Sample Category Title

The Australian dollar caught a bit of a tailwind heading into this morning’s private sector credit and the Purchaser’s Price Inflation Index releases, coming off session lows below .7450 as the market pared back some overnight shorts. But with the overhang from Trump uncertainty weighing on investor sentiment, it remains unlikely the market will take a significant position in either direction more so as next week could offer some challenges for 'yield appeal' with the FOMC on tap.With so much priced out of Fed policy this year, the only real surprise in my view would be a more hawkish lean from the Fed than the market expects.

Australian Q 1 Producer Price Index came in .5% vs .5% expected and year on year 1.3% vs .7 % prior .Private sector credit contracted .3 vs .5 % expected .But with national data taking a back seat to the bigger global picture while focusing on next week’s RBA response to their concerns about the labour markets, we should expect the Aussie to remain in offer mode over the near term.

Waiting in the weeds for regional risk sentiment is how Chinese authorities extend their attempt to tame the China Money Ball and avoid a credit bubble explosion. Overnight the Shanghai interbank overnight rate was nudged to 2.792 % culling liquidity in the interbank markets in their challenge to deleverage an overheated economy

GOLD - The commodity continues to hold on to its downside pressure on correction. On the downside, support comes in at the 1,260.00 level where a break will turn attention to the 1,250.00 level. Further down, a cut through here will open the door for a move lower towards the 1,240.00 level. Below here if seen could trigger further downside pressure targeting the 1,230.00 level. Conversely, resistance resides at the 1,270.00 level where a break will aim at the 1,280.00 level. A turn above there will expose the 1,290.00 level. Further out, resistance stands at the 1,300.00 level. All in all, GOLD looks to weaken further.

Thank god it's Friday.

Back in March, the Fed certainly failed to bring USD/JPY longs into play as we were watching for, but the higher time frame support level remains in play.

USD/JPY Daily:

As you can see when you compare the daily chart above to that on the previous blog that I've linked to in the 2nd paragraph, it's all about this particular higher time frame support/resistance level.

A key aspect to these major levels is not that they have been broken, but the way in which they've been broken. Take a look at how price had serious momentum behind it when it broke down through the level.

It was then retested from the bottom as resistance where it held and essentially reactivated.

USD/JPY 15 Minute:

Zooming into an intraday chart, it's always the same. Look for a short term pullback where previous support could turn to resistance in the direction of the higher time frame level.

Something else to keep in mind is that this USD/JPY trade is similar to the EUR/JPY trade that we spoke about earlier in the week.

It was an excellent week for the Ringgit as the regional tone, despite the overhang from Geopolitical concerns, has remained buoyant while risk sentiment rocketed higher follow the French Elections first ballot. Investors are likely to feed on this supportive environment for riskier assets, and local investors sentiment should remain supportive following the second round of elections. I say this with caution as the markets will continue to tussle with the plethora of Trump headlines, which could buckle confidence at any moment.

There has been a definite shift in sentiment after the BNM’s timely move to increase liberalisation in the foreign exchange markets. After last month’s massive volume of MGS bond outflows, the writing was on the wall, and the BNM made tremendous efforts to reassure foreign investors that Malaysia was indeed open for business and was actively moving to greater liberalisation of onshore market. It seems to have worked, as outflows have dropped to a trickle while the currency has shown signs or appreciating.

Also, the lead weight from the 1MDB scandal that rocked investor confidence back in 2015 appears to be coming to an investor friendly conclusion. Malaysia’s finance ministry and 1MDB had agreed to pay $1.2 billion to the Abu Dhabi fund by the end of the year as part of an agreement overseen by an arbitration panel in London.

Next week could offer some challenges with the FOMC on tap. With so much priced out of Fed policy this year, the only real surprise in my view would be a more hawkish lean from the Fed than the market expects. But with the likelihood of only two rate US rate hikes this year, I don’t think this will pose too much of concern to local sentiment and in particular, the Malaysia capital market which is arguably undervalued compared to its ASEAN counterparts.

While I expect the all too familiar oil markets balancing act to remain front and centre, one of the negatives I view for the Ringgit is that there remains a risk for weaker oil prices as we move through 2017 due to constant supply coming from shale oil producers.

At the end of the day, investor positioning in the MYR is light, which suggests that the Ringgit has room to strengthen palpably by next week; even more so if USD momentum loses steam on underwhelming Trump policy.

A Trainwreck waiting to happen

The sheer volumes of political noise, Trump uncertainty, and central bank musings has ground down investor sentiment in this battle-worn week for the currency markets. Despite all the noise overnight, the overall impact has been relatively mute, in spite of surging volumes with the ECB fall out, which generated the lion's share of the day trader volume. On the broader spectrum, longer term players were reluctant to aggressively test the water as restraint upstaged bravado in this extremely muddled landscape.

Political Front

NAFTA remains an extremely touchy topic and despite Trump's about face, I suspect we have not heard the last word on this subject. The Canadian dollar underperformed the rest of the commodity currency bloc due to lingering trade concerns and another slide in WTI.

The Stop Gap bill appears stuck in the mud as the Republicans, despite controlling the majority in both house and senate, are again and again relying on the Democrat vote as the Conservative hardliners are in constant opposition to even the most common sense spending proposal.

As for Obamacare, well that only adds to the confusion as it remains uncertain whether Speaker Paul Ryan will bring a revised health care reform bill to Congress for a vote today.

Central Banks

ECB: Draghi focused on the unchanged inflation landscape; short-term interest rates buckled and the EURO slid to an overnight low of 1.0855.

BOJ: At some point, the BOJ is expected to slow the pace of JGB purchases, but with inflation remaining stubbornly below 2%, we are still a bit off from that time. While currency concerns are not within the BoJ overall purview, but the Yen's near to medium term tangent will likely be determined by interest rate differentials. The BoJ will be doggedly cautious to avoid any language that could be confused as an adjustment in monetary easing.

Australian Dollar

The plethora of headlines generated by the Trump administration has produced very choppy trading in the Commonwealth currencies. Commodity currencies were again dragged through the mud as the AUD hit a four-month low, trading in sympathy with the Canadian Dollar as the US protectionist viewpoint continues to rear its ugly head. Whether it's softwood lumber, aluminum or take your pick, it looks like downside momentum could carry on, as the fears of US protectionism are not leaving the airwaves anytime soon.

Japanese Yen

Expect a headline driven trade to dominate, as both the Healthcare train wreck and Stop Gap debacle fill the airwaves. Look for short-term gaps and quick nature liquidation to continue, but as trader headline fatigue set in, level heads may opt for the sidelines.

The Canadian dollar was lower on Thursday when it touched daily and weekly lows after the Trump administration retracted on comments in was working on an executive order to pull out of NAFTA. Trump said that after talking to the president and prime minister of Mexico and Canada he decided to give the renegotiation route a shot. The US dollar is still rising after a lukewarm reception of the Trump tax reform outline and the hope the government avoiding a shutdown.

There was no economic releases in Canada and the US had a mixed session with the core durable goods miss to be the most relevant as it could signal an economic slowdown that could be verified on Friday when the US releases the GDP for the first quarter. The market consensus already is pricing in a slowdown but being the first estimate there can still be surprises for investors.

The oil supply disruption ended in Libya as the two key oilfields are back online putting pressure on the price of crude. The Organization of the Petroleum Exporting Countries (OPEC) production cut agreement stabilized prices, but the rise in shale production still puts supply ahead of demand. The extension on the deal is expected to happen in May, but it all hinges on Russia who agreed to it last time, but it will take some persuasion from Saudi Arabia for the nation to commit a second time.

The USD/CAD gained 0.1 percent in the last 24 hours. The pair is trading at 1.3671 after the Trump administration walked back their comments about tearing up the NAFTA treaty. The loonie has recovered from daily lows of 1.3671 but is still trading near those levels which are also weekly lows for the loonie.

The Toronto Stock Market (TSX) was hit as the Home Capital Group saga continues. The alternative lender has been in trouble for the past two years, but as housing concerns keep pointing to a bubble in prices the trouble for the company could be signalling an end to rising prices. The firm has approached banks in an apparent attempt at a sale as its stock price has plunged by 60 percent following the news it had secured a 2 billion line of credit after there was a $591 million drop in high interest saving accounts. in the past month.

The USD/MXN lost 0.888 percent on Thursday. The pair is trading at 19.0211 after the Trump administration said it will the NAFTA treaty a good strong shot, before pulling the plug completely. This is a reversal from Wednesday’s rumblings of an executive order being drafter to terminate the US involvement in the deal. Trump says he reached that decision after calls with the Mexican president and the Canadian prime minister. The peso gained after the plans to renegotiate NAFTA replaced the idea of tearing it down outright. There is still the legal question if Trump could unilaterally end the deal, as it was implemented through legislation. The fact that the trade agreement has winners and losers in all three nations means that it could prove unpopular in some US states who could lose direct investment.

Market events to watch this week:

Friday, April 28
4:30am GBP Prelim GDP q/q
8:30am CAD GDP m/m
8:30am USD Advance GDP q/q

Draghi took a small step away from the ECB's dovish stance but it wasn't enough for EUR/USD traders. The pound was the top performer while the euro lagged. New Zealand trade balance and a heavy slate of Japanese data are due next. 2 new Premium trades have been opened, one in the euro the other in a major index.

Mario Draghi said the ECB was moving towards “a more balanced configuration” after holding rates unchanged on Thursday. There was speculation about a more pronounced shift but the ECB will likely wait for new forecasts in June.

The euro initially jumped to 1.0930 from 1.0885 but quickly reversed down to 1.0851. Despite the disappointment, that's still above the Dec-March range, the 200-DMA and the previous cluster resistance.

The pound also broke above a shorter-term range as the period of consolidation after the election call ended. The rise to 1.2917 was the highest since October.

The Canadian dollar remained the most volatile currency this week. USD/CAD sank more than 100 pips in Asia after Trump had a change of heart on NAFTA but it was all erased and more in a steady rise to a 14-month high of 1.3671. The high came as oil fell on a restart to Libyan oil production but even as crude recovered, USD/CAD remained well-above 1.36. One story that's weighing is an implosion at mortgage lender Home Capital in what could be the first sign of trouble in Canada's runaway housing market.

The highlight on the economic data calendar was US durable goods for March. The core category rose 0.2% compared to 0.5% expected but that was largely mitigated by a revision higher to the prior. Better shipments added a slight upward bias to Friday's first look at GDP but analysts are generally pessimistic and the Atlanta Fed sees just 0.2% growth.

USD/JPY continues to chop in the 111.20 to 111.70 range. It could get a jolt when CPI, retail sales and employment numbers are released at 2330 GMT. The national CPI is the main line to watch, it's forecast up just 0.3% y/y.

The other release comes at 2245 GMT when New Zealand is expected to report exports at $4.66B in March and imports at $4.30B. That's a trade surplus of just under $370m. Note that the kiwi sank below the March low on Thursday and is the worst performing major since Trump took office.

The ECB kept policy rates, the QE programme and its forward guidance unchanged at today's meeting - in line with our expectations. It still expects policy rates 'to remain at present or lower levels for an extended period of time and well past the horizon of our net asset purchases'. Additionally, regarding QE purchases, the ECB continues to have an easing bias, as it communicated that it stands ready to increase QE in terms of size and/or duration.

According to Mario Draghi, the ECB Governing Council did not discuss changing its forward guidance or the sequencing of the exit from the very accommodative monetary policy. Both of these topics have received a lot of attention following the latest ECB meeting in early March but the focus on hiking policy rates in order to support the banking sector could fade somewhat as Draghi described the potential side effects of accommodative monetary policy as being limited.

The introductory statement had a minor hawkish twist, as the ECB described the risks surrounding the euro area growth outlook as moving towards a more balanced configuration but still being skewed on the downside. However, during the Q&A session, Draghi communicated that the ECB did not discuss a better or more balance inflation outlook and made it clear that there was an important difference between these two measures.

Regarding the inflation outlook, the ECB still argued that measures of underlying inflation remain subdued. Related to this, the introductory statement also included 'the ongoing volatility in headline inflation underlines the need to look through transient developments in HICP inflation'.

The ECB could change its forward guidance on policy rates at the meeting in June when it will have updated macroeconomic projections but, as we have previously argued, there is a risk that it will stick to a more cautious approach. This should follow as Draghi has recently said 'Before making any alterations to the components of our stance - interest rates, asset purchases and forward guidance - we still need to build sufficient confidence that inflation will indeed converge to our aim'. We still believe the ECB will announce an extension of its EUR60bn monthly QE purchases at the September meeting and continue the programme in 2018.

In fixed income markets, 2Y German yields declined, mainly reflecting Draghi's comment that the ECB did not discuss better securities lending. He stated that these facilities were primarily a task for national central banks and, although they are following central guidelines, the market is for now set to downplay expectations of any near-term changes to the repo facility. Note that this somewhat backtracks the signals from the March meeting, when Draghi said that they were monitoring the repo situation closely and would come 'back on this next time'.

EUR/USD moved up one step up (on 'downside risks diminishing') and then one step down again (on rate hikes off the table for now). EUR/USD still looks like a 1.06-1.10 range near term, as the Fed will be there to keep some downside potential intact but, in our view, there is clearly a risk that we could stand at the June meeting with an ECB that changes its forward guidance in a more hawkish direction provided the cyclical situation looks good still and provided the inflation outlook has not deteriorated markedly (beyond base effects falling out) - and EUR/USD would be more sensitive to a signal on rates than to a possible extension of QE.

Gold has edged lower in the Thursday session, after recording considerable losses on Tuesday. In North American trade, spot gold is trading at $1265.53 per ounce. On the release front, key indicators were dismal. Core Durable Goods, Unemployment Claims, and Pending Home Sales all missed their estimates. On Friday, the US will publish Advance GDP, which is expected to gain 1.3%. We'll also get a look at UoM Consumer Sentiment.

One of President Trump's most important campaign platforms was overhauling the US tax code. Trump finally announced his long-awaited tax plan on Wednesday. The proposal calls for sharp reductions for both individuals and corporations. The plan calls for three tax brackets for individuals – 10%, 25% and 35%. The corporate sector would also see significant tax relief, with the corporate tax rate dropping from 35% to 15%, and the tax on multinationals' overseas profits lowered from 35% to 10%. However, any tax reform proposals from the White House will require a stamp of approval from Congress, so Trump's proposal should be viewed as a blueprint that is a long way off from becoming law. Trump's proposal was short on details, although government officials are praising it as one of the largest tax cuts and broadest overhauls of the tax system in history. There hasn't been much reaction from the currency markets, with the dollar showing limited movement against the pound and other major currencies in Thursday trading.

The French presidential election may be in the daily headlines, but gold prices have been generally steady this week. Voters will be back at the ballot boxes on Sunday, and the markets have priced in a victory by Emmanuel Macron over Marie Le Pen. A major reason for the market's calmness is that opinion polls before the first round were fairly accurate, and correctly forecast that Macron would win 24% of the vote and Le Pen 22%, with both advancing to the May 7 runoff. With polls showing Macron with a comfortable lead of 60-40, it would be a huge upset if Le Pen came in first. She faces an uphill fight, compounded by the fact that some candidates from the first round as well as former President Francois Hollande have publicly called for voters to support Macron. Still, a strong showing by Le Pen on Sunday would show that her strident anti-EU stance has wide popularity, and this could sour investor sentiment and send gold prices higher. Bottom line? If Macron wins by a large margin on Sunday, gold is unlikely to show much movement.

USD/JPY is showing little movement on Thursday, as the pair trades just above the 111 line. On the release front, the BoJ maintained interest rates at -0.10%. Later in the day, consumer indicators will be in the spotlight, with the release of Household Spending and a host of inflation indicators, led by Tokyo Core CPI. In the US, key indicators all disappointed, as Core Durable Goods, Unemployment Claims, and Pending Home Sales missed their estimates. On Friday, the US will publish Advance GDP, which is expected to gain 1.3%. We'll also get a look at UoM Consumer Sentiment.

The Bank of Japan held course and maintained interest rates at -0.10%. The negative rates are part of the BoJ's ultra-loose monetary policy, which is expected to continue until inflation levels move closer to the central bank's target of around 2 percent. The BoJ sounded optimistic about the economy, but acknowledged that monetary policy was unlikely to change in the near future. The BoJ is maintaining its asset-purchase program at 80 trillion yen annually, dampening hopes that the central bank might taper the purchases in response to an improving economy. Analysts noted that the BOJ's quarterly outlook report said that the economy was moving towards "economic expansion", the first time the report has used the word "expansion" since 2008. The BoJ is clearly in no rush to change its monetary stance, and will likely hold course unless inflation levels move closer to the BoJ's target of about 2%.

President Trump has repeatedly promised a major reform of the US tax code. Trump finally announced his long-awaited tax plan on Wednesday. The proposal calls for sharp reductions for both individuals and corporations. The plan calls for three tax brackets for individuals – 10%, 25% and 35%. The corporate sector would also see significant tax relief, with the corporate tax rate dropping from 35% to 15%, and the tax on multinationals' overseas profits lowered from 35% to 10%. However, any tax reform proposals from the White House will require a stamp of approval from Congress, so Trump's proposal should be viewed as a blueprint that is a long way off from becoming law. Trump's proposal was short on details, although government officials are praising it as one of the largest tax cuts and broadest overhauls of the tax system in history. There hasn't been much reaction from the currency markets, with the dollar showing limited movement against the Japanese yen and other major currencies in Thursday trading.