Fri, May 24, 2019 @ 01:04 GMT

Follow up on AUD/CAD long strategy

    Following up on AUD/CAD long strategy here. The cross rose as expected and hit as high as 0.9924 so far today. There is still a bit of distance from our target at 61.8% retracement of 1.0241 to 0.9553 at 1.0066.

    Looking at the action bias table, 6H action bias remains consistently upside blue, which support our bullish trade. The question is, from H action bias, there seems to be not enough upside momentum as AUD/CAD comes out of a consolidation.

    So, we’d hold the long position, with target still at 1.0066, but raise the stop to 0.9860, slightly below 0.9862 support. This is for locking in some profits if the current rise is a false break.

     

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    Canada Ivey PMI Feb: 59.6, US factory orders Jan: -1.4%

      Canada Ivey PMI Feb: 59.6 vs exp 56.3, prior 55.2

      US factory orders Jan: -1.4% vs exp -1.3% prior 1.8% (revised from 1.7%)

      USD/CAD dips sharply on broad based dollar weakest today. A temporary top is formed at 1.3000. Deeper pull back would be seen in the session. Strong support could be seen around 4 hour 55 EMA at 1.2794, close to near term channel support.

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      Philadelphia business outlook: General activity, new orders, shipments, and employment all indicated continued expansion

        Philadelphia business outlook diffusion index rose from 22.3 to 23.2 in April, beating expectation of 21.2. There were nearly 37% of manufacturers reported increases in overall activity during the month, while 14% reported decreases. Philadelphia Fed noted in the release that the responses ” suggest continued growth for the region’s manufacturing sector. The indexes for general activity, new orders, shipments, and employment all indicated continued expansion this month.” And, “looking ahead six months, the firms continued to be optimistic about the outlook for manufacturing activity.”

        Full release here

        Also from US, jobless claims dropped 1k to 232k in the week ended April 21, slightly above expectation of 230k. Four week moving average rose 1.25k to 231.25k. Continuing claims dropped 15k to 1.86m in the week ended April 14.

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        Euro down on Trump’s 20% tariffs on cars threat

          Trump threatens EU with 20% on cars if the latter doesn’t “remove” the trade barriers to US vehicles. Both Euro and Sterling dip after the tweet.

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          SNB Zurbruegg: Exchange rate situation still very fragile, current monetary policy has to continue

            SNB Vice Chairman Fritz Zurbruegg said in a Schaffhauser Nachrichten newspaper interview that when EUR/CHF was at 1.2, there came the ” the impression that everything is solved and the pressure is gone – the franc is no longer a safe haven”. However, then, “you can see that the franc reacts very quickly as long as there are uncertainties.” That showed the “exchange rate situation is still very fragile”. Therefore, SNB policymakers are “convinced we have to continue with our current monetary policy.”

            Also, he noted the central bank is not considering to reduce its balance sheet yet. He said “there are risks that we have accepted to fight against the over-valuation of the franc, and we can live with that. And, “the size of our balance sheet doesn’t limit our ability to act and we have shown that we are still ready to intervene in the currency markets if necessary.” He added “that’s why there is no talk at present about reducing this portfolio.”

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            UK PM May to visit Northern Ireland to sell her Brexit deal

              The UK Parliament is set to vote on the Brexit withdrawal agreement on December 11. Prime Minister Theresa May will start her nationwide tour today to secure the vote. Northern Ireland and Wales are her destinations today.

              For Norther Ireland, May said in a statement on her visit that “having been told by the EU that we would need to split the UK in two, we are leaving as one United Kingdom.” And, “my deal delivers for every corner of the UK and I will work hard to strengthen the bonds that unite us as we look ahead to our future outside of the EU.”

              May is also expected to highlight the benefits of her deal for businesses and said it has support from manufacturers who “need to be able to trade freely across the border with Ireland and have unfettered access to the rest of the United Kingdom’s market”.

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              Fed kept interest rate unchagned at 1.50-1.75%. Statement cautiously positive, but gives no hints on more than three hikes this year

                Fed left federal funds rate unchanged at 1.50-1.75% as widely expected. And the decision was made with unanimous vote. Fed maintained tightening bias and noted that “the Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate”.

                Descriptions on the economy are slightly upbeat as “job gains have been strong” and “business fixed investments continued to growth strongly”. But “household spending moderated”. While core inflation moved “close to 2percent”, “market-based measures of inflation compensation remain low”.

                The tone is cautiously upbeat and give no hints of more than three hikes this year.

                Here is the full statement:

                Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Recent data suggest that growth of household spending moderated from its strong fourth-quarter pace, while business fixed investment continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

                Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong. Inflation on a 12-month basis is expected to run near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

                In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

                In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

                Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams.

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                Yield curve suggests risks of recession intensified after Fed’s dovish turn

                  The US markets ended rather terribly overnight despite Fed’s steep dovish turn, with re-emerging trade war threat in the background. Drastic moves were seen in the bond markets with yield curve now indicate intensified risks of recession ahead.

                  The most reliable recession indicator is now flashing red after yesterday’s moves in the bond markets. The spread between 3-month yield and 10-year yield has narrowed sharply and at brink of inverting. The slope of 3-month and 10-year yields is watched by most economist and seen as the best recession indicator.

                  The technical development in 10-year yield (TNX) suggests that it’s only starting to get worse. TNX dropped -0.079 to close at 2.535. Indeed, the strong break of 2.554 support indicates resumption of fall from 3.248 high with solid downside momentum. Key fibonacci level of 38.2% retracement of 1.336 (2016 low) to 3.248 (2018 high) at 2.554 looks rather vulnerable. Decisive break will confirm medium term reversal, which could open up the case for deeper fall to 61.8% retracement at 2.066, which is close to 2.034 support and 2% psychological level.

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                  Australia unemployment rate dropped to 4.9% as participation rate dropped -0.2%

                    In seasonally adjusted term, Australian employment market grew 4.6k in February, well below expectation of 15.2k. Full-time employment dropped -7.3k while part-time jobs grew 11.9k. Unemployment rate dropped to 4.9%, down from 5.0%. That’s also the lowest level since June 2011. However, participation rate dropped by -0.2% to 65.6%.

                    The seasonally adjusted unemployment rate increased in New South Wales (up 0.3 pts to 4.3%) and Victoria (up 0.2 pts to 4.8%). Decreases were observed in Western Australia (down 0.9 pts to 5.9%), Queensland (down 0.6 pts to 5.4%), South Australia (down 0.6 pts to 5.7%) and Tasmania (down 0.5 pts to 6.5%).

                    ABS Chief Economist Bruce Hockman said: “The trend unemployment rate declined 0.5 percentage points over the year, from 5.5 per cent to 5.0 per cent. The pace of decline slowed in recent months, which was consistent with the slowdown seen in recent Job Vacancies and GDP numbers.”

                    Full release here.

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                    US ADP jobs missed expectation, growth still strong but likely peaked

                      US ADP report showed only 179k growth in private sector jobs in November, down from 225k and missed expectation of 200k.

                      In the release, Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, noted that “although the labor market performed well, job growth decelerated slightly”. Also, “Midsized businesses added nearly 70 percent of all jobs this month. This growth points to the midsized businesses’ ability to provide stronger wages and benefits. It also suggests they could be more insulated from the global challenges large enterprises face.”

                      Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth is strong, but has likely peaked. This month’s report is free of significant weather effects and suggests slowing underlying job creation. With very tight labor markets, and record unfilled positions, businesses will have an increasingly tough time adding to payrolls.”

                      Full release here.

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                      EU businesses saw forced technology transfer in China persisted, at double rate

                        In a survey the European Union Chamber of Commerce in China, EU companies are generally sceptical on whether China will release open up market assess. European businesses continued to witness “sustained support for state-owned enterprises, higher incidences of unfair technology transfers and the strengthening of the Communist Party’s role in business.” It’s also noted that “one of the more significant shortcomings of China’s reform agenda is that certain high-level promises to improve its business environment for international companies have failed to translate into concrete action.”

                        More importantly, European Chamber Vice President Charlotte Roule complained that “our members have reported that compelled technology transfers not only persist, but that they happen at double the rate of two years ago.” And,  “it is unacceptable that this practice continues in a market as mature and innovative as China,”

                        Here are some highlights of the survey results:

                        • Optimism on growth over the next two years dropped from 62% in 2018 to 45% in 2019.
                        • 47% of respondents expect the number of regulatory obstacles to increase in the next five years, and 25% expect the number will stay the same.
                        • About half of respondents expect it will take five years to see competitive neutrality realized, while a third never expect it to be realized.
                        • 20% of respondents felt compelled to transfer technology as a condition for market access, nearly two thirds of which occurred over the last two years, and a quarter of which were taking place at the time the survey was being conducted.

                        Full release here.

                         

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                        US update: AUD/CHF the top mover as risk appetite returns

                          Risk appetite appears to be rather strong today. It’s reported that Trump is undecided on the congressional deal to avert another shutdown. But investors couldn’t care less and they seem optimistic that Trump will eventually find an excuse to bow down, like claiming that the 90km border fence is a first step. But anyway, S&P 500 has already broken recent high to extend rally. DOW and NASDAQ might follow soon.

                          In the currency markets, Swiss Franc is the worst performing one, followed by Yen and then Dollar. Australian Dollar is the strongest one, followed by Canadian and then Euro. Sterling is mixed after little reactions to UK Prime Minister Theresa May’s Brexit statement in Commons. Kiwi is also mixed ahead of tomorrow’s RBNZ rate decision.

                          AUD/CHF is currently the top mover today, up 0.69%. The recovery ahead of 0.7046 support argues that rebound from 0.6646 low might not be completed yet. Intraday bias stays neutral first. Break of 0.7262 will target 0.7376 resistance next. Though, firm break of 0.7046 should confirm near term reversal and target a retest on 0.6646 low.

                          In other markets:

                          • DOW is up 1.39%.
                          • S&P 500 is up 1.14%.
                          • NASDAQ is up 1.27%.
                          • 10-year yield is up 0.025 at 2.686.
                          • 30-year yield is up 0.028 at 3.027, back above 3% handle.

                          In Europe:

                          • FTSE rose 0.06%.
                          • DAX rose 1.01%.
                          • CAC rose 0.84%.
                          • German 10-year yield rose 0.0102 to 0.132.
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                          USD/CAD to revisit yesterday’s low as Canada CPI accelerated notably in Feb

                            USD/CAD dives sharply in early US session after data release.

                            From US, durable goods orders rose 3.1% in February, above expectation of 1.7%.

                            Ex-transport orders rose 1.2% versus expectation of 0.5%.

                            However, markets response to Canada inflation data seems to be much stronger.

                            From Canada, CPI rose 0.6% mom, 2.2% yoy in February, beat expectation of 0.5% mom, 2.0% yoy. Annual rate also accelerated from prior month’s 1.7% yoy.

                            CPI core common accelerated to 1.9% yoy, up from 1.8% yoy. CPI core media rose to 2.1% yoy, up from 1.9% yoy. CPI core trimmed rose to 2.1% yoy, up from 1.8% yoy.

                            Canada retail sales rose 0.3% versus expectation of 1.2% mom in January. Ex-transport order, though, met expectation and rose 0.9% mom.

                            USD/CAD drops sharply and is set to test on yesterday’s low at 1.2828. Rejection from 55 H EMA certainly carries near term bearish implication. However, there is a key support zone ahead at 1.2802 cluster support zone (38.2% retracement of 1.2246 to 1.3124 at 1.2789). For the moment, we’d still expect strong support from there to bring rebound.

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                            US PMI composite rose to 54.5, solid start to 2019

                              US Markit PMI manufacturing rose to 54.9 in January, up from 53.8 and beat expectation of 53.5. PMI services dropped to 54.2, down from 54.4 and beat expectation of 54.1. PMI Composite recovered to 54.5, up from 54.4.

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

                              “US businesses reported a solid start to 2019, with the rate of expansion running only slightly weaker than the average seen in the second half of last year.

                              “The resilience of the survey data suggest little impact from the government shutdown on the private sector, with very few companies reporting any material detrimental impact on their output or order books.

                              “Historical comparisons suggest January’s survey data are indicative of the economy growing at an annualized rate close to 2.5%. However, as the survey does not include the government sector, the impact of the shutdown may not be fully captured.

                              “Manufacturers reported faster rates of increase for both output and order books during the month, accompanied by ongoing robust service sector growth. Both sectors continued to rely on domestic demand, however, with service sector exports falling for a second successive month and goods exports rising only moderately, acting as a drag on overall order books.

                              “The jobs data from the surveys were also somewhat disappointing, with the overall rate of job creation slipping to a 20-month low. However, even this weaker January survey employment index reading is consistent with private sector payroll growth of approximately 150,000.

                              “Encouragingly, business sentiment about the year ahead lifted higher, suggesting companies have started the year with increased optimism, boding well for robust business growth to be sustained in coming months.”

                              Full release here.

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                              China to stop iron ore export tariffs on Jan 1

                                China’s Ministry of Finance announced adjustments on some import and export tariffs today, effective January 1. In short, export tariffs on 94 products are canceled, including iron ore, and fertilizers. For imports, China will levy temporary tariffs on 706 products and maintain relatively low import tariffs for aircraft engines.

                                Import tariffs on 14 information technology products will be cancelled starting July 1, 2019. China will also further cut most favoured nation tariffs on 298 information technology products from July 2019.

                                Full release from MoF of China.

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                                RBA to stand pat, AUD to stay weak

                                  RBA is widely expected to keep the cash rate unchanged at 1.50% tomorrow. Economists have been pushing back their expectation on the timing of an RBA hike after recent sluggish wage growth and inflation data. Late last year, there were speculations that RBA could hike twice by the end of this year. And now, markets are only pricing in around 40% chance of one hike in 2018. The majority expects that tightening won’t start until 2019.

                                  While the job markets have been strong in Australia, wage growth remained sluggish. Unemployment rate has now stabilized at 5.5-5.6% after last year’s growth. However,the figure is floored by continue rise in participation rate. In that sense, the unemployment rate would stays away from hitting 5% level for a while, the level considered to be at full employment. That is, slack will remain in the economy.

                                  RBA rate speculations, falling iron ore price and worries regarding US-China trade war left Aussie as one of the weakest back in March, in particular against Euro and Sterling. AUD will likely stay pressured after tomorrow’s RBA rate statement.

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                                  UK PM May confirms Brexit vote delay, will seek change in backstop with EU

                                    UK Prime Minister Theresa May formally confirms in the Commons that the Brexit vote will be delayed. She said, the tomorrow’s vote went ahead, it would be lost by a wide margin. May said she’ll hold emergency talks with EU to discuss possible changes to the backstop. And, she pledges that changes to the backstop would ensure it’s not permanent.

                                    The second Brexit referendum, May warned that “this risks dividing the country again when as a House we should be striving to bring it back together”. And she added that ” if you want to stay part of the customs union, be honest that this this involves accepting free movement.” Or, “if you want to leave with no deal, be honest that this will cause significant damage in those parts of the county that can least afford it.”

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                                    ADP 235k beat expectation 200k, USD/JPY slightly higher

                                      USD/JPY slightly higher as ADP job report beat expectation.

                                      ADP Feb: 235k vs exp 200K  vs prior 244k

                                      But it remains to be seen if USD/JPY could sustain gain.

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                                      Asian stocks as Chinese Yuan rise on US-China ceasefire

                                        While it’s merely a cease-fire for 90 days agreement between the US and China, Asian markets’ responses are overwhelmingly positive. At this point, China SSE is up 2.91%. Hong Kong HSI is up 2.68%. Nikkei is up 1.46% and Singapore Strait Times is up 2.12.%.

                                        The HK HSI gaps up sharply and is now rising 2.68% at 27217.25. The development is rather positive as rebound from 24540.63 medium term bottom should extend to 27957 fibonacci level next, which is close to 28000 handle.

                                        USD/CNH also dips to 6.892 as the off shore Yuan rebounds. Though, it’s quickly back above 6.91 as there is no follow through buying. And. Technically, sustained break of 55 day EMA is needed to indicate that Yuan has bottomed in medium term (or USD/CNH topped in medium term).

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                                        Into US session: Sterling strongest as UK PM May faces leadership challenge, Swiss Franc getting weak

                                          Entering the US session, the biggest news today is that UK PM Theresa May’s moment of truth has finally come. There are enough requests to trigger a no-confidence vote, which will be held at 1800-2000GMT today. The results will likely come out at around 2100GMT. The Pound actually strengthens on the news. The question is, should May will the vote, would that mean the tories should unite and stay behind her Brexit deal? And, should May lose, a new leader will come in and there is definitely not enough time for Brexit renegotiation. Then, the article 50 requests is likely needed to be revoked. Brexit would be delayed or even cancelled. These cases are most likely much better than a no-deal hard Brexit.

                                          Staying in the currency markets, Euro is trading as the second strongest one, followed by Canadian. New Zealand Dollar is the weakest one, walking its own path. Swiss Franc and, to a much lesser extend, Yen are next weakest on improved risk appetite. European stocks are trading broadly higher, including FTSE. It seems like UK investors are feeling nothing about May. Asian markets also closed broadly higher. Progress of US-China trade talk is lifting sentiments general.

                                          At the time of writing in Europe:

                                          • FTSE is up 1.31%
                                          • DAX is up 0.94%
                                          • CAC is up 1.67%
                                          • German 10 year bund yield is up 0.002 at 0.238
                                          • Italian 10 year yield is down -0.052 at 3.065. German-Italian spread is now at 282

                                          Earlier in Asia:

                                          • Nikkei closed up 2.15% at 21602.72
                                          • Hong Kong HSI rose 1.61% to 26186.71
                                          • China Shanghai SSE rose 0.31% to 2602.15
                                          • Singapore Strait Times rose 1.33% to 3099.99
                                          • 10 year JGB yield rose 0.0105 to 0.056, back above 0.5 handle.
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