Euro dips as German ZEW indicates “Economic Outlook Worsens Considerably”

    Euro dips after much weaker than expected sentiment data. German ZEW economic sentiment dropped to 5.1 in March, down from 17.8, below expectation of 13.0. Current situation gauge dropped to 90.7, down from 92.3, above expectation of 90.0. Eurozone ZEW economic sentiment also dropped sharply to 13.4, down from 29.3, missed expectation of 28.1.

    ZEW titled the release as “Economic Outlook Worsens Considerably” which is an indication of how bad things turned. ZEW President Professor Achim Wambach noted that “concerns over a US-led global trade conflict have made the experts more cautious in their prognoses. The strong euro is also hampering the economic outlook for Germany, a nation reliant on exports.” But he added that “combined with the experts’ continued positive assessment of the current situation, however, the outlook is still largely positive.”

    While EUR/USD drops notable after the release, there is no change in it’s mildly bullish outlook. That is, price actions from 1.2445 are viewed as a corrective pattern. It should have completed with three waves down to 1.2257 already. Or in a worse scenario, it’s extending as a five wave triangle pattern. In either case, further rise is expected soon through 1.2445 to real key resistance at 1.2555.

    UK CPI slowed to 2.7% yoy, missed expectation. GBP dips… shallowly

      Pound dips mildly after disappoint inflation data but loss is limited. In particular, headline CPI slowed to 2.7% yoy in February, down from 3.0% yoy and missed expectation of 2.8% yoy. The reading doesn’t give any added pressure for BoE to rate interest rate in May. Nonetheless, CPI stays above the mid-point of 2-3% target range. BoE board members should still view the Brexit transition deal as a relief to businesses. And investments could come back with, at least, part of the uncertainties cleared. Know hawks like Michael Saunders and Ian McCafferty could still start pushing for rate hike during this week’s meeting. Hence, there is no sustainable selloff in the pound, just mild retreat.

      Here is the list of inflation data:

      • CPI Feb: 0.4% mom vs exp 0.5% mom vs prior -0.5% mom
      • CPI Feb: 2.7% yoy vs exp 2.8% yoy vsprior 3.0% yoy
      • CPI Core Feb: 2.4% yoy vs exp 2.5% yoy vs prior 2.7% yoy
      • RPI Feb: 0.8% mom vs exp 0.8% mom vs prior -0.8% mom
      • PPI Input Feb: -1.1% mom vs exp -0.9% vs prior 0.7% mom
      • PPI Input Feb: 3.4% yoy vs exp 3.8% yoy vs prior 4.7% yoy
      • PPI Output Feb: 0.0% mom vs exp 0.1% mom vs prior 0.1% mom
      • PPI Output Feb: 2.6% yoy vs exp 2.7% yoy vs prior 2.8% yoy
      • PPI Output Core Feb: 0.2% mom vs exp 0.2% mom vs prior 0.3% mom
      • PPI Output Core Feb: 2.4% vs exp 2.4% yoy vs prior 2.2% yoy

      GBP/USD is staying comfortably above 55H EMA despite the post CPI dip. Recent rise is still on course through 1.4087 to 1.4144 resistance.

      Swiss SECO revised up growth and inflation forecasts, warned of escalation to trade war

        In this Swiss State Secretariat for Economic Affairs report published today, the government painted a brighter picture of the economy. Growth forecasts for 2018 and 2019 were both revised up. Also, 2018 inflation forecast was revised notably higher. The report titled Economy continues dynamic recovery noted that “the economy to continue its dynamic recovery and anticipates strong GDP growth of 2.4% in 2018. The buoyant international economy is supporting foreign trade, while a favourable investment climate is stimulating domestic demand.”

        Here are the latest projections

        • 2018 GDP forecast at 2.4%, revised UP from prior forecast at 2.3%.
        • 2019 GDP forecast at 2.0%, revised UP from prior forecast at 1.9%.
        • 2018 CPI forecast at 0.6%, revised notably up from prior forecast at 0.3%
        • 2019 CPI forecast at 0.7%, unchanged from prior forecast at 0.7%

        The tone of the report was very upbeat as it said “Switzerland’s economy has not looked this healthy since the minimum euro exchange rate was discontinued in early 2015. The upturn gathered increasing momentum and became more broad-based in the second half of 2017.”

        Also, “the healthy global economy is boosting international demand for Swiss products and therefore driving foreign trade.” And, “the Expert Group predicts that foreign trade will provide a significant boost to growth in 2018 especially but also in 2019.” Regarding the job market, the reported noted that unemployment has been in ” gradual decline since mid-2016, while employment also stepped up in the second half of 2017.”

        Regarding economic risks, SECO saw short-term positive and negative risks are “balanced”. Upturn in global economy could help depreciate the Swiss Franc further and “give the Swiss economy a further boost”. But warned that “protectionist measures recently announced in the US pose negative risks for the global economy.” And, “any escalation to a trade war between the major economic zones would have a considerable dampening effect in the medium-term.”

        Besides, the report pointed to recent Italian election as “a certain political uncertainty remains on the international stage.” Unclear Brexit terms and uncertainties in Switzerland’s relationship with the EU are other risks mentioned. Domestically, there is risk of sharp correction in construction sector.

        UK CPI release given more significance after Brexit transition deal

          According to a Bloomberg survey, majority of economists expected BoE to vote 9-0 to keep interest rate unchanged at 0.50% later this week on Thursday. And, 54% of economists expected BoE to hike interest rate in May. That’s a slight adjustment from 51% at prior survey. However, the data was taken as of March 19. And it’s unsure how much regarding the Brexit transition deal was taken into consideration. And that could only be reflected in the next survey.

          The BoE rate decision this Thursday becomes lively as the transition deal is done. UK CPI data to be released today will be the first key factor. Headline CPI is expected to slow from 3.0% yoy to 2.8% yoy in February. Core CPI is expected to slow from 2.7% yoy to 2.5% yoy.

          On the one hand, the deal should give BoE policymakers some comfort to restart lifting interest rate from the current ultra low level at 0.50%. On the other hand, any upside surprise in today’s inflation data would indeed give some pressure for BoE to act again.

          And for the meeting, ahead, while BoE is still expected to stand pat, the statement could turn more relaxed and optimistic given that the Brexit picture is slightly clearer. And more importantly hawks like Ian McCafferty and Michael Saunders might come back to vote for rate hike.

          Little surprise from RBA minutes

            The RBA minutes for the March contained little surprise. Policymakers remained concerned about the soft inflation outlook, noting faster wage growth is needed to assure a stronger and more sustainable improvement on inflation. As suggested in the minutes, “employment had grown strongly and the unemployment rate had fallen over the preceding year. However, the improvement in overall conditions had not yet translated into a definitive pick-up in wages growth, which remained low”. It added that “further progress on these goals [reducing the unemployment rate and bringing inflation closer to target] was expected over the period ahead, but this process was likely to be gradual”.

            Trump to announce USD 60b tariff against China on Friday, China Premier Li pledges to open market

              It’s known that Trump is preparing to impose a package of USD 60b in tariffs against China. It’s reported that the package would apply to over 100 products. These products are believed by Trump to use trade secretes stolen from US companies, or forced to hand over in exchange for market access. The theme appears to be consistent with Section 301 intellectual property theft investigation and actions. But no one knows how relevant is that until there a a published list of products. Trump is planning to announce the action by Friday.

              China Premier Li Keqiang said today after a press conference that there is no forced transfer of technology. But he pledged that China will better protect intellectually property. Also, China will further open up the economy, lower import tariffs and allow foreign and domestic companies to compete on equal ground. China commerce ministry said that there is WTO ruling against tariffs directed only at them. And it urged the US to correct the abuse of trade measures. But the MOFCOM didn’t comment directly on the reported USD 60b tariff package.

              EU Moscovici at G20: We must absolutely avoid trade wars

                European Economics Commissioner Pierre Moscovici he’s “cautiously optimistic” that there could be an agreement on the language on trade out of G20 meeting. And he hoped that the G20 communique will show that “how that protectionism is not the solution and we must absolutely avoid that.” He warned that “the first risk is the risk of inward looking policies and protectionism.”

                Regarding US requests to omit the term “multilateral” from there statement, Moscovici blasted that “avoiding multilateralism in a multilateral organization makes no sense.” He further added that “a trade war would be stupid. There would be damage on both sides of the Atlantic.” Moscovici also reiterated that EU is prepared for counter-measures to US if it’s not exempted from the steel and aluminum tariffs. Moscovici noted “but we think the best is to avoid a scale up” because “we must absolutely avoid trade wars.”

                On the other hand, US Treasury Secretary Steven Mnuchin emphasized in an email statement that “The trip to the G-20 will focus on advancing the Trump administration’s global economic agenda to level the playing field for U.S. companies and workers.”

                ECB Mersch: Prerequisites there for inflation, but easy policy still needed

                  ECB Executive Board member Yves Mersch sounded upbeat on his comments yesterday. He said that “all prerequisites for a sustainable adjustment of inflation to our objective are given.”

                  The central bank could continue to cut down its asset purchases gradually as inflation outlook improves. He’s concerned that there could be excessive market reactions if the asset purchases are reduced too quickly. And that would undo ECB’s hard work in the past few years.

                  Overall, for the time being, easy monetary policy is still needed to support inflation.

                  AUD in strong near term downisde bias

                    While JPY is the worst performer this week so far, AUD is doing much better. Aussie is trading down versus all for the week except versus Dollar and Yen.

                    Looking at the Action Bias charts, note that 6H bias is all red downside in the last 9 bars of AUD/JPY. It’s clear that it’s in a near term downside momentum with solid momentum. The blue upside bars in hourly chart merely represents correction. And the decline is set to return after the correction completes.

                    Similarly, GBP/AUD had strong upside momentum after the range breakout as seen in 6H bias chart. The neutral bias in H bias chart mere indicates it’s in consolidation. The absence of red downside bar in H bias chart suggests that all consolidations were shallow and upside momentum has been strong.

                    DOW, NASDAQ dived. FTSE downside breakout on GBP rally

                      US stock markets closed down sharply overnight as the selloff in Facebook spread to techs and then other sectors. In the background there is also concerns of Trump’s trade war against China. Down dropped -1.35% to 24610.91 and S&P 500 dropped -1.42% to 2712.92. NASDAQ suffered the biggest damage by losing -1.84% to 7344.24. Nikkei opened lower and is down -140 at time of writing. HK HSI is down -0.55%.

                      Even though DOW managed to pare back some loss towards the end of the session, the break of 24668.83 support now put the bears in control. For the near term, deeper fall is expected to 24217.76, or slightly further to 23.6% retracement of 26616.71 to 23360.29 at 24128.80. Overall, it’s bounded in corrective pattern from 26616.71 and price actions inside this ranging pattern is rather hard to predict. We’ll keep an eye on downside momentum to gauge the chance of a test on 23360.29.

                      NASDAQ’s fall from last week’s record high at 7637.27 accelerated after taking out 55H EMA firmly. But it’s now trying to draw support from 38.2% retracement of 6630.67 to 7637.27 at 7252.74. Initial support might be seen to bring recovery. But sustained break of 55 H EMA (now at 7445.43) is needed to confirm completion of the fall. Otherwise, based on current momentum, deeper fall is in favor back to 61.8% retracement at 7051.19.

                      Across the Atlantic, FTSE also tumbled sharply yesterday. But that’s mainly due to Sterling’s sharp rally following news of Brexit transition deal. The break of 7062.13 now confirms resumption of whole fall from 7792.56. FTSE is now set to take on 38.2% retracement of 5499.50 to 7792.56 at 6916.61. Reaction to this medium te4rm fibonacci level could hinge on whether GBP/USD will break above 1.4345 key resistance.

                      DOW heading for downside breakout as selling intensifies

                        Last Friday, we mentioned that DOW should be close to a triangle breakout point. Now, it seems like traders have made up their mind for downside move. 24668.83 will now be the key focus. Break will resume the fall from 25449.15. Break should at least send the index to 23.6% retracement of 26616.71 to 23360.29 at 24128.80. That’s slightly below 24217.76 resistance. It remains to be seen if the correction from 26616.71 will extend beyond 23360.29. And the momentum of the next move will be closely watched.

                        BoJ Kuroda: Free trade is important, protectionism won’t spread globally

                          BoJ Governor Haruhiko Kuroda said ahead of G20 finance head meeting:-

                          • “There is a solid understanding among the global community that free trade is important”
                          • “I don’t think protectionism will spread globally”

                          Now, let’s see how many “like minded” people are there in the meeting.

                          Euro follows Sterling higher on Brexit news. USD, JPY, CHF in misery

                            Euro follows Sterling higher on news of Brexit transition agreement. The optimistic development now leaves Dollar, Yen and Swiss Franc in misery going into US session. In particular, it now looks like EUR/USD has defended 1.2251 minor support well. And the correction from 1.2445 might be finished with three waves down to 1.2257. Focus is immediately back on 1.2235 minor resistance now. Break will bring stronger rise to 1.2412/45 resistance zone.

                            EUR/CHF looks set to end days of dull trading and have a take on 1.1740.

                            Barnier and Davis confirm Brexit transition agreement, new text published

                              EU Chief Negotiator Michel Barnier and UK Brexit Secretary David Davis confirm in a press conference that the deal for transition period is agreed.

                              Barnier announced that the legal text of Brexit has been agreed, even though there are still works today, in particular regarding Irish border. And, a new text of draft Brexit withdrawal agreement published. (The new, color-coded text can be found here). He will present the document to MEPs and to the commission, and then to EU leaders during the summit on Friday. Be after all, he also emphasized that the transition agreement will only take effect if the final agreement is made.

                              According to Barnier, EU nationals arrive in the UK during the transition will have the same rights as those arrived before. UK will not participate in EU decision making during the period, but it have to follow EU rules. Regarding Irish border, Brainier reiterated that both sides are committed to the joint position of avoiding a hard border, as published in a report back in December. The so called regulatory alignment solution will be part of the agreement as a fall back option.

                              UK Brexit secretary David Davis sad the implementation phase (transition period) will provide certainty for the short term. And trade deals will be agreed this time, with a joint committee of UK and EU representatives working to resolve all differences. While UK will follow EU rules, on foreign policy, UK will go on their own. Davis also confirms that the transition period will end on December 31, 2020.

                              Sterling soars as Brexit transition deal “done”. GBP/USD and EUR/GBP updates

                                Sterling jumps sharply on news that Brexit transition deal is agreed. And, it’s only awaiting sign-off by UK Brexit Secretary David Davis and EU Chief Negotiator Michel Barnier. David and Barnier are meeting in Brussels to hammer out the details today. The legal text of the agreement is expected to be delivered to the EU summit on Thursday and Friday for final approval. Davis and Barnier will hold a joint press conference later today.

                                It’s reported elsewhere that the cut off date for the transition period will be December 2020. And, UK will be allowed to make 3rd party trade deals during the transition.

                                GBP/USD takes out 1.3995 to resume the rally from 1.3711. It’s on course for a test on 1.4144. And, it’s getting more convincing that the correction from 1.4345 is completed. And the pair is ready for resuming larger up trend from 2016 low at 1.1946.

                                EUR/GBP’s break of 0.8871 support also confirm that the corrective rise from 0.8686 has completed at 0.8967. Deeper fall should be seen to retest 0.8686 in near term. It’s a bit early to tell if fall from 0.9305 is resuming. But momentum looks promising.

                                Sterling performing well, GBP/CHF with solid upside bias

                                  Sterling doing rather well today with GBP/CHF, GBP/NZD and GBP/AUD topping the daily top mover table. These three pairs are also the top 10 movers in the 4 hour and monthly period.

                                  Upside momentum in GBP/CHF is quite clear as seen in 6H action bias chart.

                                  ECB Knot confident on inflation, Villeroy de Galhau on path to normalization

                                    Some comments from ECB officials.

                                    Klaas Knot, ECB Governing Council member and President of the Dutch central bank, said “Inflation has been fairly stable so that provides me with a high degree confidence that actually inflation will pick up and will at some point approach the definition of price stability.”

                                    Francois Villeroy de Galhau, ECB Governing Council member and Bank of France Governor, said “we are making progress on the inflation front… although a bit slower than we had expected.” And, “our policy is on a path to normalization.”

                                    ECB Governing Council member and Bundesbank President Jens Weidmann said in a German newspaper interview that “I personally think that the good economic developments and the inflation forecast would allow a rapid end to the bond purchases.

                                    EU called urgent meeting on Brexit

                                      It’s reported, with unnamed sources quoted, that EU officials called an urgent meeting regrading Brexit. It’s believed that there could be certain decisions made regarding the transition deal ahead of the EU summit later this week. Meanwhile, UK Brexit Secretary David Davis will also meet with EU chief negotiator Michel Barnier.

                                      BoJ’s government debt holdings jumped to record high

                                        BoJ’s government debt holdings jumped to record high in the period of October to December 2017. By the end of December, holdings jumped 6.8% yoy to JPY 449T. That equaled to 41.1% of all Japanese government debt. Insurance and pensions holdings was a distant second, at JPY 21.6T only. Overseas holdings also rose to JPY 122T, a record high.

                                        45 trade groups warn Trump: Don’t do something commercially meaningless and penalize Americans

                                          45 trade groups wrote an open letter to Trump trying to stop him from starting a trade war with China. In a joint open letter: –

                                          The group urged Trump’s administration to take “measured, commercially meaningful actions consistent with international obligations” and warned Trump not to “penalize the American consumer and jeopardize recent gains in American competitiveness.” It’s clear to the group of businesses what Trump is trying to do regarding tariff on China is not commercially meaningful.

                                          The group also warned of the “chain reaction of negative consequences” of trade war with China by “provoking” retaliation. And Trump should not respond to unfair Chinese practices and policies by measures that will “harm U.S. companies, workers, farmers, ranchers, consumers, and investors.”

                                          In particular, it’s listed out in the letter that

                                          • Tariffs on consumer goods would raise price for consumers and business and “negating gains for American workers from U.S. tax reform.” T
                                          • Tariffs will also harm American companies that “sell component pieces of final products exported from China.”
                                          • Also, tariffs would harm community services provides including “health care, education, and emergency responders.
                                          • Tariffs on product components would “disrupting existing supply chains” and have “negative impact on American jobs”.
                                          • Tariffs will also depress financial markets.

                                          Additionally, the group warned that “imposition of unilateral tariffs by the Administration would only serve to split the United States from its allies”.

                                          Here is a copy of the letter.

                                          And below is the list of trade groups:

                                          1. Agriculture Transportation Coalition
                                          2. Airforwarders Association
                                          3. Allied for Startups
                                          4. American Apparel & Footwear Association
                                          5. AutoCare Association
                                          6. CAWA Auto Parts
                                          7. Coalition of New England Companies for Trade
                                          8. Columbia River Customs & Forwarders
                                          9. CompTIA
                                          10. Computer and Communications Industry Association
                                          11. Consumer Technology Association (CTA)
                                          12. Customs Brokers and Forwarders Association of Northern California
                                          13. Developers Alliance
                                          14. Fashion Accessory Shippers (FASA)
                                          15. Gemini Shippers Association
                                          16. Grocery Manufacturers Association
                                          17. Home Furnishings Association
                                          18. Information Technology Industry Council (ITI)
                                          19. International Wood Products Association
                                          20. Internet Association
                                          21. Los Angeles Customs Brokers
                                          22. National Customs Brokers and Forwarders Association of America
                                          23. National Foreign Trade Council
                                          24. National Retail Federation
                                          25. NY/NJ Forwarders and Brokers Association
                                          26. North American Meat Institute
                                          27. Outdoor Industry Association
                                          28. Pacific Northwest Asia Shippers Association
                                          29. Promotional Products Association International
                                          30. Retail Industry Leaders Association (RILA)
                                          31. Snowsports Industries America
                                          32. Specialty Crop Trade Council
                                          33. Sports and Fitness Industry
                                          34. Tea Association of the U.S.A., Inc.
                                          35. TechNet
                                          36. Telecommunications Industry Association (TIA)
                                          37. The APP Association (ACT)
                                          38. The Pacific Coast Council of Customs Brokers and Freight Forwarders
                                          39. The Toy Association
                                          40. Travel Goods Association (TGA)
                                          41. U.S. Chamber of Commerce
                                          42. U.S. Council for International Business
                                          43. U.S. Fashion Industry Association
                                          44. U.S. Hide, Skin, and Leather Association
                                          45. Wine and Spirits Shippers Association