Mar 01 19:51 GMT


Forex Expos

Mid-Day Report: Dollar and Yen Lower on Strength in Oil and Stocks Print E-mail
Market Overview | Written by | Mar 01 16 13:43 GMT

Mid-Day Report: Dollar and Yen Lower on Strength in Oil and Stocks

Quick updated: ISM manufacturing rose to 49.5 in February, better than expectation of 48.5, but stayed below 50.

Dollar and yen are generally lower today on strength in crude oil and stocks. WTI crude oil is back above 34 and European indices are generally up. US futures point to higher open and we'd probably see another day of rally in equities. New York Fed president William Dudley warned that "at this moment, I judge that the balance of risks to my growth and inflation outlooks may be starting to tilt slightly to the downside." And, "the recent tightening of financial market conditions could have a greater negative impact on the U.S. economy should this tightening prove persistent, and the continued decline in energy and commodity prices may signal greater and more persistent disinflationary pressures in the global economy than I currently anticipate." Released in US session, Canada GDP rose 0.2% mom in December. ISM manufacturing index will be released next.

Euro is so far the weakest major currency this week as markets are betting on additional stimulus by ECB next week. Economic data released from Eurozone are positive this week but provide little support to the common currency. Eurozone PMI manufacturing was revised higher to 51.2 in February. Eurozone unemployment dropped to 10.3 in January versus expectation of 10.4%, and hit the lowest level since August 2011. German unemployment contracted -10k in February while unemployment rate was unchanged at 6.2%. Italy manufacturing PMI dropped to 52.2 in February.

UK PMI manufacturing dropped to 50.8 in February, below expectation of 52.3. That's also the lowest level in nearly three years since April 2013. Markit noted that "the near-stagnation of manufacturing highlights the ongoing fragility of the economic recovery at the start of the year and provides further cover for the Bank of England's increasingly dovish stance." And, "the breadth of the slowdown is especially worrisome." From Swiss, PMI manufacturing rose to 51.6 in February while retail sales rose 0.2% yoy in January.

As widely anticipated, the RBA left the cash rate unchanged at 2% in March. Policymakers acknowledged that the global economy has continued to grow, although the pace is slower, whilst domestic economy has improved over 2015. On the monetary stance, the RBA judged that it is 'appropriate' to maintain 'accommodative' monetary policy as low interest rates are 'supporting demand'. It affirmed that 'new information should allow the Board to judge whether the improvement in labor market conditions is continuing and whether the recent financial turbulence portends weaker global and domestic demand'. However, continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand'. More in RBA Keeps Cash Rate At 2% in March. Also from Australia, current account deficit widened to AUD -21.2b in Q4. Building approvals dropped -7.5% mom in January. New Zealand terms of trade index dropped -2.0% qoq in Q4.

China's official PMI manufacturing dropped to 49.0 in February versus expectation of 49.4. That's the weakest level since January 2009 and suggests that contraction is worsening. Official PMI non-manufacturing dropped to 52.7. Caixin PMI manufacturing dropped to 48.0 versus expectation of 48.4. Caixin economist noted that "The index readings for all key categories including output, new orders and employment signaled that conditions worsened."

Yesterday, PBOC cut the reserve requirement ratio of all financial institutions by -50 bps, taking the average ratio to 16.5%, effective March 1. The move, expected to inject liquidity of RMB 600-700B to the market, marks China's further step to ease the monetary policy. Besides liquidity injection, the move attempts to restore market confidence. PBOC announced the move on Monday, after the A-share market dropped -2.9% and -6.4% last Thursday. We believe it attempts to calm the market ahead of the annual National People's Congress which begins on March 5. More in China Watch: PBOC Moves RRR Lower, Further Step To Inject Liquidity And Add Monetary Easing.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 112.22; (P) 113.10; (R1) 113.55; More...

USD/JPY's consolidation pattern from 110.98 is still in progress and intraday bias remains neutral. Further recovery cannot be ruled out but we'd expect upside to be limited by 115.96 support turned resistance and bring fall resumption. Below 110.98 will extend the fall from 125.85 and target long term fibonacci level at 106.63. Though, firm break of 115.96 will indicate near term reversal and bring stronger rise back to retest 125.85 high.

In the bigger picture, price actions from 125.85 medium term top is developing into a deeper correction. Further fall would be seen to 38.2% retracement of 75.56 (2011 low) to 125.85 at 106.63 and possibly below. Break of 115.96 support turned resistance is needed to be the first sign of completion of the correction. Otherwise, risk will stay on the downside in case of rebound.

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
21:45 NZD Terms of Trade Index Q/Q Q4 -2.00% -3.70% -3.80%
23:30 JPY Jobless Rate Jan 3.20% 3.30% 3.30%
23:30 JPY Household Spending Y/Y Jan -3.10% -2.50% -4.40%
00:30 AUD Current Account Balance (AUD) Q4 -21.1B -19.8B -18.1B -18.8B
00:30 AUD Building Approvals M/M Jan -7.50% -2.90% 9.20% 8.60%
01:00 CNY Manufacturing PMI Feb 49 49.4 49.4
01:00 CNY Non-manufacturing PMI Feb 52.7 53.5
01:45 CNY Caixin PMI Manufacturing Feb 48 48.4 48.4
03:30 AUD RBA Rate Decision 2.00% 2.00% 2.00%
08:15 CHF Retail Sales (Real) Y/Y Jan 0.20% -1.20% -1.60% -1.70%
08:30 CHF PMI Manufacturing Feb 51.6 49.6 50
08:45 EUR Italy Manufacturing PMI Feb 52.2 52.2 53.2
08:55 EUR German Unemployment Change Feb -10K -10K -20k
08:55 EUR German Unemployment Rate Feb 6.20% 6.20% 6.20%
08:55 EUR Germany Manufacturing PMI Feb F 50.5 50.2 50.2
09:00 EUR Eurozone Manufacturing PMI Feb F 51.2 51 51
09:30 GBP PMI Manufacturing Feb 50.8 52.3 52.9
10:00 EUR Eurozone Unemployment Rate Jan 10.30% 10.40% 10.40%
13:30 CAD GDP M/M Dec 0.20% 0.10% 0.30%
15:00 USD ISM Manufacturing Feb 49.5 48.5 48.2
15:00 USD ISM Prices Paid Feb 38.5 35.5 33.5
15:00 USD Construction Spending M/M Jan 1.50% 0.50% 0.10%

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