Mon, Feb 18, 2019 @ 17:22 GMT

US 10 year yield yet to own 3% level

    US 10 year yield edged higher to 3.003 overnight and breached 3% handle briefly. Then, it failed to sustain above 3% and closed at 2.983, up only 0.010. Comparing to Monday, it’s slightly better as it closed above open of regular trading hours. But from hourly chart point of view, TNX is losing some momentum. Hourly MACD dipped below signal line while RSI also dipped from overbought region. That’s what we usually see when a bullish move is taking, or about to take, a breath.

    And bear in mind again that 3% is an important psychological level for many investors. And there is a key resistance of 3.036, 2013 high. These could both limit the strength of TNX for the very near term. And, judge from the reactions in forex markets too. Dollar only managed to extend gains against Yen and Swiss Franc yesterday when TNX breached 3%. We might see some sluggish trading today. But of course, ECB, UK and US GDP are still expected to trigger more volatility before the week ends.

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    US stocks in deep selling mode, USD/JPY follows DOW lower

      US stocks suffer steep selloff as led by 3M, Caterpillar and Google. At the time of writing, DOW is trading down nearly -1.5%. The development, with rejection from 55 H EMA, suggests that rebound from 23344.52 has completed at 24858.97. Focus is now on 24000 handle. Firm break there could bring retest of 23344.52 low.

      And, due to the selloff in stocks while 10 year yield is still struggling to stay above 3% handle, USD/JPY is having a relatively deep pull back. Focus is back on 108.54 minor support. Touching there will already mean temporary topping . That is, recent rise from 104.62 is taking a breath. And, some consolidations would be seen before another rise.

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      EUR/CHF heading back to 1.2, after drawing support from 4H 55 EMA

        EUR/CHF rebounds strongly in early US session. That’s primarily driven by selloff in “safe-haven” currencies as the movements in CHF and JPY are in sync. At the same time, EUR is extending consolidation against USD.

        Technically, EUR/CHF’s pull back from 1.2004 was held comfortably above 4 hour 55 EMA. That suggests near term bullish momentum remains intact. And the cross could break 1.2 handle, on its second attempt on one take. (Well yes, it’s actually the second take). With that, we’ll be looking at 61.8% projection of 1.0629 to 1.1832 from 1.1445 at 1.2188 as next target.

        Action bias table also support this view. As seen in D action bias chart, EUR/CHF is maintain solid upside action bias. The neural and two red bars indicated consolidation. And H action bias turned blue again, suggesting pick up in upside bias.

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        JPY dives as US yield breaches 3%, EUR/JPY resumes rebound from 128.94

          JPY is sold off broadly in early US session as 10 year yield breaches 3% level, extending recent rally. But USD continues to consolidation against most other major currencies, including EUR and GBP, AUD and CAD.

          EUR/JPY defies gravity again as it surges through 133.08 to resume the rebound from 128.94. That’s mainly thanks to the selloff in JPY though. For now, further rise would be seen but as the rebound from 128.94 is seen as a corrective move, we’ll looking for topping again around 61.8% retracement of 137.49 to 128.94 at 134.22.

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          US consumer confidence rose to 128.7, suggesting solid economic expansion ahead

            Conference board consumer confidence rose to 128.7 in April, up from 127.0. That’s also notably higher than expectation of a fall to 126.0.

            Comments by Lynn Franco, Director of Economic Indicators at The Conference Board:

            • “Consumer confidence increased moderately in April after a decline in March.
            • “Consumers’ assessment of current conditions improved somewhat, with consumers rating both business and labor market conditions quite favorably.
            • Consumers’ short-term expectations also improved, with the percent of consumers expecting their incomes to decline over the coming months reaching its lowest level since December 2000 (6.0 percent).
            • Overall, confidence levels remain strong and suggest that the economy will continue expanding at a solid pace in the months ahead.”

            Other data from US:

            • New home sales rose to 694k annualized rate in March, up from 667k, beat expectation of 625k.
            • S&P Case-Shiller 20 cities house price rose 6.8% yoy in February, above expectation of 6.3% yoy.
            • House price index rose 0.6% mom in February, met expectation.
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            ECB Villeroy: Escalation of protectionist threats from US would dampen growth everywhere

              Bank of France Governor, ECB Governing Council member Francois Villeroy de Galhau warned that “we are all aware that an escalation of protectionist threats from the United States would dampen growth everywhere.”

              And, he urged “Europeans, shoulder-to-shoulder with Canada, Japan and others, must resolutely defend international economic relations based on commonly respected rules and multilateral institutions.”

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              Japan Economy Minister Motegi: No trade talk with US until mid June, and we still don’t want bilateral FTA

                Japan’s Economy Minister Toshimitsu Motegi said today that trade discussion with US Trade Representative Robert Lighthizer will begin around mid-June or later.

                There was an agreement between Japan Prime Minister Shinzo Abe and US President Donald Trump on setting up a new framework focusing on bilateral trade. But Motegi reiterated today that “we’re not thinking of signing a bilateral FTA.”

                It’s believed that Japan’s priority is on TPP, the pact that it leads with 10 other nations. And Abe’s cabinet would want to pass relevant legislations through the parliament within the current session which ends on June 20. In addition, Japan has been clear that it opposes to a two way trade deal. On the other hand, Trump and Treasury Secretary Steven Mnuchin showed no respect to Japan’s preference and persistently tried to force bilateral trade agreement on Japan.

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                German Ifo business climate dropped to 102.1, EURUSD dip to day low

                  German Ifo business climate dropped to 102.1 in April, below expectation of 102.8. Expectations dropped to 98.7, below consensus of 99.5. Current assessment also dropped to 105.7, below expectation of 106.5.

                  Ifo President Clemens Fuest commented that “high spirits among German businesses have evaporated,” and, “the German economy is slowing down.” Ifo economist Klaus Wohlrabe noted that the 5th drop in a row in the Ifo reading is merely a sign of normalization, and Germany is far from a recession. GDP growth is seen as slowed to 0.4% in Q1 versus Q4’s 0.6%.

                  EUR/USD dips to day low after the release and is on course for 1.2154 support.

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                  Dollar index broad medium term trend line resistance, pressing 91

                    Dollar index finally broke the medium falling trend line resistance after yesterday’s solid rally. And focus is now on 91.01 support turned resistance. Firm break there will then be another sign of medium term reversal.

                    That is, the down trend from 103.82 has completed at 88.25, after hitting 50% retracement of 72.69 to 103.82, on bullish convergence condition in weekly MACD. Next hurdle will be 55 week EMA (now at 92.93). But we’d expect the rally to extend to 38.2% retracement of 103.82 to 88.25 at 94.19 at least. Ideally, is should be accompanied by a solid break of 3% in 10 year yield.

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                    10 year yield showed hesitation ahead of 3%

                      10 year yield jumped to as high as 2.990 during regular trading hour overnight but struggled to extend further higher. TNX then closed at 2.973, up 0.22, but below open at 2.975. The development showed some hesitation ahead of key 3.000 level. It looks like the market might have to take a bit more time to digest the sharp move since last week.

                      But for now, there is no change in the near term up trend. And we’d expect a test the real key resistance zone soon. That is, 2014 high at 3.036 and 100% projection of 1.336 to 2.621 from 2.034 at 3.318. This is the key area that will define the long term trend.

                       

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                      AUDUSD spikes lower after Australia CPI miss, but quickly recovered

                        Australia CPI was unchanged at 1.9% yoy in Q1, below expectation of 2.0%. RBA trimmed mean CPI rose to 1.9% yoy, up from 1.8% yoy and beat expectation of 1.8% yoy. RBA weighted median CPI was unchanged at 2.0% yoy, beat expectation of 1.9% yoy.

                        The Australian Bureau of Statistics noted in the  release that “while the annual CPI rose 1.9 per cent, most East Coast cities have continued to experience annual inflation above 2.0 per cent, due in part to the strength in prices related to Housing and Food. Softer economic conditions in Darwin and Perth have resulted in annual inflation remaining subdued at 1.1 and 0.9 per cent respectively.”

                        AUD/USD spiked lower to 0.7576 after the release but quickly recovered. Firstly, the decline is a bit stretched after AUD/USD fell for three days. Secondly, the CPI data just affirmed the case that RBA is in no rush to raise interest rate. For now, AUD/USD is on track for 0.7500 key support level in near term.

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                        US PMIs: Economy picked up pace again

                          Data released from the US are generally positive.

                          Manufacturing PMI rose to 56.5 in April, up from 55.6 and beat expectation of 55.2. Services PMI rose to 54.4, up from 54.0 and beat expectation of 54.1. Composite PMI rose to 54.8, up from 54.2.

                          Comments from Chris Williamson, Chief Business Economist at IHS Markit:

                          “The US economy picked up pace again at the start of the second quarter. The April PMI surveys registered the second-strongest monthly expansion since last October. Manufacturing is leading the upturn, with factories reporting the strongest output gains for 15 months, and the vast service sector is enjoying a steady, robust expansion.

                          “After a relatively disappointing start to the year, the second quarter should prove a lot more encouraging. The current data point to an annualized GDP growth rate of 2.5%, with scope for some substantial upside surprises in coming months.

                          “First, growth in new orders accelerated to show the largest surge in demand for goods and services for just over three years. Second, companies’ expectations of growth over the coming year jumped to a three-year high. Third, hiring remains robust as firms struggle to cope with demand. The surveys point to non-farm payroll growth of approximately 200,000 in April.

                          “The details of the survey therefore suggest that output growth is on course to accelerate as we move into the summer. Prices are meanwhile being pulled upwards by the strength of the upturn, however, sending hawkish signals for policy makers.”

                          Also from the US, existing home sale rose to 5.60m annualized rate in March, above expectation of 5.55m.

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                          USD strongest followed by CHF, JPY weakest into US session

                            USD’s rally extends today and is trading firm entering into US session. Technically, both GBP/USD and AUD/USD have taken out recent support at 1.3965 and 0.7642 respectively, suggesting more upside in USD in near term.

                            Looking at D heatmap, we can see that JPY is the weakest one for the day while CHF is the second strongest one. This may look a bit counter intuitive. But it makes sense after giving a bit deeper thoughts.

                            Firstly, EUR/CHF is finding it difficult to break through 1.2 historical level. It’s being rejected from there after last week’s attempt and is back at 1.1930 at the time of writing. That helps lift CHF elsewhere.

                            Secondly, European’s stocks are fluctuating between gains and losses today, suggesting that’s is no underlying strong risk appetite yet. Thus, at least, there is no additional selling pressure on the CHF.

                            Thirdly, surging US treasury yield is a key underlying theme in the markets. That’s a main force in boosting USD up. Weakness in the Yen, at the time when US stocks fall (risk aversion), is indeed affirming that yield is the factor.

                            Going forward, 108.12/48 resistance zone in USD/JPY is the main focus, which would determine if bullish reversal has already occurred. And, EUR/USD could be testing 1.2214 if the pull back in EUR/CHF gains momentum.

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                            USD breaking Friday’s highs as rally resumes

                              Looking at EUR/USD’s after release of France, Germany and Eurozone PMIs, one might think that Euro responds negatively to the release. But actually, the PMI data are just mixed, and we couldn’t say they’re bad at all.

                              But looking at the D heat map, while EUR is broadly soft, it’s actually USD’s strength that is overwhelming.

                              USD has taken out Friday’s high against all but Sterling. We’ll likely see more upside in USD before US session.

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                              Fed Williams: Trade war will lower growth, raise inflation and lower quality of life

                                San Francisco Fed President John Williams told Spanish newspaper El Pais that it’s too soon to tell if there will be a trade war. He pointed out “the reality is that it is not so serious as some headlines suggest”. However, Williams also warned that “if the conflict increases there will be less growth, more inflation and lower quality of life all over the world.”

                                Regarding central bank communications on stimulus exit, Williams said “it should be repeated until people have had enough of hearing the message.”

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                                Eurozone PMIs: Growth has downshifted markedly since the peak at the start of the year

                                  Eurozone PMI manufacturing dropped to 56.0 in April, down from 56.6, miss expectation of 56.1. Eurozone PMI services rose to 55.0, up from 54.9 and beat expectation of 54.6. PMI composite unchanged at 55.2.

                                  Comments from Chris Williamson, Chief Business Economist at IHS Markit:

                                  “The Eurozone economy remained stuck in a lower gear in April, with business activity expanding at a rate unchanged on March, which had in turn been the slowest since the start of 2017. Growth has downshifted markedly since the peak at the start of the year, but importantly still remains robust.

                                  “The April data are running at a level broadly consistent with Eurozone GDP growth of approximately 0.6% at the start of the second quarter.

                                  “The decline in the PMI from January’s high is neither surprising nor alarming: such strong growth as that seen at the start of the year rarely persists for long, not least because supply fails to keep up with demand. With recent months seeing record delivery delays for inputs to factories and growing skill shortages, output is clearly being constrained. In France, strikes were also reported to have disrupted growth, and may continue to do so in coming months

                                  “However, it’s also clear that underlying demand has weakened, in part due to exports being hit by the stronger euro. With companies’ future optimism having slipped to the lowest since last year, it looks likely that growth may well slow further in coming months.”

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                                  Germany PMIs: Solid start to the second quarter.

                                    Germany PMI manufacturing dropped to 58.1, down from 58.2 and beat expectation of 57.5. GErmany PMI services rose to 54.1, up from 53.9 and beat expectation of 53.7. PMI compositive rose to 55.3, up from 55.1.

                                    Comments from Phil Smith, Principal Economist at IHS Markit:

                                    “Growth of Germany’s private sector steadied in April, to arrest the loss of momentum seen in February and March. With both manufacturing and services seeing slightly quicker increases in output, the data show the economy making a solid start to the second quarter.

                                    “There was also a welcome pick-up in the rate of private sector job creation in April. Employment levels rose strongly on a broad-based basis by sector, albeit with the rate of hiring among manufacturers easing from the recent elevated levels.

                                    “However, a further slowdown in new order growth to its weakest for over a year-and-a-half does raise some concerns. This seemed to be reflected in the survey’s measure of business confidence, which slipped further from the highs seen in 2017.”

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                                    France PMIs: Private sector remained firmly in expansionary mode

                                      France PMI manufacturing dropped to 53.4 in April, down from 53.7 and missed expectation of 53.5. France PMI services rose to 57.4, up from 56.9, beat expectation of 56.5. PMI composite rose to 56.9, up from 56.3.

                                      Comments from Alex Gill, Economist at IHS Markit:

                                      “The French private sector remained firmly in expansionary mode according to latest flash data. Indeed, at 56.9, the headline composite output figure signalled a sharper rate of growth than in March, and one that remained well above its long-run average (53.9).

                                      “After having shown signs of slowing in recent months, the data will buoy hopes that the renaissance in the French economy has far from run its course. Further encouragement can be garnered from the broad-based nature of the acceleration, with sharper growth evident in both the manufacturing and services sectors, the former on the back of marked moderations in the prior two months.”

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                                      Moon Jae-in scored another point as North Korea suspended nuclear tests, abolished nuclear site

                                        South Korea announced to stop broadcasting its propaganda along the border with North Korea, as a gesture of goodwill ahead of the highly anticipated Inter-Korean Summit at the border truce village of Panmunjom on Friday.

                                        South Korean President Moon Jae-in has made tremendous progress in solving the Korea crisis by continuously seeking dialogue. The meeting between high level officials of the two countries earlier this year was the turning point. And, the limited, yet successful, joint participation in recent Winter Olympic in the South created a crucial diplomatic window for the relationship.

                                        It’s only the third top level summit between the two countries, with the two previous meetings held back in 2000 and 2007. Ahead of the meeting, North Korea has announced to suspend nuclear and missile tests effective immediately. Its northern nuclear test site will also be abolished. And now, a formal end to the Korean War is also on agenda in the meeting between Moon and North Korean leader Kim Jong-un.

                                        Considering that South Korea was in a mess when Moon took office last May. His predecessor was impeached for corruption. The achievements domestically and diplomatically deserved much recognition. And that’s a main reason Moon is chosen as the 4th of the World’s 50 Greatest Leaders by Fortune as announced last week.

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                                        Japan PMI manufacturing: Stronger yen begins to impact price competitiveness

                                          Japan PMI manufacturing rose to 53.3 in April, up from 53.1 but missed expectation of 53.4.

                                          Comments in the release by Joe Hayes, Economist at IHS Markit:

                                          “Survey data depicted a positive backdrop in the Japanese manufacturing sector during April. The improvement in the headline PMI was underpinned by stronger rates of growth in output, new orders and employment. Furthermore, business confidence strengthened, while output prices were hiked to a stronger degree, signalling optimism in demand conditions.

                                          “Although new export orders declined for the first time since August 2016, as the stronger yen begins to impact price competitiveness, the rise in total new business inflows signals stronger domestic demand.”

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