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Into US session: CHF strongest, AUD weakest, CAD awaits BoC

    By
    ActionForex.com
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    Entering into US session, commodity currencies are the weakest ones for today. Australian Dollar leads the decline as much weaker than expected CPI raises the chance of an RBA rate cut in second half. New Zealand Dollar follows as second as RBNZ could cut even earlier in May. Canadian Dollar is the third weakest against of BoC rate decision. BoC is widely expected to keep interest rate unchanged at 1.75% today. It’s not totally sure if BoC would drop tightening bias today. If not, there is prospect of a rebound in the loonie.

    On the other hand, Swiss Franc is the strongest one, reversing some of recent losses. Technical resistance in EUR/CHF is a factor helping the Franc. Also, German 10-year yield drops notably today, threatening to turn negative again. Sterling is the second strongest, followed by Yen. Dollar is mixed for now. While US stocks jump sharply yesterday with S&P 500 and NASDAQ making new record closes, upside momentum isn’t too convincing today. Euro is also mixed even though Ifo business climate reversed some of March’s gains and declined to 99.2 in April.

    In Europe, currently:

    • FTSE is down -0.50%.
    • DAX is up 0.64%.
    • CAC is down -0.28%.
    • German 10-year yield is down -0.0374 at 0.007.

    Earlier in Asia:

    • Nikkei dropped -0.27%.
    • Hong Kong HSI dropped -0.53%.
    • China Shanghai SSE rose 0.09%.
    • Singapore Strait Times rose 0.27%.
    • Japan 10-year JGB yield dropped -0.0052 to -0.035.

    ECB: Impact of trade tensions escalation could heighten financial stress and lower confidence

      By
      ActionForex.com
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      In a paper released today, ECB noted that last year’s increased in trade tensions and the repercussions of the tariffs implemented pose only a “modest adverse risk” to the global and euro area outlooks. Also,  impact of implemented tariffs and tariff announcements owing to uncertainty effects appears to have remained “confined to the targeted sectors” for the time being.

      However, if trade tensions were to escalate once again, “the impact would be larger”.  Model-based simulations indicate that the medium-term direct impact of an escalation could be “sizeable, compounded by heightened financial stress and a drop in confidence.” The longer-term effects would be “even more pronounced”.

      ECB also warned that “although free trade is often seen as one of the factors behind rising inequality both within and across countries, winding back globalisation is the wrong way to address these negative effects.” “A retreat from openness will only fuel more inequality, depriving people of the undisputed economic advantages that trade and integration bring.”. The paper urged that “countries should seek to resolve any trade disputes in multilateral fora”.

      Full paper “The economic implications of rising protectionism: a euro area and global perspective“.

      German Ifo dropped to 99.2, March’s gentle optimism evaporated

        By
        ActionForex.com
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        German Ifo Business Climate Index dropped to 99.2 in April, down from 99.7 and missed expectation of 99.9. Expectation Index dropped to 95.2, down fro 95.6 and missed consensus of 96.0. Current Assessment Index also dropped to 103.3, down from 103.8 and missed expectation of 103.6.

        Ifo President Clemens Fuest noted that “the mood among German managers became slightly gloomier this month… March’s gentle optimism regarding the coming months has evaporated. The German economy continues to lose steam.” Ifo economist Klaus Wohlrabe said the data points to 0.8% growth in Germany this year.

        Looking at the details, business climate in manufacturing “has again worsened markedly”, down from 6.7 to 4.0. It’s the eighth straight month of decline. Services continued recovery from 26.1 to 26.3, comparing to cyclic low at 21.5 in February. Trade worsened again from 8.2 to 7.1. Construction improved slightly from 20.4 to 21.4.

        Full release here.

        BoC to drop tightening bias, or would it?

          By
          ActionForex.com
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          BoC is widely expected to keep overnight rate unchanged at 1.75% today. Back in March, the central bank has already shifted to a more cautious stance and noted outlook “warrant a policy interest rate that is below its neutral range”. Also, given the mixed picture ” it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook.” But after all, tightening bias was maintained and there was just “increased uncertainty about the timing of future rate increases.”

          Since then, data have been mixed. Headline CPI rose to 1.9% yoy in March, sharply higher than February’s 1.5% yoy. Core CPI also picked up slightly from 1.5% yoy to 1.6% yoy. Median CPI rose to 2.0% while trimmed mean CPI rose to 2.1% yoy. Job data remained resilient too. However, BoC’s Business Outlook Survey (BOS) disappointed with the overall business index falling to -0.6% in 1Q19. The result pointed to “a moderation from previously high levels of domestic and foreign demand for firms in most regions”.

          There are speculations that BoC could totally drop tightening bias, and indicate that rates will stay there for longer. However, the recent data might not be giving enough pressure for BoC to do it. Also, oil price has been in strong rally since WTI bottomed at 42.05 last December. The current picture, with WTI back above 65, is drastically different from that one in January. Thus, the anticipated neutral shift is far from being certain. BoC will also release new economic projections. Today’s announcement is a wild card.

          Some suggested readings:

           

          Big downside surprise in Australia CPI adds to case for RBA cut, AUD dives

            By
            ActionForex.com
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            Australian Dollar is sold off sharply after much weaker than expected consumer inflation data.

            • Headline CPI rose 0.0% qoq, 1.3% yoy in Q1, down from 0.5% qoq, 1.8% yoy, missed expectation of 0.2% qoq, 1.5% yoy. The 1.3% annual rate is also the slowest since September 2016.
            • RBA trimmed mean CPI rose 0.3% qoq, 1.6% yoy, below expectation of 0.4% qoq, 1.7% yoy. Annual rate is slowest since December 2016.
            • RBA weighted median CPI rose 0.1% qoq, 1.2% yoy, well below expectation of 0.4% qoq, 1.6% yoy.

            The weak inflation data heighten the prospect of RBA rate cut in May, together with RBNZ. But for now, it still seems a bit early for RBA to act given relative resilience in job data. May is more an ideal occasion for RBA to turn dovish with new economic projections and SoMP. If it happens, the case for a cut in August would be secured.

            AUD/USD’s steep decline and acceleration through 0.7052 support confirms that corrective recovery from 0.7003 has completed with three waves up to 0.7205. Decline from 0.7295 should be ready to resume through 0.7003 support, towards 0.6722 low.

            EUR/AUD’s strong rally also suggests that corrective fall from 1.6765 has completed with three waves down to 1.5683, well ahead of 1.5346 key support. Further rise should be seen to 1.6122 resistance next. Break will pave the way back to 1.6765.

            AUD/JPY’s rebound from 70.27 was relatively stronger than AUD/USD. But even so, it was limited well below 83.90 key resistance. Thus, it’s more likely that such rebound is merely a correction. Today’s sharp decline is raising the prospect that it’s already completed. We’d expect deeper fall to retest 77.44 support first. Decisive break there will revive medium term bearish outlook for 70.27 low.

            S&P 500 and NASDAQ closed at records, no follow through in Asia

              By
              ActionForex.com
              -

              US stocks enjoyed strong rally overnight as boosted by solid corporate earnings from Coca-Cola to Twitter. S&P 500 and NASDAQ closed at records of 2933.68 (up 0.88%) and 8120.82 (up 1.32%) respectively. Though, they’re both held below intraday highs. DOW also gained 0.55% to 26656.39.

              Technically, the strong momentum suggests that both S&P 500 and NASDAQ will easily take out intraday records at 2490.91 and 8133.30. That could likely pull DOW upward to equivalent level at 26951.81. Yet, we’re still not too convinced that the indices are in long term up trend resumption yet.

              Two developments give us some doubts over the underlying momentum of the global markets. Firstly, Asian markets are not following and with major indices, except Singapore Strait Times, turned red after initial gains today. Secondly, Yen is the strongest one for the week so far while USD/JPY is stuck in tight range only, which isn’t the usually development seen in strong risk on market. Thus, there will be a lot of caution in the next move up.

              Anyway, for now, near term outlook in SPX will release bullish as long as 2891.90 support holds. Firm break of 2490.91 should at least bring a test on 3000 psychological level.

              Similarly, near term outlook in NASDAQ will remain bullish as long as 7950.97 support holds. Firm break of 8133.30 will confirm long term up trend resumption.

              US-China trade talks to resume in Beijing on Apr 30, Kudlow said cautiously optimistic but not there yet

                By
                ActionForex.com
                -

                The White House announced that Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to Beijing to on April 30 to continue trade talks. China’s team will again be led by Vice Premier Liu He. Liu is expected to fly to Washington on May 8 for additional discussions. In the statement, it’s noted that “the subjects of next week’s discussions will cover trade issues including intellectual property, forced technology transfer, non-tariff barriers, agriculture, services, purchases, and enforcement.”

                Earlier yesterday, Larry Kudlow, Director of the White House National Economic Council, said the negotiations were making progress and he was “cautiously optimistic” on striking a deal. He hailed that “we’ve come further and deeper, broader, larger-scale than anything in the history of U.S.-China trade.”

                But Kudlow also noted that “We’re not there yet”. “We’re still working on the issues, so-called structural issues, technology transfers”. Also, “ownership enforcement is absolutely crucial. Lowering barriers to buy and sell agriculture and industrial commodities. It’s all on the table.”

                EU Centeno: Deceleration in Europe less temporary than expected

                  By
                  ActionForex.com
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                  Eurogroup President Mario Centeno said in an interview that “it is true that there is a deceleration going on in Europe and that it may be less temporary than we think.” The slowdown surprised by both intensity and duration. And it’s related to political risks as “uncertainty grows when decisions are not taken.” Though, he remained optimistic that “forecasts point to a recovery in the second half of the year.”

                  Separately, Centeno expressed his concern regarding Italy’s fiscal heath in another interview. He warned that “Italy is facing some difficulties in this economic cycle”. And, “the message is relatively simple: the government has a demanding budget to execute and it needs to be executed with credibility, and we need to gather all our efforts to reverse Italy’s growth tendency.

                  US new home sales rose to 692k, highest since Nov 2017

                    By
                    ActionForex.com
                    -

                    US sales of new single-family houses rose to 692k in March, up from 662k, well above expectation of 647k. That’s also the highest level since November 2017. Also from US, house price index rose 0.3% mom in February, below expectation of 0.6% mom.

                    Gold extends decline on Dollar strength, heading towards 1234 fibonacci level

                      By
                      ActionForex.com
                      -

                      Gold’s near term down trend resumes today thanks to broad based strength in Dollar. The development also further solidify the case of medium term reversal. That is, rise from 1160.17 has completed at 1346.71, on bearish divergence condition in daily MACD.

                      Near term outlook will now stay bearish as long as 1280.85 support turned resistance holds. Gold is targeting 61.8% retracement of 1160.17 to 1346.17 at 1234.42 and below.

                      In the bigger picture, gold was once again rejected below key fibonacci level of 38.2% retracement of 1920.70 to 1046.37 at 1380.36. The developments keeps down trend from 1920.70 intact. It’s too early to declare resumption of the down trend. But reactions to 1160.17 support will be closely watched to assess the chance of breaking through 1046.37 low.

                      Into US session: GBP bounces from technical support, CHF downside breakout

                        By
                        ActionForex.com
                        -

                        Entering into US session, Sterling is the strongest one in a rather listless day so far. Technical support is seen as the major reason for the bounce. GBP/USD is close to 1.2960 key near term support. EUR/GBP is also “relatively” close to 0.8722 key near term resistance. Yen and Dollar are the next strongest ones, mainly thanks to sluggishness elsewhere.

                        For now, Swiss Franc is the weakest one, as funds are flowing out of this safe haven. Rise in oil price is seen as a major factor. Technically, USD/CHF broke 1.0128 key resistance last week and medium term up trend has resumed for 1.0342 resistance. EUR/CHF also takes out 1.1444 key resistance today, indicating near term reversal. 1.1501 resistance is next and will likely be conquered with ease. Australian and New Zealand Dollar are the next weakest. The Aussie will be vulnerable to CPI release tomorrow.

                        In Europe:

                        • FTSE is up 0.45%.
                        • DAX is down -0.23%.
                        • CAC is down -0.14%.
                        • German 10-year yield is up 0.0288 at 0.055.

                        Earlier in Asia:

                        • Nikkei rose 0.19%.
                        • Hong Kong HSI dropped -0.00%.
                        • China Shanghai SSE dropped -0.51%.
                        • Singapore Strait Times dropped -0.13%.
                        • Japan 10-year yield dropped -0.0025 to -0.029.

                        NZD/USD resumes decline on RBNZ rate cut bets

                          By
                          ActionForex.com
                          -

                          New Zealand Dollar is among the weakest today, together with Australian and Canadian. Selloff in Kiwi picked up momentum last week after Q1 CPI release disappointed by slowing to 1.50%. There are increasing expectation that RBNZ could cut interest rate at the upcoming meeting on May 8.

                          In the latest weekly commentary, Westpac noted that May’s meeting is a “close call”. A cut is supported by “continued low level of inflation and softness in business sector indicators”. However, “longer-term outlook for the economy is looking less worrying than it did a few months ago, especially given the recent news that there won’t be a capital gains tax.” On the other hand, ANZ “long-end yields have pre-empted a cut” in May. But they expected “another move lower once the first cut is delivered and markets open up to the possibility of a third. ”

                          NZD/USD fall from 0.6938 resumes today by taking out 0.6666 temporary low and hits as low as 0.6659 so far. Further decline is expected as long as 0.6782 resistance holds, towards 0.6551 support. The corrective pattern from 0.6424 could have completed with three waves to 0.6938 already. Firm break of 0.6551 should add to the case of medium term down trend resumption through 0.6424 low. Nevertheless, rebound from 0.6551 will extend the corrective pattern with one more rising leg.

                          ECB Coeure: Growth to return in H2, no grounds for overly gloomy thoughts

                            By
                            ActionForex.com
                            -

                            ECB Executive Board Member Benoit Coeure said in a newspaper interview that policymakers expected “growth to return in the second half of the year”. He told German daily Frankfurter Allgemeine Zeitung “there are no grounds for overly gloomy thoughts”. However, he admitted for now “it is very uncertain how long and how strong the downturn will be.”

                            On monetary policy, Coeure sees no argument for tiered deposit rate. He urged banks to focus on their own costs, rather than blaming ECB’s negative rate for lower profits. Meanwhile, currently, markets are pricing in no rate cut until at least 2021. Coeure warned “we are not tied to such market expectations; they are an important input, but we are not led by them.” He added market pricing are merely reflecting “an assessment of the downside risks which is different to that of the Governing Council”.

                            Maeda: BoJ ready to use combinations of measures to ease further if needed

                              By
                              ActionForex.com
                              -

                              Eiji Maeda, BoJ Executive Director of International Affairs, reiterated the central bank stands ready to ease monetary policy further if needed.

                              He said in the Diet that “if the economy’s momentum for achieving our price target is threatened, we are ready to ease monetary policy as necessary”. And, “we’ll continue to take steps as needed, including a combination of them, with an eye on their effects and side-effects” on the financial system.

                              Separately Finance Minister Taro Aso said there is no plan for the government to test a heterodox modern monetary theory. That is, countries issuing their own currencies can never run out of money”.

                              Japans sees little impact from end of Iran oil sanction waiver

                                By
                                ActionForex.com
                                -

                                Japan is seeing limited impact as US ends the Iranian oil sanction waiver for the country. Trade and Industry Minister Hiroshige Seko said in a regular press conference that Japan has been lowering its reliance on Iranian oil import, which only accounts for 3%. And, there is no need to tap the national oil reserve with decision of the US.

                                Though, he noted, “we will closely watch international oil markets and exchange views with Japanese companies involved in crude imports and may consider taking necessary measures.”

                                The US decision to end the waiver will force eight countries, including China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey, to switch their oil supplies from Iran to other countries, starting May 2.

                                US to end Iranian oil sanction waivers for China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey

                                  By
                                  ActionForex.com
                                  -

                                  Oil price jumps sharply today on news that US is preparing to stop all Iranian oil sanction waivers. The announce could be made as soon as on Monday. Currently, China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey are buying Iranian oil without facing US sanctions. But such waivers would expire on May 2 and US will not be renewing it them.

                                  WTI crude oil surges to as high 65.92 so far today. 61.8% retracement of 77.06 to 42.05 at 63.68 is considered completely got rid of. Near term outlook will stay bullish as long as 63.08 support holds. Further rise should be seen back to 77.06 key resistance.

                                  In the bigger picture, there is no clear sign of range break out yet. Rise from 42.05 is seen as just a leg inside the sideway pattern from 77.06. Thus, upside should be limited by 77.06 to bring another medium term fall.

                                  Dollar jumps on strong retail sales and jobless claims

                                    By
                                    ActionForex.com
                                    -

                                    Dollar surges broadly in early US session after generally positive economic data.

                                    Headline retail sales rose 1.6% mom in March versus expectation of 0.8% mom. That’s also the strongest rise since September 2017. Meanwhile, 12 of 13 major retail categories increased.  Ex-auto sales rose 1.2% mom versus expectation of 0.7% mom. Total sales from January through March rose 2.9% yoy.

                                    Initial jobless claims dropped -5k to 192k in the week ending April 13, below expectation of 207k. It’s also the lowest since September 6, 1969 when it was 182k. Four week moving average of initial claims dropped -6k to 201.25k, lowest since November 1, 1969. And the series seem to be trending down again. Continuing claims dropped -64k to 1.653m. Four week moving average of continuing claims dropped 022.75k to 1.713m.

                                    Philadelphia Fed Manufacturing Business Outlook, however, droppped to 8.5, down from 13.7 and missed expectation of 11.0.

                                    UK retail sales rose 1.1%, ex-auto sales rose 1.2%

                                      By
                                      ActionForex.com
                                      -

                                      Released from UK:

                                      • Retail sales include auto and fuel rose 1.1% mom, 6.7% yoy in March versus expectation of -0.4% mom, 4.6% yoy.
                                      • Retail sales exclude auto and fuel rose 1.2% mom, 6.2% yoy in March versus expectation of -0.3% mom, 4.0% yoy.

                                      Full release here.

                                      GBP/USD recovers mildly after the release but remains soft for 1.2960 support.

                                      Eurozone PMIs: Disappointing start to Q2, suggest under 0.2% GDP growth

                                        By
                                        ActionForex.com
                                        -

                                        Eurozone PMI manufacturing rose to 47.8, up from 47.5 but missed expectation of 48.1. PMI services dropped to 52.5, down from 53.3 and missed expectation of 53.1. PMI composite dropped to 51.3, down from 51.6, and hit a 3-month low.

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

                                        “The eurozone economy started the second quarter on a disappointing footing, with the flash PMI falling to one of the lowest levels seen since 2014. The data add to worries that the economy has failed to rebound with any conviction from one-off factors that dampened activity late last year, and continues to show only very modest growth in the face of headwinds from slower global demand growth and subdued economic sentiment.

                                        “The surveys indicate that quarterly eurozone GDP growth has slowed to just under 0.2%. A similar 0.2% rate of expansion is being signalled for Germany but France stagnated and the rest of the region has moved closer to stalling.

                                        “Manufacturing remained the key area of concern, with output continuing to contract at one of the fastest rates seen over the past six years. Forward -looking indicators showed some signs of improvement but remain deeply in negative territory to suggest the factory malaise has further to run.

                                        “The slowdown also showed further signs of engulfing the service sector, where growth cooled again to one of the weakest rates seen since 2016. Some encouragement can be gleaned from an improvement in employment growth, although even here the pace of hiring is among the lowest seen for two-and-a-half years.

                                        “The persistence of the business survey weakness raises questions over the economy’s ability to grow by more than 1% in 2019.”

                                        Full release here.

                                        Germany PMI manufacturing ticked up 0.4 from 69-month low to 44.5

                                          By
                                          ActionForex.com
                                          -

                                          Germany PMI manufacturing rose to 44.5 in April, up from 44.1 but missed expectation of 45.2. It’s staying deep in contraction below 50. PMI services rose to 55.6, up from 55.4, beat expectation of 55.0. PMI composite rose to 52.1, up from 51.4.

                                          Commenting on the flash PMI data, Phil Smith, Principal Economist at IHS Markit said:

                                          “The overall picture for Germany’s private sector has changed very little according to April’s flash data, with strong growth across the services economy continuing to counteract the export-led weakness in manufacturing. Though the PMI has ticked up from March’s 69-month low, it’s merely signalling the same modest rate of underlying growth as seen on average over the opening quarter of the year.

                                          “Slight upticks in the manufacturing indices for output, new orders and employment saw the headline Manufacturing PMI post its first rise in nine months, albeit with the latest reading nonetheless the second-lowest since mid-2012. Amid reports of a declining car industry, strong competition across Europe and generally subdued global demand, the data showed another steep drop in German goods exports and the lowest confidence among manufacturers for six-and-a-half years.

                                          “The survey continues to highlight strong job creation across the service sector, which is in turn supporting wage growth and means we should see consumer demand continue to rise during the second quarter.”

                                          Full release here.

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