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USD-Indecisiveness Persists ahead of Healthcare Vote
Headlines
US stocks opened largely unchanged as investors sat on the side-lines ahead of a closely followed House of Representatives vote on a bill that would largely repeal and replace the Affordable Care Act, also known as Obamacare. European stock markets gain 0.2% to 0.5%.
UK retail sales beat expectations in February, rising 1.5% m/m ex. auto fuel after a 0.3% m/m decline in January. However, British retail sales in the 3 months to February recorded their biggest slide in nearly 7 years as higher fuel prices eroded shoppers' disposable income. A drag on overall Q1 economic growth now looks all but certain.
Initial jobless claims rose by 15,000 to 258,000 in the week ended March 18, the Labor department said. It was the highest level since the week ended January 28 and above consensus (240,000). Meanwhile, continuing claims, a measure of the number of people claiming benefits, was little changed at 2m.
Purchases of new homes increased in February to a seven-month high, indicating the effects of the recent rise in borrowing costs on the US residential real estate market have been modest. Sales rose 6.1% to a 592,000 annualized pace.
EMU banks took up more free long-term loans than expected at the ECB's final TLTRO auction as expectations grow that the era of free cash may be coming to an end. The TLTRO saw 474 banks borrow €233.5B over four years. It was also way more than in the previous three auctions, once the repayment of existing loans is taken out.
German Chancellor Angela Merkel's conservatives would win more votes than the centre-left Social Democrats (SPD) if an election were to be held this Sunday, a survey showed, six months before a national vote in Europe's political and economic powerhouse.
Rates
Bond markets in wait and see modus
Global core bonds hovered sideways in a tight range. The small intra-day movements of the Bund were inversely correlated with equities (EuroStoxx), which traded also in a tight range. Data had only a temporarily impact. The ECB TLTRO was a big success. At the time of writing, the German yield curve flattened with yield changes between +1.3 bps (2-yr) and -0.4 bp (30-yr). Changes on the US yield curve vary between -1.1 bps (2 & 30-yr) and -1.7 bp (5yr). On intra-EMU bond markets, 10-yr yield spread versus Germany narrowed 3 to 4 bps for both peripherals and semi-core bonds, helped by a strong TLTRO bidding (see below).
The EMU eco data, albeit not the most important ones, were a bid disappointing and shrugged off by the EMU bond market. German consumer confidence weakened a tad and March French business confidence fell short of expecations in some aspects. US initial claims jumped surprisingly higher, without the LBS reporting special factors. The only noticeable move up of US Treasuries started after the weak claims but didn't carry far and gains were reversed after stronger than expected US New Home sales. It all came down to some volatility in a narrow sideways range.
The last TLTRO auction was a big success as banks asked a net €217.5 billion in 4-year liquidity, the largest amount asked since the start of the programme. The banks pay a rate between zero and -40 bps depending on the amount of their new lending to the real economy. The high demand was likely triggered by the fact that it was the last operation and by expectations that rates could go higher in the not too distant future.
Currencies
USD-indecisiveness persists ahead of healthcare vote
There was no clear story for USD trading. Indecisiveness prevailed as markets looked out whether the Trump administration would be able to set a first step to amend Obamacare. USD/JPY continues to trade with a tentatively negative bias (currently 111 area). At the same time, EUR/USD is locked in a tight range close to, but mostly slightly below 1.08.
Overnight, Asian equities traded slightly stronger, but the gains of both equities and the dollar remained modest. Amongst others, global investors were awaiting a first vote in the US house of representatives to repeal Obamacare. It is seen as a proxy to pass other fiscal legislation. USD/JPY hovered in the lower half of the 111 big figure.
The indecisiveness of the Asian markets persisted in Europe. Core bond yields showed no clear trend and changes in interest rate differentials were too small to guide currency trading. The dollar also showed a mixed picture. USD/JPY still traded with a negative bias even as European equities rebounded. Technical factors (end of quarter repositioning of Japanese investors) might be part of the explanation of current yen strength. At same time, EUR/USD also struggled to avoid further losses below the 1.08 big figure.
US jobless claims were higher (worse) than expected at 258 000. The data were probably only of second tier importance, but US markets kept a cautious attitude going into a potential vote on a new healthcare bill. The USD trends of this morning initially persisted, but the dollar profited slightly from better than expected US new homes sales. USD/JPY is trading in the 111 area, off the intraday low around 110.65. EUR/USD is still going nowhere just below 1.08 (currently 1.0780). The outcome of the health care vote (or the absence of a clear outcome) might tilt the USD balance in one way or another. For now, the euro shows little safe haven allure.
Sterling extends gradual rise after good retail data
Yesterday, sterling quite easily reversed a temporary decline after the terrorist attack in London. Sterling remained well bid and EUR/GBP traded with a slightly negative bias going into the publication of the UK retail sales. The ONS February retails sales (1.4% M/M and 3.7% Y/Y) were stronger than expected. Sterling rallied further after the publication of the report. EUR/GBP dropped to the low 0.86 area. Cable jumped to the 1.2525 area. However, sterling ran into resistance even as the CBI retail data (published at noon) also suggested decent retail activity in March. Even after better data in March, activity over the previous three months has slowed materially. We also have the impression that sterling is currently more sensitive to (better than expected) price data, rather than activity data. EUR/GBP trades currently in the 0.8615/20 area. Cable is changing hands in the 1.25 area. That said, the gradual post-BoE raise of sterling/decline of EUR/GBP remains intact.
Trade Idea Wrap-up: USD/CHF – Sell at 1.0000
USD/CHF - 0.9923
Most recent candlesticks pattern : N/A
Trend : Near term down
Tenkan-Sen level : 0.9927
Kijun-Sen level : 0.9912
Ichimoku cloud top : 0.9956
Ichimoku cloud bottom : 0.9931
Original strategy :
Sell at 1.0000, Target: 0.9900, Stop: 1.0035
Position : -
Target : -
Stop : -
New strategy :
Sell at 1.0000, Target: 0.9900, Stop: 1.0035
Position : -
Target : -
Stop : -
Dollar’s rebound after falling to 0.9882 yesterday suggests consolidation above this level would be seen and corrective bounce to 0.9945-50 cannot be ruled out, however, reckon upside would be limited to 0.9980 and renewed selling interest should emerge around 1.0003 resistance, bring another decline later. A break of said support at 0.9882 would add credence to our view that recent decline from 1.0171 is still in progress and may extend weakness to 0.9865-70 but loss of downward momentum should prevent sharp fall below 0.9850 and reckon 0.9825-30 would hold.
In view of this, would not chase this fall here and would be prudent to sell dollar on recovery as 1.0000-05 should limit upside and bring another decline. Only above previous support at 1.0060 (now resistance) would abort and signal low is formed instead, risk rebound to 1.0090-95 first.
Trade Idea Wrap-up: USD/CHF – Sell at 1.0000
USD/CHF - 0.9923
Most recent candlesticks pattern : N/A
Trend : Near term down
Tenkan-Sen level : 0.9927
Kijun-Sen level : 0.9912
Ichimoku cloud top : 0.9956
Ichimoku cloud bottom : 0.9931
Original strategy :
Sell at 1.0000, Target: 0.9900, Stop: 1.0035
Position : -
Target : -
Stop : -
New strategy :
Sell at 1.0000, Target: 0.9900, Stop: 1.0035
Position : -
Target : -
Stop : -
Dollar’s rebound after falling to 0.9882 yesterday suggests consolidation above this level would be seen and corrective bounce to 0.9945-50 cannot be ruled out, however, reckon upside would be limited to 0.9980 and renewed selling interest should emerge around 1.0003 resistance, bring another decline later. A break of said support at 0.9882 would add credence to our view that recent decline from 1.0171 is still in progress and may extend weakness to 0.9865-70 but loss of downward momentum should prevent sharp fall below 0.9850 and reckon 0.9825-30 would hold.
In view of this, would not chase this fall here and would be prudent to sell dollar on recovery as 1.0000-05 should limit upside and bring another decline. Only above previous support at 1.0060 (now resistance) would abort and signal low is formed instead, risk rebound to 1.0090-95 first.
Trade Idea Wrap-up: GBP/USD – Buy at 1.2425
GBP/USD - 1.2522
Most recent candlesticks pattern : N/A
Trend : Near term up
Tenkan-Sen level : 1.2496
Kijun-Sen level : 1.2476
Ichimoku cloud top : 1.2469
Ichimoku cloud bottom : 1.2421
Original strategy :
Buy at 1.2425, Target: 1.2540, Stop: 1.2390
Position : -
Target : -
Stop : -
New strategy :
Buy at 1.2425, Target: 1.2540, Stop: 1.2390
Position : -
Target : -
Stop : -
As cable has continued trading with a firm undertone, adding credence to our bullish view that recent upmove from 1.2109 is still in progress and may extend further gain to 1.2540-50 but loss of upward momentum would limit upside to previous chart resistance at 1.2570 and price should falter below 1.2600-10, risk from there has increased for a retreat to take place later.
In view of this, would not chase this move here and we are looking to buy cable on subsequent pullback as 1.2400 should limit downside. Below 1.2380-85 would defer and risk correction to 1.2350-55 but still reckon support at 1.2335 would remain intact, bring another rise later.
Trade Idea Wrap-up: EUR/USD – Buy at 1.0725
EUR/USD - 1.0784
Most recent candlesticks pattern : N/A
Trend : Near term up
Tenkan-Sen level : 1.0786
Kijun-Sen level : 1.0797
Ichimoku cloud top : 1.0797
Ichimoku cloud bottom : 1.0769
Original strategy :
Buy at 1.0725, Target: 1.0840, Stop: 1.0690
Position : -
Target : -
Stop : -
New strategy :
Buy at 1.0725, Target: 1.0840, Stop: 1.0690
Position : -
Target : -
Stop : -
As the single currency retreated after rising to 1.0825 yesterday, suggesting minor consolidation below this level would be seen and pullback to 1.0750-60 cannot be ruled out, however, reckon support at 1.0719 would limit downside and bring another rise later, above indicated resistance at 1.0825-29 would extend further rise to 1.0850-60 but loss of near term upward momentum should prevent sharp move beyond 1.0880 and price should falter below 1.0900, risk from there has increased for a retreat to take place later.
In view of this, would not chase this rise here and we are looking to buy euro on subsequent pullback as 1.0719 support should limit downside and bring another rise later. Below 1.0690-00 would defer and suggest top is possibly formed, risk weakness to 1.0640 (previous resistance now support) but still reckon indicated support at 1.0600 would remain intact.
Trade Idea Wrap-up: USD/JPY – Sell at 112.00
USD/JPY - 111.06
Most recent candlesticks pattern : N/A
Trend : Near term down
Tenkan-Sen level : 110.95
Kijun-Sen level : 111.11
Ichimoku cloud top : 111.93
Ichimoku cloud bottom : 111.57
Original strategy :
Sell at 112.00, Target: 110.80, Stop: 112.35
Position : -
Target : -
Stop : -
New strategy :
Sell at 112.00, Target: 110.80, Stop: 112.35
Position : -
Target : -
Stop : -
As the greenback recovered after falling to 110.63, suggesting consolidation above this level would be seen and corrective bounce to 111.55-60 is likely, however, still reckon upside would be limited to 112.00-10 and bring another decline later, a break of said support at 110.73 would signal recent decline is still in progress and may extend further fall to 110.50 but near term oversold condition should prevent sharp fall below 110.20-25 and reckon 110.00 would hold from here.
In view of this, would not chase this fall here and would be prudent to sell cable on recovery as 112.00 should limit upside. Only above indicated previous support at 112.26 would abort and signal low is formed instead, bring a stronger rebound to 112,59 but resistance at 112,87-90 should cap upside.
New Home Sales Follow Climb in Sentiment
Following an upwardly revised January reading, new home sales jumped 6.1 percent in February to a 592,000-unit pace due to mild temperatures. Previous months' data were revised down by a net 4,000 units.
Strong Reading in New Homes Sales Activity
New home sales surged well ahead of the consensus estimate, likely due to unusually mild weather in February, which pulled sales forward. We suspect sales will slow in the coming months as the Nor'easter likely stalled activity. On a regional basis, activity advanced in the Midwest, South and West, but fell in the Northeast. The median price of a new home fell 4.9 percent year over year, while the average jumped almost 12 percent.
Builder Sentiment Jumps to Previous Peak Level
The NAHB/Wells Fargo Housing Market Index surged in March, reaching the highest level in more than a decade at 71. We suspect much of the post-election lift in sentiment reflects hope that the Trump Administration will follow through on curbing regulation, which could ease permit costs. The EPA's 2017 Construction General Permit, which authorizes storm water discharge from construction sites, is the latest source of angst.
Strong Retail Sales Sends Pound Above 1.25
GBP/USD continues to push upwards, and has climbed above the 1.25 level on Thursday. In the North American session, the pair is trading at 1.2510. On the release front, British Retail Sales posted a strong gain of 1.4%, crushing the estimate of 0.4%. As well, CBI Realized Sales held steady at 9 points, above the forecast of 4 points. In the US, unemployment claims jumped to 258 thousand, well above the forecast of 240 thousand. There was better news from New Home Sales, which improved to 592 thousand, compared to a forecast of 566 thousand.
This week's focus has been on British consumer indicators. Retail Sales sparkled in February with a gain of 1.4%, its highest gain since October 2016. At the same time, for the three months to February, retail sales suffered their biggest slide since 2010. This points to an erosion in consumer spending due to the weak pound, which has fallen 17% since the Brexit vote. The weak currency and higher oil prices have also sent inflation higher. CPI climbed 2.3% in February, beating the forecast of 2.1%. This is a significant reading, as it surpassed the BoE's inflation target of 2.0% for the first time in three years. Higher inflation levels has increased speculation that the Bank of England, which has had a neutral stance on rate policy, could raise rates this year. On Thursday, BoE deputy governor Ben Broadbent said that a rate hike was a possibility.
With the Fed pressing the rate trigger last week, what's next for the central bank? The Fed's rate statement and dot plot indicated that the Fed is looking at another two hikes in 2017, which would make three in total. This forecast was reiterated by Chicago Fed President Charles Evans earlier this week. Although one could make a strong case that three rate hikes in 2017 would be impressive, the markets appear disappointed, and would like four hikes, given the strong performance of the US economy. The Fed's cautious approach has soured sentiment towards the greenback, resulting in the dollar heading lower against its major rivals. The pound has taken full advantage, rising 3.0% since the Fed rate announcement last week.
Trade Idea: EUR/GBP – Hold long entered at 0.8620
EUR/GBP - 0.8615
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.
Trend: Near term down
Original strategy :
Bought at 0.8620, Target: 0.8750, Stop: 0.8580
Position : - Long at 0.8620
Target : - 0.8750
Stop : - 0.8580
New strategy :
Hold long entered at 0.8620, Target: 0.8750, Stop: 0.8580
Position : - Long at 0.8620
Target : - 0.8750
Stop : - 0.8580
Although the single currency has slipped again after yesterday’s brief bounce to 0.8700 and near term downside risk remains for marginal weakness from here, reckon downside would be limited to 0.8605 (50% Fibonacci retracement of 0.8422-0.8788) and bring another rebound later, break of said resistance at 0.8700 would bring test of 0.8727, above there would suggest low is formed, then gain to 0.8760 would follow, break there would suggest the pullback from 0.8788 has ended, bring retest of this level, a breach there would extend the rise from 0.8403 low to 0.8800 and later 0.8825-30.
In view of this, we are holding on to our long position entered at 0.8620. A firm break below 0.8605 (50% Fibonacci retracement of 0.8422-0.8788) would defer and suggest top has possibly been formed at 0.8788, risk test of 0.8560-65 (61.8% Fibonacci retracement) but support at 0.8547 should remain intact.
Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.
Trade Idea: USD/CAD – Hold short entered at 1.3400
USD/CAD - 1.3327
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway for headway to 1.4700
Trend: Near term up
Original strategy :
Sold at 1.3400, Target: 1.3240, Stop: 1.3435
Position: - Short at 1.3400
Target: - 1.3240
Stop: - 1.3435
New strategy :
Hold short entered at 1.3400, Target: 1.3240, Stop: 1.3410
Position: - Short at 1.3400
Target: - 1.3240
Stop:- 1.3410
Although the greenback found support at 1.3264 and rebounded, as the pair met resistance at 1.3409 and has retreated again, retaining our bearishness for another test of said support, a break below there would add credence to our view that top has been made at 1.3535 earlier this month, bring further fall to 1.3235-40 (61.8% Fibonacci retracement of 1.3056-1.3535) but previous resistance at 1.3210 would hold due to loss of downward momentum.
In view of this, we are holding on to our short position entered at 1.3400. Above previous support at 1.3421 (now resistance) would suggest low is formed instead, bring a stronger rebound to 1.3450 and possibly test of resistance at 1.3479, however, only break of 1.3495 resistance would indicate the pullback from 1.3535 has ended and bring retest of this level later.
To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.
