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20:15 France: Macron seals centrist pact - Bloomberg

According to the latest wires, via Bloomberg, independent candidate Emmanuel Macron agreed an alliance with his centrist rival Francois Bayrou.

Key Highlights:

•Bayrou, the 65-year-old mayor of the southern town of Pau, was a contender in the 2007 presidential election when he won 18.6 percent of the vote in the first round.

•“We are in such a risky situation and for this situation, we need an exceptional answer. Macron is brilliant.”

•French government bonds rebounded on Bayrou’s announcement after three days of declines as the 10-year yields fell eight basis points to 1.01 percent.

•Surveys have shown that whoever clinches the second spot in the run-off will become strong favorite to be France’s next president.

As of writing, the EUR/USD pair navigates bearish waters below its 50-DMA near 1.0545. The next relevant event on today's US docket eagerly expected by traders and investors to initiate massive long-dollar positions or short-sell the greenback is the FOMC minutes. Hence, the shared currency could climb back near 1.0600 or crash towards 1.0450 support if the minutes fail to provide clarity in regards a 'rate hike' in March.


20:11 EUR/GBP well bid, but a little too bid before FOMC minutes?

Currently, EUR/GBP is trading at 0.8484, up 0.35% on the day, having posted a daily high at 0.8495 and low at 0.8403.

Euro is in key focus as we head towards the elections in The Netherlands and France starting next month and markets are jittery on various developments. First, the French election news for today has Bayrou backing Macron. We will now await the FOMC minutes, but we just had Fed's Powell speaking who expects rate increases to be gradual, and that could lift the euro some more. Judging by the market reaction to the Bayrou news, the French elections are going to be a key driver for the euro and each development will be monitored very closely. 

EUR/USD bounces off lows 35-pips; FOMC could knockout cold the euro

EUR/GBP levels

EUR/GBP has been on the bid today, covering some hard ground on the hourly sticks for the best part of the US session so far. The cross has broken a key technical level on the upside at 0.8450 and now the 50 1hr sma at 0.8470. This comes as the dollar sharpens up across the board but the euro bulls shrug it off and managed a rally to through the 50 sma on the same time frames as well. 0.8520 is the key upside target to negate the negative trend of late and comes in line with the 200 hourly smoothed sma at 0.8517. 

 


20:06 United States 5-Year Note Auction dipped from previous 1.988%to 1.937%


19:56 When are the FOMC minutes and how could they affect EUR/USD?

Today at 19:00 GMT, the Federal Reserve will release the minutes of the latest meeting of the Federal Open Market Committee (FOMC) that took place back on Jan. 31 - Feb. 1. At that meeting, officials voted unanimously to leave the target range for the fed funds (benchmark interest rate) unchanged at 0.5% - 0.75%. The next meeting will be Mar 14 - Mar 15. 

About the Fed and the USD

The US dollar has been rising in the market and according to some analysts, it could continue to do, supported by the divergence in monetary policy. The Fed bias to tighten diverges, from example, of the current expansionary stance of the European Central Bank. The key in the minutes, will be the clues about when the Fed will raise rates again. March and June are the most likely scenarios. The greenback could rise in the market if there are strong signals in the minutes of a March rate hike and/or a scenario of a stronger tightening cycle. On the opposite, a dovish message, could hurt the US dollar. 

How could affect EUR/USD?

The euro has been weak in the market since the beginning of February, affected by political uncertainty in Europe. The US dollar recovered strength during that period supported by better-than-expected US economic data that increased expectations of rate hikes form the Fed. 

EUR/USD reached earlier today the lowest level in a month at 1.0492 and then rebounded. Hawkish minutes could push the pair back under 1.0500. A close below that handle could target the December trading range between 1.0350 and 1.0500. On the upside, a message taken as dovish by market participants, could weaken the demand for the US dollar, favoring a bullish correction. A recovery below 1.0660 could be considered a correction, but if the euro rises above 1.0660 (20-day moving average),  it could remove the bearish pressure. 

EUR/USD before FOMC minutes

Key Notes

FOMC minutes in the limelight - Nomura

The minutes could show the debate of the future path of monetary policy and also how officials analyze economic conditions, including key indicators like GDP and inflation. “If FOMC participants have become confident that these transitory factors have sufficiently diminished and goods prices will likely continue to increase, this confidence could have some implications for the future path of monetary policy,” said analysts at Nomura. 

About the FOMC minutes minutes

FOMC stands for The Federal Open Market Committee that organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.
 


19:33 FOMC minutes: thoughts about the Fed s balance sheet?- BBH

Analysts at Brown Brothers Harriman explained that many investors and observers are keen to see what the FOMC minutes say about the Fed's balance sheet.  

Key Quotes:

"We suspect that the expectations for fresh insight may be disappointed.

The indications from the Fed's leadership is that discussions are still in preliminary stages. Most of the comments about the desire to begin reducing the balance sheet came from the regional presidents rather than the Board of Governors.  

When asked during her recent testimony Yellen barely went beyond what has already been said. There are four points:    

First, the reducing the balance sheet will take place after the normalization of interest rates is well under way.  This is an example of strategic ambiguity.  It is revealing sort of, without precision.  Many suspect that when as the Fed funds target range moves above 1.0%, officials will get more serious.  

Second, the most likely first step is to stop recycling proceeds from maturing issues. Last year, the Federal Reserve bought roughly $216 bln of Treasuries it reinvested funds that were freed up from the maturing issues.  

Third, the long-term goal is to return the Federal Reserve's balance sheet to only Treasuries. Currently, the Federal Reserve owns roughly $1.75 trillion of mortgage-backed securities.  

Fourth, Yellen indicated in her recent testimony that the Fed did, in fact, want to reduce the balance sheet over time, but did not want it to be policy tool. She had previously suggested that if the $177 bln of maturing Treasuries were allowed to run-off this year, it would be tantamount to around a 50 bp increase in rates.  

The Federal Reserve owns $425 bln of Treasuries that will mature in 2018 and another roughly $350 bln that mature in 2019. If the process is allowed to run its course, the tightening will swamp the use of the Fed funds target range as the primary tool of monetary policy.  

Another implication of reducing the Fed's balance sheet is that it will boost the federal government's debt servicing costs at a time when interest rates may already be rising.  Consider that the Federal Reserve is the largest owner of US Treasuries.  

That means it receives large coupon payments. Last year, it returned nearly $100 bln of the federal government, which was about 40% of the net debt servicing costs.  

An important known unknown is the configuration of the Federal Reserve.  

We have argued the Fed's independence is safe because rather than eroding it, President Trump will be able to name a majority of Governors over the next year or so.  There are two vacancies now, and Tarullo has announced plans to step down in Q2.  

That means Trump can nominate three of the seven-person board this year.  Next year, both Yellen and Fischer are likely to step down.  

Some of Trump's economic advisers have been critical of the Fed and QE.  

The argument is that it is a significant encroachment on fiscal policy.  There was also some talk during the campaign that the balance sheet should be reduced.    

However, the operational challenge of during so may be more formidable than campaign rhetoric can acknowledge.   A

lso, we note that some of the more stridently unorthodox positions, including support for NATO, naming China as a currency manipulator on day one, not recognizing one China, have been walked back.  

During the Great Depression, the central government's balance sheet was discovered.  For most high income countries most of the time, deficits are routine, and debt levels rise inexorably.  During the Great Financial Crisis, government balance sheets swelled, but the political will to do so indefinitely did not materialize in sufficient force.  Instead, the central banks' balance sheets came in to play.    

We suspect this will be a semi-permanent development.  What is unorthodox at one moment in time sometimes becomes the new orthodoxy later.   It may be easier to put toothpaste back in the tube then take power away once it is conceded."


19:01 EUR/USD bounces off lows 35-pips; FOMC could knockout cold the euro

Currently, EUR/USD is trading at 1.0537, marginally up +0.02% or 2-pips on the day, having posted a daily high at 1.0556 and low at 1.0492.

Today's EU economic docket had aligned valuable releases expected by market participants to have a better understanding of the progess, if any, the eurozone had achieved in the last 12-months as Paul Hannon at WSJ noted, "For the first time in almost four years, none of the eurozone’s 19 members was in deflation during January." Although, the Consumer Price Index (YoY) clocked 'as expected' at 1.8%, there is evidence that some policies had a positive impact in the bloc. 

On the other hand, the Euro vs. American dollar exchange rate seems to dilute further political risks from France as 'Frexit' and Greece as another 'bailout' as the currency pair trades 330-pips from the 2017 high. Hence, the shared currency had an interesting recovery during the first 5-weeks of the year but still suffers from the ongoing disconnected communication among EU members.

Finally, traders and investors move their battle horses as a rate hike in March, although too soon, has not been ruled out. Today's FOMC minutes should provide clarity or more evidence to keep entertaining the idea.

Federal Fiscal Policy Chartbook: What’s the Baseline?

Historical data available for traders and investors indicates during the last 8-weeks that EUR/USD pair had the best trading day at +1.13% (Jan.5) or 119-pips, and the worst at -0.80% (Jan.18) or (84)-pips. Furthermore, the US 10yr treasury yields have traded from 2.45% to 2.38%, down -0.29% on the day at 2.42% or -0.0071, during today's session it quoted as low as -1.18%.

Technical levels to watch

In terms of technical levels, upside barriers are aligned at 1.0590 (50-DMA), then at 1.0735 (100-DMA) and above that at 1.0830 (high Feb.2). While supports are aligned at 1.0490 (low Feb.22), and below that at 1.0380 (low Jan.4). On the other hand, Stochastic Oscillator (5,3,3) seems to debate between continuation towards 'oversold' or shift direction to head north. Therefore, there is evidence of a neutral stand during today's trading session.

eurusd

On the long-term view, upside barriers are aligned at 1.0566 (short-term 23.6% Fib), then at 1.0706 (short-term 38.2% Fib) and above that at 1.0820 (short-term 50% Fib). To the downside, bears need an open and close below 1.0560 to increase the selling pressure to drag the pair even lower, that would open all doors to attempt a breakdown attack near 1.0338 (low Jan.3).

A break below this level, would signal a tangible opportunity and attract massive short-sellers towards parity. However, 1.0070 figures as the euro's last stand, those couple pips away from the round mark level make the difference between an all-time low-bottom vs. the 'infamous' parity.

eurusd

EUR/USD: downward pressure increases ahead of FOMC


18:54 RBA s Lowe says they are on pause as labour market solid - UOB

Analysts at UOB noted that the Reserve Bank of Australia (RBA) Governor Philip Lowe delivered a speech in Sydney ahead of his testimony to the parliament committee later this week.

Key Quotes:

"In his speech, Lowe signalled the solid performance of Australia’s labour market is allowing RBA to extend an interest-rate pause."

"Lowe noted that households are coping reasonably well with high debt, but is affecting spending and he warned that rising debt from a record-low cash rate of 1.5% could stretch household finances too far, that if “households having decided that they had borrowed too much, might cut back consumption sharply, hurting the overall economy and employment…It is difficult to quantify this risk, but it is one that is difficult to ignore.”"

"Lowe did not see much risk of inflation expectations becoming unanchored and would like the economy to grow more quickly. He noted that the downturn in mining investment 90% done while non-mining investment is still subdued. Another of Lowe’s concerns was that wage growth is too low, and he hopes it will pick up.

He also highlighted there is scope to do more on Australian infrastructure, especially on transport and that the government should not be afraid to borrow to build infrastructure."


18:50 Yen s risk profile awaits FOMC minutes - Scotiabank

Analysts at Scotiabank noted that the JPY was outperforming earlier in an environment of mild risk aversion with sentiment dominating a JPY-bearish widening in interest rate differentials. 

Key Quotes:

"Relative central bank policy remains a core piece of our forecast for JPY weakness, however, we acknowledge JPY’s risk profile and tendency to see knee-jerk haven-driven gains in periods of risk aversion."

"Near-term risk is centred on the release of the FOMC minutes at 2pm ET."

"Its impact will be key as market participants assess the implications for both relative central bank policy and the broader market tone."


18:45 GBP/USD through R1 but stuck between key daily smas and range bound

While we await the FOMC minutes, currently, GBP/USD is trading at 1.2457, down -0.11% on the day, having posted a daily high at 1.2510 and low at 1.2423.

GBP/USD is range bound ahead of the FOMC minutes today and after a disappointing set of rhetoric from the BoE of late in respect to inflation and outlooks for the UK economy. Brexit remains a key concern among investors despite the surprising performance of the UK to date since the referendum decision and vote to leave the EU. 

France’s Bayrou backs Macron; says will not stand in Presidential election

"The UK has more Article 50 debating in the House of Lords and testimony from BOE Governor Mark Carney to the Treasury Select Committee," explained Kit Juckes, an economist at Societe Generale, adding, "Sterling had a good day in yesterday's think markets and is back down this morning. I'm not sure it's going anywhere, but if 0.8450 breaks on the downside in EUR/GBP a tactical short makes sense, though by the same token, a break back below GBP/USD 1.2350 will get some chartists excited about a return to 1.20"

GBP/USD levels

GBP/USD has been trading between the 20 and 50 d sma for the best part of this month so far. These barriers are breakout levels at 1.2493 and 1.2390 to the downside on a daily closing basis. We have seen a test to the upside but without a fundamental catalyst, the price is capped on the 1.25 handle.

However, to the downside, analysts at Scotiabank noted that last week’s lows (twice tested) at 1.2385 represented the effective lower bound. "We still think the GBP remains vulnerable to weakness in the near-to-medium term on Brexit and the stronger USD but we continue to view the GBP as nearing attractive levels for longer run “value” bets—especially on some of the more beaten up crosses (EURGBP, GBPCAD)." Today, the analysts noted that recent support has been observed at 1.24 and said a break would open up risk to the early Feb low around 1.2350 followed by 1.2280.

GBP/USD trading above R1

 


17:57 USD/MXN drifting lower towards 200-DMA; Banxico s auction fixes peso not Mexico

Currently, USD/MXN is trading at 19.91, down -0.42% or (829)-pips on the day, having posted a daily high at 20.09 and low at 19.91.

The American dollar vs. Mexican peso clocked, as of writing, another trading session in red due to Banxicos 'fix' via a $20 billion auction in FX hedges. The peso appreciation accelerated as prices broke the 100-DMA. Hence, the central bank decided to intervene the exotic avoiding additional rate hikes, but such solution has little to no impact in the country's economy.

On the data front, the US docket had limited ammo to counter-attack Banxico's short-term strategy to aid a weak and vulnerable Mexican peso. However, FOMC minutes due in the next 2-hours could provide traders evidence to add dollar-long positions if there is any wording related to a rate hike in March.

Banxico Implements Fancy Pants Intervention!

Historical data available for traders and investors indicates during the last 8-weeks that USD/MXN, a commodity-linked and exotic currency, had the best trading day at +1.83% (Jan.10) or 3983-pips, and the worst at -2.22% (Jan.25) or (4684)-pips. Furthermore, the US 10yr treasury yields have traded from 2.45% to 2.38%, down -1.10% on the day at 2.40% or -0.0268.

Technical levels to watch

In terms of technical levels, upside barriers are aligned at 20.28 (100-DMA), then at 20.53 (high Feb.20) and above that at 20.86 (50-DMA). While supports are aligned at 20.24 (low Feb.10), later at 19.72 (low Nov.10) and below that at 19.11 (low Nov.3). On the other hand, Stochastic Oscillator (5,3,3) seems to accelerate the pace into the oversold territory, but 'extreme attention' over US Treasuries to avoid a market trap. Therefore, there is evidence to expect more Mexican Peso gains in the near term.

usdmxn

On the medium-term view, if 22.03 (high Jan.15) is in fact, the top during the first semester in 2017, then traders and investors would have allocated risk around the following support levels: 19.87 (short-term 61.8% Fib), then at 19.46 (low Sep.18) and finally below that at 19.19 (short-term 50.0% Fib). On the other hand, upside barriers are aligned at 20.53 (high Feb.2), later at 20.92 (high Jan.29) and above that at 21.38 (high Nov.6).

usdmxn

Equity players continue to expect tax reform


17:47 Frances Bayrou backs Macron; says will not stand in Presidential election

France’s François Bayrou was on the wires last minutes, via Reuters, stating that he supports Emmanuel Macron in the Presidential election.

At the time of writing, EUR/USD is trading at 1.0537, down -0.08% on the day, having posted a daily high at 1.0557 and low at 1.0494.


17:43 Banco de Mexico announced a new FX hedging program - BBH

Analysts at Brown Brothers Harriman explained that Banco de Mexico announced a new FX hedging program.  

Key Quotes:

"Long story short, this is very much like the swaps program used by Brazil."

"The central bank takes on FX risk but pays out in local currency so there is no drain on FX reserves."

"Any FX losses will be absorbed by Banxico, which has been profitable over the last several years."  

"This was taken very positively by the markets."  

"USD/MXN broke below the key 20.10 level yesterday, but there was no follow-through and the pair is back above 21.0."

"Still, the break should set up a test of the 19.65 area." 


17:39 NZD/USD: bearish bias while capped by 20 and 50 4hr sma

Currently, NZD/USD is trading at 0.7156, down -0.14% on the day, having posted a daily high at 0.7178 and low at 0.7152.

NZD/USD has been trading in a choppy formation along the 4hr chart and battling against a downward trend that started after the first week of February for the 2017 highs of 0.7374. The greenback has been flexing its muscles with markets expecting three rate hikes this year while the RBNZ have ben jawboning the bird lower despite remaining upbeat on the NZ economy. 

US Dollar clings to gains near 101.60, FOMC on sight

The Governor  of the RBNZ, Wheeler, again warned about international risks (including US protectionism) and chided markets for pricing in a rate hike this year, noted analysts at Westpac, adding, "With inflation expected to lift only gradually, we see a very low probability that recent OCR cuts will be reversed any time soon. Market pricing for a rate hike by end- 2017 had been 100% in the early weeks of 2017 but is now back to about 50/50." We now await the FOMC minutes today to give us an indication of possible timings of a rate hike. 

NZD/USD levels

The FXStreet OB/OS Index is reflecting neutral hourly conditions, while the FXStreet Trend Index is slightly bearish.  NZD/USD is capped by the 4hr 50 and 20 sma's around 0.7180 with 0.7128 as the recent low guarding the 0.71 psychological level ahead of 0.7045 and 0.6880 on the wide. To the upside, a break through 0.7240 o the wide opens 0.7280 and the aforementioned Feb highs. 


17:35 EUR/USD renewed downside targets 1.0450 Scotiabank

Eric Theoret, FX Strategist at Scotiabank, remains bearish on the pair in the short term.

Key Quotes

EUR is flirting with 1.05 at levels last seen in early January. The push opens up the risk of further weakness toward the Jan 11 low around 1.0450 and the Jan 3 multi-year low at 1.0341 (level last seen in January 2003)”.

“Momentum signals are bearish and showing signs of acceleration. The RSI is at 37, leaving ample room for further downside. DMI’s are providing confirmation and suggestive of a strengthening trend. MA’s are bearishly aligned”.

 

 


17:20 US Dollar clings to gains near 101.60, FOMC on sight

The greenback, measured by the US Dollar Index (DXY) has surrendered part of its initial gains and is now gravitating in the 100.60 area.

US Dollar focus on FOMC

The index is posting gains for the fourth session in a row on Wednesday, always backed by rising expectations of a Fed move at the March meeting.

USD has so far managed to keep the trade north of the 101.00 handle, although gains have failed to clear the interim target in the 101.70 area, last week’s spike post-Yellen’s testimony.

Supportive Fedspeak as of late and auspicious results from the US docket have combined to further sustain the rally in the buck. However, the up move seems to have decoupled from US yields performance, probably showing some cautiousness among investors in light of the upcoming release of the FOMC minutes.

Consensus sees the Committee to reinforce the view of a rate hike sooner rather than later, reinforcing at the same time the case for a stronger buck. How much of this sentiment is already priced in remains to be seen, but it could surely act as a barrier for extra gains, at least in the near term.

Data wise in the US today, Existing Home Sales have surpassed estimates during January, increasing by nearly 5.70 million units, or 3.3% inter-month.

US Dollar relevant levels

The index is gaining 0.13% at 101.58 facing the next resistance at 101.75 (high Feb.15) ahead of 101.95 (23.6% Fibo of the November-January up move) and finally 10296 (low Jan.11). On the flip side, a break below 100.99 (high Feb.20) would aim for 100.52 (20-day sma) and then 100.40 (low Feb.16).


17:02 CNY faces further depreciation Danske Bank

Chief Analyst at Danske Bank Allan von Mehren believes the Chinese currency could lose further ground in the next months.

Key Quotes

“We look for CNY to continue the gradual trend of weakening. China’s continues to face challenges with (a) rising financial risks, (b) overcapacity and (c) too much dependence on investments. This will keep downward pressure on medium-term growth. We also see a rising risk of a trade war with the US, which would hurt Chinese exports. Against EUR, we still expect CNY to depreciate by nearly 10% on a 12M horizon”.

“The CNH-CNY spread moved sharply into negative territory in early January as the CNH strengthened rapidly on the back of Chinese intervention in the offshore market, which led to a big capitulation of short CNH positions. However, the spread is now back around zero. We expect it to stay here but we can see periods of the spread moving in either direction”.

 


17:02 United States Existing Home Sales Change (MoM) above expectations (1.1%) in January: Actual (3.3%)


17:01 United States Existing Home Sales (MoM) registered at 5.69M above expectations (5.54M) in January


16:55 AUD/USD rejected near 0.7710; Aussie vulnerable against FOMC-US yields

Currently, AUD/USD is trading at 0.7685, up +0.14% or 11-pips on the day, having posted a daily high at 0.7710 and low at 0.7666.

The Australian dollar vs. American dollar seems to navigate vulnerable to any positive dollar-long statement, news release or Trump's tweet as RBA's Lowe lowered the central bank's guard during yesterday's economic statement. Furthermore, the Aussie failed to gain traction above 0.7710 which indicates how commercials and institutional players see no value in exchanging above such significant level.

On the other hand, the US economic docket aligns two events: Existing Home Sales (MoM) and FOMC minutes including member Powell speech. These events may deliver the necessary value the US dollar is missing to move higher. 

Historical data available for traders and investors indicates during the last 8-weeks that AUD/USD pair, a commodity-linked currency, had the best trading day at +1.18% (Jan.17) or 89-pips, and the worst at -0.81% (Jan.18) or (61)-pips. Furthermore, the US 10yr treasury yields have traded from 2.45% to 2.38%, down -1.18% on the day at 2.40% or -0.0286.

Technical levels to consider

In terms of technical levels, upside barriers are aligned at 0.7731 (high Feb.16), then at 0.7777 (high Nov.8) and above that at 0.7834 (high April.21). While supports are aligned at 0.7617 (low Feb.14), later at 0.7512 (100-DMA) and below that at 0.7459 (50-DMA). On the other hand, Stochastic Oscillator (5,3,3) seems to head south. Therefore, there is evidence to expect further Aussie losses in the near term.

audusd

On the long term view, if 0.7834 (high April 2016) is in fact, a relevant top, then the upside is limited at 0.7809 (short-term 38.2% Fib). Furthermore, if the RBA has 'no ammo' nor solid reasons to increase rates in 2017, the interest rate advantage should decrease organically as the Federal Reserve continues increasing rates with 3-hikes in the next 16 months. To the downside, supports are aligned at 0.7433 (short-term 23.6% Fib), later at  0.7182 (reverse long-term 61.8% Fib) and below that back to 0.6826 (low Jan.2016).

audusd

AUD/USD analysis: no progress made, but downside still limited


16:55 US stocks trade with mild weakness ahead of Fed minutes

Major US equity indices halted their record run and opened lower on Wednesday as investors eagerly await the release of minutes from the Federal Reserve's latest monetary policy meeting minutes for fresh impetus.

The minutes would be scrutinized for insight about the central bank's near-term monetary policy outlook and possibilities of rate-hike action at its upcoming meeting in March. Meanwhile, a pullback in oil prices also weighed on investors' sentiment and dimmed appetite for riskier assets - like equities.

Against the backdrop of last week's hawkish comments from the Fed Chair Janet Yellen, markets already seems to have priced-in an eventual Fed rate-hike action, sooner-rather-than-later. Hence, it remains to be seen how the minutes would affect the markets and might have prompted investors to take some profits off the table following Tuesday's record closing for the second straight session.

At the time of writing this report, the Dow Jones Industrial Average was down 40-points to 20,700, while the broader S&P 500 Index lost over 6-point to 2,358. Meanwhile, tech-heavy Nasdaq Composite Index retreated around 17-points and dropped to 5,849.
 

 


16:33 USD/JPY rangebound between 112.30 and 114.50 UOB

USD/JPY should remain within the consolidative range in the next week, suggested FX Strategists at UOB Group.

Key Quotes

“The 113.55 target indicated yesterday was exceeded as USD hit a high of 113.77. The short-term strength is showing signs of tiring and the upside risk appears to be limited for today. From here, allow for an uptick to 113.80/85 but 114.30 is expected to cap for a pull-back to 113.10 (next support at 112.80 is strong level and is unlikely to be threatened)”.

“After closing lower for 3 straight days, USD ended higher yesterday and registered a modest gain. From here, the price action is still viewed as part of a 112.30/114.50 consolidation range and based on the current indicators, this range is expected to be intact for a while yet”.

 

 


16:30 USD/JPY inter-markets: cautious sentiment weighing, Fed minutes holds the key

The USD/JPY pair traded with bearish bias on Wednesday and dropped to 113.00 handle, reversing all of its gains recorded in the previous session.

Tuesday's remarks by Bank of Japan Governor Haruhiko Kuroda, negating possibilities of further lowering negative interest rates, triggered the initial leg of profit taking slide in the major despite of a follow through US Dollar buying interest. 

Adding to this, retracement in the US and Japanese treasury bond yields pointed to cautious investors' sentiment and provided an additional boost to the Japanese Yen's safe-haven appeal. Moreover, an up-tick in the Volatility Index (VIX), leading to a corrective weakness in the US equity markets, coupled with concerns over potential political instability in the Euro-zone, ahead of the French Presidential elections, also boosted demand for traditional safe-haven assets and further collaborated to the pair's weakness on Wednesday.

Meanwhile, increasing bets for an eventual Fed rate-hike action, sooner-rather-than-later, seems to be lending some support and helping the pair to hold the 113.00 support area, at-least for the time being.

Judging from today's price-action, traders also appeared to readjust and hedge their long-dollar positions in the event of any less hawkish statement from the FOMC meeting minutes, scheduled for release later during the day.

In absence of any major market-moving releases, broader market risk sentiment (VIX) and treasury yield dynamics, which would take fresh cues from today’s Fed minutes, remains key determinants of the pair’s next leg of directional move. 

 


16:29 DXY inter-markets: extra gains need a stronger catalyst

The US Dollar Index (DXY) – which measures the buck vs. its main rivals – is prolonging its upbeat momentum on Wednesday, although the upside seems to have struggled once again ahead of last week’s tops in the 101.70/75 band.

Yields in the US money markets are not accompanying the up move in the greenback, today retreating to the area of daily lows at the time of writing. The 10-year reference has so far receded to the 2.40% region, significantly lower than recent peaks above 2.52% in the wake of the first testimony by Chair Yellen last week.

Expectations of a rate hike by the Federal Reserve at the March meeting keep sustaining the rally in USD, with the probability of higher rates next month is at just below 18% according to CME Group’s FedWatch tool and based on Fed Funds futures prices.

The FOMC minutes due later today should shed some extra light on the governors’ recent views, while the prospects of potential fiscal policies and their impact on the economy under Trump’s administration emerge as the next ‘big issue’ for the buck.

In the meantime, DXY should find interim resistance around last week’s tops in the 101.70 region ahead of the 23.6% Fibo retracement of the November-January up move and previous to 102.96 (spike January 11). In a case of a resumption of the bearish sentiment, the recent gap higher in the 101.00 area emerges as the initial test, ahead of the 100.50/40 band, where sit the 20-day sma and recent lows.


16:03 USD/CAD targeting 100-DMA near 1.3280; Retail Sales worse than expected at -0.5%

Currently, USD/CAD is trading at 1.3195, up +0.42% or 56-pips on the day, having posted a daily high at 1.3209 and low at 1.3110.

Today's CAD economic docket had traders and investors waiting for Retailes Sales (MoM) and Retail Sales ex Autos (MoM) readings to allocate or dilute portfolio positions. However, both releases failed to deliver positive figures as RS clocked (0.5%) below 0.0% consensus and previous 0.3%, also RS ex Autos printed a negative result at (0.3%) below 0.6% consensus and previous (0.1%). As expected, the Loonie lost ground against the American dollar as the pair now challenges the 50-DMA.

Historical data available for traders and investors indicates during the last 8-weeks that USD/CAD pair, a commodity-linked currency, had the best trading day at +1.71% (Jan.18) or 227-pips, and the worst at -1.02% (Jan.17) or (133)-pips.

Technical levels to watch

In terms of technical levels, upside barriers are aligned at 1.3211 (high Feb.7), then at 1.3280 (100-DMA) which seems to build a 'Walls of Troy' multi-year resistance region since July 2015 and finally above that at 1.3386 (high Jan.20). While supports are aligned at 1.2968 (low Jan.31), later at 1.2818 (low Sept.7) and below that at 1.2650 (low Jun.8).

On the other hand, Stochastic Oscillator (5,3,3) seems to move faster into overbought territory. Therefore, there is evidence to expect further US dollar gains in the near term.The pair requires a close and open above the 50-DMA near 1.3218 to dilute any bearish pressure that could drag it lower back to the 200-DMA.

usdcad

On the long term view, if the 'double Doji' candlestick formation from 1.3587 (high Nov.) and 1.3597 (high Dec.) is in fact, a relevant top, then any upside potential seems limited for this currency pair. Then, to the downside, supports are aligned at 1.2986 (short-term 23.60% Fib), later at 1.2626 (long-term 50.0% Fib) and finally below that at 1.2460 (low May.2016).

As of writing, USD/CAD trades around 1.3204, therefore upside barriers are aligned at 1.3311 (short-term 38.2% Fib), then at 1.3468 (long-term 61.8% Fib) and finally above that at 1.3574 (short-term 50.0% Fib).

usdcad

FOMC minutes in the limelight - Nomura


16:01 China CB Leading Economic Index dipped from previous 0.8%to -1.1% in January


16:01 Mexico Gross Domestic Product (QoQ) declined to 0.7% in 4Q from previous 1%


16:00 Mexico Gross Domestic Product (YoY) increased to 2.4% in 4Q from previous 2%


16:00 Belgium Leading Indicator dipped from previous 0.5to -1.1 in February


15:56 United States Redbook index (YoY) up to 1.1% in February 17 from previous 0.9%


15:55 United States Redbook index (MoM): 0.5% (February 17) vs 0.4%


15:40 EUR/USD selling pressure abates near 1.0500 handle as Fed minutes loom

After a brief dip below 1.0500 psychological mark, the EUR/USD pair bounced off few pips and is currently trading around 1.0510-15 band. 

The pair on Wednesday remained under some selling pressure and dropped to six-week lows amid ongoing concerns over political development in the Euro-zone continues to undermine the shared currency. Investors' feared that a victory for Marine Le Pen, in the upcoming French Presidential election, could potentially trigger the country's exit from the common bloc. 

Moreover, persistent US Dollar buying interest in wake of increasing bets for an imminent Fed rate-hike action, as early as the central bank's upcoming meeting in March, and collaborated to the pair's downslide to the lowest level since Jan. 11. 

The selling pressure, however, seems to have abated, at least for the time being as traders seemed to readjust their positions ahead of the today's key highlight - the FOMC meeting minutes, scheduled for release later during NY session.

Technical levels to watch

Sustained weakness below 1.0500 mark is likely to find support near 1.0480 level below which the pair would turn vulnerable to head towards 1.0400 handle with some intermediate support near mid-1.0400s.

Meanwhile on the upside, 1.0525 level might act as immediate resistance and recovery beyond this resistance could get extended towards 1.0575-80 region. Any subsequent move above 1.0575-80 hurdle now seems to be capped at 1.0600 handle. 

 


15:40 Russia Unemployment Rate rose from previous 5.3%to 5.6% in January


15:38 Canadian Retail Sales contracted 0.5% MoM

Statistics Canada informed that headline sales have contracted at a monthly 0.5% in December, while sales excluding the Autos sector dropped 0.3% inter-month. Both prints have come in below initial expectations.


15:32 Canada Retail Sales ex Autos (MoM) below expectations (0.6%) in December: Actual (-0.3%)


15:31 Canada Retail Sales (MoM) came in at -0.5%, below expectations (0%) in December


15:21 EUR to be more resilient this time around ING

While the busy EZ political calendar should weigh on EUR/USD in coming months and potentially briefly push EUR/USD towards parity, Petr Krpata, Chief EMEA FX and IR Strategist at ING expects the EUR downside driven by concerns about the EZ political outcomes to be more limited compared to the crisis years of 2010-12.

Key Quotes

“Contributing factors include:

  • ECB credibility: The ECB managed to partly mute/isolate the spill overs from increased periods of EZ risk into the currency as market participants currently believe that the ECB is ready to do “whatever it takes” to save the euro. The existence of programmes such as OMT helped to cement the ECB’s credibility. Hence, EUR/USD spot may not the best vehicle how to express trade on European risk. 
  • Diminished EUR sensitivity to EZ risk: ECB credibility is reflected in diminishing sensitivity of EUR to peripheral spreads, both currently and during the recent bouts of EZ political risk (Greek crisis in summer 2015 and concerns about Italian banking sector in 4Q16). The former shows that the current EUR/USD sensitivity to various EZ sovereign spreads (both core and periphery) tend to be nowhere near the EZ crisis levels. The latter shows that limited EUR sensitivity and negative spillovers to the two more recent periods of peripheral concerns.
  • Material EUR undervaluation: Following its collapse in late 2014/early 2015, EUR/USD looks significantly undervalued. This materially increases the bar for a further pronounced EUR decline and poses an obstacle to a large scale EUR fall. This contrasts with the 2010-13 period, when EUR/USD was either fairly-valued or over-valued on a mediumterm basis. Should EUR/USD push towards parity, the under-valuation would be worth a remarkable 20%.”

“Hence, EUR/USD spot may not the most desirable investment vehicle how to express European political risk and EUR may be more resilient than during the prime crisis years of 2010-12. The bar for a persistent break below EUR/USD parity thus seems very high in our opinion.”

 


15:08 OPEC/non-OPEC production cuts to rebalance oil market by Q3 - Qatar Oil Minister

Speaking in London, the minister of energy and industry of Qatar, Mohammed Saleh Abdulla Al Sada said that the level of OPEC states’ adherence to the oil output cut agreement is unprecedentedly high, and while they aim for it to reach 100%, it presently stands at 94%.

   •   non-cartel adherence stands at 50%
   •   need oil price higher than $50 to bring back investment
   •   expects global inventories to be in better shape towards Q3
   •   OECD stocks have started to decline globally

Meanwhile, optimistic commnets failed to lend any immediate support to oil prices, with WTI crude oil accelerating the profit taking slide and dropping below $54.00/barrel mark. 
 

 


14:54 When are Canadian Retail Sales and how could affect USD/CAD

Statistics Canada will publish its results from Canadian Retail Sales for the month of December at 1330h GMT. Market consensus sees headline sales to come in flat on a monthly basis, while sales stripping the Autos sector are seen gaining 0.6% inter-month.

About Retail Sales

The Retail Sales ex Auto released by the Statistics Canada is a monthly data that shows all goods sold by retailers based on a sampling of retail stores of different types and sizes except the automobile sector. The retail sales index is often taken as an indicator of consumer confidence. It shows the performance of the retail sector in the short term. Generally speaking, the positive economic growth anticipates bullish movements for the CAD”.

 

 

 

 

 

 

 

 

 

 

 

Impact on FX

USD/CAD keeps the bullish note intact so far this week, extending the recent breakout of the key 1.3100 hurdle and always propped up by USD-dynamics via US-CA divergence in monetary policy.

A positive reading today could add some support to CAD, although the effect should quickly dilute in light of the more relevant calendar in the US docket. Interim resistance appears at 1.3215 (high Feb.7) while the 20-day sma – currently just below the 1.3100 handle – should offer initial support.


14:52 FOMC minutes may enlighten us on the different stances within Danske Bank

Research Team at Danske Bank suggests that in the US, the FOMC minutes from the February meeting are due out and will be in the limelight today.

Key Quotes

“The statement did not contain much interesting news but the minutes may enlighten us on the different stances within the FOMC. We do not expect much news from the minutes either as the Fed is waiting for more news on Trumponomics. In addition, Fed Governor Jerome Powell (voter, neutral) is due to speak tonight on the economic outlook and monetary policy.”


14:47 GBP/USD still weaker below 1.2450 level, awaits Fed minutes for fresh impetus

After failing to extend its up-move beyond 1.25 mark, the GBP/USD pair accelerated the reversal move and dropped to session low level near 1.2425 region.

The pair, however, has managed to bounce off few pips from daily lows and is currently trading around 1.2435-40 band as investors eagerly await the release of FOMC monetary policy meeting minutes, due later during NY session.

Earlier during European session, the pair failed to benefit from an upward revision of the UK GDP growth, showing q-o-q rise by 0.7% during the fourth-quarter of 2016 as compared to 0.6% estimated earlier. The upbeat growth figures, however, were negated by a downward revision of yearly growth to 1.8% from previous 2.0%. In addition to this, a marked slowdown in business investment, which unexpectedly fell 1.0% in the last quarter from 0.4% growth reported previously.

Market participants seemed disappointed by a sharp drop in business investment and preferred to unwind their bullish bets ahead of the next key event risk – the FOMC meeting minutes, due later during NY trading session.

Meanwhile, persistent greenback buying interest, with the key US Dollar Index placed at daily tops near 101.60 region, also collaborated to the pair’s reversal from an important psychological mark.

Technical outlook

Valeria Bednarik, Chief Analyst at FXStreet notes, "There's a major Fibonacci resistance around 1.2540, from here the price has retreated steadily for most of this February, with tepid spikes beyond it being quickly reverted, which means that it would take some broad dollar weakness and really good news coming from the UK for the pair to break higher, and advance towards the 1.2600/20 region."

She further writes, "The pair has an immediate support at 1.2430, followed by 1.2380, where the pair has bottomed this last two weeks. Below this last, February low at 1.2345 comes next, as the level also stands for the 50% retracement of the latest daily bullish run."

 


14:35 G10 space: SEK and NOK shorts attractive, JPY & CHF longs relatively expensive ING

In view of the Petr Krpata, Chief EMEA FX and IR Strategist at ING, in the G10 FX space, they see the most value in short SEK and NOK positions against USD (in line with the fundamental based conclusions above).

Key Quotes

“The Scandies tend to have the most negative risk adjusted returns in the G10 FX space (a desirable property when you are short). Importantly, the current levels of their volatility premia are not overly high and not far away from zero.” 

“To position for heightened EZ risk, we see short SEK and NOK positions as a somewhat better investment vehicle than being short EUR/USD as the latter: (a) offers lower risk adjusted return potential and (b) exerts higher volatility premium. This also fits our view that both SEK and NOK have ‘got ahead’ of themselves in terms of their recent gains, meaning that the scope for Scandinavian currency weakness is high should EZ risk hit the market.”

“What is also apparent from the Fig 4 is that the “obvious trades” such as short EUR/CHF and short EUR/JPY (which also offer non-negligible risk adjusted returns) are already expensive in relative terms, evident in the high volatility premia vis-à-vis their G10 peers.”

“While USD/JPY exerts non-existent volatile premium, its risk adjusted return potential (being long JPY against USD) is not the highest as both USD and JPY tend to benefit during periods of EZ risk. Short EUR/JPY offers meaningfully higher risk adjusted returns but as per above, this now comes at a price.”


14:31 Gold could re-test $1,261.18 Commerzbank

In opinion of Karen Jones, Head of FICC Technical Analysis at Commerzbank, the ounce troy of the precious metal could re-visit the 200-day sma at $1,261.18.

Key Quotes

“Spot Gold remains sidelined, capped by the 200 day ma at 1261.18 and the market is currently under pinned by the 6 week uptrend at 1222. Ideally the market will hold here and recover to retest the 200 day ma”.

“Additional resistance lies at 1236.30/1242.65, the late June and October lows and the 55 week ma lies at 1256. Currently we are neutral to positive above the 55 day ma at 1185 but are alert to the idea of profit taking at the long term moving averages”.

 

 


14:25 Focus on FOMC minutes and Canadian retail sales BBH

Analysts at BBH suggest that the focus in the US is on the FOMC minutes, before which January existing home sales will be reported.  

Key Quotes

“A small gain after a 2.8% decline in December is expected.  In some ways, the FOMC minutes have been superseded by Yellen's recent testimony and the comments by numerous officials, including Fischer and Dudley.  Our general takeaway is that mid-March may be too soon, but June is too long.  The prospect of a May move is increasingly appealing.”

“In terms of other issues, there is still a lack of clarity on fiscal policy, but this is normal and will likely be clarified in the coming period, with some insight likely from Trump's speech to Congress next week.  The balance sheet discussions appear very preliminary.  Yellen suggested in her testimony that she does not want use reducing the balance sheet to affect the broader economy (that is as a policy tool).  The discussions will evolve over the course of the year.”

“Canada reports December retail sales today.  Soft auto sales may weigh on the headline, where a flat report is expected after a 0.2% increase in November.  However, excluding the auto sector, a 0.5% rise is expected.  Oil prices closed at eight-week highs yesterday, but the Canadian dollar is finding little succor.  The US dollar continued to recover from the successful test on CAD1.30 last week.  The month’s high is a little above CAD1.32 and offers a nearby cap.”


14:23 USD/JPY challenging session lows near 113.00, FOMC on sight

The firm note around the greenback is not echoing on USD/JPY on Wednesday, dropping to fresh daily lows in the 113.00 neighbourhood for the time being.

USD/JPY attention to data, FOMC

Spot met increasing selling pressure since the beginning of the trading day following the poor performance of yields in the US money market, where the 10-year reference keeps the area of daily lows in the vicinity of 2.41%, down from the second session in a row.

The better tone in the US Dollar is so far contrasting with declining US yields today despite bets for a potential move by the Federal Reserve at the March meeting remain on the rise.

In the meantime, market participants remain cautious ahead of the release of the FOMC minutes, the speech by FOMC’s J.Powell (permanent voter, neutral) and results from Existing Home Sales.

USD/JPY levels to consider

As of writing the pair is losing 0.53% at 113.08 and a breakdown of 112.58 (low Feb.17) would aim for 112.03 (low Feb.2) and then 111.57 (low Feb.7). On the flip side, the next resistance is located at 113.78 (high Feb.21) ahead of 114.97 (high Feb.15) and finally 115.39 (high Jan.27).


14:20 CAD: Retail sales to post a moderate 0.4% m/m increase in December - TDS

Analysts at TD Securities is above-consensus for Canada’s retail sales to post a moderate 0.4% m/m increase in December.

Key Quotes

“While a drag from motor vehicles should allow the ex-auto series to post a more buoyant 0.7% gain. Retail sales volumes should show a more modest advance on a volumes basis but still result in a robust annualized quarterly gain of roughly 7% for Q4 as a whole, reinforcing GDP growth expectations near a 2% pace.”


14:18 USD/CHF surges to multi-week tops with Fed minutes in focus

The USD/CHF pair maintained its strong bid tone for the fourth consecutive session and jumped to nearly six week highs on Wednesday.

Currently trading around 1.0135-40 region, a follow through greenback buying interest, with the key US Dollar Index touching its highest level in more than five weeks, has been the key factor driving the pair higher. 

Moreover, possibilities of short-covering, following a sustained move above 1.0100 handle, might have also collaborated to the pair's strong up-surge through European trading session.

Meanwhile, repositioning ahead today's key event risk - the FOMC meeting minutes, further aggravated the short-dollar unwinding pressure and lifted the pair to its highest level since December 12.

It, however, remains to be seen if the pair is able to build on the break-out momentum amid mildly cautious trading sentiment, which tends to benefit the Swiss Franc's safe-haven demand.

Investors on Wednesday will closely scrutinize the minutes in order to evaluate the likelihood of a March Fed rate-hike move, which would eventually assist to determine the next leg of directional move for the major.

Technical levels to watch

Momentum above 1.0150 level could get extended towards 1.0170 resistance area above which the pair is likely to aim towards reclaiming 1.0200 handle and head towards its next major resistance near 1.0250 area.

On the downside, retracement below 1.0120 level might now find support at 1.0100 mark, which if broken seems to drag the pair back towards 1.0065-60 horizontal support.

 


14:18 Germany: Stronger than expected business confidence - BBH

Analysts at BBH note that Germany reported stronger than expected business confidence in the form of the February IFO survey. 

Key Quotes

“The assessment of the overall climate improved to 111.0 from 109.9.  This was a reflection of improved expectations (104.0 vs. 103.2) and improved assessment of current conditions (118.4 vs. 116.9).  Low German interest rates, a euro that serves as frosting on an already competitive cake, the DAX that is up 4.3% so far this year (the most among the large European bourses), coupled with a government that is tilted toward the right to blunt the appeal of the AfD, may encourage the confidence.”


14:15 US: Market attention on FOMC minutes release TDS

In view of the analysts at TDS, markets will focus their attention on the January FOMC minutes, which are likely to reaffirm market rate hike expectations.

Key Quotes

“A larger proportion of Fed officials citing upside risks or improving inflation would be hawkish, with risk for explicit support for a March hike or signs of more advanced plans to slow reinvestments pushing Treasury yields and the USD sharply higher. Fed Governor Powell is the lone Fed speaker on the calendar and will speak at 1pm on the economic outlook and monetary policy.”

“On the data front, Jan existing home sales will be released at 10am are expected to rebound 1.1% to a 5.55m annual rate, though the recent downturn in pending sales contracts poses downside risk in our view.”


14:13 UK: Q4 GDP was revised to 0.7% from 0.6% - BBH

The Q4 GDP of UK was revised to 0.7% from 0.6%, helped by better trade and firm consumption notes research team at BBH.  

Key Quotes

“Exports rose 4.1% in Q4, twice the expected pace.  Imports fell 0.4%.  The median forecast called for a 0.3% gain.  Sterling itself is uninspiring.  It has chopped mostly between $1.24 and $1.25 with minor violations and has closed in that range for the past nine sessions with one exception.  The House of Lords has taken up the Brexit motion, where it is working its way through the committee process.”


14:10 FOMC minutes in the limelight - Nomura

According to the analysts at Nomura, in the 31 January-1 February FOMC meeting, the Committee kept the target range for the federal funds rate at 0.5-0.75% on the expected lines with no substantive changes to the language on monetary policy.

Key Quotes

“However, there were some modest changes to the economic conditions and economic outlook paragraphs. In particular, the language on the causes of disinflationary pressure was removed. Given the recent firming of core goods prices suggested by the CPI report, it will be interesting to see how the FOMC assessed the lingering impact from the lower energy prices and strong dollar in the past on inflation. If FOMC participants have become confident that these transitory factors have sufficiently diminished and goods prices will likely continue to increase, this confidence could have some implications for the future path of monetary policy.”

“Elsewhere, we think reinvestment policy was likely on the agenda at this meeting, and the minutes should tell us if this was true, although Yellen’s recent remarks suggested that the Fed is unlikely to start reducing the Fed’s balance any time soon. In addition, any discussion on the timing of the next rate hike should gain attention from the markets.”

“Lastly, there could have been an active debate on the degree of accommodation and, hence, the level of the neutral interest rate. There was a subtle change in language in the Semiannual Report on Monetary Policy testimony to the Senate. Chair Yellen stated in her speech on 19 January that "The Committee judges, however, that the stance of monetary policy remains modestly accommodative." By contrast, during this testimony, she omitted “modestly” and said “... our view that US monetary policy remains accommodative.” Although subtle, this change suggests that the FOMC believes rates will have to be raised further to get policy back to a neutral stance. We think the minutes should confirm if this change was deliberate and is indeed a hawkish signal.”


14:07 Australia: Government auctioned a record A$1.1 bln of 11-year bonds - BBH

Australia's government auctioned a record A$1.1 bln of 11-year bonds today, and the demand for the 2.75% coupon was strong as noted by the analysts at BBH.  

Key Quotes

“The government has been stepping up the size of the auctions in recent months.  The demand appears to have helped the Australian dollar return to the upper end of its $0.7600-$0.7700 range that has confined most of the price action this month.  The strong demand at the auctions is the good news, but the record size auctions reflect the fact that Australia's budget deficit is expected to widen this year to a little over 2% this year from 1.5% last year.  S&P has a negative outlook for Australia's AAA rating since last July.  The government will update its fiscal projections in May.”


14:04 US: Existing home sales likely up 1.1% m-o-m in January - Nomura

Research Team at Nomura notes that the US home sales fell 2.8% m-o-m to an annualized 5490k in December, likely driven by a sharp drop in the housing inventory level.

Key Quotes

“The supply indicator was down to 3.6 months in December, the lowest since January 2005. In January, there may have been some recovery as pending home sales, which tend to lead existing home sales, rebounded in December. Also, steady mortgage applications for home purchases in January and December suggest demand in the housing market may have been sustained in January. Thus, we forecast existing home sales were up 1.1% m-o-m in January, accelerating to an annualized rate of 5550k (Consensus: +0.9% to an annual rate of 5540k).”


14:03 United States MBA Mortgage Applications rose from previous -8%to -2% in February 17


14:02 Brazil Mid-month Inflation increased to 0.54% in February from previous 0.31%


14:01 NZD appears supported in the medium/longer term Danske Bank

Minna Kuusisto, Analyst at Danske Bank, sees the Kiwi Dollar supported in the longer run.

Key Quotes

“Broad-based USD weakness pulled the NZD higher in January, which may have been one of the reasons forcing the RBNZ to change its rhetoric in the February meeting”.

“We consider the central bank’s commitment to accommodative monetary policy ‘for a considerable period’ a strong signal of keeping rates unchanged over our forecast horizon”.

“We expect USD appreciation momentum to gain ground near-term as the new US administration reveals a more detailed economic plan”.

“We keep our forecast for NZD/USD unchanged as relative monetary policies and USD momentum will drive the pair lower on a 1-6M horizon. In the course of H2, we expect the RBNZ to review its current dovish stance and market speculation about a possible hike approaching in 2018 should support NZD on a 6-12M horizon”.

 

 


14:01 EUR slides to below $1.05 for the first time in six weeks - BBH

According to the analysts at BBH, February has been cruel to the euro as of the sixteen sessions this month, counting today, the euro has risen in four, and two of those were last week.  

Key Quotes

“Its new four-day slide pushed it below $1.05 for the first time in six weeks as European markets were opening.  The $1.0560 area that was broken yesterday, and provided a cap today is 61.8% retracement objective of last month's rally.  Recall that the multi-year low was recorded at the start of the year a little below $1.04.”

“The main weight on the euro is presently not economic but political.  Recent developments in France underscore our argument that the success of the populist-nationalist forces requires some sort of help from the mainstream parties.  This was clearly the case in the US and UK, where no populist party was elected, but instead, the populist agenda co-opted by the center-right.”


13:48 GBP/USD clings to the neutral stance Commerzbank

Karen Jones, Head of FICC Technical Analysis at Commerzbank, Cable should keep unchanged the neutral stance for the time being.

Key Quotes

“The market continues to consolidate around its 55 and 100 day moving averages at 1.2413/05, we maintain a negative bias but patience is needed. A close below here will introduce potential to the 1.2253 the 18th January low. The intraday Elliott counts have finally turned more negative and we look for some weakness this week”.

“We suspect that prices will need to go sub 1.2250 in order to alleviate immediate upside pressure and trigger losses to the 1.1988/80 recent low. Immediate support is the 1.2347 February low”.

 

 


13:46 Qatar OilMin: Non-OPEC compliance to supply cut agreement seen at 50% - RTRS

Mohammed Saleh Abdulla Al Sada, the minister of energy and industry of Qatar, was out on wires, via Reuters, noting that non-OPEC adherence to the production cut agreement was seen at 50%.

At the time of reporting, WTI crude oil traded with bearish bias, down from daily peaks near mid-54.00s with a loss of around 0.40%.


13:33 EUR/USD at six week lows near 1.05 mark, Fed minutes in focus

The German IFO index-led recovery in the shared currency turned out to be short-lived, with the EUR/USD pair briefly dropping below 1.0500 psychological mark to hit fresh six weeks lows.

Investors continue to refrain from buying the common currency in wake of growing political uncertainty in the region. In addition to this, rising bets for an imminent Fed rate-hike action, as early as in March, has been underpinning the US Dollar and collaborating the pair's downfall to the lowest level since Jan. 11.

The pair did attempt a tepid recovery, in wake of upbeat German IFO business climate index for Feb., but was sold into near 1.0520 region amid growing concerns over French Presidential election and Fed rate-hike prospects.

Investors now await the release of minutes from the FOMC meeting held on Jan. 31-Feb. 1 to get more clarity about the central bank's policy action at its upcoming meeting in March. Against the backdrop of hawkish comments from various Fed officials, including the Fed Chair Janet Yellen, hawkish signals would continue to be dollar-supportive and attract follow through selling pressure around the major.

Technical outlook

Valeria Bednarik, Chief Analyst at FXStreet notes, "Technical readings favor additional slides as in the 4 hours chart, the 20 SMA has accelerated its decline well above the current level, whilst technical indicators maintain soft bearish slopes within oversold territory, with no signs of changing bias."

She further writes, "A downward acceleration through 1.0490 should lead to a test of 1.0453, Feb. 11 low, with further slides below it pointing to a decline down to the 1.0420 region. Above 1.0520 on the other hand the pair can recover up to 1.0565, the 23.6% retracement of the post-US election slump."

 

 


13:32 Turkey Capacity Utilization fell from previous 75.5% to 75.4% in February


13:32 Turkey Manufacturing Confidence: 105.3 (February) vs 97


13:22 USD/RUB edging higher to daily highs near 58.00

The Russian currency is gathering extra downside pressure on Wednesday, now lifting USD/RUB to fresh highs in the vicinity of 58.00 the figure.

USD/RUB focus on FOMC, Brent

The pair is advancing for the first time after two consecutive losses, looking to extend the rebound from weekly lows in the 57.30 area and on its way to re-visit the critical 58.00 barrier.

The buying interest around the greenback is allowing the current bull run, also couple with the softer tone from crude oil prices. In fact, the barrel of the reference Brent crude is shedding nearly 1% so far today, fading part of the recent advance to fresh tops just above $57.30.

Additionally, the current RUB weakness could also obey to recent comments by the Russian government, as the Ministry of Finance hinting at the fact that intervention could be in the pipeline in case of unwelcomed appreciation.

In the data space, US Existing Home Sales are due later along with the speech by FOMC’s J.Powell (permanent voter, neutral) and the FOMC minutes.

USD/RUB levels to watch

At the moment the pair is advancing 0.83% at 57.89 facing the next hurdle at 58.54 (high Feb.17) followed by 58.75 (20-day sma) and finally 59.59 (high Feb.8). On the other hand, a break below 57.31 (low Feb.22) would aim for 57.02 (low Feb.17) and then 56.57 (2017 low Feb.15).


13:18 Latest French election poll: Macron to beat Le Pen 59/41%

The latest Opinionway poll for the upcoming French Presidential election is out on wires and revealed Macron to beat Le Pen 59/41% in the second round.

Key poll results:

   •   Yesterday's Macron/Le Pen 2nd round 58/42%
   •   1st round Le Pen 26%, Macron 22% and Fillon 21% vs yesterday’s 26/21/21% respectively
   •   Fillon/Le Pen 2nd round 58/42% vs 57/43% yesterday

Meanwhile, the EUR/USD pair had a muted reaction to the poll results and remained subdued at multi-week lows near 1.0500 psychological mark.


13:11 Banxico to auction as much as USD20bn in FX hedges to support MXN RBC CM

Sue Trinh, Head of Asia FX Strategy at RBC Capital Markets, notes that the MXN rallied the most in a month as Banxico announced that it will auction as much as USD20bn in FX hedges for the first time in a bid to support MXN without draining international reserves.

Key Quotes

“The first Banxico auction will take place on March 6 for up to $1bn. We do not see this having a sustainable impact on the level or downtrend in MXN (RBC USD/MXN end-Q1 forecast: 20.75; spot 20.01), with trade policies and the complicated agenda between Mexico and the US being the main drivers for the currency.”


13:01 G10: SEK the most vulnerable, even more than EUR for Eurozone politics - ING

Petr Krpata, Chief EMEA FX and IR Strategist at ING, suggests that within the G10 FX space, it is not the EUR which looks the most at risk.

Key Quotes

“While EUR/USD is likely to come under pressure should the market start pricing in a higher probability of a non-market friendly outcome from EZ elections, the Scandinavian currencies (NOK and SEK) look more vulnerable given their high direct economic linkage to the EZ and the history of underperformance during times of EZ political stress. Needless to say, the low liquidity of Scandinavian currencies does not help in times of stress.”

“Not surprisingly, JPY should be the go-to currency as safe haven flows tend to favour the resilient and economically much less vulnerable (to EZ spill overs) Japanese yen.”

“When EZ and EUR suffers, GBP benefits. This has been the case during the multiple Greek crises and helped GBP late last year during market concerns about the Italian banking sector. If history repeats itself, then GBP may get some respite from Brexit woes.”

“Despite having high beta, the dollar bloc commodity currencies (CAD, AUD and NZD) are unlikely to be the worst G10 performers due to their lower direct linkages to the EZ economy as well as the lack of negative EUR/USD spillover (ie, lower EUR/USD not directly affecting the dollar commodity currencies). Nonetheless, they are unlikely to do well against USD as the potential negative spillover effects into global risk sentiment would take a toll on these currencies.”


12:59 AUD/USD inter-markets: Sell the rallies to 0.7700 ahead of Fed?

The Aussie has entered into a bullish consolidative phase over the last few weeks, as an upturn in copper and iron-ore prices remain supportive of the elevated levels in the major.

However, every upside attempt has met fresh offers just ahead of 0.77 handle in response resurgent broad based US dollar demand. The US dollar index remains within a striking distance of six-week highs reached last week at 101.75, largely on the back of increased expectations of a March Fed rate hike and Trump’s tax cut talks.

As for today, the AUD/USD pair manages to cling onto recovery gains, despite extension of the rebound seen in the greenback versus its main competitors yesterday. Moreover, the Aussie’s recovery also remains unperturbed by unimpressive release of the Australian construction work done and wage price index data.

The negative impact of poor Aus macro news was outweighed by steep losses in the EUR/AUD cross, as the euro remains undermined amid geopolitical risks in the Eurozone. To conclude, the AUD/USD pair will continue to find support from the recent bullish momentum seen in copper and iron-ore prices. However, in the near-term, it remains to be seen how long the Aussie manages to stand resilient to the broad USD strength, as investors shift their attention to the upcoming FOMC minutes of February meeting.

In terms of technicals, the pair finds the immediate resistance at 0.7710 (daily high) above which gains could be extended to the next hurdle located 0.7732 (multi-week high) and 0.7750 (psychological levels). On the flip side, the immediate support located at 0.7659 (20-DMA). Selling pressure is likely to intensify below the last, dragging the Aussie to 0.7600 (round figure) and below that 0.7537 (200-DMA)

.


12:56 US: Focus on FOMC minutes SocGen

Kit Juckes, Research Analyst at Societe Generale, suggests that the focus today will be on this evening’s FOMC Minutes.

Key Quotes

“We’ve got existing home sales before then, but the minutes will be the main focus. So far, this week has seen a small grind higher in US yields, but 41bp for 10year TIIPS doesn’t exactly set my world alight. That yield needs to get through 50bp, say, to get the dollar moving more decisively higher and the Minutes will help establish how much the FOMC wants markets to price in Fed rate hikes with more conviction.”


12:53 GBP: Bullish technical signal reinforces upward momentum MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the pound has continued to strengthen during the Asian trading session despite further dovish comments yesterday from BoE policymakers.

Key Quotes

“The pound’s upward momentum has been reinforced after EUR/GBP closed below its’ 200-day moving average at around 0.8470 for the first time yesterday since late in 2015. It could provide an important bullish technical signal for the pound in the near-term, and supports our view that the pound will outperform more bearish expectations during the first half of this year and lower EUR/GBP closer to the 0.80000-level. Building political risks in Europe are providing support for the pound and are beginning to outweigh Brexit concerns at least in the near-term. We have never bought into the view that the triggering of Article 50 which is still likely next month should justify further pound weakness after it has already lost around a fifth of its value against the currencies of the UK’s main trading partners in recent years. We continue to believe that the bulk of the Brexit adjustment is already behind us with a lot of bad news and uncertainty already priced into the pound at current weak levels.”

“The current scale of undervaluation is resulting in the pound becoming less sensitive to negative developments such as further dovish comments from BoE policymakers. At yesterday’s Treasury Select Committee Governor Carney and MPC members Haldane, Vlieghe and McCafferty struck a dovish tone on balance by reiterating the message from the last Quarterly Inflation Report that they now believe there is more spare capacity in the labour market than previously assumed. It has allowed the BoE to justify maintaining the emergency easing implemented last summer despite the much stronger performance of the UK economy. The equilibrium unemployment rate was lowered by 0.5 point to 4.5%. The discussions revealed that there was a range of views over the updated estimate. Dovish MPC members Haldane and Vlieghe believe that it could be even lower while the hawkish McCafferty would have been more comfortable with having lowered it to 4.75%. The BoE will now closely watch wage growth to judge if there if their updated estimate is correct. Stronger wage growth and a further rise in inflation expectations would increase pressure on the BoE to begin reversing emergency easing.”

“The resilience of the UK economy following the Brexit vote was again evident in the latest public finances report. The government has borrowed GBP49.3 billion between April 2016 and January 2017 which is 22% less than at the same point in the previous fiscal year. On the current trajectory borrowing is on course to total around GBP56 billion for the whole fiscal year which would be well below the OBR’s projection from November of GBP68.2 billion. It will provide Chancellor Hammond with more leeway to ease fiscal policy in the future if required. However, we believe that he is unlikely to materially utilise that leeway in next month’s Budget. He has already refused to spend the GBP27 billion of “room for manoeuvre” built into his fiscal plans at the end of last year.”


12:51 USD/JPY reverses Tuesdays gains, drops to 113.00 handle ahead of Fed minutes

The greenback erased previous session gains against its Japanese counterpart, with the USD/JPY pair flirting with session lows near 113.00 region.

Following yesterday's strong up-move, for the second straight session, the pair remained under selling pressure on Wednesday and accelerated the slide during mid-European session in wake of a sharp retracement in the US treasury bond yields. 

With major European equity indices erasing all of their early gains, sliding bond yields points to investors' anxiety ahead of the key event risk - the FOMC meeting minutes, due later during NY trading session. Traders preferred to trim their bullish US Dollar bets in anticipation of less hawkish minutes, which might push back expectations for an eventual Fed rate-hike action.

The minutes from the latest Fed monetary policy meeting would provide fresh insights over the central bank's monetary policy outlook. The minutes would also be looked upon for possibilities of a rate-hike action at the Fed's upcoming meeting in March and eventually provide fresh impetus for the pair's next leg of directional move.

Technical outlook

Omkar Godbole, Analyst and Editor at FXStreet notes, "upside break from falling wedge pattern on Feb 13 followed by a re-test of and rebound from the support offered by upper end of the wedge (or descending trend line) suggests the spot could be heading higher to 50-DMA level of 114.87. A daily close above 100-DMA would add credence to the bullish Wedge breakout and the rising bottom formation and open doors for the re-test of 118.66 levels."

He further writes, "on the downside, only a breakdown of the support offered by the rising trend line at 113.00 would signal bullish invalidation."

 


12:45 Germany 30-y Bond Auction dipped from previous 1.2%to 1.04%


12:37 AUD/USD could retreat to 0.7500 in the near term Danske Bank

Analyst at Danske Bank Mina Kuusisto noted the Aussie Dollar could slip back to the 0.7500 area vs. the greenback within a month’s view.

Key Quotes

AUD/USD has reversed the move after US elections, which pushed the pair as low as below 0.72 around year end”.

“The lack of details of the US administration’s economic plans has weighed on USD and supported AUD in January-February. Furthermore, improvement in Australian economic data together with a more optimistic tone from the central bank has helped AUD to return to pre-Trump levels”.

“We recognise the support for AUD from improved global economic conditions and rising commodity prices. However, we still think the RBA wants to limit the upside in AUD and is ready to soften its tone in case the exchange rate appreciates excessively”.

“Moreover, as the market could well price in more aggressive action by the Fed, we see relative monetary policies supporting USD versus AUD in coming months”.

“We expect AUD/USD to back down from overbought levels over the next one-three months. We make a level shift to our forecast reflecting the latest moves but keep the profile unchanged, expecting short-term weakness and longer-term stabilisation in AUD. Our 1M forecast is 0.75, 3M forecast 0.73 and 6-12M forecasts 0.74 and 0.75, respectively”.

 

 


12:34 EUR/USD pullback expected to test 1.0450/55 UOB

The pair’s decline is seen re-visiting the mid-1.0400s in the next weeks, suggested FX Strategists at UOB Group.

Key Quotes

“While EUR weakened as expected, we highlighted yesterday that ‘any decline is expected to struggle to move below last week’s low at 1.0520’. The overnight low has been 1.0524 and the weak daily closing suggests that the immediate pressure is still on the downside”.

“A move below 1.0520 could lead to further weakness towards the mid-Jan low of 1.0450/55 but based on the current patchy momentum, any decline is expected to be ‘slow and grinding’.

“Overall, only a move back above 1.0620 would indicate that the immediate downward pressure has eased”.

 

 


12:32 USD/CHF intraday pullbacks should hold near 1.0050 Commerzbank

In view of Karen Jones, Head of FICC Technical Analysis at Commerzbank, occasional dips in USD/CHF should find support around 1.0050.

Key Quotes

“The market continues to see a strong rebound from the .9945/43 uptrend and has started to probe the 55 day ma at 1.0105. Last weeks high at 1.0119 is exposed. We view the market as having based recently at the .9861 low, (we suspect that the market has turned at the 200 day ma and the 55 week ma). Intraday dips are indicated to hold circa 1.0050”.

“While above .9945/43, we would expect it to generate some upside interest to 1.0248 11th January high and the 1.0328 2015 and 1.0344 December 2016 highs”. 

 

 


12:27 ECBs Vasiliauskas: Discussing QE exit now would be premature.

ECB Governing Council member Vitas Vasiliauskas said on Wednesday, via Reuters, that discussing QE exit now would be 'premature.'

He added that ECB can renew the long-term loan plan if needed


11:45 GBP/USD drops rapidly towards 100-DMA on mixed UK data

The GBP/USD pair popped higher in a knee-jerk reaction to upbeat UK Q4 GDP first revision, but reversed rapidly and slumped to fresh lows sub-1.2450, as markets digested poor business investment figures.

The second reading of the UK Q4 GDP data came in at 0.7% versus 0.6% expectations, while prelim business investment data disappointed markets, arriving at 1.0% in the reported month versus 0.4% previous and 0.0% expectations.

Markets now eagerly await the speeches from BOE MPC members Cunliffe and Shafik for fresh impetus on the GBP. While the existing home sales data from the US docket, Fedspeak and FOMC minutes will also remain in the limelight later today.

GBP/USD Levels to consider            

At 1.2442, the supports are aligned at 1.2432 (100-DMA) and 1.2400 (zero figure) and below that at 1.2379 (Feb 15 low). On the flip side, the upside barriers are lined up at 1.2508 (Daily high), 1.2527 (Feb 16 high) and 1.2550 (Feb 14 high).


11:44 GBP/USD drops rapidly towards 100-DMA on mixed UK data

The GBP/USD pair popped higher in a knee-jerk reaction to upbeat UK Q4 GDP first revision, but reversed rapidly and slumped to fresh lows sub-1.2450, as markets digested poor business investment figures.

The second reading of the UK Q4 GDP data came in at 0.7% versus 0.6% expectations, while prelim business investment data disappointed markets, arriving at 1.0% in the reported month versus 0.4% previous and 0.0% expectations.

Markets now eagerly await the speeches from BOE MPC members Cunliffe and Shafik for fresh impetus on the GBP. While the existing home sales data from the US docket, Fedspeak and FOMC minutes will also remain in the limelight later today.

GBP/USD Levels to consider            

At 1.2442, the supports are aligned at 1.2432 (100-DMA) and 1.2400 (zero figure) and below that at 1.2379 (Feb 15 low). On the flip side, the upside barriers are lined up at 1.2508 (Daily high), 1.2527 (Feb 16 high) and 1.2550 (Feb 14 high).


11:31 United Kingdom Index of Services (3M/3M) meets forecasts (0.8%) in December


11:31 United Kingdom Total Business Investment (YoY): -0.9% (4Q) vs -2.2%


11:31 United Kingdom Total Business Investment (QoQ) declined to -1% in 4Q from previous 0.4%


11:31 United Kingdom Gross Domestic Product (QoQ) came in at 0.7%, above forecasts (0.6%) in 4Q


11:31 United Kingdom Gross Domestic Product (YoY) below expectations (2.2%) in 4Q: Actual (2%)


11:25 EUR/JPY struggling near 119.00 handle despite of upbeat German IFO

The selling pressure around the shared currency seems to have abated following the release of German IFO business climate index, with the EUR/JPY cross bouncing off few pips from 2-1/2 month lows

Currently hovering around 119.00 handle, the cross gained some respite from better-than-expected German IFO business climate index. In fact, the gauge rose to 111 in Feb., up from previous month's 109.8 and 109.6 expected, and helped the cross to defend 119.00 handle, at least for the time being.

The cross, however, remained under intense selling pressure for the fourth session in the previous five and traded below 100-day SMA support as investors refrained from buying the shared currency amid ongoing political uncertainty in the Euro-zone. 

Meanwhile, bearish sentiment surrounding the USD/JPY major, despite of the prevalent risk-on mood that tends to dent the Japanese Yen's safe-haven demand, also collaborated to the pair's downslide on Wednesday and might restrict any swift recovery from the lowest level since early December. 

Technical levels to watch

On a sustained weakness below 119.00 handle, the cross is likely to drift towards 118.70-65 support area, which if broken would expose the very important 200-day SMA support near 117.70 region.

On the upside, 100-day SMA support break-point near 119.25-30 region now seems to act as immediate hurdle above which the cross could extend the recovery move towards 119.65-70 region.

 


11:20 Germany: Digesting Trump - ING

Carsten Brzeski, Chief Economist at ING, notes that the Ifo index recovers in February, suggesting that German concerns about economic implications of the new US president have slightly softened.

Key Quotes

“Germany’s most prominent leading indicator, the Ifo index, rebounded somewhat in February, suggesting that German businesses have digested initial concerns about the possible negative economic implications of the new US president. The Ifo index increased to 110.0 in February, from 109.8 in January. Both the current assessment and expectation component increased.”

“The higher they rise, the deeper they can fall. This currently seems to be the main theme of Germany’s confidence indicators, all pointing to strong current growth but increasingly worsening expectations. Falling sentiment indicators, however, are not only the result of acrophobia. They also reflect an increasing concern of German businesses about the possible impact from US president Trump’s proposed trade sanctions. Yesterday, Treasury Secretary Mnuchin did not bring much comfort by reporting from a discussion with IMF Managing Director Lagarde, underscoring his expectation “that the IMF provide frank and candid analysis of the exchange rate policies of IMF member countries”. This was another message that Germany and its exports to the US could continue to be on the new US administration’s radar screen for a while. It would go too far to label the new US administration as the biggest risk to Germany’s economic outlook, but with almost 10% of all German exports going to the US and another 5% going to the UK, it is hard to see how exports could become a strong growth driver in 2017.”

“With trade facing yet another difficult year, the German economy will continue to be highly dependent on domestic demand, on the back of low interest rates and the strong labour market. The construction sector in particular should remain an important growth driver in 2017. Maybe one of the few upsides of the many uncertainties in traditional export destinations could be a rethinking, or reorientation of, the economy, finally leading to a kick-start of investments at home. When later today, the European Commission will present its economic recommendations in the context of the European Semester, the US criticism will very likely be repeated; only in a more polite way.”

“Meanwhile in Germany, headlines are increasingly dominated by the September elections. The trade surplus and currency manipulation will in our view not become a topic at the elections, but European calls for greater domestic investment could eventually feed into the political debate. While first polls showing that the SPD was leading the CDU and that Martin Schulz’s popularity was higher than Angela Merkel’s, were widely dismissed as being biased, recently a series of polls confirmed these first results. It looks as if the elections will become a neck-and-neck race. A side-effect of both major parties at current levels in the polls is that forming a coalition, other than the current so-called grand coalition, could become highly complicated.”


11:13 EUR/USD sticks to 1.0500 post-IFO

The selling pressure around the single currency stays unchanged on Wednesday, now dragging EUR/USD to fresh lows in the 1.0500 neighbourhood.

EUR/USD attention to FOMC

The continuation of the USD-rally has put the pair under heavy pressure as of late, breaking below the key support at 1.0520 (January 15) and opening the door for a deeper retracement.

Today’s German IFO figures have surprised markets to the upside, with Business Climate, Current Assessment and Expectations all coming in above forecasts for the current month.

However, spot keeps the cautious-to-bearish note in light of rising bets on a potential Fed move at the March meeting, USD-supportive comments from Fed speakers and the upcoming release of the FOMC minutes.

EUR/USD levels to watch

At the moment the pair is losing 0.25% at 1.0511 and a breach of 1.0498 (low Feb.22) would target 1.0452 (low Jan.11) en route to 1.0339 (2017 low Jan.3). On the upside, the next resistance lines up at 1.0593 (20-day sma) followed by 1.0682 (high Feb.16) and finally 1.0706 (38.2% Fibo of the November-January drop).


11:06 Stronger euro-zone growth offering limited support for the euro - MUFG

Lee Hardman, Currency Analyst at MUFG, suggests that the strengthening economic growth outlook both in the euro-zone and globally is a supportive development for the UK economy in the year ahead.

Key Quotes

“It will help the UK economy to derive more support from the weak pound if external demand is strengthening as well. It is one reason why we are not worried by a potential sharper economic slowdown in the UK even as consumer spending is starting to slow in response to the squeeze on incomes from higher inflation.”

“The release yesterday of the latest PMI surveys provided a further positive signal for the performance of the euro-zone economy. Economic growth appears to have strengthened further at the start of this year and could expand robustly by 0.6% in Q1 according to Markit. It is encouraging that the economic recovery is broadening out as well. However, the developments are unlikely to offer much support for the euro in the near-term as the ECB still remains committed to maintaining aggressive policy easing through this year. Counter intuitively it has increased downward pressure on the EUR/USD rate as strengthening global growth gives the Fed even less reason to hold back on raising rates further in the coming months.”


11:06 Italy Consumer Price Index (EU Norm) (MoM) above forecasts (-2%) in January: Actual (-1.7%)


11:05 Italy Consumer Price Index (MoM) registered at 0.3% above expectations (0.2%) in January


11:05 Italy Consumer Price Index (YoY) came in at 1%, above expectations (0.9%) in January


11:05 Italy Consumer Price Index (EU Norm) (YoY) above expectations (0.7%) in January: Actual (1%)


11:04 German Feb IFO: Surprises positively across all indicators

The headline German Ifo business climate surprised markets to the upside, coming in at 111 points in Feb versus 109.8 booked in Jan and 109.6 expectations. While the current economic assessment also improved dramatically to 118.4 points in the reported month, as compared to 116.9 seen last month and 116.7 estimates.

Further, the Ifo Expectations Index – indicating firms’ projections for the next six months – also surprised positively and jumped to 104 in Feb versus expectations of a drop to 103.0 figure and 103.2 seen last.


11:01 Germany IFO - Expectations came in at 104, above expectations (103) in February


11:01 Germany IFO - Current Assessment above forecasts (116.7) in February: Actual (118.4)


11:01 Switzerland ZEW Survey - Expectations increased to 19.4 in February from previous 18.5


11:01 Germany IFO - Business Climate came in at 111, above forecasts (109.6) in February


10:58 USD/CAD clinches highs near 1.3160, data eyed

The greenback keeps its march north unabated on Wednesday, now lifting USD/CAD to the area of daily tops in the 1.3160 region.

USD/CAD focus on data, FOMC

The pair is so far posting its fourth consecutive session with gains, challenging at the same time weekly highs near 1.3170 seen on Tuesday and always against the backdrop of a persistent USD-buying.

CAD has ignored the recent significant bull run in crude oil prices, focusing instead on the policy divergence between the Federal Reserve and the Bank of Canada, particularly via the yield spread differentials in the shorter end of the curve.

Looking ahead, Canadian Retail Sales for the month of December are next on tap followed by US Existing Home Sales and the FOMC minutes. In addition, FOMC’s J.Powell (permanent voter, neutral) is due to speak.

USD/CAD significant levels

As of writing the pair is gaining 0.12% at 1.3158 and a surpass of 1.3166 (high Feb.21) would aim for 1.3215 (high Feb.7) and finally 1.3283 (100-day sma). On the other hand, the next support aligns at 1.3097 (low Feb.21) seconded by 1.3057 (low Feb.17) and then 1.3007 (low Feb.16).


10:52 Japans Aso: Government will raise sales tax as planned in Oct 2019

Japanese finance minister Taro Aso crossed the wires yet again, via Reuters, making a scheduled appearance in Parliament.

Key Headline:

Japanese government will raise sales tax as planned in Oct 2019


10:49 GBP/USD remains capped at 1.25 handle, UK GDP and Fed minutes eyed

The GBP/USD pair continue with its struggle to decisively break through 1.2500 psychological mark, albeit has held in positive territory for the third consecutive session.

Currently trading around 1.2485 region, the pair has showed a high degree of resilience against resurgent greenback buying interest and continues to find fresh buying interest near the 1.2400 region. 

Even from the technical perspective, the pair has broken through a short-term symmetrical triangular formation and seems poised to extend its near-term appreciating move. Traders, however, seem to await the release of revised UK GDP growth number for additional traction. 

Meanwhile, resurgent greenback buying interest, with the key US Dollar Index hitting multi-week highs, might hinder further upside for the major.

Later during the day, minutes from the latest FOMC meeting would be looked upon for additional clarity over the US central bank's near-term monetary policy outlook and gauge possibilities of a rate-hike action at the upcoming meeting in March, which would eventually provide fresh impetus for the pair's near-term direction.

Technical levels to watch

Momentum above 1.2500 mark could get extended towards 1.2525-30 region above which the pair seem all set to head towards 1.2565-70 intermediate resistance (Feb. 9 high) ahead of 1.2600 round figure mark.

On the downside, 1.2485-80 area (symmetrical triangle resistance break-point) now seems to protect immediate downside, which if broken could accelerate the slide towards 1.2455-50 horizontal support, before eventually dropping back to 1.2400 handle.

 


10:45 WTI little changed below $ 54.50, eyes API inventory report

Oil futures on NYMEX is seen extending its retreat from multi-month highs on Wednesday, as investors brace for the release of the US crude stockpiles report due to be published by the API later today, which may show another build in the crude inventories.

The renewed weakness in oil can be also attributed to a picking-up in demand for the US dollar across the board, as markets favor the US currency ahead of the FOMC minutes.

The black gold rallied hard and reached fresh seven-week highs at $ 54.99 on Tuesday, mainly driven by optimistic comments from the OPEC Chief Barkindo, citing that the OPEC producers are aiming to achieve higher compliance level than Jan’s 90%.

His comments implied further production cuts are in-stored in the year ahead, which are likely to rebalance oil markets.

WTI technical levels        

A break above $ 54.99 (7-week highs) could yield a test of $ 55.24 (Jan 3 high). While a breach of support at $ 54 (zero figure) would expose the 50-DMA support of $ 53.11.


10:41 EUR/NOK downside appears limited Danske Bank

Morten Helt, Senior Analyst at Danske Bank, sees further losses in the cross to be somewhat limited.

Key Quotes

“In the Scandies, EUR/NOK fell towards the 8.80 level yesterday on a sharp move higher in oil prices”.

“Importantly, EUR/NOK broke below the important technical level of 8.83-8.84 from the beginning of February, which may have opened up for further downside”.

“While valuation still supports a lower EUR/NOK in our view, we see limited further downside from the current level in the short term and forecast the pair at 8.80 in 3M”.

 

 


10:31 Hong Kong SAR Gross Domestic Product (QoQ): 1.2% (4Q) vs 0.6%


10:31 Hong Kong SAR Gross Domestic Product (YoY) remains unchanged at 1.9% in 4Q


10:28 GBP/USD back in range UOB

FX Strategists at UOB Group keep the neutral stance on Cable for the near term.

Key Quotes

“GBP dipped below the 1.2405/10 support (low of 1.2402) before rebounding strongly to close on a strong note. The recovery appears to have scope to extend further but any up move is expected to face stiff resistance at 1.2530 (next resistance is at 1.2580)”.

GBP tested the minor support at 1.2405 yesterday but rebounded strongly after hitting a low of 1.2402. The recent negative undertone has eased with the sharp bounce and this pair has likely moved into a 1.2400/1.2580 consolidation range. In other words, the overall neutral phase that started earlier this month is still intact”.

 

 


10:22 EUR/USD focus now is on 1.0352/40 Commerzbank

Karen Jones, Head of FICC Technical Analysis at Commerzbank, noted the EUR/USD has now shifted its focus to lows in the 1.0352/40 area.

Key Quotes

“The market remains directly offered below the 20 day ma at 1.0668 and the 3 month downtrend at 1.0710. Last weeks low at 1.0521 is exposed and our focus remains on recent lows at 1.0352/40. Intraday rallies are indicated to hold below 1.0575”.

“The market will remain directly offered below short term downtrend at 1.0710. Above here lies 1.0820/26, which represents the 50% retracement and the top of the cloud”.

 

 


10:16 EUR/USD slides to 1-1/2 month lows near 1.0500 handle ahead of German IFO

Having failed to build on early tepid recovery bounce to mid-1.0500s, the EUR/USD pair ran through fresh offers and plunged to the lowest level since Jan. 11.

Currently trading around 1.0510-05 region, the pair remained under selling pressure amid ongoing political uncertainty in the Euro-zone. Investors refrained from buying the shared currency on fears of France moving out of the Euro-zone in case of a victory for France’s leader of the far-right National Front Le Pen in the upcoming French Presidential election.

Meanwhile, Tuesday's comments from various Fed official kept hopes alive of a Fed rate-hike action in March and continues to underpin the greenback. In fact, the key US Dollar Index has now risen to the highest level since Jan. 12 (101.60 region) and is further collaborating to the pair's offered tone for third session in the previous four.

On the economic data front, the German IFO business climate, due for release in a short while from now, would be looked upon for some immediate respite. Later during NY session, the Fed monetary policy meeting minutes might turn out to be one of the key factors determining the pair's near-term trajectory.

Technical levels to watch

Momentum below 1.0500 handle could further get extended towards 1.0480 level support, which if broken would open room for continuation of the pair’s depreciating move further towards 1.0400 handle, with some intermediate support near mid-1.0400s.

On the upside, recovery back above 1.0525-30 area now seems to confront resistance near 1.0575-80 region above which the pair is likely to aim towards reclaiming 1.0600 handle. 

 


09:56 US Dollar resumes the upside, near 101.60 ahead of FOMC

The greenback – measured by the US Dollar Index (DXY) – is prolonging its upside bias on wed, now testing session highs in the 101.55/60 band.

US Dollar focus on FOMC minutes

The index is flirting with multi-week tops as it managed to leave behind the negative tone during the Asian trading hours, advancing for the fourth session in a row ahead of the key release of the FOMC minutes.

USD stays well underpinned by rising expectations of a rate hike by the Federal Reserve sooner rather than later, supportive Fedspeak and solid results from the US docket in past sessions.

In fact, Philly Fed P.Harker (voter, hawkish) left the door open for higher rates at the March meeting as long as data accompany. In the same line, Cleveland Fed L.Mester (2018 voter, hawkish) said she is comfortable with higher rates if the economy keeps the current direction, adding that inflation is closer to the Fed’s target.

Looking ahead, US Existing Home Sales are due along with the speech by FOMC’s J.Powell (permanent voter, neutral), all ahead of the key FOMC minutes.

On the positioning front, the speculative community have trimmed further its USD net longs in the week to February 14 as shown by the latest CFTC report, and could somewhat carrying the potential to remove some tailwinds from the up move.

US Dollar relevant levels

The index is gaining 0.11% at 101.56 facing the next resistance at 101.75 (high Feb.15) ahead of 101.95 (23.6% Fibo of the November-January up move) and finally 10296 (low Jan.11). On the flip side, a break below 100.99 (high Feb.20) would aim for 100.52 (20-day sma) and then 100.40 (low Feb.16).


09:45 Spill-overs from EZ politics into G10 and EM FX - ING

Petr Krpata, Chief EMEA FX and IR Strategist at ING, suggests that with the start of the busy EZ political calendar less than one month away (starting with Dutch elections next month followed by the two rounds of French Presidential elections and Italian PD ruling party leadership contest) there are going to be spill-overs from EZ politics in G10 and EM FX – a theme that is likely to gain more traction in coming weeks/months and should exert persistent influence on FX markets.

Key Quotes

“In our view, the concerns about EZ politics will affect world currencies in two ways:

  • The first order effect - relates to direct EZ spill-overs in global FX. We measure this by looking at countries’ exports to EZ as percentage of total exports (direct EZ trade links) and the currencies’ performance during meaningful spikes in EZ risk, gauged by peripheral spreads (direct EZ risk channel).
  • The second order effect - relates to secondary spill-overs from EZ specific risks into global risk sentiment as well as indirect growth spill-overs to the rest of the world. As potential market concerns about the future of the EZ won’t be contained to EZ only, even those currencies less directly linked to EZ may be affected if the global market sentiment is dented. To measure the secondary effects, we look at various countries’ openness of the economy and sensitivities to global risk sentiment (general risk channel).”

09:43 USD/JPY defies resurgent USD demand, drops to session low

The USD/JPY pair snapped two consecutive days of winning streak and traded with bearish bias through Asian session on Wednesday.

The pair remained under some selling pressure as traders seemed to readjust their positions ahead of today's key event risk - the FOMC meeting minutes. Moreover, the pair defied broad based greenback recovery, with the key US Dollar Index reversing early losses and touching multi-week highs near 101.50 region, and touched a fresh session low level of 113.30 during early European session. 

Even the prevalent risk-on mood, as depicted by positive trading sentiment surrounding equity markets, which tends to dent the Japanese Yen's safe-haven appeal, has failed to lend any support and hinder the pair's reversal from three-day high touched on Tuesday.

Investors on Wednesday keenly await the release of minutes from the Fed’s latest monetary policy meeting for fresh clues over the central bank's near-term monetary policy outlook. Today’s minutes would also assist investors gauge possibilities of a rate-hike action at the Fed’s upcoming meeting in March, which would eventually help in determining the pair’s next leg of directional move. 

Technical levels to watch

A follow through retracement below 113.25 level is likely to accelerate the slide towards 113.00 handle ahead of 112.85 horizontal support below which the pair is likely to head towards testing 112.40 strong support area.

On the upside, 113.70-75 region now seems to have emerged as immediate resistance, which if cleared decisively is likely to boost the pair beyond 114.00 handle towards testing its next resistance near 114.25-30 region, en-route 50-day SMA strong hurdle near 114.90-115.00 psychological mark.

 


09:39 Trump wants a weaker USD - AmpGFX

In view of the Greg Gibbs, Director at Amplifying Global FX Capital, a factor that may have caused some weakness in the USD this year is that Trump and his administration officials have at various times continued to imply that major USA trading partners, including China and Germany, have used policies designed to weaken their currencies to take a trade advantage.

Key Quotes

“The implication is that Trump would prefer a weaker USD and certainly might come out and comment against broad further strength in the USD should it occur.”

“It is far from clear that these types of comments would have any lasting impact on the exchange rate.  If Trump and the Republican-led Congress succeed in delivering a corporate tax reform with a BAT, the USD is more likely to rise.”

“However, Trump’s comments on currencies and trade are part of a broader theme of protectionism that tends to threaten confidence in global growth.  At times this might seem to support alternative safe havens like gold and JPY.”

“Risk aversion has been more atmospheric than apparent in broader market developments.  It appears to be seen in some reduction in USD long positions taken initially on hopes of growth-orientated Trump policies. However, emerging market, commodity prices, and currencies have been buoyant, tending to ignore risk factors and respond to evidence of improving global economic growth.”

“At the time of the Abe visit, Trump appeared to soften his attitude towards both Japan and China, suggesting that he may approach trade relations with this two major trading partners in a more measured manner. This, combined with his comments on tax reform, allowed some rebound in the USD.  However, this was soon overshadowed by the controversy surrounding his former National Security Advisor.”


09:36 BCB Preview: Keeping the speed of rate cuts - Rabobank

Mauricio Oreng, Senior Brazil Strategist at Rabobank, suggests that for the Copom policy meeting, they stand along the broad consensus (and market prices) forecasting a cut of 75bps to 12.25% p.a. in the benchmark Selic rate.

Key Quotes

“We expect no major changes in the policy message by the Copom, hinting at more easing (probably at the current pace) ahead.”

“In our view, there has been limited amount of time and evidence for the BCB to override its own signal about a new pace of easing. Back-to-back surprises do not seem to be on the menu for a central bank that has been so keen to improve communication with the market.”

“We continue to see mounting downside risks to our Selic rate projections for both end-2017 (9.50%) and mid-2018 (9.00%). While our long-held single-digit Selic call for 2018 became largely consensual now, the new “terminal” rate could be even lower than we had thought.”


09:30 USD/RUB: Risks remain on the downside - Natixis

Micaella Feldstein, Research Analyst at Natixis, suggests that the risks remain on the downside for USD/RUB pair as downside parallels have emerged on the daily chart and as the weekly MACD remains bearish.

Key Quotes

“Against this backdrop, a return above a resistance at 59 (daily Bollinger moving average) sounds highly unlikely and we rather see a new leg lower to 56.60-56.85 (daily Bollinger lower band).”

“Caution will be in order as a break below these thresholds would signal a strong deterioration in the technical outlooks, unleashing added downside potential to 54.10 (quarterly parabolic) and even 52.35-52.50 (rising trendline). The resistances are at 59-59.30, at 60.90, at 62.80, at 63.90 and at 65.85.”


09:27 US: BAT should cause USD to appreciate - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, notes that the US Tax Foundation argues that the BAT is trade neutral, suggesting that it should have no net impact on the trade balance. 

Key Quotes

“However, it comes to this conclusion with the help of adjustment in the exchange rate and national prices.  The bottom line is that the BAT will cause the USD to appreciate and/or prices in the USA, especially for imports, to rise.”

“All other things equal, a BAT makes importing less profitable, imported goods more expensive, and exporting more profitable.  If there were no exchange rate or price adjustment we would expect the trade balance to narrow and stronger demand for domestically produced goods over imports.  This would tend to cause more generalized inflation.  It might also tend to boost capital inflow as companies sought to bring production onshore.  The combination of narrowing in the trade deficit and more capital inflow would place upward pressure on the exchange rate.”

“In a flexible exchange rate regime, currency appreciation would be expected to make the bulk of the adjustment to rebalance supply and demand.  A higher exchange rate would make exports less competitive and imports cheaper, and reduce the advantage of moving production onshore, tending to offset the effects of the BAT on the trade deficit and balance of payments.”

“From our perspective, as a currency analyst, it would seem that the USA tax overall is, if nothing else, bullish for the USD.  It is perhaps somewhat surprising that the USD has not risen more in response to Trump and Republican tax overhaul plans.”

“This is especially the case since the US equity market has appeared to be more clearly and consistently lifted by the prospect of tax overhaul.  Although to be fair, global equities are higher perhaps in response to stronger global growth indicators; including the PMI data.”


09:24 Australian Govt biggest-ever bond transaction

Bloomberg reports latest headlines on the Australian debt markets, noting that the Aussie government made the biggest-ever bond transaction today.

Key Details:

Australia's government sold A$11 billion of 11-year debt notes

Its biggest-ever bond transaction

The third time in less than six months for a new borrowing record (exceeds A$9.3 billion issued at a sale of December 2021 notes last month & A$7.6 billion from last October's debut 30-year deal)


09:16 EUR/GBP plummets to two-month low ahead of German Ifo and UK GDP

The EUR/GBP cross extended its reversal move from the vicinity of 0.8600 handle, touched last week, and tumbled to its lowest level since Dec. 21 during early European session on Wednesday.

Currently trading around 0.8425 region, the cross remained under intense selling pressure for the third consecutive session amid growing concerns over political developments in the Euro-zone. Investors remained worried about the prospects of Marine Le Pen winning the French Presidential election and withdrawing France out of the common trade bloc.

Traders now look forward to the release of German Ifo Business Climate index for Feb. for immediate respite for the shared currency.

Meanwhile, the British Pound remained a relative outperformer against its European counterpart as market participants await the release of revised UK GDP growth number for additional traction. Also in focus would be speech from BOE Deputy Governor Jon Cunliffe later during European session.

Technical levels to watch

From current levels, the downslide could get extended towards 0.8400-0.8390 strong support below which the cross is likely to head back towards 0.8335 horizontal support ahead of early Dec. lows support near 0.8300 round figure mark.

On the upside, 0.8450 level now seems to act as immediate resistance, which if cleared could lift the cross back towards 0.8500 psychological mark. Further up-move beyond 0.85 mark might continue to be capped at 50-day SMA strong hurdle near 0.8540 region.

 


09:09 Brazil: Expect the BCB to cut by 75bps TDS

Research Team at TDS expects the BCB to cut by 75bps, on the back of both rapidly declining “core” inflation aggregates that have shown increased responsiveness to tight monetary conditions (such as non-regulated, non-tradable inflation) and the sluggish economic recovery.

Key Quotes

“Ultimately we believe that the BCB will aim to get the real (ex-ante) SELIC rate down to somewhere near the average of the past decade (below 6%) before pausing. This implies another 75bp cut after this week’s meeting, with the pace of easing tapering after to 50bps and eventually 25bps to bring us to the end point of 9.75% in the SELIC by the end of the year.”

“We think that there could be some downside risk to this view (more easing) on the end of year rate, and also some risk that the BCB cuts by 100bps. The mid-month February IPCA will be released before the meeting and should help colour the BCB’s communication bias, thought the market is expecting another significant disinflationary print at 5.4% Y/Y.” 


09:08 Sources: BOJ to consider adding specific dates for announcing JGB buying schedules - RTRS

Reuters quoting sources familiar with the BOJ matter, note that the Japanese central bank is considering adding specific dates for announcing JGB buying schedules.


09:06 US: Still waiting for Trumps tax policy - AmpGFX

In view of the Greg Gibbs, Director at Amplifying Global FX Capital, there appears to be a lot riding on the tax plan promised by Trump. 

Key Quotes

“US equities seem to have risen significantly in anticipation of a sizeable corporate tax overhaul that is expected to cut the corporate tax rate from 35% to 20%, or even to 15%, and apply border adjustment to remove tax payable on export revenue but also remove the tax deductibility of import expenses.”

“Trump said during his press conference with Japan PM Abe not quite two weeks ago that “what is happening with the tax structure is going along very well” and there will be “some very big news on tax structure over the next short period of time.”

“He also said that, “I think the US is going to be an even bigger player than it is right now, by a lot, when it comes to trade, a lot of that will have to do with our tax policy which you will be seeing in the not too distant future.  We will have an incentive based policy much more than we have right now.  Right now nobody even knows what policy we have, but we are going to have a very much incentive based policy, working with Congress, working with Paul Ryan, working with Mitch McConnell.  And I think people are going to be very very impressed.”

“This seems to suggest the House Republican plan for a corporate tax cut with a border adjustment tax will be the basis for Trump’s tax policy.”


09:01 GBP/USD upside lost momentum around 1.2500 ahead of data

The bid tone around the Sterling remains well and sound on Wednesday, now sending GBP/USD to the 1.2500 neighbourhood, or daily peaks.

GBP/USD attention to FOMC, data

The pair continues to show a high degree of resilience so far this week, advancing since Monday despite the persistent buying sentiment surrounding the greenback. Gains, however, seem to have found quite a strong resistance just above 1.2500 the figure, where sits the 20-day sma.

The short term scenario stays favourable to the British Pound for the time being, as Brexit concerns appear somewhat alleviated while fundamentals stay solid despite some weakness seen in past weeks.

Another story comes from the speculative front, where GBP net shorts have increased to multi-week highs during the week ended on February 14 according to the latest CFTC report.

Later in the session, another revision of UK’s Q4 GDP is expected to come in at 0.4% inter-quarter and 2.2% on an annualized basis. Across the pond, US Existing Home Sales are due ahead of the speech by FOMC’s J.Powell (permanent voter, neutral) and the FOMC minutes.

GBP/USD levels to consider

As of writing the pair is up 0.14% at 1.2489 and a break above 1.2509 (20-day sma) would open the door to 1.2550 (high Feb.14) and finally 1.2715 (high Feb.2). On the other hand, the immediate support aligns at 1.2379 (low Feb.15) ahead of 1.2344 (low Feb.7) and finally 1.2250 (low Jan.19).


09:01 Norway Labour Force Survey declined to 4.4% in December from previous 4.7%


09:01 UK Q4 GDP and German IFO data release amongst market movers today Danske Bank

The release of Germany’s IFO data and UK’s Q4 GDP will be the key market moving economic releases for today’s session according to the research team at Danske Bank.

Key Quotes

“German Ifo expectations fell from 105.5 in December to 103.2 in January and we expect it to decrease further in February to 102.5. Despite the high level in the survey in Q4 16, pointing towards very strong German GDP growth, actual economic activity was 'just' 0.4% q/q in the first release. Overall, optimism about growth prospects for the start of 2017 could be on the decline.”

“In the UK, the second estimate for GDP growth in Q4 is due out, which is somewhat interesting, as the expenditure components such as private consumption and investments in Q4 are included for the first time in this release. While growth continued at the same pace in H2 16 after the EU vote, we think GDP growth will slow down eventually this year.”


08:57 German IFO and UK Q4 GDP data awaited TDS

Research Team at TDS suggests that following on Tuesday’s strong increases in the euro area PMIs, they see upside risks to the German IFO survey, with both the expectations and current situation indexes posting gains of about 1 point each, against market consensus for very slight declines in both indexes.

Key Quotes

“The final euro area print of January CPI is also out, which will provide further details on the drivers of January’s sharp move up to 1.8% y/y.”

UK: Today we get the second reading of Q4 GDP, with all the expenditure details for the first time. Markets are looking for the Q4 print to remain unchanged at 0.6% q/q, but after the strong IP and construction prints for December, the risks of an upward revision are greater than the risks of a downward revision, and in fact about 1/3 of analysts in Bloomberg are looking for an upward nudge to 0.7%.”


08:55 Russias Novak: Iranian delegation to visit Moscow on March 27th - IFX

The Russian news agency, Interfax (IFX), reported comments from Russia’s energy minister, Novak, citing that the Iranian delegation is expected to visit Moscow on March 27th.


08:53 SEK: Set for gradual appreciation - Natixis

Nordine Naam, Research Analyst at Natixis, notes that since November, the Swedish krona has appreciated sharply against the euro, the EUR/SEK declining from 9.96 to set a low at 9.41 at the start of February.

Key Quotes

“This has taken place when the euro experienced a bout of weakness in reaction to the announcement by the European Central Bank that it would be pressing ahead with its Asset Purchase Programme and to the surge in European political risks, but the main drivers have been the improvement in Swedish economic growth and inflation. After tottering on the edge of deflation, consumer prices have picked up since 2016.”

“The Swedish krona even appreciated in the wake of Riksbank’s December meeting, despite the central bank maintaining a very dovish stance, announcing the extension of its asset purchase programme during the first half of 2017 (for a total of SEK245bn), to keep pace with the European Central Bank’s own programme, and maintaining a downward bias for its forward guidance.”

“The fact is that announcements by Riksbank have failed to dispel expectations of an earlier-than-anticipated tightening of monetary policy given the rebound in inflation to near the central bank’s official 2% target. As a result, the spread between Eurozone and Swedish 2-year interest rates (see left-hand chart below) has tightened. The market is also playing prospects that Riksbank will exit QE sooner (June 2017) than the European Central Bank (end-2017).”

“Yet, when it met on 15 February, Riksbank maintained a rather dovish stance once again, when the market expected it to turn hawkish now that inflation is back near the official 2% target.”

“In sum, Riksbank remains very cautious on inflation. After rising for four consecutive months on the back of crude oil prices, headline inflation slowed to 1.4% in January (from 1.7% in December). Without energy, inflation pulled back to 1.6% in January (from 1.9% in December), expectations being that it will hold at this level until the end of the year, possible dip lower if the Swedisk krona appreciates sharply given the impact this would have on import prices. For these reasons, we do not expect a sharp appreciation of the krona this year, as the central bank will be vigilant, ready to intervene in the foreign exchange market if necessary. We see the EUR/SEK at 9.30 at the year-end, compared with which the 12-month forward currently trades at 9.48.”

“In coming months, there is even the risk that the krona will be buffeted to quite some extent by the rise in European political risks (uncertain outcome of elections in the Netherlands on 15 March and France on 8 May). A possible downturn in European economic activity because of these political uncertainties would seriously affect the Swedish economy, as exports to the Eurozone account for almost 50% of total exports. The krona can also be expected to be penalised by uncertainties surrounding Brexit given Sweden’s significant exposure to the British economy. In coming weeks, the EUR//SEK could recover temporarily towards 9.60 in reaction to the latest inflation data, which we would see as an opportunity to short the EUR/SEK.”


08:38 AUD/USD retreats from 0.7700 neighborhood, Fed minutes awaited

The AUD/USD pair built on Tuesday's bounce off multi-day lows near mid-0.7600s and rose to 0.7700 neighborhood, albeit has retreated few pips from session peak.

Currently trading around 0.7680-85 region, the pair caught some fresh bids on Wednesday in wake of in-line with expected wage price data from Australia. In fact, the wage price index rose 0.5% q-o-q in the fourth quarter of 2016 and shrugged off construction work data, which unexpectedly contracted by 0.2% in December quarter but was better-than previous quarter's 4.4% decline. Against the backdrop of a modest US Dollar retracement, from yesterday's multi-week highs, the data lent some additional support to the pair and lifted it to a three day high. 

The up-move, however, seems to have lost the momentum amid weaker trading sentiment surrounding copper prices, which tends to dent demand for commodity-linked currencies - like the Aussie. Moreover, continuous rise in the US treasury bond yields also collaborated towards capping any further upside as investors now look forward to the release of minutes from the Fed latest monetary policy meeting, due later during NY session.

The FOMC meeting minutes would be look upon for additional clarity over the Fed’s near-term monetary policy outlook and possibilities of a rate-hike action at the central bank’s upcoming meeting in March, which would eventually determine the pair’s next leg of directional move. 

Technical levels to watch

Weakness below 0.7670 level might continue to find support near 0.7650 region below which the pair is likely to aim towards 0.7610 important support before eventually dropping to its next support near 0.7555-50 region. On the upside, sustained momentum above 0.7700 handle could get extended towards 0.7720-30 resistance area ahead of Nov. daily closing highs resistance near 0.7760 region.

 


08:38 German election poll: Merkel s CDU 34% vs Schulz SDP 36% - RTRS

Latest poll on German elections, conducted by Forsa, was published in Germany’s Stern magazine, Reuters reports.

The German elections are likely to be held in September this year.

Key findings:

A sample of 2502 for both Stern and RTL between 13-17 Feb

Merkel's CDU 34% vs Social Democrats 31%

39% would vote for Merkel if there was a direct vote for Chancellor, 1% more than last week

SDP leader Schulz down 1% to 36%

Anti-immigration party AfD down 1% at 8%, lowest level for this poll for 7 months

Far-left Link 8%

Greens 7%


08:25 Forex Today: USD softens in Asia, IFO, UK GDP, Fed - Key

The US dollar corrected lower across the board in the Asian session this Wednesday, as markets resorted to profit-taking after yesterday’s solid rebound, and ahead of the highly-anticipated FOMC minutes. Also, cautious remarks from Fed’s Mester also weighed down on the greenback somewhat.

On the data front, we had unimpressive release of the Australian construction work done and wage price index data, both of which had negligible impact on the AUD/USD’s recovery mode.

In the day ahead, we have a busy calendar across the globe, kicking-off the European session with the German IFO surveys, followed by the UK second estimate GDP figures, Eurozone final CPI and ECB LTRO announcement. The NA session has the Canadian retail sales and US existing home sales data on tap.

Meanwhile, BOE MPC members Shafik and Cunliffe are expected to cross the wires ahead of the US open, followed by Fed’s Powell speech in New York. However, the main risk event for today is likely to be the FOMC minutes, which will provide fresh hints on the central bank’s rate hike prospects.

Main topics in Asia

Australia: Private sector wage growth still slowing – ANZ

David Plank, Head of Australian Economics at ANZ, suggests that while the headline number suggests stabilisation in the Australian Wage Price Index, the private sector measure (ex bonuses) fell to a new record low of 1.8% y/y.

Fed’s Mester: We have to change policy path if economic outlook changes

Additional headlines hit the wires from the Cleveland Fed President Loretta J. Mester, extending her talks on the labour market and fiscal policies.

BOJ’s Kuroda: More easing possible if required to meet price target

BOJ Governor Kuroda is back on the wires now, via Reuters, providing fresh hints on the bank’s monetary policy program going forward.

China home prices: Property curbs are having intended effects - BBG

Bloomberg offers insights into the latest Chinese data release, which showed that home prices in China increased last month in the fewest cities in a year.

Key focus for the week ahead                                                  

When is German IFO and how could affect EUR/USD?

The German Ifo surveys are lined up for release later today at 9GMT. The headline Ifo Business Climate Index is expected to edge lower to 109.6 in Feb. 

Market movers for the day – Rabobank

Research Team at Rabobank lists down the key market moving events from across the globe for today’s session.

FOMC minutes will not signal a March rate hike - Deutsche Bank

Deutsche Bank chief US economist Joseph LaVorgna provides some clues on what to expect from the release of Fed’s meeting minutes, noting that he does not expect the Fed to signal a hike for March in the minutes.


08:17 AUD: Wage price index and construction work done print weak numbers - TDS

Analysts at TDS note that Australia’s Q4 Wage Price Index came at +0.5%/qtr, maintaining its record low of +1.9%/yr, consistent with TD’s and the market forecast.

Key Quotes

“There was little chance that wages were likely to rise given the part time/full time split and hours worked.”

“Q4 Construction Work Done dipped –0.2%/qtr, the weaker print led by Engineering (ie mining) -2.2%. Non-residential was positive at +1.8% after weather induced a –10.9% decline in Q3. The market is unlikely to make any revisions to its GDP forecasts on the back of this release.”

 


08:14 EUR feeling the pinch - AmpGFX

According to Greg Gibbs, Director at Amplifying Global FX Capital, EUR may be starting to feel the pinch from the coming French election and the merry-go-round on the Greek bailout package. (First round of French election on 23 April, final two runoff on 7 May).

Key Quotes

“The betting odds of winning the final French Presidential election for the top three candidates shows that it appears to be an even race, with the favorite Macron’s probability of winning falling back close to Marine Le Pen and Fillon.  It appears likely that Le Pen will make it through the first round of voting to the final run-off.”

“There has again been some widening in Periphery Eurozone Government bond spreads in recent days.  The French spread has risen to a cyclical high.”

“Credit Default Swap indices show under-performance in European investment grade corporate risk (higher CDS) relative to US corporates and emerging markets.”

“EUR failed to draw much support from its preliminary PMI data, rising to new cyclical highs for both services and manufacturing.  Whereas the preliminary Markit USA PMI data were softer.”


08:09 AUD/NZD: Plenty of upside scope for the pair - Westpac

Sean Callow, Research Analyst at Westpac, suggests that relative commodity prices have been arguing for stronger AUD/NZD for months but it took the RBNZ’s meeting this month to fuel a break of 1.06 for the first time since November.

Key Quotes

“The RBNZ remains upbeat on New Zealand’s economy – with good reason – but Governor Wheeler again warned about international risks (including US protectionism) and chided markets for pricing in a rate hike this year. AUD/NZD has rallied 3 cents since this statement.”

“But fair value estimates were already above 1.10 even when markets were fully priced for an RBNZ rate hike by Nov 2017. AUD/NZD has diverged notably from yield spreads since about mid-2016.”

“While the persistence of AUD/NZD below our fair value estimates (now 1.12-1.13) argues for patience, it seems there is still plenty of upside scope for the pair. With support near term from iron ore and coal prices outperforming dairy, AUD/NZD should break important resistance at 1.0765. This would place the pair on track for substantial further gains, with a multi-month target of 1.10.”  


08:03 CHF: SNB likely remains active - Nomura

In view of the analysts at Nomura, the SNB is likely to be active in the FX market as EUR/CHF depreciation pressures increase ahead of euro area political events.

Key Quotes

“Further accumulation of SNB reserves is likely, and its diversification may attract market interest. Our analysis shows that, historically, a month after SNB intervention, JPY and USD tend to outperform, while NOK and NZD tend to underperform.”

“Uncertainty on European politics remains high. As a result, EUR/CHF has been trading heavily, leading us to think the SNB is likely active again in the FX market, attracting market interest.”

“We estimate that the Bank bought CHF9.6bn of foreign currency in January. This is still less than its estimated intervention in November 2016 (CHF21.3bn), but the SNB is likely to be active again after temporarily pausing intervention in December. The SNB sight deposit data show a further increase in the outstanding so far in February, from CHF532.8bn as of 27 January to CHF543.5bn as of 17 February. This leads us think the SNB remains active amid the high political uncertainty.”

“We expect EUR/CHF to continue to face depreciation pressure over the next few months, as 1) political risk increases safe-haven demand, and 2) the real rate in Switzerland is higher than in the euro area. Unless the SNB shows strong determination to avoid CHF appreciation by proactively cutting its policy rate at the next meeting on 16 March, the Bank is likely to be forced to intervene in the foreign exchange market continuously. This intervention could slow the pace of CHF appreciation, but it is difficult to change the trend, in our view. We see a risk of EUR/CHF testing 1.05 and even further downside.”

 


08:01 EUR/USD faces rejection near daily pivot, IFO eyed

The corrective rally in EUR/USD faltered just shy of daily pivot located at 1.0560, sending the rate back towards daily lows struck at 1.0534 in Asia opening trades.

EUR/USD awaits data, Fedspeaks and FOMC minutes

Currently, the EUR/USD pair remains better bid at 1.0544, although looks exposed to downside risks, as the USD bulls consolidate yesterday’s gains and gather pace for the next push higher, with the FOMC minutes likely to emerge the key catalyst for fresh upside in the buck.

The FOMC Feb meeting minutes may reveal the Committee’s optimism on the US economy, which is likely to back the case for further rate rises this year. However, the Fed minutes may not strongly signal a March rate hike.

The common currency may also remain under pressure on the back of falling Germany treasury yields amid increased safe-haven demand for the bunds, in wake of political concerns surrounding French elections. Further, expectations of deterioration in the German IFO surveys could also keep the euro in the backseat against its American counterpart.

EUR/USD Technical Levels

In terms of technicals, the pair finds the immediate resistance 1.0556/60 (daily high & pivot). A break beyond the last, doors will open for a test of 1.0587 (5-DMA) and from there to 1.0600 (zero figure). On the flip side, the immediate support is placed at 1.0520 (Jan 6 low) below which 1.0500 (psychological levels) and 1.0478 (Jan 5 low) could be tested.

 


07:58 Primary budget balances in EMU BBH

According to the analysts at BBH, with the official creditors on their way back shortly to Athens, there is a sense that a repeat of 2015 crisis can be avoided.  

Key Quotes

“There is a collective sigh of relief.  The generic two-year yield was pushing around 10% in the last couple of weeks and now is at 8.16%, the new low for the month.  The generic 10-year yield reached 8.1% at the end of last week and is now 7.22%, also new lows for February.”

“To be sure, Greece is not getting another tranche of aid, but it doesn't really need it until closer to July when a large debt servicing bill comes due.  Still, there is appears to be a window of opportunity, and several European finance minister wants to shift the focus from budget cuts to structural reforms.  The tax system, pensions, and the labor market are the focus of such efforts.”

“However, reports suggest that if the pressure on Greece is somewhat less, it may intensify on Italy.  As early as today, the EC may press Italy harder, and perhaps even threaten action if it does not implement measures to reduce its debt.  Italy's debt-to-GDP ratio reached 132.8% last year and is set to rise to 133.3% this year if everything goes according to plan.  Ironically, there may be concerns Italy's debt is not sustainable, but the EC argues against the IMF that Greece's debt (~180% of GDP) is sustainable.”

“Earlier this month, Italy promised measures to reduce its structural deficit by 0.2% of GDP.  The measures are to be implemented by the end of April.  The soon-to-be-issued warning is a reminder of Italy's commitment.   Italy's structural deficit appears to be moving in the wrong direction.  It was 1.0% (of GDP) in 2015 and rose to 1.6% last year.  It is set to rise to 2.0% this year and 2.5% next year.”

“There are four countries that seem problematic but do not appear to be the subject of much pressure.  France sticks out like a sore thumb.  It is the only eurozone member where a larger primary budget deficit in 2018 than this year is forecast.    Note Finland, Spain, and Estonia also continues to record primary deficits.  There may be several reasons why Spain is growing faster than Italy.  Often Rajoy's labor reforms and the earlier efforts to address the bank system problems are cited.  Spain's primary budget deficit this year is in a modest deficit, while Italy is expected to report among the largest primary surpluses among EMU members this year.”


07:40 Australia: Construction disappoints again in Q4 - ANZ

Analysts at ANZ note that Australian construction work done fell for the second quarter in a row in Q4 and is a disappointing result given a solid rebound had been expected, after the weather-affected weakness in Q3.

Key Quotes

“Although a soft result overall, the increase in privately-funded activity is an encouraging sign, and suggests that we are past the peak drag from the mining sector.”

“The fall in the fourth quarter was driven by the public sector, down 1.6% q/q. These falls were concentrated in non-residential building, which remains weak in the absence of stimulus-induced education and health projects. However, we remain optimistic on the outlook for total public expenditure, with a significant backlog of engineering work to support activity across the roads and rail sectors in particular.”

“On the other hand, privately funded work posted the first quarterly rise in 18 months, albeit a mild 0.2% q/q. Growth was centred in the non-residential building sector, although some of this likely reflects payback after a large decline the previous quarter. Meanwhile, housing construction rose once more, almost entirely due to strength in New South Wales, which leapt 7% to the highest level on record. However, softness across most other regions limited the overall increase in activity, consistent with our view that we are around the peak in dwelling construction. A strong backlog of work is expected to see housing construction remain around historically high levels in coming quarters, but further significant growth appears unlikely.”

“The decline in privately funded engineering construction continued into Q4, down 3.5%. This is likely to persist through 2017, as the remaining mining projects, primarily across Western Australia, Queensland and Northern Territory wind up. However, it does appear that the worst of the drag from the mining sector is behind us, with the quarterly drag on construction now at -2.2%, from a trough of -4.5% in March 2016.”

“Today’s result is certainly on the soft side, and business construction (non-residential building and engineering construction) will likely weigh on next week’s Q4 GDP result. But it is becoming apparent that the declines from the mining sector are easing, and will be less of a drag on overall economic activity going forward.”


07:18 Japans Aso: Monetary policy exit strategy is not PM Abe s job

Japanese finance minister Taro Aso is back on the wires now, via Reuters, noting that monetary policy exit strategy is not PM Abe's job.


07:11 AUD: Irons in the fire - Nomura

According to Peter Dragicevich, Research Analyst at Nomura, the strong rally in Australian-centric commodity prices, such as iron ore, continues to be AUD supportive.

Key Quotes

“The tide should eventually turn, but some underlying developments point to prices remaining elevated for a while longer. Higher price levels are boosting Australia’s terms of trade and generating a shift in the trade and current account balances. These changes are fundamentally AUD positive. When combined with the improved global growth outlook, Asian export momentum and geopolitical risks in the eurozone the bias is for further near-term EUR/AUD downside.”


07:07 Australia: Leading Index sustains recent lift in growth rate - Westpac

Bill Evans, Chief Economist at Westpac, notes that the six month annualised growth rate in the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, fell from 1.36% in December to 1.30% in January.

Key Quotes

“This marks the sixth consecutive month where the growth rate in the Index is at or above trend. That followed a period of fifteen consecutive months where the growth rate had been below trend. That sustained period of below trend growth in the series had been pointing to the weakness we have seen in the economy in the September quarter (although no lead indicator could have prepared us for a negative growth print).”

“However, the run of six consecutive above or at trend readings is signalling a better outlook for the first half of 2017. In particular, whereas over the September–November period the Index had been losing momentum, albeit still in positive territory, the December and January results represent a very strong rebound.”

“Westpac concurs with the forecast of the Reserve Bank of 3% growth through 2017. That growth rate is above trend and consistent with the positive leads from the Index over the last six months.”

“Potential complications for this growth rate lie with the Australian dollar. Although the recent strength in the Australian dollar is entirely understandable given the recent surge in commodity prices, the intensity and timing of any boost to spending from the rising terms of trade is always uncertain. On the other hand a higher Australian dollar can be expected to challenge services and manufacturing export growth. For now our forecasts for commodity prices and the Australian dollar envisage that we are near the peaks although we do not expect much correction to commodity prices or the Australian dollar through the remainder of 2017.”


07:05 When is German IFO and how could affect EUR/USD?

German IFO Business Climate Overview

The German Ifo surveys are lined up for release later today at 9GMT. The headline Ifo Business Climate Index is expected to edge lower to 109.6 in Feb. The Current Assessment sub-index is also seen lower at 116.7 this month, while the Ifo Expectations Index – indicating firms’ projections for the next six months – is expected to follow suit and come in a tad weaker at 116.7 in Feb, as compared to January’s 103.2 reading.

Deviation impact on EUR/USD

Readers can find FX Street's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined between 3 and 40 pips in deviations up to 2.4 to -3.2, although in some cases, if notable enough, a deviation can fuel movements of up to 60 pips.

 How could affect EUR/USD?

The Surveys are expected to show deterioration in the business conditions in Germany, which could add to the recent bearish momentum behind the EUR/USD pair, and hence, could knock-off the rate to 1.0500 levels. On an upside surprise, the EUR/USD pair could extend the corrective gains and eye a test of 1.06 handle.

Key notes

Market movers for the day – Rabobank

“Next up it is the German IFO survey, which is expected to edge down slightly but may surprise to the upside after the good set of PMI data in Europe yesterday.”

About German IFO Business Climate

This German business sentiment index released by the CESifo Group is closely watched as an early indicator of current conditions and business expectations in Germany. The Institute surveys more than 7,000 enterprises on their assessment of the business situation and their short-term planning. The positive economic growth anticipates bullish movements for the EUR, while a low reading is seen as negative (or bearish).

 


07:02 Australia: Private sector wage growth still slowing ANZ

David Plank, Head of Australian Economics at ANZ, suggests that while the headline number suggests stabilisation in the Australian Wage Price Index, the private sector measure (ex bonuses) fell to a new record low of 1.8% y/y.

Key Quotes

“This imparts a soft tone to the release and runs contrary to the comments by Governor Lowe in a speech this morning that “our liaison with businesses does not suggest….that further slowing [in wages] is in prospect.” The outcome suggests there is spare capacity in the labour market, with a consequent lack of any upward pressure on expectations for the RBA cash rate.”

“The wage price index excluding bonuses (WPI) rose by 0.5% q/q in Q4 and is up 1.9% over the year to December, in line with growth in the year to September.”

“This apparent stability masks a further slowdown in private sector wages, however. These were up 0.4% q/q, which saw the annual rate of change slow to a new record low of 1.8% in the year to December. In the second half of 2016 private sector wage growth annualised at just 1.6%.”

“The overall weakness in wage growth remains broad-based across industries, though some sectors such as education & training and admin & support services posted small increases. Not surprisingly, private sector wage growth is slowest in the mining states of Western Australia and Queensland at 1.4% y/y and 1.8% y/y respectively, while wage growth in the mining sector remained at just 1.0% y/y after peaking at 6.7% y/y in June 2008.”

“For the RBA, these numbers are likely to be disappointing. The further step down in private sector wage growth indicates the disinflationary pressures from the labour market will continue to dampen consumer price inflation.”

“There remains considerable spare capacity in the labour market with the labour underutilisation rate (unemployment plus underemployment) remaining high compared with history. There are some signs that wage growth may rise moderately in 2017, however, with the ANZ Wage Gauge and NAB labour costs moving higher for instance.”


06:44 Japan: Manufacturing activity continues to accelerate - Nomura

Research Team at Nomura notes that Japan’s manufacturing PMI for February was 53.5, up 0.8pt from January.

Key Quotes

“The PMI reading has now risen three straight months and stayed above the 50 watershed between expansion and contraction for six straight months, a clear indication that manufacturing activity is expanding.”

“Looking at the five component indices, the manufacturing PMI was boosted by positive trends in the output index (up from 53.2 in January to 54.3 in February), the new orders index (up from 54.0 to 54.7), the supplier delivery times index (down from 48.8 to 48.4; a drop in this index pushes up the headline index), and the employment index (up from 52.8 to 54.2). The stock of items purchased index (down from 49.8 to 49.6) exerted downward pressure on the February PMI reading, but this is not entirely negative as inventory workdowns often occur in the initial stage of an expansion in production and consumption.”

Continued rise of new export orders index suggests expansion of external demand

Recent industrial production data also indicate that production activity in Japan is steadily rebounding and that companies expect output to increase steadily going forward. We think rebounding external demand is the main factor supporting this pickup in production at Japanese manufacturers.”


06:40 Markets need to see that OPEC cuts bring inventory draws - Goldman Sachs

Livesquawk reports latest headlines from Goldman Sachs’ analysts on oil markets, noting that markets need to see that OPEC cuts bring inventory draws.

Both crude benchmarks are trading modestly flat in Asia, awaiting fresh impetus from the US API crude stockpiles data.


06:36 USD/JPY off lows, but still below 10-DMA

Broad based US dollar retreat appears to have stalled over the last hours, allowing a tepid-bounce in USD/JPY back towards the mid-point of 113 handle, with strong offer seen lying at 10-DMA barrier of 113.54.

The spot is last seen exchanging hands at 113.44, reversing a dip to 113.33, session lows. The major found some support from dovish comments from the BOJ Governor Kuroda, after he said that the central bank is prepared to ease further, if required to hit 2% price target.

Earlier today, USD/JPY rapidly retreated from 113.72 highs after the US treasury yields came under pressure, following Cleveland Fed President Mester’s cautious comments on the rate hike outlook.

Next of note for the major remains the US existing home sales data, besides, Fed speech from official Powell will be closely heard ahead of the FOMC minutes scheduled for release in the American afternoon.

USD/JPY Technical levels to watch 

The major finds immediate resistance at 113.78 (previous top). A break above the last, the major could test 114 (round figure) and 114.36 (Feb 16 high) beyond the last. While to the downside, the immediate support is seen at 113.00 (round figure) next at 112.75 (Feb 20 low) and below that at 112.58 (Feb 17 low).

 


06:35 Eurozone: Strong PMI data paints robust economic picture - ANZ

Analysts at ANZ note that the euro area composite PMI index rose to 56 – its highest level since April 2011 and the increase was mainly driven by a big rise in the services PMI.

Key Quotes

“At face value, it suggests a pick-up in economic growth during Q1. However, the survey’s price indices remained consistent with only weak inflationary pressures. In contrast, the US flash Markit Manufacturing PMI for February came in weaker than expected at 54.3, with output and new orders both down. Nevertheless levels are still elevated compared to historical norms and show that manufacturing output continues to expand.”

“In addition, the inventory data suggests output could pick up in the future with stocks of finished goods dropping. In the UK a smaller than expected budget deficit for January combined with the current account deficit showing some signs of improvement.”


06:28 Market movers for the day Rabobank

Research Team at Rabobank lists down the key market moving events from across the globe for today’s session.

Key Quotes

“Today we have already seen Aussie Q4 2016 wages come in at 0.5% q-o-q and 1.9% y-o-y – so basically zero once inflation picks up. See why everyone is borrowing, RBA?”

“In China we have seen January property prices, which saw Beijing unchanged m-o-m but 27% y-oy, Shanghai -0.1% and 28.3% y-o-y. Prices rose m-o-m in 45 of 70 cities vs. 46 in December, but 66 in y-o-y terms. That’s further evidence that the housing market is cooling only very slowly, it seems – and that more cooling measures might need to be put in place.”

“Next up it is the German IFO survey, which is expected to edge down slightly but may surprise to the upside after the good set of PMI data in Europe yesterday. After that it’s another look at UK Q4 GDP, final Eurozone January CPI, and then Canadian retail sales and US existing home sales.”

“In Brazil we will also have a Selic rate decision, which our Boy from Brazil Mauricio ‘Agent’ Oreng reports is likely to see another 75bp rate cut to 12.25% - at least there’s a bright spot there!”


06:23 Commodities: Mixed performance - ANZ

Commodities were mixed, with oil and iron ore prices higher, but the stronger US dollar weighing on gold and base metals notes analyst at ANZ. 

Key Quotes

Crude oil prices rose on news that OPEC is aiming to achieve full compliance to the production cut agreement. Adding to the bullish tone, Russia’s energy minister said that Russia plans to reach its output target by the end of April. WTI rose to its highest level in seven weeks.”

Base metals prices were lower. Copper took a breather from the recent rally, despite expectations that the Escondida strike is likely to continue.  Other base metal prices were weighed down by the stronger US dollar, with nickel prices leading the way lower on news from the International Nickel Study Group that nickel production exceeded demand in December.”

Iron ore prices continued their march higher on the back of higher steel futures in China, and despite warnings from BHP that prices are at risk of decline given “moderating Chinese steel demand, high port inventories and incremental low-cost supply”.”

Gold prices were broadly flat, as comments from the Fed’s Harker that a March rate hike is not off the table saw the US dollar strengthen.”

 


05:58 EUR/USD Intermarket: Franco-German yield spread is in the drivers seat

The rally in the EUR/USD pair from the low of 1.0341 (Jan 3 low) topped out at 1.0829 (Feb 2 high). Since then the currency pair has been losing height and now trades at 1.0540 levels.

During the same time period, the gap between French and German 10-year government bond yield rose from 0.652 to 0.787. Moreover, the French 10-year yield remained more or less steady around 1.085%, while German 10-year dipped from 0.437% on February 1 to current level of 0.301%.

This clearly points to rise in the safe haven demand for the German bunds on account of the political uncertainty in France. Greek crisis redux is also adding to the bearish pressure on the German yields.

Fed minutes could play second fiddle to European politics

Politics could easily overshadow Fed minutes, unless there is a discussion on the downsizing of the Fed’s balance sheet size. Franco-German 10-year yield spread could continue to guide the pair in the short-term.

 


05:49 FOMC minutes will not signal a March rate hike - Deutsche Bank

Deutsche Bank chief US economist Joseph LaVorgna provides some clues on what to expect from the release of Fed’s meeting minutes, noting that he does not expect the Fed to signal a hike for March in the minutes.

Key Quotes:

"We have consistently placed the probability much lower, because Fed policymakers will not have the Q1 GDP report at the time of their meeting and the specific details of a potential fiscal stimulus package will likely not be known.”

“Finally, despite an upward surprise in the January CPI data, inflation pressures are generally muted. Nevertheless, we expect the FOMC minutes to paint a relatively upbeat picture of the economic outlook but stop short of strongly signaling a March rate hike."


05:42 NZD/USD attempts tepid-bounce, regains 200-DMA

The Kiwi is seen extending its recovery mode from yesterday’s massive sell-off, as the bulls received fresh impetus from broad USD softness.

Currently, the NZD/USD pair rises +0.17% to 0.7171, flirting with session highs reached at 0.7176 last hour. The major reverses more-than half of the previous decline as markets resort to profit-taking heading into the release of Fed’s February meeting release, which is expected to throw fresh light on the timing of further rate rises in the coming months.

Moreover, the major is seen consolidating yesterday’s heavy losses incurred on the back of broad based US dollar rebound and a drop in NZ dairy prices, reflected by the GDT dairy auction, which recorded a 3.2% decline.

Meanwhile, markets ignored upbeat NZ credit card spending data, which arrived at +0.2% m/m vs. +3.2% last. In the day ahead, the spot could get affected by the USD dynamics, as investors gear up for the Fedspeaks, US existing home sales data and Fed minutes release.

NZD/USD Levels to consider

To the upside, the next resistance is located at 0.7187 (10-DMA), above which it could extend gains to 0.7232 (20-DMA) and from there to 0.7250 (psychological levels). To the downside immediate support might be located at 0.7147 (50-DMA) and from there to at 0.7124 (100-DMA), below which 0.7100 (round figure) would be tested.

 


05:31 Gold Intermarket: Downsizing of Fed balance sheet could hurt

Fed minutes due for release later today could show a discussion on the downsizing of the Fed balance sheet. Interest rate hike coupled with downsizing of the Fed balance sheet would be a double blow for the yellow metal. 

Gold prices followed the unprecedented expansion of the Fed balance sheet size since 2009. However, prices topped out above $1900 in 2011 after markets realized the expansion of the balance sheet isn’t fuelling sharp rise in inflation. 

The metal dropped to a low of $1050 in Dec 2015 and currently trades around $1230 levels. The yellow metal could take a hit if the Fed does consider downsizing its $4.5 trillion balance sheet. 

As of now, the Fed continues to be a powerful buyer in the markets. During its five years of QE, the Fed has acquired $2.46 trillion in Treasury notes and bonds and $1.75 trillion in mortgage backed securities (MBS). As these securities mature, the Fed buys similar securities as a replacement to keep the balance sheet from shrinking. 

The Fed may stop reinvesting and that would suck liquidity from the markets. Thus, dollar stands to gain, leading to losses in gold. 


05:17 China home prices: Property curbs are having intended effects - BBG

Bloomberg offers insights into the latest Chinese data release, which showed that home prices in China increased last month in the fewest cities in a year.

Key Points:

Signaling property curbs to deflate a potential housing bubble are taking effect

Chinese authorities have expanded curbs on home purchases

And tightened restrictions on property lending

In an attempt to avoid a housing bubble and reduce financial risks

Some bank branches in Beijing, Guangzhou and Chongqing have raised mortgage rates for first-time buyers, people familiar with the matter said earlier this month

Full article here

 


05:06 UKs EEF wants a 5 year Brexit transition period

The Telegraph carried a story on Wednesday that focused on a report published by the Institute of Directors (IoD) as well as by the UK's engineering and manufacturing trade body (EEF), noting the following:

"...  business people must not wait for the outcome of negotiations before undertaking their own planning and consultation in an attempt to minimise the potential for disruption to existing commercial relationships."

Companies should be more proactive than simply responding to the government's consultations and waiting for the result of the negotiations

The IoD study also found that companies have recovered much of the optimism that was lost at the time of the Brexit vote

Walking away from the EU is "not an option"

The EEF wants a transition period, but argues for a longer term lasting "at least" five years


04:57 EUR/USD holds above 61.8% Fib

Broad based weakness in the US dollar in Asia helped the EUR/USD hold above 1.0527, which is the 61.8% Fibonacci retracement of the rally from 1.0340 to 1.0829.

German IFO, Eurozone CPI eyed

German IFO sentiment indices are seen largely unchanged in February. The Eurozone CPI for January could be revised lower to -0.8% m/m from the initial print of 0.5%. The annualised figure is seen unchanged at 1.8%.

A downward revision of the CPI would only add to the bearish sentiment around the common currency.

The focus also remains on the Franco-German yield spread, given the heightened political uncertainty in France. Widening of the yield spread could weigh over the common currency.

EUR/USD Technical Levels

The spot was last seen trading around 1.0550. A break above 1.0561 (Feb 14 low) would expose 1.0594 (5-DMA). The next major hurdle is lined up at 1.0620 (Jan 30 low). On the other hand, a breakdown of support at 1.0527 (61.8% fib retracement) could yield a sell-off to 1.05 (Dec 22 high), under which the losses could be extended to 1.0455 (76.4% fib retracement).

 


04:53 Gold heads back towards $ 1240, Fed minutes in focus

Gold prices on Comex attempts a tepid bounce so far this session, now looking to regain $ 1240 barrier amid mixed market sentiment.

Gold: Back above 5-DMA at $1237.77

Currently, gold trades modestly flat at $ 1238.15, bouncing-off daily lows struck at $ 1235 pre-Tokyo open. Gold caught a fresh bid-wave in Tokyo and recovered most losses, as the greenback takes a back seat across the board, in wake of cautious comments from Fed official Mester on the Fed rate hike prospects.

While subdued trading activity on the Asian indices, with investors turning cautious ahead of more Fedspeaks and FOMC minutes, also buoyed the sentiment around gold somewhat.

The immediate focus now remains on the upcoming Fed minutes release today, as investors await fresh clues on the timing of interest rate hikes. Also, next week’s President Donald Trump's address to Congress will hold the key to determine next direction on the yellow metal.

Comex Gold Technical Levels                                  

The metal has an immediate resistance at 1243.50 (daily R2) and 1250 (round figure). Meanwhile, the support stands at 1234.30 (daily pivot) below which doors could open for 1229.20 (20-DMA).


04:44 BOJs Kuroda: More easing possible if required to meet price target

BOJ Governor Kuroda is back on the wires now, via Reuters, providing fresh hints on the bank’s monetary policy program going forward.

Key Headlines:

Chance of deepening negative rates low for now

BOJ ready to ease further if needed to hit 2 pct inflation target

Japan's economic growth accelerating

Inflation on track to hit 2 pct inflation during fiscal 2018, as we project in our quarterly report

BOJ's JGB buying proceeding smoothly, likely won't face any disruptions ahead

Meanwhile, USD/JPY moved slightly away from lows of 113.33 on BOJ Kuroda’s comments, and now trades at 113.40, still down -0.26%.


04:34 USD/JPY is fast losing height, dips below 10-DMA

The Dollar-Yen pair turned lower after comments from Fed’s Mester underscored the fact that the central banks remains market dependent.

The pair is fast losing weight and was last seen trading below the 10-DMA level by 113.48 levels.

Treasury yields surrendered gains

The 10-year treasury yield, which traded close to two basis points higher earlier today at 2.445% now trades 2.434%. Moreover, yields have given up gains following Mester’s comments.

Fed minutes eyed

Fed minutes may add more color to the strong words on inflation in the policy statement released on Feb. 1. Traders would also scan minutes for comments on the downsizing of the Fed’s balance sheet.

USD/JPY Technical Levels

A break below 113.24 (5-DMA) would expose the psychological level of 113.00, under which the losses could be extended to 112.62 (Feb 17 low). On the other hand, a lift above 113.73 (session high) would open doors for 114.31 (Feb 16 high). The next major hurdle is seen at 114.87 (50-DMA).

 


04:24 GBP/USD rises for 3rd straight session, eyes on UK GDP

The offered tone behind the US dollar gathered steam across the board over the last hours, fuelling further upside in GBP/USD.

The major is extending its winning streak so far this week, with the latest upmove backed by some fresh selling seen in the greenback broadly, in response to Cleveland Fed President Mester’s cautious take on US interest rates outlook in her latest speech.

Fed’s Mester: We have to change policy path if economic outlook changes

While on the GBP-side of the equation, the draft Brexit law has passed its House of Lords 2nd reading without vote and the bill now goes for consideration to its 'committee stage' on February 27. This implies that the UK PM May could trigger the Article 50 by March 31.

Data-wise, we have the UK’s second estimate Q4 GDP data alongside business investment data lined up for release in Europe, while the US has existing home sales data release. Besides, BOE MPC member Cunliffe and Fed official Powell will cross the wires ahead of the FOMC minutes due on the cards later today.

GBP/USD Levels to consider            

The upside barriers are lined up at 1.2527 (Feb 16 high), 1.2550 (Feb 14 high) and 1.2585 (Feb 9 high). While supports are aligned at 1.2471 (10-DMA) and 1.2456 (5-DMA) and below that at 1.2433 (100-DMA).

 


04:05 AUD/USD changed course on Mesters cautious take on interest rates

The offered tone around the US dollar strengthened, pushing AUD/USD higher to 0.77 handle after Cleveland Fed’s Mester sounded slightly cautious on interest rates. 

Mester said the central bank does not intend to surprise markets, which underscored the fact that the Fed is more market dependent than data dependent.  Mester also cited uncertainty on fiscal slide and uncertainty in the global economy. 

Her comments essentially mean that March rate hike is off the table and the central bank would not move unless markets are comfortable - rate hike bets are well above 60%. 

The AUD/USD pair turned changed course and rose to 0.7698 from the session low of 0.7666. Data released earlier today showed China home prices rose in fewest cities in 12 months amid curbs. However, Mester’s comments helped the Aussie dollar erase losses. 

AUD/USD Technical Levels

The spot was last seen trading around 0.7692. An intraday break above 0.77 could yield a break above 0.7632 (recent high) and a rally to 0.7750 (rising wedge resistance). A more sustained rally to 0.7778 (Nov 8 high) - 0.78 (zero figure) could be seen following a daily close above 0.77.

On the other hand, a breakdown of support at 0.7666 (session low) would open doors for a pullback to 0.7600 (zero figure), under which a major support is seen directly at 0.7609 (Jan 24 high). 


 
 


03:57 Feds Mester: We have to change policy path if economic outlook changes

Additional headlines hit the wires from the Cleveland Fed President Loretta J. Mester, extending her talks on the labour market and fiscal policies.

Key Points:

Uncertainty in global economy & European banks

Uncertainty doesn't mean we don't do anything

May be more changes to forecasts in current environment

Do not need fiscal spending to spur aggregate demand

We have to change policy path if economic outlook changes

Some problem areas in labour market


03:48 Irans OilMin: Crude above $60 would ultimately hurt OPEC

Iranian Students News Agency, via Bloomberg, reported comments from the country’s oil minister Bijan Namdar Zanganeh delivered earlier today.

Zanganeh addressed the media after meeting Russian Energy Minister Alexander Novak

Key Headlines:

Crude above $60 would ultimately hurt OPEC because it would spur competitors to boost production and trigger medium-term price decline


03:38 Japans Aso: Not thinking now of issuing negative rate Govt bonds

Japanese finance minister Taro Aso is also on the wires now, via Reuters, noting that the government is not thinking now of issuing negative rate Govt bonds.

No further details have been mentioned on the same.


03:32 China House Price Index declined to 12.2% in January from previous 12.4%


03:26 BOJs Kuroda FX level affects economy & prices

Bank of Japan governor Kuroda, while speaking in parliament, reiterated that the central bank does not predict FX level, although the exchange rate does have an impact on the prices and economy in general.

Kuroda added further that oil prices are unlikely to act as a drag on the CPI going forward.


03:21 Feds Mester Dont want to delay (rate hike) too long

In an interview with Bloomberg, Loretta J. Mester, President and CEO of the Federal Reserve Bank of Cleveland said that delaying rate hikes for too long would increase the risk of being behind market/falling behind the curve.

Key quotes

Gradual rate hikes over time desirable

Comfortable with rates being higher

We are full employment

Inflation is moving up

The devil is in the details when it comes to fiscal policy

Forecast for unemployment is to fall

GDP growth is bit above trend

 

 


03:16 PBOC sets Yuan reference rate at 6.8830

The People's Bank of China (PBOC) set the Yuan midpoint/daily reference rate at 6.8830 compared to Tuesday's fix of 6.8790.


03:01 EZ_ pick-up in economic growth during Q1? - ANZ

Analysts at ANZ explained that the euro area composite PMI index rose to 56 – its highest level since April 2011. 

Key Quotes:

"The increase was mainly driven by a big rise in the services PMI.

At face value, it suggests a pick-up in economic growth during Q1. However, the survey’s price indices remained consistent with only weak inflationary pressures. In contrast, the US flash Markit Manufacturing PMI for February came in weaker than expected at 54.3, with output and new orders both down."

"Nevertheless levels are still elevated compared to historical norms and show that manufacturing output continues to expand. In addition, the inventory data suggests output could pick up in the future with stocks of finished goods dropping. In the UK a smaller than expected budget deficit for January combined with the current account deficit showing some signs of improvement." 


02:47 USD/CNY fix projection: 6.8807 - Nomura

Analysts at Nomura offered their projections for the USD/CNY fix today at  6.8807 

Key Quotes:

"Our model1 projects the fix to be 17 pips higher than the previous fix (6.8807 from 6.8790) and 19 pips lower than the previous official spot USD/CNY close of 6.8826.

The basket implied change is 23 pips lower than the previous official spot USD/CNY close (6.8803 from 6.8826)."


02:44 USD/JPY: steady in 10 pip sell-ff in Tokyo after very bid US stocks

Currently, USD/JPY is trading at 113.55, down -0.05% on the day, having posted a daily high at 113.75 and low at 113.53.

Wall Street closing at all time highs again

USD/JPY is steady in Tokyo in a quiet session following the overnight action where currencies were whippy and markets going at full steam ahead. The stocks met new record highs despite poor economic data in the US PMI's compared to the outstanding EZ PMI's. The yen was slightly lower between a range of 113.40-113.80. We now turn heads to the Fed minutes as the next main catalyst. 

"US: FOMC Minutes. The release should offer some guidance on the prospects of a March hike. Key points of discussion centre on the labour market. This includes the outlook on the undershooting of the natural unemployment rate creating inflationary pressures, the return of people to the labour force as the economy strengthens, and measures of labour underutilisation."

USD/JPY levels

USD/JPY near term outlook is positive while the bulls continue to try and maintain its uptrend at 112.97. Analysts at Commerzbank explained that USD/JPY’s failure at the 55 day ma at 114.98 has been decisive and see the market selloff to its 112.97 uptrend. "We view the recent low at 111.59 as an interim low. A close above the 115.62 19th January high is needed to reintroduce scope to key short term resistance offered by the 16-month resistance line at 117.97."


02:32 Australia Wage Price Index (QoQ) in line with forecasts (0.5%) in 4Q


02:01 Markets spring back to life - ANZ

Analysts at ANZ explained that markets had a much busier session following holidays in the UK and US.

Key Quotes:

"The dollar was firm throughout and retraced its counterintuitive weakness versus the EUR. Stronger than expected euro area data was ignored and the market may be paying increased attention to opinion polls showing that France’s FN leader Le Pen’s popularity is continuing to rise."

"The buoyant global growth environment, healthy US consumer spending and stronger European data was reflected in buoyant equities, with the S&P 500 up 0.5%, the DAX up 1.2% and CAC 40 up 0.5%. Treasury yields pushed a touch higher initially before retreating."

"WTI crude was firm, rising to around $54 bbl as OPEC said they are targeting 100% compliance of the deal."


01:56 Fed s Mester comfortable with rates going higher

Dr. Loretta Mester, President & CEO of the Federal Reserve Bank of Cleveland, talking to CNBC, said she is comfortable with rates going higher, adding that she need to see Trump policies before assessing impact.


01:46 AUD/NZD outlook: headed into a very important area - Westpac

Analysts at Westpac offered an outlook for the antipodean and rates.

Key Quotes:

"AUD/NZD 1 day: The break above 1.0710 brings into sight the very important 1.0670 area (a technical “neckline”). A break above that implies a multi-cent rise is in store.

AUD/NZD 1-3 month: Higher to the 1.0770 area at least. The cross remains well below fair value estimates implied by interest rates, commodity prices and risk sentiment. (17 Feb)

AU swap yields 1 day: The 3yr and 10yr should open around 2.14% and 3.05%, respectively.

AU swap yields 1-3 month: The 3yr has probably based at 1.60%, the RBA expected to sit tight at a 1.5% cash rate for some time. (7 Nov)

NZ swap yields 1 day: NZ 2yr swap rates should open little changed at 2.33%, the 10yr at 3.53%.

NZ swap yields 1-3 month: The RBNZ said it has ended its easing cycle and will remain on hold until 2020. That will anchor the short end, although markets will not abandon their expectations for earlier tightening which means occasional spikes in the 2yr will be likely. The long end will continue to follow mainly US yields, which we expect to rise. That means the curve steepening trend should continue."


01:33 Australia Wage Price Index (YoY) below expectations (1.9%) in 4Q: Actual (0%)


01:33 Australia Westpac Leading Index (MoM): 0% (January) vs previous 0.4%


01:22 NZD/USD: drifting in narrow range between key daily-sma s

Currently, NZD/USD is trading at 0.7160, down -0.07% on the day, having posted a daily high at 0.7168 and low at 0.7159.

NZD/USD has dropped back in the last hourly sticks a small fraction from recent highs and is catching a slight bid. NZD/USD has otherwise been better bid from 0.7132 lows overnight and falling just short of the 50-1hr sma at 0.7167. Fundamental news was cross-supportive - iron ore rising 2.7% to $94.86( the highest since Aug 2014) while the GDT dairy auction recorded a 3.2% decline, eventually taking its toll on the bird. Analysts at Westpac suggest that momentum remains negative and this they are targeting a break below 0.7130 during the days ahead.

NZD/USD 1-3 month:  

The Fed’s tightening cycle plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar, pushing NZD/USD down to 0.7000 or lower. Granted, the NZ economy is strong and dairy prices have risen, but these forces are subservient to the US dollar’s trend.

NZD/USD levels

NZD/USD is in a phase of consolidation on the 4hr sticks stuck in a 15-pip range between 0.7150 and 0.7167. The price has been capped within the descending trend's resistance from 0.7374. A break lower could open up risk to 0.7050 below to 50-day sma at 0.7140. 


00:27 AUD/USD unchanged near 0.7680; RBA s Lowe finally admits household debt risk

Currently, AUD/USD is trading at 0.7674, down -0.01% or -0.5-pips on the day, having posted a daily high at 0.7674 and low at 0.7673.

Today's NA trading session experienced a brief US dollar comeback as treasuries recovered. Furthermore, the Australian dollar vs. American dollar erased losses as the pair bounced off lows near 0.7648.

The AU economic docket had traders and investors prepared to pick any changes in the rhetoric from RBA's Lowe; he finally added more on Australia's household debt. As reported by The Sydney Morning Herald, "It is difficult to quantify this risk, but it is one that is difficult to ignore. High household debt levels could hurt the economy," Governor Philip Lowe commented.

Although the central banker diminished any further rate cuts, there is evidence to expect slow down in the economy as household are pushed to adjust their spending patterns.

AUD/USD analysis: no progress made, but downside still limited

Historical data available for traders and investors indicates during the last 8-weeks that AUD/USD pair, a commodity-linked currency, had the best trading day at +1.18% (Jan.17) or 89-pips, and the worst at -0.81% (Jan.18) or (61)-pips. Furthermore, the US 10yr treasury yields traded from 2.45% to 2.41%, up +0.59% on the day at 2.42% or +0.0143.

Technical levels to consider

In terms of technical levels, upside barriers are aligned at 0.7731 (high Feb.16), then at 0.7777 (high Nov.8) and above that at 0.7834 (high April.21). While supports are aligned at 0.7617 (low Feb.14), later at 0.7512 (100-DMA) and below that at 0.7459 (50-DMA). On the other hand, Stochastic Oscillator (5,3,3) seems to head south. Therefore, there is evidence to expect further Aussie losses in the near term.

audusd

On the long term view, if 0.7834 (high April 2016) is in fact, a relevant top, then the upside is limited at 0.7809 (short-term 38.2% Fib). Furthermore, if the RBA has 'no ammo' nor solid reasons to increase rates in 2017, the interest rate advantage should decrease organically as the Federal Reserve continues increasing rates with 3-hikes in the next 16-months. To the downside, supports are aligned at 0.7433 (short-term 23.6% Fib), later at  0.7182 (reverse long-term 61.8% Fib) and below that back to 0.6826 (low Jan.2016).

audusd

Bond market still not on board with a March rate hike


00:04 Economic wrap: awaiting FOMC minutes - Westpac

Analysts at Westpac offered an economic wrap.

Key Quotes:

"US manufacturing PMI (Markit) slipped from 55.0 to 54.3 (vs 55.4 expected). Still in expansion territory, although the employment component slipped to 52.7 from 53.9 and prices charged also slipped.

Eurozone manufacturing PMI (Markit) rose from 55.2 to 55.5 (vs 55.0 expected). This upside surprise was mainly driven by Germany, while the acceleration in the services PMI was broader based across countries. Job creation was at the highest level since 2007, posing upside risks to inflation as the labour market continues to improve. 

Fedspeak: Harker repeated yesterday’s MNI interview comments, looking for three rate hikes this year, and proclaiming March live (echoing Yellen). Kashkari was non-committal. Williams saw financial stability risks from low-interest rates.

Event Risk

Australia: RBA Governor Philip Lowe sees 3pct GDP by 2019

The Westpac Leading Index survey is running at 1.28% annualised. Positives this month include commodity prices, up 4% in AUD terms; consumer expectations +1.8%; and total hours worked +0.6%. Against this, the ASX200 dipped -0.8%; US industrial production dipped -0.3%; dwelling approvals declined -1.2%; the yield spread narrowing slightly and the unemployment expectations index deteriorated. Overall a consolidation on recent gains looks likely.

Q4 wage price index rose 0.4% in Q3, below market and Westpac's expectations for 0.5%, while the annual pace of wage inflation dipped to 1.9%yr, a record low. Wages are underperforming broader indicators of the labour market. Even if you use the broadest indicator of labour market slack, underemployment, wages growth is significantly softer than what you would expect it to be. We think little has changed hence our 0.4% forecast, which will take the annual pace down to 1.58%yr.

Q4 construction activity slumped in Q3, contracting by 4.9%, as the downturn in mining project work was exacerbated by surprising softness elsewhere. For Q4, we anticipate a modest contraction in construction work, of -0.8%. Private infrastructure work is expected to fall by 6.0%, not greatly different to last quarter, -6.6%. Total private building activity is expected to resume its upward trend, centred on housing, +1%, following a 5.7% drop last quarter. Public construction activity is also expected to resume its uptrend, centred on infrastructure.

US: FOMC Minutes. The release should offer some guidance on the prospects of a March hike. Key points of discussion centre on the labour market. This includes the outlook on the undershooting of the natural unemployment rate creating inflationary pressures, the return of people to the labour force as the economy strengthens, and measures of labour underutilisation.

Fedspeak includes Williams speaking to students and Powell on the economic outlook at the Forecaster’s Club of New York."


00:01 Wall Street closing at all time highs again

Wall Street was rallying on Tuesday and simultaneously closing at records for the second session in a row.

Despite disappointing data from the US economy in the US PMIs, the Dow Jones Industrial Average rose 0.6%, or by 118.95 points, to a record 20,743.00 and this was the eighth straight session of closing records and the longest winning streak since July 20, 2016. The S&P also rose and by 0.6% to close at a record 2,365.38, a gain of 14.22 points. Meanwhile, the Nasdaq Composite Index gained 27.37 points, or 0.5%, to finish at a record 5,865.95.

The US dollar index is around 0.4% higher even after US manufacturing PMI (Markit) that fell from 55.0 to 54.3 (vs 55.4 expected). The employment component also slipped to 52.7 from 53.9.

After the holiday yesterday, US 10yr treasury yields reopened at higher levels and up to 2.46%. However, the 10-year dropped back to 2.41% where it closed on Friday while shorter yields sustained gains, though, the 2yr in a higher 1.20%-1.22% range (vs 1.19% Fri) and the auction awarded at 1.23%, as noted by analysts at Westpac adding that Fed fund futures implied rates were slightly firmer, "The April contract at 0.72%, which implies around a 40% chance of a rate hike in March)."


Data source: FX Street
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