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New Zealand trade surplus at NZD 217m in Feb, import hits Feb record high, NZD broadly higher

    By
    ActionForex.com
    -

    NZD trades generally higher in Asian session after trade balance data.

    Accord to Stats NZ Tatauranga Aotearoa, for February 2018 compared with February 2017:

    • Goods exports rose NZD 446 million (11%) to NZD 4.5 billion.
    • Goods imports rose NZD 187 million (4.6%) to NZD 4.2 billion, a new high for total imports in a February month. The previous high was NZD 4.1 billion, in February 2017.
    • The monthly trade balance was a surplus of NZD 217 million (4.9% of exports).

    NZD is trading higher together with commodity currencies in general, as seen in daily heatmap.

    Against Dollar, NZD/USD extends the rebound from 0.7152 and reaches as high as 0.7276 so far. Further rise is now mildly in favor to 0.7354 resistance.

    From the daily chart, NZD/USD has been in consolidation since hitting 0.7436. Firm break of 0.7354 will now be a strong signal of resumption of medium term rise from 0.6779.

    USD/CAD to revisit yesterday’s low as Canada CPI accelerated notably in Feb

      By
      ActionForex.com
      -

      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.

      China responds to US section 301 tariffs: Don’t drag trade relations to a dangerous place

        By
        ActionForex.com
        -

        We’d like to emphasize again that China’s tariff on USD 3b of US goods, including pork, is a response to the steel and aluminum tariff. The statement of the Ministry of Commerce is here (in Simplified Chinese).

        There is another response to the section 301 related tariffs, announced yesterday, on USD 50-60b of China import to US, in here (in Simplified Chinese too).

        In short, regarding the section 301 tariffs, China said it “doesn’t hope to be in a trade war, but is not afraid of engaging in one.” And, “China hopes the United States will pull back from the brink, make prudent decisions, and avoid dragging bilateral trade relations to a dangerous place.”

        An MOFCOM spokesperson also said “we firmly oppose” to the section 301 tariffs. He added that “it is a typical unilateral and protectionist practice.” And China is “fully prepared to firmly defend our interests.” And have “have confidence and capability in dealing with any challenges.”

        Japan CPI core hit 1% for first time since 2014, BoJ Wakatabe said “inflation expectations are not anchored”

          By
          ActionForex.com
          -

          Japan national CPI core accelerated to 1.0% yoy in February, up from 0.9% yoy and met expectation. That’s also the first time it hits 1% level since August 2014. The so called core-core CPI, CPI excluding fresh food and energy, rose to 0.5% yoy.

          Newly appointed BoJ deputy governor Masazumi Wakatabe said in the parliament that the reading, especially the core-core CPI, showed that Japanese inflation expectation remain weak. He noted that “when compared to the United States or Europe, gains in Japan’s core-core CPI are insufficient.” He added that “what we can learn from this is that people still don’t believe inflation will reach 2 percent.” And, “inflation expectations are not anchored.”

          And he pledged to “maintain the regime and stance we have in place for monetary policy to meet 2 percent inflation and to strengthen it if possible.”

          Trump exempted over 50% of steel imports from tariffs, but not Japan nor Taiwan

            By
            ActionForex.com
            -

            Trump also announced temporary suspension to the steel and aluminum tariffs, until May 1, 2018. The final result will depend on the discussions outcome. The countries that are temporarily exempted include Argentina, Australia, Brazil, Canada, Mexico, EU and South Korea.

            According to Wood Mackenzie data, in 2017, the top 10 steel importer to US are Canada (16.7%), Brazil (13.2%), South Korea (9.7%), Mexico (9.4%), Russia (8.1%), Turkey (5.6%), Japan (4.9%), Germany (3.7%), Taiwan (3.2%), China (2.9%).

            The total contribution of the exempted countries is 52.7%!

            Like some said, this is more political drama than anything as Trump announced a tariff and more than 50% is exempted.

            Meanwhile, two notable absentees are Japan and Taiwan. Japanese’s request for exemption seemed to have fallen on deaf ears. Both Japan and Taiwan are seen by many as the closest allies of the US in the far east.

            Here is the statement:

            President Trump Approves Section 232 Tariff Modifications

            WASHINGTON – Today, based on ongoing dialogues, President Donald J. Trump authorized the modification of the Section 232 tariffs on steel and aluminum imports to suspend the tariffs for certain countries before they take effect. These suspensions are based on factors including ongoing discussions regarding measures to reduce global excess capacity in steel and aluminum production by addressing its root causes.

            The tariffs on steel and aluminum imports from the following countries are suspended until May 1, 2018, pending discussions of satisfactory long-term alternative means to address the threatened impairment to U.S. national security:

            Argentina;
            Australia;
            Brazil;
            Canada;
            Mexico;
            the member countries of the European Union; and
            South Korea.

            By May 1, 2018, the President will decide whether to continue to exempt these countries from the tariffs, based on the status of the discussions. The European Union will negotiate on behalf of its member countries.

            The President retains broad authority to further modify the tariffs, including by removing the suspensions or suspending additional countries. Any country not currently suspended remains welcome to discuss a possible suspension with the United States based on a shared commitment to addressing global excess steel and aluminum capacity and production.

            The Administration will closely monitor imports of steel and aluminum imports from exempted countries, and the United States Trade Representative, in consultation with the Secretary of Commerce and the Director of the National Economic Council, may advise the President to impose quotas as appropriate. Further action by the President would be needed to implement any quota the President might decide to adopt.

            The tariffs proclaimed in Presidential Proclamations 9704 and 9705 will go into effect on 12:01 a.m. on Friday, March 23, 2018.

            The process for directly affected parties to apply for an exclusion for specific steel or aluminum products that they need remains in place, as announced in the two Presidential Proclamations and subsequent Federal Register notices by the U.S. Department of Commerce. Secretary Ross, in consultation with other Administration officials, will evaluate exclusion requests for products, taking into account national security considerations. In that evaluation, the Secretary will consider whether a product is produced in the United States of a satisfactory quality or in a sufficient and reasonably available amount.

            China retaliates US steel tariffs, not the US 50b IP tariffs yet

              By
              ActionForex.com
              -

              China’s Ministry of Commerce announced measures countering US tariffs. But first thing first. The measures announced are in response to Trump’s steel and aluminum tariffs, not the USD 50b section 301 tariffs announced overnight. China also said it could take legal action regarding the steel tariffs under WTO rules. So far, it appears that China is trying to play by the book.

              The MOFCOM proposed a list of 128 US imports with total value at over USD 3b in 2017. A 15% tariff will be imposed on the first group including wines, fresh fruit, dried fruit and nuts, steel pipes, modified ethanol, and ginseng. Then a 25% tariff could be imposed on the second group, including pork and recycled aluminium goods if both sides failed to reach a resolution through talks.

              Here is the statement (in simplified Chinese if you’re interested).

              Some analysts try to compare US tariffs on USD 50b of China import, and China tariff on USD 3b of American imports. But that is wrong. We’ll repeat here that the MOFCOM’s announcement was in response to the steel and aluminum tariff. And, depending on the data source, China was either the 10th or 11th largest steel importer to the US, contributing to less than 3%.

              That is, China hasn’t showed their hands regarding yesterday’s announcement by Trump yet.

              DOW lost -724 pts in delayed reaction to start of US-China trade war

                By
                ActionForex.com
                -

                DOW closed sharply lower by -724.42 pts or -2.93% at 23957.89 overnight as fear of trade war intensified. S&P 500 was down -68.24 pts or -2.52% at 2643.69. NASDAQ also dropped -178.61pts or -2.43% to 7166.68. Selloff continues in Asian session with Nikkei down -3.6% and HK HSI down -2.7% at the time of writing.

                Initial reaction to Trump’s announcement on tariffs against Chinese imports was very muted. Trump is targeting to impose tariffs on USD 50b worth of goods from China. That’s a big difference to the rumor of USD 50b in tariffs. Nonetheless, the selloff picked up momentum in the last trading hour, as traders dumped their position ahead of China’s retaliation measures. (China responded in Asian morning and that will be covered in another note). USD/JPY followed by breaking through 105 handle.

                It initially looked like DOW could defend support zone between 23.6% retracement of 26616.71 to 23360.29 at 24128.80 and 24217.76. But the late intensified selling powered the index through this zone. Further fall is now expected in near term to 23360.29 support level. In the bigger picture, we’re maintaining the view that price action from 26616.71 is a medium term correction pattern that’s correcting, at least, whole up trend from 2016 low at 15450.56. That means, 38.2% retracement of 15450.45 to 26616.71 at 22351.24 is the first target when the correction extends.

                Trump announced tariffs on USD 60b of Chinese imports; No, not USD 60b of tariffs!

                  By
                  ActionForex.com
                  -

                  Trump finally announce his plan to tariff as much as USD 60b in Chinese imports to safeguard technological development of the US and its future.

                  Sorry, can you elaborate on what do you mean?

                  Well, Trump said, “this has been long in the making,” and “we have a tremendous intellectual property theft situation going on” with China affecting hundreds of billions of dollars in trade each year”.

                  Sorry, but… are you talking about USD 60b tariffs annually?

                  No. And apparently no. The tariff is only on USD 60b of Chines imports!

                  So how much is the tariff?

                  We here don’t know yet. What we only know is that Trump complained that “We’ve lost, over a fairly short period of time 60,000 factories.” And, he complained that China has been steal our jobs, stealing our technology. Yet, Trump said today that he view these thieves “as a friend”?!!

                  Anyway, reactions from the financial market is clear. USD/JPY recovers ahead of 105.24 near term support, without breaking.

                  DOW also recovers after after dipping to as low as 24175.49.

                  The markets’ message is clear. Don’t bother me until you’re doing something significant!

                  DOW gaps lower as Trump is ready to start trade war, USD/JPY pressing 105.24 support

                    By
                    ActionForex.com
                    -

                    DOW gaps lower today and selling then intensifies in the second hour. The index is now trading down -1.5% at the time of writing. Worry on trade war is seen as a major bearish factor for stocks. And risk aversion also a major reason for Yen’s broad based strength for today. Trump is set to announce his tariffs targeted at China today. Testifying to Senate finance committee, Trade Representative Robert Lighthizer said the US has done a study on Intellectual Property theft problem of China. And the trade department is looking into at building a better fairer system.

                    For DOW, it’s on course for support zone between 23.6% retracement of 26616.71 to 23360.29 at 24128.80 and 24217.76. This zone will be key to determine DOW’s near term direction. Rebound from there will change the prior triangle like pattern into a sideway range. And there would then be prospect of revisiting 25000 and above soon. However, sustained break of this support zone will argue that it’s now in the third wave of the pattern from 26616.71 and should have a test on 23360.29 support and below. For the moment, we’re favoring the latter scenario.

                    USD/JPY is at a tricky point close to 105.24 support now. 4 hour MACD suggests that it’s on verge of breakout. And, firm break there will at least extend recent decline to medium term projection level of 100% projection of 118.65 to 108.12 from 114.73 at 104.20.

                    GBP rally held back by lack of aknowledgement of Brexit negotiation progress by BoE

                      By
                      ActionForex.com
                      -

                      More on BoE, apart from Saunders and McCafferty, there seems to be nothing worth noting in today’s announcement. Overall tone of the statement remained the same as February’s. Brexit development was just briefly mentioned. The essential part regarding Brexit was totally unchanged.

                      BoE maintained that the projected 1.75% GDP growth would be more than offset 1.5% supply growth. And small margin of excess demand was projected to emerge by early 2020. And that would push up domestic costs. Thus, “inflation remained above the 2% target in the second and third years of the MPC’s central projection.”

                      BoE added that “ongoing tightening of monetary policy over the forecast period will be appropriate to return inflation sustainably to its target at a more conventional horizon.” This suggests that it’s more confident regarding tightening ahead. But BoE reiterated cautious that “any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.

                      Overall, the lack of acknowledge of Brexit negotiation progress, and the cautious tone of the statement is holding back Sterling bulls.

                      GBP spikes high, EUR/GBP breaks key support as McCafferty and Saunders voted for BoE hike

                        By
                        ActionForex.com
                        -

                        BoE stands pat as widely expected. And just as we anticipated, Ian McCafferty and Michael Saunders come back with votes for rate hike. This feels like the irresistable nature of hawks.

                        Sterling spikes higher broadly after the release. And EUR/GBP dives through key support level at 0.8686 to as low as 0.8666. Now, let’s see if it can sustain below this key support level.

                        Below is BoE’s full statement.

                        Bank Rate Maintained at 0.50%

                        Our Monetary Policy Committee has voted by a majority of 7-2 to maintain Bank Rate at 0.50%. The committee also voted unanimously to maintain the stock of corporate bond purchases and UK government bond purchases.

                        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 21 March 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.

                        In the MPC’s most recent projections, set out in the February Inflation Report, GDP was expected to grow by around 1¾% per year on average over the forecast period. While modest by historical standards, that growth rate was expected to exceed the diminished rate of supply growth of the economy, which was projected to be around 1½% per year. As a result, a small margin of excess demand was projected to emerge by early 2020 and build thereafter. That pushed up on domestic costs, although CPI inflation fell back gradually as the effects of sterling’s past depreciation faded. Inflation remained above the 2% target in the second and third years of the MPC’s central projection.

                        Recent data releases are broadly consistent with the MPC’s view of the medium-term outlook as set out in the February Report. The prospects for global GDP growth remain strong, and financial conditions continue to be accommodative, with little persistent effect from the recent financial market volatility. UK GDP growth in the fourth quarter was revised down slightly, to 0.4%, with the composition of demand implying less rotation towards net trade and business investment than anticipated at the time of the February Report. However, early estimates of the expenditure components of GDP are prone to revision, and other indicators of exports and investment point to a stronger picture. The latest activity indicators suggest that the underlying pace of GDP growth in the first quarter of 2018 remains similar to that in the final quarter of 2017.

                        CPI inflation fell from 3.0% in January to 2.7% in February. Inflation is expected to ease further in the short term although to remain above the 2% target. Pay growth continued to pick up. The unemployment rate remained low in the three months to January. The firming of shorter-term measures of wage growth in recent quarters and a range of survey indicators suggest pay growth will rise further in response to the tightening labour market. This provides increasing confidence that growth in wages and unit labour costs will pick up to target-consistent rates.

                        Developments regarding the United Kingdom’s withdrawal from the European Union – and in particular the reaction of households, businesses and asset prices to them – remain the most significant influence on, and source of uncertainty about, the economic outlook. In such exceptional circumstances, the MPC’s remit specifies that the Committee must balance 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 steady absorption of slack has reduced the degree to which it is appropriate for the MPC to accommodate an extended period of inflation above the target.

                        As in February, the best collective judgement of the MPC remains that, given the prospect of excess demand over the forecast period, an ongoing tightening of monetary policy over the forecast period will be appropriate to return inflation sustainably to its target at a more conventional horizon. All members agree that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent. In light of these considerations, seven members thought that the current policy stance remained appropriate to balance the demands of the MPC’s remit.

                        Euro broadly lower after data miss, Sterling mixed ahead of BoE, EUR/GBP an interesting one to watch

                          By
                          ActionForex.com
                          -

                          Euro suffers broad based selling in the current 4H bar as seen in heatmap. It’s triggered by a string of data misses, that started from France PMIs, Germany PMIs and Eurozone PMIs. While German Ifo business climate beat expectation, it did dropped from 115.4 to 114.7 in March. Just as Markit economist said, growth in Eurozone should have peaked around the turn of the year already.

                          Meanwhile, Sterling is mixed ahead of BoE rate decision as traders turn a bit cautious. But it’s still generally firm as markets are anticipating a hawkish turn that might signal a May hike.

                          EUR/GBP will be an interesting one to watch in the come 2 hours. 6H action bias chart indicate clear downside momentum with the fall from 0.8967. However, D action bias chart showed that it’s just starting turn red in the last few bars. Also, as mentioned in our technical outlook reports, 0.8686 is a key support level, bottom of the multi-month range. It’s still unsure whether this level would be taken out. BoE will be the key.

                          Eurozone PMI composite at 55.3, 14-month low; Growth peaked around the turn of the year

                            By
                            ActionForex.com
                            -

                            Eurozone PMI manfucturing dropped to 56.6 in March , down from 58.6, below expectation of 58.1. That’s lowest in 8 months.

                            Eurozone PMI services dropped to 55.0, down from 56.2, below expectation of 56.0. That’st lowest in 5 months.

                            Eurozone PMI composite dropped to 55.3 down from 57.1, loweset in 14 month.

                            Here is ther release Eurozone expansion slows to weakest since start of 2017

                            Quote from Makit Chief Business Economist Chris Williamson:

                            “While the first quarter average PMI reading remains relatively robust, indicative of GDP rising by 0.7-0.8%, the loss of momentum since the buoyant start to the year has been quite dramatic.

                            “At least some of the slowing may be ascribed to bad weather in some northern regions and, perhaps more importantly, ‘growing pains’ resulting from the strength of the recent growth spurt. Supply chain delays and raw material shortages were often reported to have stymied production in manufacturing (delays in German supply chains are currently more widespread than at any time in the survey’s 22-year history), and both manufacturing and services sectors also saw activity being curtailed by growing incidences of skill shortages. Backlogs of work continue to rise as a result of these growth constraints.

                            “However, other factors are clearly at play. The fact that export order book growth has more than halved since the end of last year suggests the stronger euro is taking an increasing toll on export performance. Survey responses also highlighted how political uncertainty also appears to have intensified, dampening demand.

                            “The data therefore suggest that eurozone growth peaked around the turn of the year and the region is settling into a slower, but still robust pace of expansion. Price pressures have meanwhile also eased slightly, in part linked to cheaper imports arising from the euro’s recent strength, but remain elevated.”

                            Trump to announce USD 50b tariffs on China today, China fights back… verbally… for now

                              By
                              ActionForex.com
                              -

                              Trump is set to announce the tariffs on 100 different types of Chinese goods today, as follow up to the section 301 of the Trade Act of 1974 investigation. Bloomberg reported that the targeted amount would be at around USD 50b annually. White House official Raj Shah also said in a statement that “tomorrow the president will announce the actions he has decided to take based on USTR’s 301 investigation into China’s state-led, market-distorting efforts to force, pressure, and steal U.S. technologies and intellectual property.” It’s believed that the tariffs won’t take effect immediately. And the list of targeted products will be finalized after industry input. But it’s only confirmed when it’s confirmed.

                              On the other hand, China is readying retaliation measures. But before that, China’s Ministry of Commerce pointed to WTO ruling against the Obama-era anti-subsidy tariffs. Back in 2012, China went to WTO to challenge U.S. anti-subsidy tariffs on Chinese exports including solar panels, wind turbines, steel cylinders and aluminum extrusions. And, the WTO ruled the United States had not fully complied with a 2014 ruling against its anti-subsidy tariffs on a range of Chinese products

                              The MOFCOM criticized that the US has “violated WTO rules, repeatedly abused trade remedy measures, which has seriously damaged the fair and just nature of the international trade environment and weakened the stability of the multilateral trading system.” THe MOFCOM also pledged to oppose “protectionism by the US ahead of any possible trade measures against China” and to ” take all necessary measures to resolutely protect its interests”

                              Separately, a former vice commerce minister and now an executive deputy director of the China Center for International Economic Exchanges, Wei Jianguo, warned that “if Trump really signs the order, that is a declaration of trade war with China.” Wei said “China is not afraid, nor will it dodge a trade war.” And, there are “plenty of measures to fight back, in areas of automobile imports, soybean, aircraft and chips.

                              RBNZ Spencer: NZD in vicinity of fair value, NZD/JPY defended 76

                                By
                                ActionForex.com
                                -

                                NZD is relatively steady after RBNZ kept OCR unchanged at 1.75% as widely expected, and maintained a dovish stance. Outgoing Acting Governor Grant Spencer gave an interview before handing over to Adrian Orr. He noted that RBNZ shouldn’t comment on NZD’s exchange rate. And, he emphasized that “we should only comment on the currency if it’s really pretty clear that it’s out of alignment and you’re wanting to have some impact, some sort of jaw-boning effect”. Though, he acknowledged that “in the past we have got into this situation where we sort of had to make a statement about the currency and if we didn’t the market was going to react.” But then, he also said that NZD is “in the vicinity of fair value”.

                                In the accompany statement, RBNZ maintained that “monetary policy will remain accommodative for a considerable period.” It said, “inflation is expected to weaken further in the near term”, before heading up to 2% target “over the medium term”. And, “tradeable inflation is projected to remain subdued through the forecast period.” At the same time, “non-tradables inflation is moderate but is expected to increase in line with a rise in capacity pressure.” Regarding the economy, “growth is expected to strengthen, supported by accommodative monetary policy, a high terms of trade, government spending and population growth.”

                                NZD/JPY’s recovery from 75.59, with mild bullish convergence condition in 4 hour MACD, suggest that immediate threat of breaking 75.92 is over. NZD/JPY’s near term outlook is rather mixed as momentum is clearly bearish. As it’s held comfortably below falling 55 day EMA. But at the time time, 75.65/76.08 is a very important long term support zone. For now, there is little reason for sustainable rebound. But NZD/JPY bears will take more time and stimulus to take out this 75.65/76.08 support zone. So, range trading is likely the way to go.

                                Bullish developments in GBPUSD and EURUSD after FOMC

                                  By
                                  ActionForex.com
                                  -

                                  USD’s post FOMC selloff extends in Asia session, except versus AUD. Aussie pares back some gains after disappointment from its own employment data.

                                  For the week, USD remains the worst performing one, followed by JPY. GBP and CAD remain nearly equally strong.

                                  Two technical developments are worth noting after FOMC.

                                  Firstly GBP/USD has now surged past 1.4144 resistance. The development further solidify the case that correction from 1.4345 has completed at 1.3711, as supported by 55 day EMA. And it’s held above 1.3651 resistance turned support. That, thus, keep GBP/USD well supported in the healthy medium term up trend. Current rise should now extend to 1.4345 resistance technically. But of course, that will be subject to the outcome of today’s BoE rate decision. While there is practically no change for BoE to hike, any hawkish twist of the language, or votes for hike, could shoot GBP/USD up through 1.4345.

                                  Euro is actually the third strongest for the week, following Sterling and Canadian Dollar. EUR/USD’s breach of 1.2358 following FOMC also affirms the case that price action from 1.2455 are corrective. And the pattern could have completed at 1.2238 already. Further rise is now expected to 1.2445. Break will target 1.2555, the real key resistance level. So far, EUR/USD is also staying in healthy up trend as supported by rising 55 day EMA and above 1.2091 resistance turned support. Just that 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 is an important hurdle to overcome.

                                  USD Suffers Selloff after FOMC and Powell, Worst against GBP and CAD

                                    By
                                    ActionForex.com
                                    -

                                    Dollar tumbles broadly as bulls are clearly unhappy with what Fed delivered. There are some key take aways from the announce and Jerome Powell’s press conference as Fed chair.

                                    Firstly, while Fed raised GDP growth forecasts of 2018 and 2019, it kept 2020 forecast unchanged. Fed is clearly not expectation Trump’s tax cut and fiscal policies to have a long lasting effect to the economy. And even at the peak of their impact, Fed only projects 2.7% growth in real GDP in 2018. Powell also said in the press conference that on one on the committee believes that growth will get to 3% and stay there. That’s a clear vote of no confidence on what Trump claimed.

                                    Secondly, Powell also said that “the relationship between slack and inflation is not so tight”. This echoes the new projections. Unemployment rate forecast is revised sharply lower to 3.6% in 2019 and stay there in 2020. But there is realistically not much impact on inflation. Fed only raised 2019 core PCE forecast by 0.1% to 2.1%, same for 2020. Powell also went further and said that “there is no sense in the data that we are on the cusp of an acceleration of inflation.”

                                    Thirdly, this is possibly what disappointed dollar bulls most. Fed will stick with the course of only three rate hike this year. There might be one more hike in 2019 to three in total, thanks to the GDP growth in both 2018 and 2019, as well as the steep improvement in labour market. And, Fed is more confident that there will be another two rate hikes in 2020.

                                    More on the projections here, and the full statement here.

                                    Looking at the 4H heatmap, USD is clearly suffering after the FOMC release.

                                    From volatility chart, it’s also rather clear that USD suffers most against CAD and GBP.

                                    GBP/USD is now on track to take out 1.4144 resistance. 1.4345 will be the next stop, depending on the outcome of tomorrow’s BoE rate decision. BoE will stand pat for sure, but voting and the statement might give GBP another boost.

                                    USD/CAD continues to be weighed down by positive NAFTA negotiation development. At this point, we’d still expect strong support from 1.2802 cluster (38.2% retracement of 1.2246 to 1.3124 at 1.2789) to contain downside. But let’s see.

                                    Fed maintains forecast of three hikes in 2018, expects one extra in 2019

                                      By
                                      ActionForex.com
                                      -

                                      Fed delivered the 25bps rate hike and lifted the federal funds rate to 1.50-1.75% as widely expected. But Dollar bulls are clearly dissatisfied with the updated economic projections. The accompanying statement is nearly a carbon copy of the prior one with balanced changes. It added that “recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings.” But at the same time, “economic outlook has strengthened in recent months.” The interest rate decision was made with unanimous 8-0 vote.

                                      Going into the projections:

                                      Real GDP forecast for 2018 is raised to 2.7% (up from 2.5%), for 2019 raised to 2.4% (up from 2.1%), for 2020 unchanged at 2.0%.

                                      • Implication is that Fed is expecting slight boost from tax cuts in 2018 and 2019. But the impact won’t be long lasting and would fade into 2020.

                                      Unemployment rate forecast for 2018 is lowered to 3.8% (down from 3.9%), for 2019 lowered to 3.6% (down from 3.9%), for 2020 lowered to 3.6% (down from 4.0%).

                                      • The employment market is expected to improve further, with the help of tax cuts and expansive fiscal policy. And the impact would sustain.

                                      PCE inflation forecast for 2018 unchanged at 1.9%, for 2019 unchanged at 2.0%, for 2020 raised to 2.1% (up from 2.0%)

                                      Core PCE inflation forecast for 2018 unchanged at 1.9%, for 2019 raised to 2.1% (up fro 2.0%), for 2020 raised to 2.1% (up from 2.0%).

                                      • While unemployment rate would continue to drop, GDP growth to stay solid, inflation will pressure will remain contained. Fed is seeing the current pattern to continue.

                                      Federal funds rate projection for 2018 unchanged at 2.1%, 2019 raised to 2.9% (up from 2.7%), 2020 raised to 3.4% (up from 3.1%).

                                      • This is possibly what disappointed dollar bulls most. It implies Fed will stick with the course of only three rate hike this year. There might be one more hike in 2019 to three in total, thanks to the GDP growth in both 2018 and 2019, as well as the steep improvement in labour market. And, Fed is more confident that there will be another two rate hikes in 2020.

                                      Fed raised federal fund rates by 25bps to 1.5-1.75%

                                        By
                                        ActionForex.com
                                        -

                                        Fed raised federal fund rates by 25bps to 1.5-1.75%. Statement below.

                                        New economic projections here.

                                        FOMC Statement Mar 21, 2017

                                        Information received since the Federal Open Market Committee met in January 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 in recent months, and the unemployment rate has stayed low. Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings. On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2 percent. Market-based measures of inflation compensation have increased in recent months but 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 economic outlook has strengthened in recent months. 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 move up in coming months and to stabilize around the Committee’s 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

                                        In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 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.

                                        China preparing quick, targeted retaliations to Trump’s $60b tariffs

                                          By
                                          ActionForex.com
                                          -

                                          The WSJ reported that China is preparing to hit back at US President Donald Trump’s targeted tariffs against it. Trump is set to unveiled to list of products tomorrow, which could add up to as much as USD 60b of annual tariffs.

                                          It’s not really news that China is preparing counter measures. But what WSJ said is that China’s tit-for-tat tariffs would target Trump’s support base. That is, they will be aimed at agricultural exports from Farm Belt states.

                                          That raises a question on whether China views it as trade war with the US, the Republicans, or Trump himself. Trump war might be easy to win for a sized economy against smaller ones. It’s much tougher between two economies of comparable size.

                                          Would there be a chance if the trade war is between a political party, a family, or even a person, against a sized economy?

                                          Remember that it’s an authoritarian government in China. What they’d do very much depends on how their leader Xi Jinping views it. If Xi sees the provocation as from Trump only, rather than the whole of the US, then good luck to the latter.

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