Fri, Sep 20, 2019 @ 05:33 GMT

Eurozone PMI manufacturing finalized at 47.5, lowest since 2013

    Eurozone PMI manufacturing was finalized at 47.5 in March, revised down from 47.6, down from February’s 49.3. It’s also the lowest level since April 2013, and the second straight months of sub-50 reading. Markit noted there was the biggest monthly decline in new orders since late 2012. Also, confidence hits lowest level in over six years.

    Among the countries, Germany PMI manufacturing was revised further lower to 44.1, an 80-month low. Italy PMI manufacturing was at 47.4, 70-month-low. France PMI manufacturing was revised down to 49.7, below 50, but it’s just a 3-month low. Australian PMI manufacturing was at 48-month low at 50.0. Netherlands PMI manufacturing was at 33-month low at 52.5. However, Greece PMI manufacturing was at 54.7, 12-month high.

    Commenting on the final Manufacturing PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

    “The March PMI data indicate that the eurozone’s manufacturing sector is in its steepest downturn since the height of the region’s debt crisis in 2012. The survey is indicative of output falling at a quarterly rate of approximately 1% in March, suggesting that the January rebound from one-off factors late last year seen in the latest official data is likely to prove short lived.

    “Looking at the forward-looking indicators, downside risks have intensified, and the trend could clearly deteriorate further in the second quarter. New orders are falling at a rate not seen since 2012, and disappointing sales mean warehouses are filling with unsold stock. The orders-to-inventory ratio – a key indicator of the future production trend – is at its lowest for almost seven years. Expectations of output for the coming year are also the gloomiest since 2012.

    “Concerns over trade wars, tariffs, rising political uncertainty, Brexit and – perhaps most importantly – deteriorating forecasts for the economic environment both at home and in export markets, were widely reported to have dampened business activity and confidence.

    “Cost cutting has become more evident as firms grow more risk averse, notably with respect to hiring. Job losses were reported in both Germany and Italy, where the downturn in demand is doing the most damage. However, France’s manufacturing sector is also now back in decline, Austria’s goods-producing sector has stalled, Spain is close to stagnation and growth has lost considerable momentum in the Netherlands, highlighting the increasingly broad-based nature of the current deterioration.”

    Full release here.

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    John Williams takes over New York Fed, pledges openness and transparency

      Ex-San Francisco Fed President John Williams takes over the job of New York Fed President today. In a statement, he pledged openness and transparency, objectivity and independence of thought, and commitment to the diverse needs of familis and business across the District.

      Below is the full statement.

      Statement from President Williams

      I am pleased to be starting my tenure today as president and CEO of the Federal Reserve Bank of New York. As someone who has dedicated his career to public service, I can think of no better place from where to continue to support the nation’s economic well-being.

      The New York Fed plays a unique role in the Federal Reserve System, with responsibilities for implementing monetary policy, managing a critical payments system, overseeing a large number of complex financial institutions and managing international relationships. I take each of these responsibilities with the utmost seriousness and am committed to executing my role as president of the New York Fed and on the Federal Open Market Committee (FOMC) to the absolute best of my ability.

      So what can you, the public, expect of me?

      • Openness and transparency. I am dedicated to learning from a wide range of perspectives and experiences from across the District. Openness flows both ways, and we have a duty to explain the reasoning behind our actions. I am committed to acting in as transparent a manner as possible.
      • Objectivity and independence of thought. I will continue to make monetary policy recommendations based on what I believe is in the best interest of our economy. Throughout, I will strive to explain my reasoning, particularly when my views may differ from those of others.
      • Commitment to the diverse needs of families and businesses across our District. Understanding the varied financial and economic needs of families, businesses, and communities, and advocating for them at the policy table is a critical component of my role. I am equally committed to building a diverse and inclusive workforce and workplace at the New York Fed, which will help us better serve our communities.

      I start my first day with a deep commitment to securing the stability of our financial system and prosperity for our economy. I look forward to engaging with and learning from members of our communities and stakeholders throughout the District and beyond.

      John C. Williams became the 11th president and chief executive officer of the New York Fed on June 18, 2018.

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      CBRT announced measures on Turkish Lira and FX liquidity management

        Full statement below.

        Press Release on Financial Markets

        To support financial stability and sustain the effective functioning of markets, the following measures have been introduced:

        I. Turkish lira liquidity management:

        1) In the framework of intraday and overnight standing facilities, the Central Bank will provide all the liquidity the banks need.

        2) Discount rates for collaterals against Turkish lira transactions will be revised based on type and maturity, thus providing banks with flexibility in their collateral management. Through this regulation, the discounted value of banks’ current unencumbered collaterals is projected to increase by approximately 3,8 billion Turkish liras.

        3) Collateral FX deposit limits for Turkish lira transactions of banks have been raised to 20 billion euros from 7,2 billion euros.

        4) As cited in the Monetary and Exchange Rate Policy Text for 2018, when deemed necessary, in addition to one-week repo auctions, which are the main funding instrument of the Central Bank, traditional repo auctions or deposit selling auctions may be held with maturities no longer than 91 days.

        5) For the days with relatively higher funding need, more than one repo auction may be conducted with maturities between 6 and 10 days.

        6) To provide flexibility in banks’ collateral management, upon the request of banks, a portion of or the entire amount of the winning bids in one-week repo auctions will be allowed to be used in deposit transactions instead of repo transactions at the Central Bank Interbank Money Market with the same interest rate and maturity.

        II. FX liquidity management:

        1) Banks will be able to borrow FX deposits in one-month maturity in addition to one-week maturity.

        2) The Central Bank will resume its intermediary function at the FX deposit market. Accordingly, through the intermediation of the Central Bank, banks will be able to borrow from and lend to each other at the FX deposit market as per the rules set by the Implementation Instructions on the Foreign Exchange and Banknotes Markets.

        3) Banks’ current foreign exchange deposit limits of around 50 billion US dollars may be increased and utilization conditions may be improved if deemed necessary.

        4) Banks will continue to purchase foreign banknotes from the Central Bank via foreign exchange transactions within their pre-determined limits at the Foreign Exchange and Banknotes Markets.

        The Central Bank will closely monitor the market depth and price formations, and take all necessary measures to maintain financial stability, if deemed necessary.

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        US-China joint statement vowing not to launch a trade war

          US and China issued a joint statement on Saturday to conclude the trade talks with Chinese Vice Premier Liu He on May 17 and 18. There was no mentioning of any number, but the statement said there were “consensus on taking effective measures to substantially reduce” US trade deficit in goods with China. And, China agreed to “significantly increase purchase” of US goods and services.

          Additionally, there would be “meaningful increases” in US agriculture and energy exports to China, “expanding trade” in manufactured goods and services, encouraging “two-way investment” with “fair, level playing field for competition”. China also pledged to work on laws and regulations on intellectually property protections.

          The Chinese State-owned Xinhua news agency described the statement as “vowing not to launch a trade war against each other”.

          Here is a graphical summary by Xinhua.

          Full statement below:

          THE WHITE HOUSE – Office of the Press Secretary
          FOR IMMEDIATE RELEASE – May 19, 2018

          Joint Statement of the United States and China Regarding Trade Consultations

          At the direction of President Donald J. Trump and President Xi Jinping, on May 17 and 18, 2018, the United States and China engaged in constructive consultations regarding trade in Washington, D.C. The United States delegation included Secretary of the Treasury Steven T. Mnuchin, Secretary of Commerce Wilbur L. Ross, and United States Trade Representative Robert E. Lighthizer. The Chinese delegation was led by State Council Vice Premier Liu He, Special Envoy of President Xi.

          There was a consensus on taking effective measures to substantially reduce the United States trade deficit in goods with China. To meet the growing consumption needs of the Chinese people and the need for high-quality economic development, China will significantly increase purchases of United States goods and services. This will help support growth and employment in the United States.

          Both sides agreed on meaningful increases in United States agriculture and energy exports. The United States will send a team to China to work out the details.

          The delegations also discussed expanding trade in manufactured goods and services. There was consensus on the need to create favorable conditions to increase trade in these areas.

          Both sides attach paramount importance to intellectual property protections, and agreed to strengthen cooperation. China will advance relevant amendments to its laws and regulations in this area, including the Patent Law.

          Both sides agreed to encourage two-way investment and to strive to create a fair, level playing field for competition.

          Both sides agreed to continue to engage at high levels on these issues and to seek to resolve their economic and trade concerns in a proactive manner.

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          China released 36k-word white paper showing it’s not backing down on trade war with US

            China’s State Council release a “White Paper on China-US Economic and Trade Frictions and China’s Position” today. This 36000 words paper consists of six sections, detailing the benefits of the bilateral trade, the economic and trade relations, US protectionism and trade hegemonism, the threat of US practice to world economy and China’s own position.

            In particular, the paper condemns the under the “America First” bandwagon, the new US government “abandoned the basic norms of international exchanges such as mutual respect and equal consultation, and implemented unilateralism, protectionism and economic hegemonism.”And the US used different means to “carry out economic intimidation, and impose extreme pressure its own interests impose its own interests on China.” The paper also detailed the new protectionist measures of the US. These include measures that discriminate products of other countries, abused national security investigations, subsidies on local industries.

            China’s own position include defending the “dignity and core interests of the country”, “promote healthy trade relationship with the US”, “promote and improve multilateral trade system”, “protect property and intellectual property rights”, “protect rights of foreign businesses in China”, “continue deepening reforms on opening the markets”, work on win-win relationships with developed and developing countries”, etc.

            All-in-all, the main message is that China is not going to back down in the trade conflicts. That’s what we get. Below are the links to the details as reported by the official Xinhua (in simplified Chinese). Look like they’re pretty serious.

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            Economics professor Giovanni Tria might replace Paolo Savona as Italian Economy Minister

              It’s reported that  Italy’s anti-establishment 5-Star Movement and the far-right League party are close to finding that “point of compromise” in replacing Paolo Savona as economy minister in the government.

              The name of economics professor Giovanni Tria flow around in the media. Meanwhile, law professor Giuseppe Conte will likely remain as prime minister. Decision could come as soon as on Friday. And if these names are accepted by President Sergio Mattarella, a snap election could be averted and a coalition government would finally be formed.

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              Trump got full support from Democrat Schumer on trade war escalation, but others unsure.

                Trump’s move to escalate trade war with China got full support from Democrat Senate leader Chuck Schumer. Schumer urged Trump to “hang tough on China” in a tweet” and “don’t back down”. He added “strength is the only way to win with China”.

                White House economic adviser Larry Kudlow tried to tone down the threat and said trump is merely “issuing a warning here”. He told Fox News that ” we bent over backwards earlier, we suspended the 25 percent tariff to 10 and then we’ve left it there. That may not be forever if the talks don’t work out”

                However, an informal trade adviser to Trump, Michael Pillsbury, clearly disagreed with Kudlow. He said “I take the president’s tweet at face value. I was disappointed that Larry Kudlow downgraded it to a mere warning, which may tend to undermine American credibility as the Chinese delegation prepares its position”.

                It’s unsure for now whether Trump is really intending to drop the negotiations abruptly. Or, he’s just trying to push China for last minute concessions on some key issues. But the act could firstly undermine credibility of the US in negotiations with other countries. And, it could also undermine Trump’s own credibility as he’s told the public numerous times that a deal was close.

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                China raises FX RRR to 20% to stabilize Yuan from free fall, Dollar tumbles broadly. Is that manipulation?

                  Offshore Chinese Yuan staged a strong rebound, while Dollar tumbles across the board, after China’s Central bank announced measure to curb capital outflow and stabilize the falling Yuan exchange rate.

                  The People’s Bank of China said after market close that it raises the “foreign exchange risk reserve ratio of forward sales from 0% to 20%, effective August 6, 2018. According to the statement, it’s an act to “prevent macro financial risks, promote the stable operation of financial institutions, and strengthen macro-prudential management.”

                  In the next step, PBoC will “continue to strengthen the monitoring of the foreign exchange market,” and, “take effective measures to carry out countercyclical adjustments, maintain the smooth operation of the foreign exchange market, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.”

                  Full statement in simplified Chinese.

                  USD/CNH (offshore Yuan) tumbles sharply after hitting 6.912 earlier today, and it looks like it’s set to take on 6.8 handle soon.

                  Dollar tumbles across the board in the current 4H bar, just ahead of NFP. It’s also the weakest major currency for today now.

                  We’ve mentioned many times that the Chinese Government won’t allow free fall of the Yuan happens. If they’re going to do something, they will either halt its decline, or at best, slow the Yuan’s decline.

                  This is clear exchange rate manipulation to us. Where is Mnuchin? Where is Trump? Don’t move goal post, and stop your lies. Come out and tell China to stop the manipulation!

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                  China announces additional tariffs on 5207 US imports, valued at USD 60B, rates from 5% to 25%

                    More from China, the Finance Ministry announced the counter measures to US threat of imposing 25% products on USD 200B in Chinese goods. The State Council’s Customs Tariff Commission decided to impost additional levies on 5207 US products, totalling around USD 60B in value.

                    Additional 25% tariff will be imposed on 2493 products, additional 20% on 1078 products, additional 10% on 974 products and additional 5% on 662 products. The effect date is to be determined.

                    Here is the official statement in simplified Chinese.

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                    New Zealand BusinessNZ PMI dropped to 52.8 and production dipped again

                      New Zealand BusinessNZ Performance of Manufacturing Index dropped to 52.8 in June, down from 54.4. BusinessNZ’s executive director for manufacturing Catherine Beard said that the slow-down in expansion was mainly due to ongoing drops in a key sub-index.

                      “Production (51.8) experienced another decrease in expansion levels for June, which meant it was down to its lowest point since January 2017. On a positive note, the other key sub-index of New Orders (57.1) remained in healthy territory, which at least should feed through to production levels in the coming months.

                      In addition, the proportion of positive comments in June (51.7%) decreased from May (55.1%), and very similar to February (51.4%). Those who provided negative comments typically noted a general downturn and uncertainty in the market”.

                      BNZ Senior Economist, Craig Ebert said that “broadly speaking, the PMI has settled down into a trend-like pace this year, averaging 53.8 (excluding April’s spike). This is after outperformance through most of 2017, when it averaged 56.2”.

                      Full BusinessNZ Performance of Manufacturing Index release.

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                      Fed Harker: Risks tilt very slightly to the downside, at most one hike this year

                        Philadelphia Fed President Patrick Harker said in a speech in London that “potential risks tilt very slightly to the downside” in the US. Though he emphasized the work “slight” as he saw “outlook as positive” and economy “continues to grow” and is on pace to the the longest economic expansion in history.

                        Harker added there was “continued strength” in the labor market. He’d “cautious against” getting caught up in a single data point in February’s dismal job data. Meanwhile, inflation is running around 2% target and “does not appear to be on a strong upward trajectory”. Rather inflation is “edging slightly downward”.

                        Combining all, Harker stays in “wait-and-see mode”. He expects “at most, on rate hike this year, and one in 2020”. But his stance will be “guided by data”.

                        Harker’s full speech here.

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                        Into US session: Oversold Euro recovers broadly, markets won’t forget there are US trade tensions

                          Euro is making a strong come back today as market digest recent sharp losses. EUR/USD breached 1.1639 minor resistance while EUR/JPY break 126.43. Both developments suggest temporary bottoming. Though, they’re far from reversing recent down trend. And, at the time of writing, German (0.369) and Italy (2.864) yield spread are still close to 250, which suggests much nervousness in the markets.

                          Though, the news that 5-Star Movement is trying to find a point of compromise for economy minister is supporting sentiments. At least, they’re working on forming a government again. And while being highly critical, 5-Star has never committed themselves to leaving Euro. The news that anti-euro League is not interested, but is pushing for election again is also sentiment supportive. Additionally, Eurozone data released today are not bad.

                          Yen and Dollar, on the other hand, are trading broadly lower. Yen weaken on rebound in German, UK and US yields. Meanwhile, Dollar is weak as markets won’t forget that the US is in trade tension with many other countries/regions, even its own allies. NAFTA talk is going nowhere and there is no positive news regarding trade talk with EU. The steel tariff temporary exemption is going to expire on Friday and retaliations from Canada, Mexico and the EU are waiting on the line. Trump also made an about turn and issued a strong statement regarding China yesterday, indicating very little intention to carry on with negotiation.

                          For the week, Euro remains the weakest one, followed by Sterling. New Zealand Dollar and Japanese Yen are the strongest ones.

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                          Into US session: Sterling recovers from GDP blip, Euro and Dollar firm too

                            Entering into US session, Sterling is trading as the strongest one for today so far. Weaker than expected UK GDP triggered very brief retreat in the Pound. And Sterling quickly find its footing on Brexit optimism again. At the time of writing, Euro is the second strongest as Italian yield drops for another day. The selling climax in Italian bonds could have passed the climax for the near, possibly until credit agency rating actions. Dollar trades mildly high as consolidative price actions extend. Yen is the weakest one as sentiments stabilized and turned mixed. Kiwi is the second weakest, followed by Loonie.

                            In Europe, CAC leads the way down by -0.71%, DAX is down -0.64% and FTSE is down -0.05%. Italian 10 year yield is dropping -0.0361 at 3.475. German 10 year bund yield is up 0.0049 at 0.556. German-Italian spread is no back below 300. Earlier in Asia, Nikkei rose 0.16%, Hong Kong HSI rose 0.08%, China Shanghai SSE rose 0.18%. But Singapore Strait Times dropped -1.11%. 10 year JGB yield dropped -0.0065 to 0.156, still way above BoJ’s allowed band of -0.1 to 0.1%.

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                            Dollar drops as Fed Powell indicates uncertainties continue weigh on outlook since June meeting

                              Dollar drops notably in response to Fed chair Jerome Powell’s prepared speech for the semi annual Congressional testimony. Most importantly, Powell said since June meeting, “based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook. Inflation pressures remain muted.”

                              Powell, also reiterated Fed’s stance that “in light of increased uncertainties about the economic outlook and muted inflation pressures, we would closely monitor the implications of incoming information for the economic outlook and would act as appropriate to sustain the expansion.”

                              However, just based on the prepared remarks, there is no clear nod to a July rate cut. Thus, selloff in Dollar is relatively limited so far. Powell will need to be really straightforward in the Q&A of the testimony.

                              Full speech here.


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                              Euro drops sharply as Italian populist duo could seek debt forgiveness

                                Euro drops sharply in European session with EUR/USD taking out 1.1822 support with conviction finally. EUR/JPY also dropped through 129.99 minor support and is heading back to 129.22 low. EUR/CHF’s selloff accelerates and breaks 1.8 handle. Other currencies are relatively steady against each other.

                                The main trigger of the selloff is Italy. it’s reported that the anti-establishment Five Star Movement and the anti-immigration League are discussing to seek EUR 250B write of in debt from ECB.

                                From trend following point of view, EUR/USD is a good candidate for short as it just went through a period of consolidation. Action Bias are back in downside red across time frame.

                                From trend reversal point of view, EUR/CHF could be a candidate for short. It just took out 1.1864 support with downside acceleration. Usually, we won’t jump to call for short when weekly Action Bias is still in upside blue. But as EUR/CHF was just rejected by 1.2 key resistance, selling the cross can be considered.

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                                US oil inventories dropped -9.5m barrels, WTI back pressing 60

                                  US commercial crude oil inventories dropped sharply by -9.5m barrels in the week ending July 5. That’s much larger decline than expectation of -1.9m barrels. At 459.0m barrels, U.S. crude oil inventories are about 4% above the five year average for this time of year.

                                  WTI oil extends this week’s rebound and hits as high as 59.78 so far. It’ possibly set to retest key resistance zone of 60.03 and 61.8% retracement of 66.49 to 50.64 at 60.34. At this point, we don’t expect a firm break there yet. And consolidation pattern from 60.22 should extend with least another fall back to 56.06. In that case, downside should be contained above 54.86 support. Overall, range trading should continue.

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                                  Gold heading to 1172 after disappointing rebound

                                    Gold’s strong break of 1236.66 today confirms resumption of whole decline from 1365.24, after a rather disappointing decline. It also confirms that medium term rise from 1122.81 has completed at 1365.24. And more importantly, it also affirm the view that price actions from 1046.54 low are corrective in nature, as was limited by 38.2% retracement of 1920.94 to 1046.54 at 1380.56.

                                    For the near term to medium term further fall is now in favor to 61.8% retracement of 1045.54 to 1375.15 at 1172.69. There is also risk of revisiting 1046.54 low, depending on downside momentum. Such development will be an indication of underlying dollar strength.

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                                    USTR announced 10% tarrifs on Chinese imports, to increase to 25% on Jan 1 2019

                                      US Trade Representative finally announced the tariffs on USD 200B of Chinese imports, effective September 24, 2018. The initial tariff rate is 10%. Staring January 1, 2019, the tariff rate will be increased to 25%. The list of products covers 5745 lines of the original 6031 lines proposed back in July 10. 297 lines were fully or partially removed from the list. Products include consumer electronics, certain chemical inputs for manufactured goods, textiles and agriculture; certain health and safety products such as bicycle helmets, and child safety furniture such as car seats and playpens.

                                      The tariffs were part of the follow-up actions on Section 301 investigations. China’s unfair trade practices were repeated in the statement. These include, forced technology transfer, depriving UA companies to set market based terms in negotiations, unfairly facilitating systematic investment in acquisition of US technology companies, and cyber intrusions to US commercial computer networks for valuable business information.

                                      Trump warned in a statement that new round of tariffs on around USD 267B of additional imports will be pursued if China retaliates. He added that “we have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly.” “But, so far, China has been unwilling to change its practices.”

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                                      Gold to break 1200 finally, head towards 1172 fibonacci level

                                        Gold finally breaks out of consolidation today and reaches as low as 1201.24 so far. The down trend from 1365.24 has resumed. Near term outlook will now stay bearish as long as 1217.31 resistance holds. Next target is 1172.07 fibonacci level. On the upside, though, break of 1217.31 will indicate short term bottoming. And rebound could be seen back to 55 day EMA (now at 1247.14 before staging another decline.

                                        Currently decline from 1365.24 is viewed as part of the long term sideway pattern from 1046.54 (2015 low). Sustained break of 61.8% retracement of 1045.65 to 1375.15 will pave the way to 1046.54/1122/81 support zone. At this point, we’re not expecting a break there to resume long term down trend yet. Hence, we’ll look for bottoming signal below 1122.81.

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                                        USD finally starting to pull back after clearing CPI risk

                                          Dollar drops broadly, except versus pound after inflation data.

                                          Headline CPI accelerated to 2.5% yoy in April, up from 2.4% yoy and met expectation. However, core CPI was unchanged at 2.1% yoy, below expectation of 2.2% yoy.

                                          Also from US, initial jobless claims was unchanged at 211k in the week ended May 5, sticking to the lowest level in 49 years for the second straight week. Four-week moving average dropped -5.5k to 216k, touching the lowest level since December 1969. Continuing claims rose 3k to 1.79m in the week ended April 28.

                                          The momentum in the post data USD selloff argues that traders are finally relieved that can take profits from recent long stretched rally. 1.1938 minor resistance in EUR/USD and 0.9982 minor support in USD/CHF will be the key levels to watch to confirm this case.

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