Fri, Jul 19, 2019 @ 08:49 GMT
Dollar recovers this week but momentum isn't too strong so far. Indeed, the greenback is overwhelmed by the strength in Canadian Dollar, which follows high oil prices and hawkish BoC comments. Dollar is still holding well below near term resistance against Euro, Pound and even Aussie, and maintains bearishness. Meanwhile, Yen also tried to recover on news of geopolitical tensions in Korea but no follow through buying is seen. US markets will be back from holiday today with major focus on FOMC minutes. Sterling will look into PMI services for inspirations.
Yen rebounds strongly in Asian session today following steep in decline in China and Hong Kong stocks markets. In particular, the HK HSI is trading down -400 pts, or -1.5% at the time of writing, led by tech titan Tencent and casino stocks. Some attributes the selloff to North Korea's firing of another ballistic missile just ahead of July 4. That drew response from US President Donald Trump, with his tweet that "hard to believe that South Korea and Japan will put up with this much longer". And Trump tried to shift the spot to China again saying that "perhaps China will put a heavy move on North Korea and end this nonsense once and for all!" USD/JPY is back below 113 after surging to 113.46 overnight following the stronger than expected ISM manufacturing data.
RBA left the cash rate unchanged at 1.5% in June. While the decision had been widely anticipated, Aussie slumped after the announcement as the central bank failed to deliver a more hawkish tone as its US and European counterparts did. Policymakers affirmed that Australian economy would continue to grow gradually. Yet, they pointed to the strength in Australian dollar and subdue inflation as key reasons for standing on the sideline. Meanwhile, RBA remained concerned over the overheating housing market.
Trading remains rather subdued in the forex markets today. Dollar is trying to regain some ground after last week's steep selloff. The stronger than expected ISM manufacturing is giving the greenback extra fuel. But the recovery looks nothing more than a recovery so far, except versus Yen. Sterling is also under some pressure after PMI disappointment. But loss is limited. Yen, on the other hand, is trading weakly, in particular to greenback, despite an upbeat Tankan report. The biggest news from Japan was the humiliating defeat of Prime Minister Shinzo Abe's fulling LDP in Tokyo's local election. Meanwhile, Canadian Dollar is staying firmly in tight range as WTI crude oil is extending it's rebound to as high as 46.65.
The forex markets open the week rather steadily. Dollar recovers as it's digesting last week's steep selloff. The greenback will look into the key events including ISM indices, NFP and FOMC minutes for reasons to rebound. On the other hand, there are important economic data from UK and Canada, as well as ECB accounts that could trigger further rises in respective currency. Meanwhile, additional focus will also be on whether the selloff in global equities last week would extend. It isn't too bad at the timing of writing as Nikkei is trading up 0.28%, above 20000 handle. An eye will also be on oil price while WTI is consolidating above 46 handle, looking for strength to extend the rebound in the last two weeks.
Sterling, Canadian Dollar and Euro surged broadly last week on hawkish comments from central bankers. The turn in BoE Governor Mark Carney was the most drastic as just a week a go, he said it's not the time of rate hike yet. But then, he indciated the BoE MPC will start debating raising interest rate in the coming months. BoC Governor Stephen Poloz repeated his comments that prior rate cuts in 2015 have already done their job. But this time, Poloz hinted that BoC is approaching a new interest rate decision. That tremendously raised the odds of a July hike by BoC. There were some jitters on Euro on report that markets misinterpreted ECB President Mario Draghi's comments. But after all, it's generally convinced that, with improvements in Eurozone inflation and growth, ECB is transiting into a phase of stimulus withdrawal. And there would likely be tapering announcement in September or by latest October.
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.
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