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AUDUSD spikes lower after Australia CPI miss, but quickly recovered

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    ActionForex.com
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    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.

    US PMIs: Economy picked up pace again

      By
      ActionForex.com
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      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.

      USD strongest followed by CHF, JPY weakest into US session

        By
        ActionForex.com
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        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.

        USD breaking Friday’s highs as rally resumes

          By
          ActionForex.com
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          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.

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

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            ActionForex.com
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            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.”

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

              By
              ActionForex.com
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              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.”

              Germany PMIs: Solid start to the second quarter.

                By
                ActionForex.com
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                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.”

                France PMIs: Private sector remained firmly in expansionary mode

                  By
                  ActionForex.com
                  -

                  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.”

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

                    By
                    ActionForex.com
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                    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.

                    Japan PMI manufacturing: Stronger yen begins to impact price competitiveness

                      By
                      ActionForex.com
                      -

                      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.”

                      Chicago Fed Evans discussed overheating and monetary policy

                        By
                        ActionForex.com
                        -

                        Chicago Fed President Charles Evans delivered a speech at the University of Wisconsin today. There he laid down “three possibilities concerning low inflation and low unemployment and their implications for monetary policy”.

                        The first one being the “overheating story” and said that the “risks are not particularly high”. Evans pointed out that the so called “Phillips curve” is much “flatter” than it was. And, adding to that “inflation expectations low and well anchored, and a lack of fuel from strong wage growth”, there is no “outsized risk of a breakout in inflation”.

                        The second scenario is that “inflation is low because the sustainable rate of unemployment is actually much lower than the FOMC’s 4-1/2 percent estimate”. Therefore, “unemployment rate really isn’t putting any pressure on labor markets.” In this case, “the risks of overheating would be lower, and perhaps interest rate adjustments could be smaller.”

                        In the third scenario, “unemployment running below its natural rate, u*, without rising inflation is due to labor market inefficiencies that are outside the purview of monetary policy.” He added that
                        “let’s consider the possibility that unemployment remains low and some structural problem keeps wages and prices from rising to attract workers. Is this really a problem that monetary policy is suited to address? I think the answer is no.”

                        Finally, Evans also noted that Fed is facing “low inflation trends and low inflation expectations”. And, ” some cyclical upturn in inflation is actually welcome because it should help solidify expectations symmetrically around our 2 percent objective. This is necessary for achieving our inflation target on a sustainable basis.”

                        His full speech Overheating and Monetary Policy: How Does Low Inflation Affect the Policy Narrative?

                        CAD selloff resumes as CPI and retail sales missed expectations

                          By
                          ActionForex.com
                          -

                          CAD’s selloff resumes after disappointing data from Canada.

                          Headline retail sales rose 0.4% mom in February, below expectation of 0.5% mom.

                          Ex-auto sales was even worse, flat mom, versus expectation of 0.5% mom rise.

                          Headline CPI rose 0.3% mom, 2.3% yoy in March, below expectation of 0.4% mom, 2.4% yoy. February’s figure was 0.6% mom, 2.2% yoy.

                          Core CPI common was unchanged at 1.9% yoy, below expectation of 2.0% yoy.

                          Core CPI median was unchanged at 2.1% yoy, below expectation of 2.2% yoy.

                          Core CPI trim slowed to 2.1% yoy, down from expectation of 2.1% yoy and missed expectation of 2.1% yoy.

                          Good progress on NAFTA talks but no timeline yet

                            By
                            ActionForex.com
                            -

                            Canadian Foreign Minister Chrystia Freeland U.S. Trade Representative Robert Lighthizer and Mexican Economy Minister Ildefonso Guajardo started intensive NAFTA talks in Washington yesterday.

                            Freeland sounded upbeat as she said there were “good progress” made on the “rules of origin in our conversations with the U.S., with Mexico, and in our trilateral conversation.” But she declined to comment on whether there would be a deal within the next three weeks, as the US is pushing for.

                            Freeland just noted that “our commitment is to get a really good win-win-win outcome as quickly as possible and…we’ll work as long as it takes to get a great deal”.

                            The talks will continue today.

                            GBP accelerating down as BoE Carney helped traders made up their mind

                              By
                              ActionForex.com
                              -

                              GBP had been rather resilient after triple misses of wage growth, CPI and retails sales. But selling finally picked up after comments from BoE governor Mark Carney yesterday. And GBP is now trading as the second weakest one for the week, just next to NZD.

                              The key takeaway from Carney’s comment is that he tried to tone down the chance of a May hike. He said “we have had some mixed data … We’ll sit down calmly and look at it all in the round.” He added that “there will be some differences of view but it is a view we will take in early May, conscious that there are other meetings over the course of this year.”

                              Carney noted that Brexit uncertainty had prevented a “surge in investment” And, “unfortunately that means in the short term that the speed limit (of the British economy) is not increasing. Productivity is not increasing, which will limit the rate at which people’s wages can pick up.”

                              Near term action bias in GBP is starting to turn bearish.

                              In particular, GBP/USD is in strong downside action bias in both H and 6H charts.

                              US shot up by yield, but EUR resilience held dollar index in range

                                By
                                ActionForex.com
                                -

                                USD surged broadly overnight as boosted by the strong rally in treasury yields. But still, it’s just trading as the second strongest major currency this week, following EUR. And because of that, the dollar index is still bounded in recently established range, held below 55 day EMA.

                                Taking a look at 10 year yield, TNX’s strong rise yesterday now suggests that the pull back from Feb’s high at 2.943 has completed and the medium term up trend is resuming. Focus will be on this 2.943 resistance today, if not taken out, early next week. A firm break there should likely push TNX through 2013 high at 2.036. That will be an important signal of reversal of the multi decade down trend.

                                For dollar index, we maintained our view that a breakout is imminent as it’s close to medium term falling trend line. If the break out is accompanied by surge in treasury yield, then favor will be on the case of an upside breakout for bullish reversal. And in that case, we would likely see EUR/USD dropping through 1.22 handle. Let’s see how it’s going to play out.

                                China ambassador to US Cui: Let’s have a more positive and cooperative mindset

                                  By
                                  ActionForex.com
                                  -

                                  Chinese Ambassador to the US Cui Tiankai said in an article in the official Xinhua news agency that “forty years of diplomatic ties and cooperation have served the interests of both countries quite well.” And, “in addition to all the bilateral benefits we have gained from this relationship, we have also seen its positive impact on the broader region of the Asia-Pacific and the world.”

                                  He urged that “if we have a more positive and cooperative mindset, we could see clearly the emerging trends in the world, seize new opportunities, and turn challenges into opportunities.” And he emphasized that China is “against any trade war” and believes “any dispute should be worked out through dialogue and consultation.” But Cui also warned that if US insists on a trade war, China will retaliate.

                                  Cleveland Fed Mester: Further gradual tightening is appropriate this year

                                    By
                                    ActionForex.com
                                    -

                                    Cleveland Fed President Loretta Mester expressed her support for more rate hike this year. She said in a prepared speech for University of Pittsburgh’s graduate school of business that “If the economy evolves as I anticipate, I believe further gradual increases in interest rates will be appropriate this year and next year.”

                                    She added that “continued gradual reduction in monetary policy accommodation, given the economic outlook, will put monetary policy in a better position to address whatever risks, whether to the upside or to the downside, are ultimately realized.”

                                    SNB Jordan: No need to change monetary policy even though EUR/CHF is back at 1.2

                                      By
                                      ActionForex.com
                                      -

                                      EUR/CHF continues to press the historical level at 1.2, the SNB imposed floor which was suddenly given up in 2015 and caused panic selling. Now the cross is back at this level.

                                      SNB Chairman Thomas said in an interview that the depreciation of the Swiss Franc is in the “right direction”. Nonetheless, the currency as a safe haven is prone to change and the situation is “fragile”. So the SNB will “remain very prudent”.

                                      Jordan added that “there’s no need to do anything regarding monetary policy at this moment”, as “we are convinced that the current monetary policy is still necessary.”

                                      Japan core inflation slowed in March, BoJ Kuroda warned on protectionism

                                        By
                                        ActionForex.com
                                        -

                                        Japan national CPI core slipped back to 0.9% yoy in March, down from February’s 1.0% yoy, meeting market expectations. It will take a few more months to see if it’s only a blip or a change in trend. Core inflation had an impressive up this year but momentum has been slowing. It’s already looking a be challenging for inflation to meet BoJ’s own media projection of 1.4% in the current fiscal year. And BoJ might need to delay the timing for hitting 2% target again, if the slowdown in inflation persists.

                                        Separately, BoJ Governor Haruhiko Kuroda stepped up his warning on protectionism, as he arrived at the G20 summit of finance ministers and central bankers. He said there will be “quite comprehensive” debate on trade during the meeting. And he emphasized that “many countries share the view they benefit greatly from free trade, so I don’t think protectionism will spread and lead to a decline in global growth. But the risk is there.” He added that “protectionism isn’t having a huge impact on Japan’s economy yet. But the risk is right in front of us, so we need to carefully watch how developments unfold.”

                                        USD lifted as 10 year yield breaks 2.9, heading to 2018 high at 2.943

                                          By
                                          ActionForex.com
                                          -

                                          Dollar receives some solid buying as the rally in 10 year yield picks up steam to above 2.9 handle.

                                          That’s a wake up call to traders that TNX could now be taking on 2.943 high, which is a key near term resistance. Break of which will finally resume the larger up trend, through 3.0 handle, 20 2013 high and 3.036. The correlation of Dollar and yield has somewhat broken down in recent months. But a break above 3% could be the turning point to realign the correlation.

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