Sun, Jan 26, 2020 @ 12:02 GMT
The forex markets are turning into profit taking consolidation mode as the half year end approaches. News from Eurozone are generally positive but the common currency pares back some of this week's sharp gain against Dollar and Yen. One the other hand, Canadian Dollar is still working hard to break through 1.3 handle against Dollar, following the rebound in oil prices. The Loonie is set to end June as the strongest one, followed by Aussie and than Kiwi. While Sterling surges this week on hawkish BoE turn, it's yet to recover the post UK election lost and would end as the third weakest one for the month, following Dollar and then Yen.
Global equities tumbled broadly while treasury yields surged as investors are preparing themselves to enter into an era of monetary stimulus removal. DOW lost -0.78% to close at 21287.03, S&P 500 down -0.86% to 2419.70, and NASDAQ dropped -1.44% to 6144.35. That was preceded by the -0.51% fall in FTSE, -1.83% fall in DAX and -1.88% fall in CAC. US 10 year yields followed global yields higher and closed up 0.046 at 2.267, breaking 2.229 near term resistance. In Asian markets, Nikkei followed by losing -1.06% to 20006.88, just barely hold on to 20000 handle. In currency markets, Yen and Dollar recovered mildly but are still set to end the week as the weakest major currencies. Sterling, Canadian and Euro remained the strongest ones and supported by respective hawkish central banks.
While yen's free fall continues in early US session, Dollar stabilizes mildly. Economic data from US are supportive. Initial jobless claims rose 2k to 244k in the week ended June 24. That's the 121 straight week of sub-300k reading. Four week moving average dropped 2.75k to 242.25k. Continuing claims rose 6k to 1.948m in the week ended June 17. It stayed below 2m mark for 11 straight week. Q1 GDP growth was revised up to 1.4% annualized, from 1.2% annualized. GDP price index was revised down to 1.9%, from 2.2%. Overall, there is no sign in bottoming in the greenback yet and it's still vulnerable to further selloff against Euro, Sterling, Franc, Canadian and Australian. For the week so far, Sterling is the strongest, followed by Euro and then Canadian.
Sterling and Canadian Dollar jumped sharply overnight as comments from BoE Governor Mark Carney and BoC Governor Poloz hinted at rate hikes ahead. Canadian Dollar is additional supported by the rebound in oil price, which sees WTI breaching 45 handle. Euro suffered some jitters on report that markets misjudged ECB President Mario Draghi's hawkish comments. But traders quickly turned to the bigger picture that ECB is, nonetheless, in a transition phase into stimulus removal. Euro remains the strongest major currency for the week, followed by Sterling and Canadian Dollar. On the other hand, the Japanese Yen is trading as the weakest as BoJ is expected to maintain stimulus. Dollar follows as markets are in doubt whether Fed will hike again in September.
Euro retreats sharply on report that markets has overreacted to ECB President Draghi's comment yesterday. Bloomberg quoted unnamed source saying that Draghi's comments were intended to strike a balance between recognizing Eurozone's strength while maintaining that policy accommodation is still needed. In particular, the reactions were hyper sensitive to Draghi's comment that "the threat of deflation is gone and reflationary forces are at play". EUR/USD hits as high as 1.1387 earlier today but is now back at 1.1330 after breaching 1.13 handle briefly. EUR/GBP also breached 0.8851/8865 key resistance zone earlier today but is back at 0.8830. Meanwhile, the development also triggered recovery in USD/CHF to as high as 0.9646.
Euro soared overnight as propelled by comments from ECB President Mario Draghi, taking out key resistance levels against Dollar and Yen. The common currency remains firm in Asian session. On the other hand, Dollar and Yen are trading among the weakest ones. The greenback is additional pressured, together with US stocks, as delay in healthcare vote in Senate again raised questions on US President Donald Trump's ability to push through economic agenda. Draghi's comment also pushed German bond yields higher, which was then followed in US bond markets. Yen suffered deeply with the rebound in bond yields. Meanwhile, Canadian Dollar is helped by the rebound in oil prices, partly thanks to the decline in Dollar. WTI crude oil is back above 44 even though there is no clear momentum to regain 45 handle yet. Gold is back above 1250, also as a reaction to Dollar selloff.
Euro surges sharply today on optimistic comments from ECB President Mario Draghi, who also hints at policy tweaks ahead. EUR/USD jumps through 1.28 level and is now having key resistance at 1.1298 in sight. EUR/JPY resumes larger rise from April low at 114.84 and takes out 126.09 key resistance. EUR/GBP is also having focus back on 0.8851/65 key resistance zone and could be resuming larger rise from 0.8312. Meanwhile, Yen remains the weakest one as broad based selloff continues. Strength in Euro is now making dollar vunlerable to downside breakout against Swiss Franc and Canadian Dollar.
The developments in the forex markets look as if traders are in risk seeking mode. Commodity currencies including Canadian Dollar, Australian Dollar and New Zealand Dollar trade broadly higher since the start of the week. Meanwhile, Japanese Yen and Swiss Franc are the weakest ones. However, this picture is not reflected in other markets. DOW jumped to to 21506.21 overnight but failed to break recent historical high at 21503.03. The index closed up just 0.07% at 21409.55 after paring initial gains. S&P 500 also rose a mere 0.03% to close at 2439.07. But NASDAQ lost -0.29% to close at 6247.15.
Dollar trades broadly lower today after weaker than expected economic data. Hawkish comments from Fed officials provide little support to the greenback. On the other hand, Canadian Dollar jumps as oil prices rebound. Sterling follows and is lifted broadly by political news in UK. Euro is supported by sentiments data which saw German Ifo hits record high. The greenback is only performing better than Japanese Yen and Swiss Franc. Released from US, durable goods orders dropped -1.1% in May versus expectation of -0.6%. Ex-transport orders rose 0.1% versus expectation of 0.4%.
Yen weakness broadly today as market sentiments improved. Major European indices open higher with FTSE and DAX up 0.5% at the time of writing while CAC is up 0.8%. The development is helped by recovery in oil prices as WTI is trading back above 43 after dipping to as low as 42.05 last week. Swiss Franc also follow Yen and trades mildly lower. Strength is seen in Sterling and commodity currencies but upside is limited so far. Gold, on the other hand, suffered steep selling to as low as 1236.5 earlier today and is back at 1244.
There wasn't a unified theme in the forex markets last week. Movements in the major currencies were driven by different factors. But a trend to note is that markets attentions were generally back to central banks, from politics. The divisions in Fed and BoE boards were very apparent and showed that the overall policy stances of both central banks could be shifting. Euro was mixed as it's awaiting economic data to push ECB officials to recede from being too dovish. Meanwhile, Canadian Dollar failed to extend the BoC inspired rally as rate hike bets cooled after tame inflation readings. The extended rout in oil price also added some weight to the Loonie and Aussie. New Zealand Dollar, on the other hand, ended as the second strongest one, next to Swiss Franc, on a mild RBNZ hawkish turn.
Canadian Dollar weakens notably in early US session after inflation data missed expectation. Headline CPI slowed to 1.3% yoy in May, down from 1.6% yoy, below consensus of 1.5% yoy. CPI core - common was unchanged at 1.4% yoy, CPI core - median slowed to 1.5% yoy from 1.6% yoy. CPI core - trim slowed to 1.2% yoy from 1.3% yoy. The Loonie has been lifted recently by the hawkish turn of BoC Governor Stephen Poloz. And it tried to resume the rally yesterday after solid retail sales data. Today's tamer than expected inflation reading could now keep USD/CAD in range in near term. The real test will come when BoC announce rate decision again on July 12, when quarterly forecasts will also be released.
Dollar trades broadly lower today and markets' focuses turn back to economic data. Eurozone PMIs will be closely watched in European session. EUR/USD dipped to we low as 1.1118 earlier this week but is holding above 1.1109 near term support. While some point to topping in EUR/USD after failing 1.1298 key resistance. There is no confirmation of rejection and trend reversal yet. Thus, the pair is staying bullish and upside surprises in today's Eurozone data will put focus back to 1.1298. Canadian CPI will be another key focus. USD/CAD dropped sharply overnight as the Canadian dollar was boosted by strong retail sales. It's likely that near term consolidation from 1.3164 has already completed at 1.3346. And strong consumer inflation data should give the fuel for USD/CAD to power through 1.3164 support. Also, from US, PMIs and new home sales will be featured.
Canadian Dollar regains some strengthen in early US session after solid economic data. Headline retail sales rose 0.8% mom in April. well above expectation of 0.3% mom. Ex-auto sales rose even more by 1.5% mom, beating expectation of 0.7% mom. Loonie has retreated much this week after oil rout continued with WTI hitting the lowest level this year at 42.05. Nonetheless, USD/CAD is held well below 1.3387 near term resistance and maintains bearish outlook. Deeper decline could now be seen back to 1.3164 support.
While there was some volatility, the forex markets are generally staying in last week's range as most pairs engage in consolidative trading. New Zealand Dollar firms up slightly today as markets view RBNZ's statement as a mild hawkish turn. Meanwhile, that is followed by rebound in the Japanese Yen as oil rout continues. WTI crude oil dived further to as low as 42.05 overnight and stays soft at around 42.5. The development dragged stocks and 30 year yield down as DOW lost -0.27% and S&P 500 dropped -0.06%. Canadian Dollar is also under some pressure with oil and will try to get some support from retail sales data to be released today.
Sharp volatility in Sterling continues today as hawkish comments from BoE chief economist Andy Haldane propels it higher. Haldane said today that partial removal of monetary stimulus would be "prudent relatively soon". And he noted that "risks associated with tightening too early, on the one hand, and too late, on the other, has swung materially towards the latter in the past six to nine months." He pointed out that "the risks of tightening too early have shrunk as growth and, to lesser extent, inflation have shown greater resilience than expected. And if policy tightened too late, this could result in a much steeper path of rate rises later on."
Dollar trades broadly higher this week so far, but strength is limited by weakness in treasury yields and risk aversion. WTI crude oil dropped as low as 42.75 yesterday before recovering mildly to 43.5. DOW and S&P 500 retreated after hitting records highs on Monday and closed lower by -0.29% and -0.67% respectively. Nikkei followed and is trading down -0.48% at the time of writing. Notable weakness is seen in 30 year yield while extends this year's decline and lost -0.053 to close at 2.735. 10 year yield also closed lower by -0.037 but stays above last week's low at 2.103 so far. In other markets, Gold remains weak and struggles to regain 1250 after dipping to 1242.4.
Sterling dives broadly today after BoE Governor Mark Carney tried to talk down rate hike expectations and said it's not the time yet. Meanwhile, Canadian dollar was also pressured as WTI crude oil tumbles through 43.76 support to as low as 42.93, hitting the lowest level since November. The Japanese Yen rebounds as risk appetite recedes. Meanwhile, Dollar and Euro are trading mixed. Technically, key focuses in US session will be on whether GBP/USD would take out 1.2633 support, and whether EUR/GBP would take out 0.8865 resistance.
Dollar rose mildly overnight but strength was so far limited. Comments from Fed officials were mixed and provided little guidance to the greenback. Meanwhile, Japanese Yen trades broadly lower on solid risk appetite and recovery in yields. DOW and S&P 500 surged to record close at 21528.99 and 2453.46 respectively. Nikkei followed and gains 0.81% to 20230.41. US 10 year yield recovered by adding 0.033 to 2.190, but it's still limited below 2.229 resistance. Similarly, dollar index is held below 97.77 resistance. EUR/USD is also staying above 1.1109 support. There is no change in Dollar's bearish trend yet.
Dollar strengthens mildly in early US session after positive comments from New York Fed President William Dudley. He didn't sound much concerned with low inflation. Instead, he noted that the US is "pretty close to full employment. And if labor market continues to tighten further "wages will gradually pick up". And with that "inflation will gradually get back to 2%". Regarding the economy, Dudley also expressed that he is "confident" that the expansion has "quite a long way to go". USD/JPY could be revisiting last week's high at 111.41. But the EUR/USD is holding well above 1.1109 support which keeps it mildly bullish. Overall, the forex markets are staying inside Friday's range.
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