September–November period the Index had been losing momentum, albeit still in positive territory, the December and January results represent a very strong rebound.”

“Westpac concurs with the forecast of the Reserve Bank of 3% growth through 2017. That growth rate is above trend and consistent with the positive leads from the Index over the last six months.”

“Potential complications for this growth rate lie with the Australian dollar. Although the recent strength in the Australian dollar is entirely understandable given the recent surge in commodity prices, the intensity and timing of any boost to spending from the rising terms of trade is always uncertain. On the other hand a higher Australian dollar can be expected to challenge services and manufacturing export growth. For now our forecasts for commodity prices and the Australian dollar envisage that we are near the peaks although we do not expect much correction to commodity prices or the Australian dollar through the remainder of 2017.”


07:05 When is German IFO and how could affect EUR/USD?

German IFO Business Climate Overview

The German Ifo surveys are lined up for release later today at 9GMT. The headline Ifo Business Climate Index is expected to edge lower to 109.6 in Feb. The Current Assessment sub-index is also seen lower at 116.7 this month, while the Ifo Expectations Index – indicating firms’ projections for the next six months – is expected to follow suit and come in a tad weaker at 116.7 in Feb, as compared to January’s 103.2 reading.

Deviation impact on EUR/USD

Readers can find FX Street's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined between 3 and 40 pips in deviations up to 2.4 to -3.2, although in some cases, if notable enough, a deviation can fuel movements of up to 60 pips.

 How could affect EUR/USD?

The Surveys are expected to show deterioration in the business conditions in Germany, which could add to the recent bearish momentum behind the EUR/USD pair, and hence, could knock-off the rate to 1.0500 levels. On an upside surprise, the EUR/USD pair could extend the corrective gains and eye a test of 1.06 handle.

Key notes

Market movers for the day – Rabobank

“Next up it is the German IFO survey, which is expected to edge down slightly but may surprise to the upside after the good set of PMI data in Europe yesterday.”

About German IFO Business Climate

This German business sentiment index released by the CESifo Group is closely watched as an early indicator of current conditions and business expectations in Germany. The Institute surveys more than 7,000 enterprises on their assessment of the business situation and their short-term planning. The positive economic growth anticipates bullish movements for the EUR, while a low reading is seen as negative (or bearish).

 


07:02 Australia: Private sector wage growth still slowing ANZ

David Plank, Head of Australian Economics at ANZ, suggests that while the headline number suggests stabilisation in the Australian Wage Price Index, the private sector measure (ex bonuses) fell to a new record low of 1.8% y/y.

Key Quotes

“This imparts a soft tone to the release and runs contrary to the comments by Governor Lowe in a speech this morning that “our liaison with businesses does not suggest….that further slowing [in wages] is in prospect.” The outcome suggests there is spare capacity in the labour market, with a consequent lack of any upward pressure on expectations for the RBA cash rate.”

“The wage price index excluding bonuses (WPI) rose by 0.5% q/q in Q4 and is up 1.9% over the year to December, in line with growth in the year to September.”

“This apparent stability masks a further slowdown in private sector wages, however. These were up 0.4% q/q, which saw the annual rate of change slow to a new record low of 1.8% in the year to December. In the second half of 2016 private sector wage growth annualised at just 1.6%.”

“The overall weakness in wage growth remains broad-based across industries, though some sectors such as education & training and admin & support services posted small increases. Not surprisingly, private sector wage growth is slowest in the mining states of Western Australia and Queensland at 1.4% y/y and 1.8% y/y respectively, while wage growth in the mining sector remained at just 1.0% y/y after peaking at 6.7% y/y in June 2008.”

“For the RBA, these numbers are likely to be disappointing. The further step down in private sector wage growth indicates the disinflationary pressures from the labour market will continue to dampen consumer price inflation.”

“There remains considerable spare capacity in the labour market with the labour underutilisation rate (unemployment plus underemployment) remaining high compared with history. There are some signs that wage growth may rise moderately in 2017, however, with the ANZ Wage Gauge and NAB labour costs moving higher for instance.”


06:44 Japan: Manufacturing activity continues to accelerate - Nomura

Research Team at Nomura notes that Japan’s manufacturing PMI for February was 53.5, up 0.8pt from January.

Key Quotes

“The PMI reading has now risen three straight months and stayed above the 50 watershed between expansion and contraction for six straight months, a clear indication that manufacturing activity is expanding.”

“Looking at the five component indices, the manufacturing PMI was boosted by positive trends in the output index (up from 53.2 in January to 54.3 in February), the new orders index (up from 54.0 to 54.7), the supplier delivery times index (down from 48.8 to 48.4; a drop in this index pushes up the headline index), and the employment index (up from 52.8 to 54.2). The stock of items purchased index (down from 49.8 to 49.6) exerted downward pressure on the February PMI reading, but this is not entirely negative as inventory workdowns often occur in the initial stage of an expansion in production and consumption.”

Continued rise of new export orders index suggests expansion of external demand

Recent industrial production data also indicate that production activity in Japan is steadily rebounding and that companies expect output to increase steadily going forward. We think rebounding external demand is the main factor supporting this pickup in production at Japanese manufacturers.”


06:40 Markets need to see that OPEC cuts bring inventory draws - Goldman Sachs

Livesquawk reports latest headlines from Goldman Sachs’ analysts on oil markets, noting that markets need to see that OPEC cuts bring inventory draws.

Both crude benchmarks are trading modestly flat in Asia, awaiting fresh impetus from the US API crude stockpiles data.


06:36 USD/JPY off lows, but still below 10-DMA

Broad based US dollar retreat appears to have stalled over the last hours, allowing a tepid-bounce in USD/JPY back towards the mid-point of 113 handle, with strong offer seen lying at 10-DMA barrier of 113.54.

The spot is last seen exchanging hands at 113.44, reversing a dip to 113.33, session lows. The major found some support from dovish comments from the BOJ Governor Kuroda, after he said that the central bank is prepared to ease further, if required to hit 2% price target.

Earlier today, USD/JPY rapidly retreated from 113.72 highs after the US treasury yields came under pressure, following Cleveland Fed President Mester’s cautious comments on the rate hike outlook.

Next of note for the major remains the US existing home sales data, besides, Fed speech from official Powell will be closely heard ahead of the FOMC minutes scheduled for release in the American afternoon.

USD/JPY Technical levels to watch 

The major finds immediate resistance at 113.78 (previous top). A break above the last, the major could test 114 (round figure) and 114.36 (Feb 16 high) beyond the last. While to the downside, the immediate support is seen at 113.00 (round figure) next at 112.75 (Feb 20 low) and below that at 112.58 (Feb 17 low).

 


06:35 Eurozone: Strong PMI data paints robust economic picture - ANZ

Analysts at ANZ note that the euro area composite PMI index rose to 56 – its highest level since April 2011 and the increase was mainly driven by a big rise in the services PMI.

Key Quotes

“At face value, it suggests a pick-up in economic growth during Q1. However, the survey’s price indices remained consistent with only weak inflationary pressures. In contrast, the US flash Markit Manufacturing PMI for February came in weaker than expected at 54.3, with output and new orders both down. Nevertheless levels are still elevated compared to historical norms and show that manufacturing output continues to expand.”

“In addition, the inventory data suggests output could pick up in the future with stocks of finished goods dropping. In the UK a smaller than expected budget deficit for January combined with the current account deficit showing some signs of improvement.”


06:28 Market movers for the day Rabobank

Research Team at Rabobank lists down the key market moving events from across the globe for today’s session.

Key Quotes

“Today we have already seen Aussie Q4 2016 wages come in at 0.5% q-o-q and 1.9% y-o-y – so basically zero once inflation picks up. See why everyone is borrowing, RBA?”

“In China we have seen January property prices, which saw Beijing unchanged m-o-m but 27% y-oy, Shanghai -0.1% and 28.3% y-o-y. Prices rose m-o-m in 45 of 70 cities vs. 46 in December, but 66 in y-o-y terms. That’s further evidence that the housing market is cooling only very slowly, it seems – and that more cooling measures might need to be put in place.”

“Next up it is the German IFO survey, which is expected to edge down slightly but may surprise to the upside after the good set of PMI data in Europe yesterday. After that it’s another look at UK Q4 GDP, final Eurozone January CPI, and then Canadian retail sales and US existing home sales.”

“In Brazil we will also have a Selic rate decision, which our Boy from Brazil Mauricio ‘Agent’ Oreng reports is likely to see another 75bp rate cut to 12.25% - at least there’s a bright spot there!”


06:23 Commodities: Mixed performance - ANZ

Commodities were mixed, with oil and iron ore prices higher, but the stronger US dollar weighing on gold and base metals notes analyst at ANZ. 

Key Quotes

Crude oil prices rose on news that OPEC is aiming to achieve full compliance to the production cut agreement. Adding to the bullish tone, Russia’s energy minister said that Russia plans to reach its output target by the end of April. WTI rose to its highest level in seven weeks.”

Base metals prices were lower. Copper took a breather from the recent rally, despite expectations that the Escondida strike is likely to continue.  Other base metal prices were weighed down by the stronger US dollar, with nickel prices leading the way lower on news from the International Nickel Study Group that nickel production exceeded demand in December.”

Iron ore prices continued their march higher on the back of higher steel futures in China, and despite warnings from BHP that prices are at risk of decline given “moderating Chinese steel demand, high port inventories and incremental low-cost supply”.”

Gold prices were broadly flat, as comments from the Fed’s Harker that a March rate hike is not off the table saw the US dollar strengthen.”

 


05:58 EUR/USD Intermarket: Franco-German yield spread is in the drivers seat

The rally in the EUR/USD pair from the low of 1.0341 (Jan 3 low) topped out at 1.0829 (Feb 2 high). Since then the currency pair has been losing height and now trades at 1.0540 levels.

During the same time period, the gap between French and German 10-year government bond yield rose from 0.652 to 0.787. Moreover, the French 10-year yield remained more or less steady around 1.085%, while German 10-year dipped from 0.437% on February 1 to current level of 0.301%.

This clearly points to rise in the safe haven demand for the German bunds on account of the political uncertainty in France. Greek crisis redux is also adding to the bearish pressure on the German yields.

Fed minutes could play second fiddle to European politics

Politics could easily overshadow Fed minutes, unless there is a discussion on the downsizing of the Fed’s balance sheet size. Franco-German 10-year yield spread could continue to guide the pair in the short-term.

 


05:49 FOMC minutes will not signal a March rate hike - Deutsche Bank

Deutsche Bank chief US economist Joseph LaVorgna provides some clues on what to expect from the release of Fed’s meeting minutes, noting that he does not expect the Fed to signal a hike for March in the minutes.

Key Quotes:

"We have consistently placed the probability much lower, because Fed policymakers will not have the Q1 GDP report at the time of their meeting and the specific details of a potential fiscal stimulus package will likely not be known.”

“Finally, despite an upward surprise in the January CPI data, inflation pressures are generally muted. Nevertheless, we expect the FOMC minutes to paint a relatively upbeat picture of the economic outlook but stop short of strongly signaling a March rate hike."


05:42 NZD/USD attempts tepid-bounce, regains 200-DMA

The Kiwi is seen extending its recovery mode from yesterday’s massive sell-off, as the bulls received fresh impetus from broad USD softness.

Currently, the NZD/USD pair rises +0.17% to 0.7171, flirting with session highs reached at 0.7176 last hour. The major reverses more-than half of the previous decline as markets resort to profit-taking heading into the release of Fed’s February meeting release, which is expected to throw fresh light on the timing of further rate rises in the coming months.

Moreover, the major is seen consolidating yesterday’s heavy losses incurred on the back of broad based US dollar rebound and a drop in NZ dairy prices, reflected by the GDT dairy auction, which recorded a 3.2% decline.

Meanwhile, markets ignored upbeat NZ credit card spending data, which arrived at +0.2% m/m vs. +3.2% last. In the day ahead, the spot could get affected by the USD dynamics, as investors gear up for the Fedspeaks, US existing home sales data and Fed minutes release.

NZD/USD Levels to consider

To the upside, the next resistance is located at 0.7187 (10-DMA), above which it could extend gains to 0.7232 (20-DMA) and from there to 0.7250 (psychological levels). To the downside immediate support might be located at 0.7147 (50-DMA) and from there to at 0.7124 (100-DMA), below which 0.7100 (round figure) would be tested.

 


05:31 Gold Intermarket: Downsizing of Fed balance sheet could hurt

Fed minutes due for release later today could show a discussion on the downsizing of the Fed balance sheet. Interest rate hike coupled with downsizing of the Fed balance sheet would be a double blow for the yellow metal. 

Gold prices followed the unprecedented expansion of the Fed balance sheet size since 2009. However, prices topped out above $1900 in 2011 after markets realized the expansion of the balance sheet isn’t fuelling sharp rise in inflation. 

The metal dropped to a low of $1050 in Dec 2015 and currently trades around $1230 levels. The yellow metal could take a hit if the Fed does consider downsizing its $4.5 trillion balance sheet. 

As of now, the Fed continues to be a powerful buyer in the markets. During its five years of QE, the Fed has acquired $2.46 trillion in Treasury notes and bonds and $1.75 trillion in mortgage backed securities (MBS). As these securities mature, the Fed buys similar securities as a replacement to keep the balance sheet from shrinking. 

The Fed may stop reinvesting and that would suck liquidity from the markets. Thus, dollar stands to gain, leading to losses in gold. 


05:17 China home prices: Property curbs are having intended effects - BBG

Bloomberg offers insights into the latest Chinese data release, which showed that home prices in China increased last month in the fewest cities in a year.

Key Points:

Signaling property curbs to deflate a potential housing bubble are taking effect

Chinese authorities have expanded curbs on home purchases

And tightened restrictions on property lending

In an attempt to avoid a housing bubble and reduce financial risks

Some bank branches in Beijing, Guangzhou and Chongqing have raised mortgage rates for first-time buyers, people familiar with the matter said earlier this month

Full article here

 


05:06 UKs EEF wants a 5 year Brexit transition period

The Telegraph carried a story on Wednesday that focused on a report published by the Institute of Directors (IoD) as well as by the UK's engineering and manufacturing trade body (EEF), noting the following:

"...  business people must not wait for the outcome of negotiations before undertaking their own planning and consultation in an attempt to minimise the potential for disruption to existing commercial relationships."

Companies should be more proactive than simply responding to the government's consultations and waiting for the result of the negotiations

The IoD study also found that companies have recovered much of the optimism that was lost at the time of the Brexit vote

Walking away from the EU is "not an option"

The EEF wants a transition period, but argues for a longer term lasting "at least" five years


04:57 EUR/USD holds above 61.8% Fib

Broad based weakness in the US dollar in Asia helped the EUR/USD hold above 1.0527, which is the 61.8% Fibonacci retracement of the rally from 1.0340 to 1.0829.

German IFO, Eurozone CPI eyed

German IFO sentiment indices are seen largely unchanged in February. The Eurozone CPI for January could be revised lower to -0.8% m/m from the initial print of 0.5%. The annualised figure is seen unchanged at 1.8%.

A downward revision of the CPI would only add to the bearish sentiment around the common currency.

The focus also remains on the Franco-German yield spread, given the heightened political uncertainty in France. Widening of the yield spread could weigh over the common currency.

EUR/USD Technical Levels

The spot was last seen trading around 1.0550. A break above 1.0561 (Feb 14 low) would expose 1.0594 (5-DMA). The next major hurdle is lined up at 1.0620 (Jan 30 low). On the other hand, a breakdown of support at 1.0527 (61.8% fib retracement) could yield a sell-off to 1.05 (Dec 22 high), under which the losses could be extended to 1.0455 (76.4% fib retracement).

 


04:53 Gold heads back towards $ 1240, Fed minutes in focus

Gold prices on Comex attempts a tepid bounce so far this session, now looking to regain $ 1240 barrier amid mixed market sentiment.

Gold: Back above 5-DMA at $1237.77

Currently, gold trades modestly flat at $ 1238.15, bouncing-off daily lows struck at $ 1235 pre-Tokyo open. Gold caught a fresh bid-wave in Tokyo and recovered most losses, as the greenback takes a back seat across the board, in wake of cautious comments from Fed official Mester on the Fed rate hike prospects.

While subdued trading activity on the Asian indices, with investors turning cautious ahead of more Fedspeaks and FOMC minutes, also buoyed the sentiment around gold somewhat.

The immediate focus now remains on the upcoming Fed minutes release today, as investors await fresh clues on the timing of interest rate hikes. Also, next week’s President Donald Trump's address to Congress will hold the key to determine next direction on the yellow metal.

Comex Gold Technical Levels                                  

The metal has an immediate resistance at 1243.50 (daily R2) and 1250 (round figure). Meanwhile, the support stands at 1234.30 (daily pivot) below which doors could open for 1229.20 (20-DMA).


04:44 BOJs Kuroda: More easing possible if required to meet price target

BOJ Governor Kuroda is back on the wires now, via Reuters, providing fresh hints on the bank’s monetary policy program going forward.

Key Headlines:

Chance of deepening negative rates low for now

BOJ ready to ease further if needed to hit 2 pct inflation target

Japan's economic growth accelerating

Inflation on track to hit 2 pct inflation during fiscal 2018, as we project in our quarterly report

BOJ's JGB buying proceeding smoothly, likely won't face any disruptions ahead

Meanwhile, USD/JPY moved slightly away from lows of 113.33 on BOJ Kuroda’s comments, and now trades at 113.40, still down -0.26%.


04:34 USD/JPY is fast losing height, dips below 10-DMA

The Dollar-Yen pair turned lower after comments from Fed’s Mester underscored the fact that the central banks remains market dependent.

The pair is fast losing weight and was last seen trading below the 10-DMA level by 113.48 levels.

Treasury yields surrendered gains

The 10-year treasury yield, which traded close to two basis points higher earlier today at 2.445% now trades 2.434%. Moreover, yields have given up gains following Mester’s comments.

Fed minutes eyed

Fed minutes may add more color to the strong words on inflation in the policy statement released on Feb. 1. Traders would also scan minutes for comments on the downsizing of the Fed’s balance sheet.

USD/JPY Technical Levels

A break below 113.24 (5-DMA) would expose the psychological level of 113.00, under which the losses could be extended to 112.62 (Feb 17 low). On the other hand, a lift above 113.73 (session high) would open doors for 114.31 (Feb 16 high). The next major hurdle is seen at 114.87 (50-DMA).

 


04:24 GBP/USD rises for 3rd straight session, eyes on UK GDP

The offered tone behind the US dollar gathered steam across the board over the last hours, fuelling further upside in GBP/USD.

The major is extending its winning streak so far this week, with the latest upmove backed by some fresh selling seen in the greenback broadly, in response to Cleveland Fed President Mester’s cautious take on US interest rates outlook in her latest speech.

Fed’s Mester: We have to change policy path if economic outlook changes

While on the GBP-side of the equation, the draft Brexit law has passed its House of Lords 2nd reading without vote and the bill now goes for consideration to its 'committee stage' on February 27. This implies that the UK PM May could trigger the Article 50 by March 31.

Data-wise, we have the UK’s second estimate Q4 GDP data alongside business investment data lined up for release in Europe, while the US has existing home sales data release. Besides, BOE MPC member Cunliffe and Fed official Powell will cross the wires ahead of the FOMC minutes due on the cards later today.

GBP/USD Levels to consider            

The upside barriers are lined up at 1.2527 (Feb 16 high), 1.2550 (Feb 14 high) and 1.2585 (Feb 9 high). While supports are aligned at 1.2471 (10-DMA) and 1.2456 (5-DMA) and below that at 1.2433 (100-DMA).

 


04:05 AUD/USD changed course on Mesters cautious take on interest rates

The offered tone around the US dollar strengthened, pushing AUD/USD higher to 0.77 handle after Cleveland Fed’s Mester sounded slightly cautious on interest rates. 

Mester said the central bank does not intend to surprise markets, which underscored the fact that the Fed is more market dependent than data dependent.  Mester also cited uncertainty on fiscal slide and uncertainty in the global economy. 

Her comments essentially mean that March rate hike is off the table and the central bank would not move unless markets are comfortable - rate hike bets are well above 60%. 

The AUD/USD pair turned changed course and rose to 0.7698 from the session low of 0.7666. Data released earlier today showed China home prices rose in fewest cities in 12 months amid curbs. However, Mester’s comments helped the Aussie dollar erase losses. 

AUD/USD Technical Levels

The spot was last seen trading around 0.7692. An intraday break above 0.77 could yield a break above 0.7632 (recent high) and a rally to 0.7750 (rising wedge resistance). A more sustained rally to 0.7778 (Nov 8 high) - 0.78 (zero figure) could be seen following a daily close above 0.77.

On the other hand, a breakdown of support at 0.7666 (session low) would open doors for a pullback to 0.7600 (zero figure), under which a major support is seen directly at 0.7609 (Jan 24 high). 


 
 


03:57 Feds Mester: We have to change policy path if economic outlook changes

Additional headlines hit the wires from the Cleveland Fed President Loretta J. Mester, extending her talks on the labour market and fiscal policies.

Key Points:

Uncertainty in global economy & European banks

Uncertainty doesn't mean we don't do anything

May be more changes to forecasts in current environment

Do not need fiscal spending to spur aggregate demand

We have to change policy path if economic outlook changes

Some problem areas in labour market


03:48 Irans OilMin: Crude above $60 would ultimately hurt OPEC

Iranian Students News Agency, via Bloomberg, reported comments from the country’s oil minister Bijan Namdar Zanganeh delivered earlier today.

Zanganeh addressed the media after meeting Russian Energy Minister Alexander Novak

Key Headlines:

Crude above $60 would ultimately hurt OPEC because it would spur competitors to boost production and trigger medium-term price decline


03:38 Japans Aso: Not thinking now of issuing negative rate Govt bonds

Japanese finance minister Taro Aso is also on the wires now, via Reuters, noting that the government is not thinking now of issuing negative rate Govt bonds.

No further details have been mentioned on the same.


03:32 China House Price Index declined to 12.2% in January from previous 12.4%


03:26 BOJs Kuroda FX level affects economy & prices

Bank of Japan governor Kuroda, while speaking in parliament, reiterated that the central bank does not predict FX level, although the exchange rate does have an impact on the prices and economy in general.

Kuroda added further that oil prices are unlikely to act as a drag on the CPI going forward.


03:21 Feds Mester Dont want to delay (rate hike) too long

In an interview with Bloomberg, Loretta J. Mester, President and CEO of the Federal Reserve Bank of Cleveland said that delaying rate hikes for too long would increase the risk of being behind market/falling behind the curve.

Key quotes

Gradual rate hikes over time desirable

Comfortable with rates being higher

We are full employment

Inflation is moving up

The devil is in the details when it comes to fiscal policy

Forecast for unemployment is to fall

GDP growth is bit above trend

 

 


03:16 PBOC sets Yuan reference rate at 6.8830

The People's Bank of China (PBOC) set the Yuan midpoint/daily reference rate at 6.8830 compared to Tuesday's fix of 6.8790.


03:01 EZ_ pick-up in economic growth during Q1? - ANZ

Analysts at ANZ explained that the euro area composite PMI index rose to 56 – its highest level since April 2011. 

Key Quotes:

"The increase was mainly driven by a big rise in the services PMI.

At face value, it suggests a pick-up in economic growth during Q1. However, the survey’s price indices remained consistent with only weak inflationary pressures. In contrast, the US flash Markit Manufacturing PMI for February came in weaker than expected at 54.3, with output and new orders both down."

"Nevertheless levels are still elevated compared to historical norms and show that manufacturing output continues to expand. In addition, the inventory data suggests output could pick up in the future with stocks of finished goods dropping. In the UK a smaller than expected budget deficit for January combined with the current account deficit showing some signs of improvement." 


02:47 USD/CNY fix projection: 6.8807 - Nomura

Analysts at Nomura offered their projections for the USD/CNY fix today at  6.8807 

Key Quotes:

"Our model1 projects the fix to be 17 pips higher than the previous fix (6.8807 from 6.8790) and 19 pips lower than the previous official spot USD/CNY close of 6.8826.

The basket implied change is 23 pips lower than the previous official spot USD/CNY close (6.8803 from 6.8826)."


02:44 USD/JPY: steady in 10 pip sell-ff in Tokyo after very bid US stocks

Currently, USD/JPY is trading at 113.55, down -0.05% on the day, having posted a daily high at 113.75 and low at 113.53.

Wall Street closing at all time highs again

USD/JPY is steady in Tokyo in a quiet session following the overnight action where currencies were whippy and markets going at full steam ahead. The stocks met new record highs despite poor economic data in the US PMI's compared to the outstanding EZ PMI's. The yen was slightly lower between a range of 113.40-113.80. We now turn heads to the Fed minutes as the next main catalyst. 

"US: FOMC Minutes. The release should offer some guidance on the prospects of a March hike. Key points of discussion centre on the labour market. This includes the outlook on the undershooting of the natural unemployment rate creating inflationary pressures, the return of people to the labour force as the economy strengthens, and measures of labour underutilisation."

USD/JPY levels

USD/JPY near term outlook is positive while the bulls continue to try and maintain its uptrend at 112.97. Analysts at Commerzbank explained that USD/JPY’s failure at the 55 day ma at 114.98 has been decisive and see the market selloff to its 112.97 uptrend. "We view the recent low at 111.59 as an interim low. A close above the 115.62 19th January high is needed to reintroduce scope to key short term resistance offered by the 16-month resistance line at 117.97."


02:32 Australia Wage Price Index (QoQ) in line with forecasts (0.5%) in 4Q


02:01 Markets spring back to life - ANZ

Analysts at ANZ explained that markets had a much busier session following holidays in the UK and US.

Key Quotes:

"The dollar was firm throughout and retraced its counterintuitive weakness versus the EUR. Stronger than expected euro area data was ignored and the market may be paying increased attention to opinion polls showing that France’s FN leader Le Pen’s popularity is continuing to rise."

"The buoyant global growth environment, healthy US consumer spending and stronger European data was reflected in buoyant equities, with the S&P 500 up 0.5%, the DAX up 1.2% and CAC 40 up 0.5%. Treasury yields pushed a touch higher initially before retreating."

"WTI crude was firm, rising to around $54 bbl as OPEC said they are targeting 100% compliance of the deal."


01:56 Fed s Mester comfortable with rates going higher

Dr. Loretta Mester, President & CEO of the Federal Reserve Bank of Cleveland, talking to CNBC, said she is comfortable with rates going higher, adding that she need to see Trump policies before assessing impact.


01:46 AUD/NZD outlook: headed into a very important area - Westpac

Analysts at Westpac offered an outlook for the antipodean and rates.

Key Quotes:

"AUD/NZD 1 day: The break above 1.0710 brings into sight the very important 1.0670 area (a technical “neckline”). A break above that implies a multi-cent rise is in store.

AUD/NZD 1-3 month: Higher to the 1.0770 area at least. The cross remains well below fair value estimates implied by interest rates, commodity prices and risk sentiment. (17 Feb)

AU swap yields 1 day: The 3yr and 10yr should open around 2.14% and 3.05%, respectively.

AU swap yields 1-3 month: The 3yr has probably based at 1.60%, the RBA expected to sit tight at a 1.5% cash rate for some time. (7 Nov)

NZ swap yields 1 day: NZ 2yr swap rates should open little changed at 2.33%, the 10yr at 3.53%.

NZ swap yields 1-3 month: The RBNZ said it has ended its easing cycle and will remain on hold until 2020. That will anchor the short end, although markets will not abandon their expectations for earlier tightening which means occasional spikes in the 2yr will be likely. The long end will continue to follow mainly US yields, which we expect to rise. That means the curve steepening trend should continue."


01:33 Australia Wage Price Index (YoY) below expectations (1.9%) in 4Q: Actual (0%)


01:33 Australia Westpac Leading Index (MoM): 0% (January) vs previous 0.4%


01:22 NZD/USD: drifting in narrow range between key daily-sma s

Currently, NZD/USD is trading at 0.7160, down -0.07% on the day, having posted a daily high at 0.7168 and low at 0.7159.

NZD/USD has dropped back in the last hourly sticks a small fraction from recent highs and is catching a slight bid. NZD/USD has otherwise been better bid from 0.7132 lows overnight and falling just short of the 50-1hr sma at 0.7167. Fundamental news was cross-supportive - iron ore rising 2.7% to $94.86( the highest since Aug 2014) while the GDT dairy auction recorded a 3.2% decline, eventually taking its toll on the bird. Analysts at Westpac suggest that momentum remains negative and this they are targeting a break below 0.7130 during the days ahead.

NZD/USD 1-3 month:  

The Fed’s tightening cycle plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar, pushing NZD/USD down to 0.7000 or lower. Granted, the NZ economy is strong and dairy prices have risen, but these forces are subservient to the US dollar’s trend.

NZD/USD levels

NZD/USD is in a phase of consolidation on the 4hr sticks stuck in a 15-pip range between 0.7150 and 0.7167. The price has been capped within the descending trend's resistance from 0.7374. A break lower could open up risk to 0.7050 below to 50-day sma at 0.7140. 


00:27 AUD/USD unchanged near 0.7680; RBA s Lowe finally admits household debt risk

Currently, AUD/USD is trading at 0.7674, down -0.01% or -0.5-pips on the day, having posted a daily high at 0.7674 and low at 0.7673.

Today's NA trading session experienced a brief US dollar comeback as treasuries recovered. Furthermore, the Australian dollar vs. American dollar erased losses as the pair bounced off lows near 0.7648.

The AU economic docket had traders and investors prepared to pick any changes in the rhetoric from RBA's Lowe; he finally added more on Australia's household debt. As reported by The Sydney Morning Herald, "It is difficult to quantify this risk, but it is one that is difficult to ignore. High household debt levels could hurt the economy," Governor Philip Lowe commented.

Although the central banker diminished any further rate cuts, there is evidence to expect slow down in the economy as household are pushed to adjust their spending patterns.

AUD/USD analysis: no progress made, but downside still limited

Historical data available for traders and investors indicates during the last 8-weeks that AUD/USD pair, a commodity-linked currency, had the best trading day at +1.18% (Jan.17) or 89-pips, and the worst at -0.81% (Jan.18) or (61)-pips. Furthermore, the US 10yr treasury yields traded from 2.45% to 2.41%, up +0.59% on the day at 2.42% or +0.0143.

Technical levels to consider

In terms of technical levels, upside barriers are aligned at 0.7731 (high Feb.16), then at 0.7777 (high Nov.8) and above that at 0.7834 (high April.21). While supports are aligned at 0.7617 (low Feb.14), later at 0.7512 (100-DMA) and below that at 0.7459 (50-DMA). On the other hand, Stochastic Oscillator (5,3,3) seems to head south. Therefore, there is evidence to expect further Aussie losses in the near term.

audusd

On the long term view, if 0.7834 (high April 2016) is in fact, a relevant top, then the upside is limited at 0.7809 (short-term 38.2% Fib). Furthermore, if the RBA has 'no ammo' nor solid reasons to increase rates in 2017, the interest rate advantage should decrease organically as the Federal Reserve continues increasing rates with 3-hikes in the next 16-months. To the downside, supports are aligned at 0.7433 (short-term 23.6% Fib), later at  0.7182 (reverse long-term 61.8% Fib) and below that back to 0.6826 (low Jan.2016).

audusd

Bond market still not on board with a March rate hike


00:04 Economic wrap: awaiting FOMC minutes - Westpac

Analysts at Westpac offered an economic wrap.

Key Quotes:

"US manufacturing PMI (Markit) slipped from 55.0 to 54.3 (vs 55.4 expected). Still in expansion territory, although the employment component slipped to 52.7 from 53.9 and prices charged also slipped.

Eurozone manufacturing PMI (Markit) rose from 55.2 to 55.5 (vs 55.0 expected). This upside surprise was mainly driven by Germany, while the acceleration in the services PMI was broader based across countries. Job creation was at the highest level since 2007, posing upside risks to inflation as the labour market continues to improve. 

Fedspeak: Harker repeated yesterday’s MNI interview comments, looking for three rate hikes this year, and proclaiming March live (echoing Yellen). Kashkari was non-committal. Williams saw financial stability risks from low-interest rates.

Event Risk

Australia: RBA Governor Philip Lowe sees 3pct GDP by 2019

The Westpac Leading Index survey is running at 1.28% annualised. Positives this month include commodity prices, up 4% in AUD terms; consumer expectations +1.8%; and total hours worked +0.6%. Against this, the ASX200 dipped -0.8%; US industrial production dipped -0.3%; dwelling approvals declined -1.2%; the yield spread narrowing slightly and the unemployment expectations index deteriorated. Overall a consolidation on recent gains looks likely.

Q4 wage price index rose 0.4% in Q3, below market and Westpac's expectations for 0.5%, while the annual pace of wage inflation dipped to 1.9%yr, a record low. Wages are underperforming broader indicators of the labour market. Even if you use the broadest indicator of labour market slack, underemployment, wages growth is significantly softer than what you would expect it to be. We think little has changed hence our 0.4% forecast, which will take the annual pace down to 1.58%yr.

Q4 construction activity slumped in Q3, contracting by 4.9%, as the downturn in mining project work was exacerbated by surprising softness elsewhere. For Q4, we anticipate a modest contraction in construction work, of -0.8%. Private infrastructure work is expected to fall by 6.0%, not greatly different to last quarter, -6.6%. Total private building activity is expected to resume its upward trend, centred on housing, +1%, following a 5.7% drop last quarter. Public construction activity is also expected to resume its uptrend, centred on infrastructure.

US: FOMC Minutes. The release should offer some guidance on the prospects of a March hike. Key points of discussion centre on the labour market. This includes the outlook on the undershooting of the natural unemployment rate creating inflationary pressures, the return of people to the labour force as the economy strengthens, and measures of labour underutilisation.

Fedspeak includes Williams speaking to students and Powell on the economic outlook at the Forecaster’s Club of New York."


00:01 Wall Street closing at all time highs again

Wall Street was rallying on Tuesday and simultaneously closing at records for the second session in a row.

Despite disappointing data from the US economy in the US PMIs, the Dow Jones Industrial Average rose 0.6%, or by 118.95 points, to a record 20,743.00 and this was the eighth straight session of closing records and the longest winning streak since July 20, 2016. The S&P also rose and by 0.6% to close at a record 2,365.38, a gain of 14.22 points. Meanwhile, the Nasdaq Composite Index gained 27.37 points, or 0.5%, to finish at a record 5,865.95.

The US dollar index is around 0.4% higher even after US manufacturing PMI (Markit) that fell from 55.0 to 54.3 (vs 55.4 expected). The employment component also slipped to 52.7 from 53.9.

After the holiday yesterday, US 10yr treasury yields reopened at higher levels and up to 2.46%. However, the 10-year dropped back to 2.41% where it closed on Friday while shorter yields sustained gains, though, the 2yr in a higher 1.20%-1.22% range (vs 1.19% Fri) and the auction awarded at 1.23%, as noted by analysts at Westpac adding that Fed fund futures implied rates were slightly firmer, "The April contract at 0.72%, which implies around a 40% chance of a rate hike in March)."


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