Thu, Dec 01, 2022 @ 13:24 GMT

AUD boosted by surge in Iron Ore futures in China’s DCE

    AUD surges broadly and the rally started as markets entered into European session.

    Strength in Iron ore price is likely a key factor. Iron Ore futures in China’s Dalian Commodity Exchange soared after lunch and gain 2.76% for the day.

    In the background, there is some optimism on iron ore and steel price as inventory falls. Reuters reported ANZ research note saying that “Chinese steel demand continues to beat expectations. Real estate investment and housing starts are picking up, while infrastructure spending remains elevated.” And, “after some restocking in late March ahead of a key maintenance period, the scene is set for steel mills to re-enter the market.”

    ANZ also noted that the outlook for iron ore also picked up in recent weeks, as seen from recent Chinese data. In addition, prolonged mine outage in Brazil and falling exports from India and Sierra Leone will support prices.

    BoJ Kuroda: Some steps remaining for government on fiscal reforms

      BoJ Governor Haruhiko Kuroda spoke to the parliament today and hailed that the government has made significant progress on fiscal reforms. And, there is “some lagbefore the steps already taken begin to affect the economy”.

      But he also emphasized that there are “still some steps remaining that the government needs to take on structural reform and growth strategy.”

      DOW finally showed conviction in upside momentum

        DOW finally showed some conviction in its recent rally overnight. It ended up 196.99 pts, or 0.80%, at 24739.53. More importantly the flat 55 day EMA, as well as near term falling trend line resistance, were firmly taken out. The question now is, has the consolidation pattern from 26616.71 completed as a triangle at 23531.31? Or rise from 23531.31 is just another leg in the pattern? It’s early to tell. We’ll see how powerful the current rise is to determine. But for now, firstly, break of 24585.97 resistance should be seen shortly and there is prospect of reaching 25800.35 resistance. Secondly, 23344/60 should be a solid base that will hold on another attempt.

        US House Speaker Ryan urged NAFTA agreement notification by May 17

          US House Speaker Paul Ryan told the NAFTA negotiation parties that May 17 is the deadline for the new NAFTA deal for eventual passage for the current Congress to vote on within this year. Ryan said “We have to have the paper – not just an agreement, we have to have the paper – from USTR by May 17 for us to vote on it this year, in December, in the lame duck”. But later, his spokesman said he referred to a notification of intent to sign the NAFTA agreement, not the full text. The new elected Congress will take office in January.

          Canadian Foreign Minister Chrystia Freeland said after meeting with US legislators that “we are definitely getting closer to the final objective.”

          Mexico’s Economy Minister Ildefonso Guajardo said he’ll know by the end of Friday ” if we really have what it takes to be able to land these things in the short run.”

          New Zealand BusinessNZ PMI rose to 58.9, highest since Jan 2016

            New Zealand BusinessNZ Performance of Manufacturing Index rose to 58.9 in April, up from 53.1. That’s also the highest level since January 2016.

            BusinessNZ’s executive director for manufacturing Catherine Beard:

            “The fact that the sub-indexes of production, new orders and deliveries of raw materials were all around the 60-point mark helped the overall result. Also, the proportion of positive comments in April (58.5%) has continued its upwards trajectory compared with March (55.1%), February (51.4%) and January (50.7%). Those who provided positive comments typically noted a lift in construction, as well as a pick-up in offshore orders.”

            “Although April represents a good result for the sector, the key will be to continue the expansion momentum over the coming months.”

            AUD & CAD strongest for today, GBP & NZD weakest. But how real is that?

              It’s rather rare to see AUD/NZD as the top mover but there it is. And, just from a quick glance, AUD/NZD, GBP/AUD, NZD/CAD, GBP/CAD, we know then AUD and CAD are the strongest while GBP and NZD are the weakest.

              It’s easily reflected in the D heat map. But are the strong ones that strong and the weak ones that weak?

              A look in the W heat map, we see that NZD is in red all the way, and is trading below last week’s low against USD, JPY , CAD and AUD. Yes, the weakness is apparent.

              How about GBP? It’s just down again USD and CAD for the week. If BoE is as dovish as some people said, we should be seeing GBP all the way in red like NZD. But no. When BoE is still on track for a hike, it’s not dovish. And as we pointed out earlier, the overall announcement was still more hawkish than the least hawkish scenario.

              CAD is clearly in all deep blue, even against USD, except versus JPY and AUD. Trump’s boost to oil price is apparent. Still, CAD will face a test of employment data tomorrow. We’ll see when it can pocket the gains for the week.

              AUD? It’s just mixed. For now, it’s even trading down for the week against GBP!


              GBP/USD breaks 1.3485 support. But bears need to show more commitment

                Fresh selling is seen in GBP three hours after BoE rate announcement. GBP/USD breaches 1.3485 to 1.3470 so far. We’ll see if it can settle below this support to confirm decline resumption.

                For now, GBP/JPY is still holding above 147.04 support.

                EUR/GBP is also held below 0.8844 resistance.

                GBP bearish will need to show more commitment.

                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.

                  BoE strikes the middle ground of hawkishness

                    The key takeaway from today’s BoE announcement are:

                    • Hawks remained hawks. Ian McCafferty and Michael Saunders voted for rate hikes again.
                    • Q1’s slowed down was seen by the MPC as ” in part to have reflected adverse weather in late February and early March.”
                    • “Despite the near-term softness, the MPC’s central forecast for economic activity is little changed”
                    • “Wage growth and domestic cost pressures are firming gradually, broadly as expected.”
                    • “Impact of the past depreciation of sterling on CPI inflation, while remaining significant, is likely to fade a little faster than previously thought.”
                    • “CPI inflation is projected to fall back slightly more quickly than in February, reaching the target in two years.”
                    • “For the majority of members, an increase in Bank Rate was not required at this meeting. All members agree that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.”

                    Taken into account the revised projections, the MPC members are not too concerned with Q1 slowdown, and the impact on growth ahead. Though, inflation could be slowing down more quickly than originally expected, thus giving BoE more room to keep their hands tight.

                    The condition path showed that the projections took one rate hike this year into consideration, unchanged from February. But the rate hike is more likely to happen in Q3 than Q4 as implied by forward rates. That is, it could happen in August, and it’s earlier November as implied in February’s Inflation Report.

                    So, it’s actually still a “hawkish hold”, just less hawkish than some hoped for, but more hawkish than the least hawkish scenario.

                    And, while it seems GBP is under pressure after the release, it’s so far, holding above 1.3485 against USD and 147.04 against JPY.

                    BoE cut 2018 GDP forecast. Also lowered 2018, 2019, 2020 inflation forecasts

                      In the updated projections, BoE revised down four-quarter real GDP growth forecast in Q2 2018 to 1.4%, down from February’s 1.8%. Four-quarter GDP real GDP growth forecast in Q2 2019, Q2 2020 are held unchanged at 1.7%.

                      Four-quarter inflation rate forecast for Q2 2018 was revised down to 2.4%, down from February’s 2.7%. For Q2 2019, inflation forecast was revised down from to 2.1%, from 2.2%. Q2 2020 inflation forecast was revised down to 2.0%, from 2.1%.

                      The updaed conditioning path for Bank Rate showed that the economic projections are based on the assumption of 1 rate hike this year, in Q3. That is, probably in August.

                      Full Inflation Report here.

                      BoE keeps Bank Rate unchanged at 0.50% with 7-2 vote. Full Statement

                        BoE keeps Bank Rate unchanged at 0.50% with 7-2 vote. Asset purchast target held at GBP 435B by 9-0 vote.

                        Statement below. Full Inflation Report here.

                        Bank Rate Maintained at 0.50%

                        The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 9 May 2018, the MPC voted by a majority of 7-2 to maintain Bank Rate at 0.5%. The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.

                        The MPC’s updated projections for inflation and activity are set out in the May Inflation Report. The outlook and the main factors shaping it are broadly similar to those set out in the previous Report.

                        The preliminary estimate of GDP growth in the first quarter was 0.1%, 0.3 percentage points lower than expected in February. This is likely in part to have reflected adverse weather in late February and early March. Survey indicators suggest that growth was somewhat stronger in Q1 than implied by the preliminary estimate.

                        Despite the near-term softness, the MPC’s central forecast for economic activity is little changed from that in the previous Report. In the MPC’s central forecast, conditioned on the gently rising path of Bank Rate implied by current market yields, GDP is expected to grow by around 1¾% per year on average over the forecast period. On the expenditure side, growth continues to rotate towards net trade and business investment and away from consumption. Although business investment is still restrained by Brexit-related uncertainties, it is being supported, like exports, by strong global demand and accommodative financial conditions. Household consumption growth remains subdued, in line with the modest growth in real income over the forecast period.

                        Wage growth and domestic cost pressures are firming gradually, broadly as expected. The MPC continues to judge that the UK economy has a very limited degree of slack. Hiring intentions have remained strong and, over the past three months, the unemployment rate has fallen slightly further. While modest by historical standards, the projected pace of GDP growth over the forecast is nonetheless slightly faster than the diminished rate of supply growth, which averages around 1½% per year. In the MPC’s central projection, therefore, a small margin of excess demand still emerges by early 2020, feeding through into higher rates of pay growth and domestic cost pressures.

                        CPI inflation fell to 2.5% in March, lower than expected at the time of the February Report. The inflation rates of the most import-intensive components of the CPI appear to have peaked. The MPC judges that the impact of the past depreciation of sterling on CPI inflation, while remaining significant, is likely to fade a little faster than previously thought. Taking external and domestic influences together, CPI inflation is projected to fall back slightly more quickly than in February, reaching the target in two years. These projections are conditioned on a gently rising path for Bank Rate over the next three years.

                        In the exceptional circumstances presented by Brexit, as specified in its remit, the MPC has been balancing any significant trade-off between the speed at which it intends to return inflation sustainably to the target and the support that monetary policy provides to jobs and activity. The prospect of excess demand over the forecast period has reduced the degree to which it is appropriate for the MPC to accommodate an extended period of inflation above the target. The Committee’s best collective judgement therefore remains that, were the economy to develop broadly in line with the May Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon. As previously, however, that judgement relies on the economic data evolving broadly in line with the Committee’s projections. For the majority of members, an increase in Bank Rate was not required at this meeting. All members agree that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.

                        GBP shrugs off UK trade deficit and production, await BoE

                          UK visible trade deficit widened to GBP -12.3B in March, from GBP -10.2B versus expectation of GBP -11.4B. Full release here.

                          Industrial production dropped rose 0.1% mom, 2.9% yoy in March, versus expectation of 0.2% mom, 3.1% yoy. Full release here.

                          Manufacturing production dropped -0.1% mom, rose 2.9% yoy in March, versus expectation of -0.2% mom, 2.9% yoy.

                          Construction output dropped -2.3% mom in March versus expectation of -2.2% mom.

                          GBP remains steady in tight range against USD and JPY after the data. Traders remain cautious ahead of BoE rate decision, voting and inflation report.

                          French President Macron: Europe at a histroic moment to maintain multilateral order in Middle East

                            Iran’s President Hassan Rouhani talked with French President Emmanuel Macron in a phone call yesterday, as follow up to Trumps’ withdrawal from the nuclear deal. Iranian Students’ News Agency quoted Rouhnai saying that “under the current conditions, Europe has a very limited opportunity to preserve the nuclear deal, and must, as quickly as possible, clarify its position and specify and announce its intentions with regard to its obligations.” Rouhani also added that “despite what Trump thinks, enrichment in Iran has never been for obtaining a nuclear weapon but instead has been for scientific and technical pursuits.”

                            Separately, Macron said in an interview with Germany’s Deutsche Welle broadcaster yesterday that “We stand today at a historic moment for Europe – Europe is in charge of guaranteeing the multilateral order that we created at the end of World War II and which today is sometimes being shaken.”

                            China MOFCOM: US must put away its threatening stick

                              Chinese Vice Premier Liu He will visit Washington next week to resume trade negotiations with the US. Commerce ministry (MOFCOM) spokesman Gao Feng confirmed today during a regular press the officials are preparing for the visit.

                              But Gao reiterated China’s stance in opposing protectionism and unilateralism in trade relations. He warned that “the United States must put away its threatening stick. China’s position has not changed and will not change.” Gao added that “we hope that China-U.S. trade relations can become a powerful driving force for sustained growth of the global economy.”

                              Separately, GAO also said the bilateral trade between China and Russia expanded quickly in the first four months of 2018. Gao noted “The Russian economy is steadily turning for the better and its market demand is rising, driving China’s exports to the country up 21 percent on a yearly basis during the January to April period.” According the last data, Sino-Russian trade grew 30% yoy to USD 31.2B between January and April.

                              BoJ Kuroda: Inflation expectations may not rise smoothly if there is strong uncertainty

                                BoJ Governor Haruhiko Kuroda said today that the central could debate stimulus exit if policy makers see increasing chance of hitting the 2% inflation target. He noted that “when the possibility of achieving our price target heightens, conditions of an exit would fall into place. The BOJ’s policy board could then discuss conditions for an exit.”

                                However, he emphasized that “With achievement of our price target still distant, it will create market confusion if we explain specific means and timing of an exit (from the easy policy) now.” Also, he warned that “if there is strong uncertainty about future growth, firms will hesitate to raise wages.” He added that “even if firms’ wage- and price-setting stance becomes more proactive, inflation expectations may not rise smoothly.”

                                A look at NZDUSD and AUDNZD after post RBNZ selloff

                                  The RBNZ rate decision turned out to be much more dovish than expected. Governor Adrian Orr’s statement indicated there is no rush to lift interest rate. And the central bank downgraded inflation forecast for 2019 and 2020. The downgrade of 2019 and 2020 GDP forecasts was quite significant too. RBNZ is now expected to stand pat at least until mid-2019.

                                  Given that, NZD tumbled broadly after the release. NZD/USD drops to as low as 0.6915 so far. 161.8% projection of 0.7436 to 0.7152 from 0.7394 at 0.6934 is firmly taken out. And our counter trend long position mentioned here will likely be stopped out with a loss. NZD/USD would now target 0.6779 low after sustaining below 0.69 handle.

                                  AUD/NZD surges to as high as 1.0795 and hit 38.2% retracement of 1.1289 to 1.0486 at 1.0793. Based on current momentum, rise from 1.0486 will now likely extend to 61.8% retracement at 1.0982 and above. As AUD/NZD is, after all, staying in long term range trading, strong resistance could be seen above 1.0982 to bring reversal to extend the range pattern.

                                  RBNZ downgraded both GDP growth and inflation forecasts

                                    The overall RBNZ monetary policy decision is rather dovish. OCR is left unchanged at 1.75% for a 19th straight month as widely expected. Governor Adrian Orr noted in the statement that growth and employment remain “robust” and near their “sustainable levels”. But CPI remains below the 2% mid-point of target. And, the best way to see inflation moving back to target would be “to keep the OCR [overnight cash rate] at this expansionary level for a considerable period of time”. RBNZ is clearly is no rush to raise interest rates.

                                    Adding to that, the GDP growth and inflation forecasts were also downgraded for the period ahead. The downgrade in GDP forecasts were quite significant in 2019 and 2020. CPI is still projected to hit 2.0% target 2021 but is expected to be lower in both 2019 and 2029.

                                    GDP is projected to grow 2.8% (2018), 3.1% (2019), 3.3% (2020), 3.1% (2021). Back in February, GDP projections were 2.9% (2018), 3.3% (2019), 3.5% (2020), 3.1% (2021).

                                    CPI is projected to be at 1.1% (2018, 1.6% (2019), 1.8% (2020), 2.0% (2021). Back in February, CPI projections were 1.1% (2018), 1.7% (2019), 1.8% (2020), 2.0% (2021).

                                    This is May’s forecast summary.

                                    This is February’s forecast summary.

                                    And here is the press conference:

                                    NZDUSD a counter trend candidate ahead of RBNZ

                                      RBNZ rate decision is a major focus in the upcoming Asian session. It’s widely expected to keep OCR unchanged at 1.75%. There is little to practically no chance of a surprise. The question is on how RBNZ view the sharp slow down in CPI to 1.1% in Q1. The reaction of NZD would very much depend on how dovish the new governor Adrian Orr is.

                                      Take a look at NZDUSD Action Bias table, D row shows it’s clearly in a down trend. However, 6H Action bias suggests that downside momentum is unconvincing. Adding to that, there is a few bard of upside blue H row, arguing that it’s in a rebound.

                                      Take a look at the 6H Action Bias chart, it’s apparent, even with eyeballing, that the decline since mid April is losing momentum. The so many neutral bars since late April is consistent with this view. So, is it ready for a rebound?

                                      Take a look at the regular bar chart, we see that NZD/USD reached as low as 0.6947 earlier today. It’s now close to 161.8% projection of 0.7436 to 0.7152 from 0.7394 at 0.6934. Bullish convergence is seen in 4 hour RSI. There is possibility of bullish convergence in 4 hour MACD too. So, this is a good candidate for counter trend, or reversal trading.

                                      We’d like to emphasize that the exact strategy is very personal. It has to suit one’s temperament. Some traders like to catch tops and bottoms. Some traders like to grab quick profits on swing trades. Some like scalping. Some like to hold a position for a few weeks or more. While the strategies vary, the analytic process, to us, is pretty much the same. It’s about deciding what to trade first, then see if it fits our style. To us, it has to be the “style” first, then “what”, before “how” the actual system.

                                      That is, for those who like counter trend trading (style), NZDUSD (what) is a candidate. And how? We’ll buy on next dip, with a tight stop below 0.6934 projection level at 0.6900, target 0.7152 support turned resistance, and get out earlier if momentum of the rebound is weak. Other traders could have their own way based on their temperament.


                                      ECB Lane: Too early to tell if soft data is a demand issue, or just running out of room

                                        ECB Governing council member Philip Lane said the policymakers need more data to decide whether the slowdown in Eurozone is due to global demand of a decrease in the amount of slack domestically.

                                        He said:

                                        “In terms of soft data and some of the hard data, the question is whether it is something just to acknowledge and accept as running out of room, versus a demand issue, which would trigger more questions,”

                                        “But let’s see. Let’s see where we are. I think it’s too early to tell.”

                                        “In June I think and next month possibly we will have much more recent data”

                                        CADJPY on verge of rise resumption

                                          As seen in the D heat map, CAD is the strongest one today while JPY is the weakest one.

                                          A look at the top mover chart also sees CADJPY as the biggest mover. It’s natural to have a look at how CADJPY is performing.

                                          In CADJPY action bias table, H action bias momentum is very apparent, not so in the 6H row.

                                          But the 6H action bias chart clearly shows that CAD/JPY was in a consolidation pattern since hitting 85.75 back in April. And the strong H action bias momentum suggests that it’s possibly completed at 83.88 earlier this week. A long trade in CADJPY should be in place for position trading.

                                          And, recalling a short note here, CAD/JPY formed a bottom at 80.52 in March, after drawing support from 80.55 key support. Rise from 80.52 is seen as at the same degree as fall from 91.56 to 80.52. Pull back from 85.75 was contained above mentioned 83.52 support and thus maintained bullishness.

                                          Hence, for a long trade, one could buy at a dip or break of 85.75 resistance. First target is 61.8% projection of 80.52 to 85.75 from 83.88 at 87.11. Second target is 100% projection at 89.11.