More comments hitting the wires from the US President Trump, as he continues to speak in an interview with Reuters.
Trump tells Reuters bailing out Puerto Rico for "billions and billions of dollars" is not fair to people in US states
Says "if there's a shutdown, there's a shutdown;" it would be Democrats' fault
Says upcoming trade deals will make up for deficits under his tax-cut proposals
The AUD/JPY cross wiped-out gains and fell back into the red zone near 83 handle, following the release of mixed Australian datasets.
The Australian PPI data better estimates, arriving at 0.5% in the reported month, versus 0.3% expectations, while the private sector credit data disappointed, coming in at 0.3% versus 0.5% estimated.
Moreover, the cross came under renewed selling pressure, as the yen regained ground amid moderate risk-aversion persisting in Asia, with the Asian indices trading in negative territory.
Also, the yen markets appear to ignore a slew of mixed Japanese macro news, and continue to benefit from risk-off trades, weighing down on the AUD/JPY cross.
Next of relevance for the cross remains the US GDP data due later in the NA session. In the meantime, risk trends will play a crucial role.
Higher side: 83.84/81 (classic R2/ Apr 25 high), 84.47/50 (Apr 5 high/ psychological levels), 85 (round number)
Lower side: 82.72 (20 & 10-DMA), 82.28 (classic S2/ Fib S3), 82.00 (key support)
AUD/USD remains flat lined around 0.7470 (resistance offered by trend line coming from Mar 21 high and Mar 30 high) following the Aussie PPI release.
The Producer Price Index (PPI) came-in at 1.3% y/y in the first quarter, which is significantly higher than the previous quarter’s 0.7% reading. The quarter-on-quarter reading remained unchanged at 0.5%.
The uptick in the annualised figure suggests CPI inflation may pick up pace ahead, but, the AUD is in no mood to strengthen. Moreover, the data released earlier this week showed a drop in the Australia headline consumer price inflation in the first quarter.
With treasury yields going nowhere, there is little incentive for traders to boost the American dollar. However, things might change later if the US preliminary Q1 GDP betters estimates.
AUD/USD Technical Levels
A break below 0.7455 (Apr 26 low) would open up downside towards 0.7430 (Jan 12 low) and 0.70 (zero figure). On the other hand, a break above 0.75 (5-DMA) would expose hurdle at 0.7522 (10-DMA) and 0.7530 (100-DMA).
Reuters reporting additional headlines from the US President Trump, speaking on North Korea and NAFTA.
US President Trump tells Reuters he will renegotiate or terminate "horrible" trade deal with South Korea
Says he wants South Korea to pay for $1-billion THAAD missile defense system
Tells his administration is in discussions with Israel and Saudi Arabia for possible visits
Says Saudi Arabia has "not treated us fairly," US is losing money defending kingdom
Tells he was "psyched to terminate NAFTA " before telephone calls from Canadian and Mexican leaders
US President Donald Trump, while talking to Reuters in an Oval Office interview ahead of his 100th day in office on Saturday, said “there is a chance that we could end up having a major, major conflict with North Korea. Absolutely” and added “we would love to solve things diplomatically but it’s very difficult”.
China’s central bank, the PBOC injects a net 70 bln Yuan from the market for the week via Open Market Operations (OMOs), versus a net drainage of 170 bln Yuan a week ago, Reuters reports.
Meanwhile, the PBOC injects CNY 40 bln via 7 day reverse repos, CNY 20 bln via 14 day reverse repos and CNY 20 bln via 28 day reverse repos, traders cited.
The steady recovery in NZD/USD pair met fresh supply just below 0.69 handle, with downbeat ANZ business confidence data now pushing the rate towards daily lows reached at 0.6875.
The sentiment around the Kiwi remains weighed down by poor NZ fundamentals, in the wake of below estimates trading surplus figures and weaker business confidence data. New Zealand ANZ Business Confidence down to 11 in April from previous 11.3
Moreover, risk-off seeps back into Asia amid negative Asian stocks and latest comments from the US President Trump on North Korea, keeps any bounce in the risk currency – NZD short-lived.
Further, the spot also feels the heat of a broad based US dollar recovery, as attention now turns towards the key US Q1 GDP data due later in the NA session.
NZD/USD Levels to consider
To the upside, the next resistance is located at 0.6890/0.6900 (daily top/ round number), above which it could extend gains to 0.6920/24 (classic R1/ 5-DMA) and from there to 0.6976/89 (10 & 20-DMA/ 50-DMA). To the downside immediate support might be located at 0.6948 (10-month lows), and from there to 0.6811 (classic S2/ Fib S3), below 0.6750 (psychological levels) would be tested.
The People's Bank of China (PBOC) set the Yuan midpoint rate/reference rate at 6.8931 vs. 6.8896 on Thursday.
Brent oil is trading flat around $52.00/barrel this Friday morning in Asia following a sharp rebound from the 200-DMA level in the overnight trade.
Are we witnessing a repeat of technical pattern?
Over the last eight months, dips below 200-DMA proved to be short lived and were followed by a fresh uptrend as the RSI was oversold/close to being oversold. Such a move was first seen in early Aug 2016 and was repeated November 2016 and March 2017.
Glass half full
The sell-off in Brent from the recent high of $56.62 came to halt at the 200-DMA line earlier this week. Prices dipped below the 200-DMA yesterday, only to recovery sharply by NY closing. So will the rebound from the 200-DMA result in fresh rally as seen in Aug 2016, Nov 2016 and March 2017?
Glass half empty
What is different this time is the fact that the daily RSI is nowhere close to being oversold (below 30.00). The RSI currently stands at 40.00. Hence, it will be interesting to see if the rebound from 200-DMA continues or fizzles out.
Oil traders would closely watch the Baker Hughes weekly US oil rig count report due for release in the late NY session today.
Brent Oil Technical Levels
A break above $52.13 (previous day’s high) would open doors for $52.60 (resistance offered by Jan 2016 low and Nov 2016 low) and $53.00 (zero levels). On the other hand, a breakdown of support at $51.37 (200-DMA) would expose support at $50.88 (Mar 13 low) and $50.44 (Apr 27 low).
In a Reuters’ interview, the US President Trump warns that there is a chance of "a major, major conflict with North Korea."
There is a chance of "a major, major conflict with North Korea"
North Korea is his biggest global worry
Would like to resolve North Korea situation diplomatically "but it's very difficult"
Chinese president Xi "is doing everything in his power" to help with North Korea situation
He credits North Korean leader Kim, "Not many 27-year-old men could go in and take over a regime"
After the US President Trump agreed not to terminate the NAFTA at the current time and expressed optimism about winning better US terms in a renegotiated deal on Thursday, the Canadian PM Trudeau and Mexican President Nieto showed their willingness to negotiate NAFTA with Trump early Friday.
Analysts at Nomura offered their projections for today's USD/CNY fix.
"Our model1 projects the fix to be 88 pips higher than the previous fix (6.8984 from 6.8896) and 62 pips higher than the previous official spot USD/CNY close of 6.8922. The basket implied change is 72 pips higher than the previous official spot USD/CNY close (6.8994 from 6.8922)."
Livesquawk reports latest headlines from the RBNZ, after the central bank published its latest banking industry newsletter.
Remains concerned over high house prices
Expects debt-to-income consultation paper within 6 weeks
Full text here
Following are the headlines from RBA board member Ian Harper, from an interview with the Wall Street Journal (WSJ) published late-Thursday.
Harper said he was upbeat about recent growth in fulltime employment and a rise in hours worked across the economy
"These latest figures [for March] are an encouraging sign that maybe the weakness in the labour market is beginning to turn"
Mr. Harper said the increased focus on employment was linked directly to concerns that softness in the job market could stymie already record low wages growth, and hold back rises in inflation
"While the labour market is weak, wages growth will be low, and while wages growth is low you can't expect to see much of a pick-up in inflation"
US Secretary of State Rex Tillerson, while speaking to Fox News, said China has asked North Korea not to conduct any more nuclear tests; else it would impose unilateral sanctions.
“We were told by the Chinese that they informed the regime that if they did conduct further nuclear tests, China would be taking sanctions action on their own”, said Tillerson.
So far there has been no confirmation from Beijing.
The JPY bulls retain control following a slew of mixed Japanese economic data released last hour, fuelling fresh supply in USD/JPY, in an attempt to cap the recovery once again near 111.35 levels.
Japan’s national CPI, industrial production and household spending missed expectations, while the Japanese retails sales, jobs and Tokyo CPI figures came in stronger-than expectations. However, the Japanese macro news painted a mixed picture of the economy, leaving markets largely unimpressed.
The spot caught a fresh bid tone last hour, in response to the extension of broad USD, with the USD index now breaking higher above 99 handle. Markets looked past yesterday’s downbeat US dataflow, as focus shifts towards the much-awaited US advance Q1 GDP report and revised consumer sentiment data, which will wrap up an eventful week.
However, the upside attempts remain capped amid negative Japanese stocks, which boost safe-haven flows into the yen. Meanwhile, markets digest the Japanese data dump and look forward for fresh impetus from risk sentiment ahead of the US macro news due later in the NA session.
USD/JPY Technical levels
A break above 111.60 (Apr 27high) would expose 111.78 (4-week tops) and 112 (round figure). On the other hand, a breach of support at 111 (key support) could yield a test of 110.88 (5-DMA) and 110.01/00 (10-DMA/ zero figure).
Currently, EUR/JPY is trading at 120.86, down -0.09% on the day, having posted a daily high at 121.09 and low at 120.77.
US: Don’t Entirely Dismiss the Weakness in Q1 GDP - Nomura
EUR/JPY has been inching to the downside and testing the bull's commitments at the 120.80 level in early Asia. In Tokyo, the mood is equally subdued. The main event for the euro crosses was, of course, the ECB, and while the ECB stuck to their guns, many were disappointed that they did not comment on monetary policy in respect to a possible exit from its ultra-loose monetary policy. Meanwhile, the BoJ was more optimistic in its growth forecast but less so on inflationary pressures and markets are now back to US fundamentals and awaiting tomorrow's GDP outcome for first estimates of the performance in Q1.
Analysts at Commerzbank explained that so far EUR/JPY shot up to its current April high at 121.90, close to the five-month resistance line at 122.25 which represents our next upside target. "While no rise above the next higher March peak at 122.88 is seen the gap with last week’s high from 119.00 to 117.81 is still to be at least partially closed. Medium term the cross should still target the 112.62 October 2016 low and the 112.53 2012-2017 support line, which we look to hold and provoke reversal longer term, provided that no weekly close above the December high at 124.08 is made."
Japan’s core consumer price index (CPI) rose for the third straight month in March, following 12 months of contraction, although the uptick was slightly less than expected.
The core CPI, which excludes the cost of fresh food, rose 0.2% y/y in March as opposed to the expected figure of 0.3%. February print was 0.2%. Core CPI, which excludes both food and energy dropped 0.1%, compared to 0.1% growth seen in February.
The fact that the core CPI stalled in March adds credence to the peak inflation argument and BOJ’s downward revision of the FY 2017/18 core CPI forecasts.
Spending continues to fall
Household spending contracted 1.3% y/y in March, which was a slight improvement following February’ 3.8% fall. The markets were expecting a drop of just 0.3% in March. Meanwhile, job-to-applicant ration inched higher to 1.45; the highest level since 1974.
Currently, AUD/USD is trading at 0.7465, up 0.01% on the day, having posted a daily high at 0.7473 and low at 0.7462.
Forex today: trading political and Central Bank ricochets, awaiting US GDP
AUD/USD is currently sidelined in early Asia while markets await the next catalyst in US GDP tonight. The Aussie was -0.03% down at 0.7472 within a range of 0.7440-0.7492 during the US session and it doesn't look anymore lively for today. The US data came with durable goods orders that rose 0.7% in March (vs 1.3% expected), with ex-transport orders falling 0.2% - the first decline since June 2016. Wholesale inventories fell 0.1% (vs +0.2% expected). Analysts at Westpac explained that the earlier break below the 0.7500-0.7600 range has been sustained, and targets the 0.7400 area; "The US Administration’s trade protectionist policies are weighing."
AUD/USD 1-3 month:
The same analysts at Westpac noted that the modestly weaker than expected Australian CPI outcome has added yet another factor capping the AUD/USD and softer commodity prices; "a more protectionist stance from US President Trump, and higher US yields if the Fed raises rates in June as we expect. These leave the AUD/USD with strong resistance at 0.76. We expect to see it heading towards 0.74 by year end, (26 Apr)."
Valeria Bednarik, chief analyst at FXStreet explained that the technical indicators have barely bounced from oversold readings, " Additional declines will likely depend on of Asian markets' behaviour and the above mentioned macroeconomic releases. Should the pair challenge the mentioned daily low, the main bearish target comes at 0.7250 a mid-term strong static support."
Currently, NZD/USD is trading at 0.6881, up 0.07% on the day, having posted a daily high at 0.6885 and low at 0.6872.
New Zealand Trade Balance (YoY) rose from previous $-3.79B to $-3.67B in March
NZD/USD is slightly bid in a quiet session so far in early Asia with the release of the trade balance. Meanwhile, from the US session, the bird was down by -0.1% within a range of 0.6848-0.6921 at 0.6883 up to the close. The US data was mixed with durable goods orders that rose 0.7% in March (vs 1.3% expected), with ex-transport orders falling 0.2% - the first decline since June 2016. Wholesale inventories fell 0.1% (vs +0.2% expected).
Analysts at Westpac noted that the kiwi was breaking lower and targeting the 0.6800 area next. The US Administration’s trade protectionist policies are weighing.
NZD/USD 1-3 month:
The analysts at Westpac expect that 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 towards 0.6900. "The RBNZ’s persistent reminders it is on hold for a long time should also weigh."
NZD/USD has broken the critical support level at 0.6933/50 and has challenged the support of the 0.6885 mark down to 0.6841 as being the recent previous low as of the European session. Next support is down to 0.6675 as the 29th May 2016 high on a break of the 0.67 handle. On the flip side, a run back on t the 0.70 handle, the previous bulls have the 17th April highs of 0.7035 is sight protecting 0.7060/70 and recent high today around the 200-d ema (0.7067). There is a double bottom at 0.7130 as the mid-Feb lows.
Analysts at Scotiabank noted that the BoJ made no policy changes and no material adjustments to its growth and CPI forecasts.
"Relative central bank policy remains bearish for JPY, with downside risk on the back of a renewed widening in interest rate differentials.'
"Measures of implied JPY volatility are softening, and risk reversals hint to an erosion in the premium for protection against JPY strength. We remain bearish JPY."
"We look to gains through the 50 day MA and this week’s high in the 111.80 area, toward 112.50. Near-term support is expected at 111."
Analysts at Nomura explained that there were developments on the US politics front this week.
"The Trump administration stepped up its rhetoric on tax reform, presenting a modest set of guidelines for tax reform yesterday, which were scant on details.
The key elements included a reduction in the top corporate tax rate from 35% to 15%, a shift to a territorial system for corporate taxes, a temporary tax reduction for the repatriation of profits earned abroad, a reduction in the number of personal tax brackets and a decline in the top rate to 35%. That said, the details provided were insufficient to assess the budgetary impact.
According to our US economists, the announcements do not change their expectations that only modest tax cuts with little reform will end up being passed by Congress."
Analysts at UOB noted that the Trump administration outlined its long-awaited tax plan on Wednesday – slashing the federal income tax rate to 15% for corporations from the current rate of 35%.
"It also levies a one-time tax on an estimated $2.6 trillion in profits that U.S. multinationals have stashed away overseas. The plan would also adopt a territorial tax system, which means most profits earned overseas would not be subject to U.S. taxes. Trump’s plan also seeks to streamline the nation’s inefficient tax system, including cutting the number of income tax brackets from seven to three. It would also eliminate tax deductions with few exceptions.
Overall, the plan offered too few details to immediately assess its economic impact. Trump’s goal of reforming the nation’s tax code is expected to face fierce resistance among congressional Democrats and even members of his own Republican Party, who are divided about whether the plan should be “revenue neutral”. The one-page summary of the tax plan said the Trump administration will hold listening sessions with stakeholders and continue working with both houses of Congress during the month of May."
Analysts at Westpac offered their outlook for today's event risks.
Australia: Mar private sector credit is forecasted to be 0.4% following a softer start to 2017 due to the volatile business segment. Housing is expected to be similar to Feb’s 0.57% ahead of the impact from regulation. Q1 PPI is forecasted to be 0.5% with a stronger AUD offsetting rising energy costs.
Japan: Mar CPI is out. Inflation has recovered of late to 0.3%yr in Feb with core a touch softer at 0.2%yr.
Euro Area: Apr CPI (advance) follows a pullback in Mar with headline inflation falling to 1.5%yr from 2.0%yr. Core CPI fell, but to a lesser degree, moving to 0.7%yr from 0.9%yr.
US: Q1 GDP is forecasted to be 1.6% annualised vs market expectations of 1.0%. A softer consumer and still subdued business investment are the key themes with partials indicating a weaker quarter, while inventories should also subtract. Note that Nowcasts point to risks being greater than normal. Fedspeak includes Brainard on Fintech and Harker on STEM education."
Analysts at Nomura explained that with spending data pointing to decelerating economic growth, we expect the Bureau of Economic Analysis (BEA) to report that Q1 GDP growth slowed to 0.2% q-o-q saar (Consensus: 1.0%) from 2.1% in Q4.
"Based on data that came out this week, our Q1 estimate was lowered by 0.8pp from our previous forecast of 1.0%.
Although several special factors cloud the Q1 picture and increase the uncertainty surrounding our Q1 forecast the weakness cannot be entirely dismissed. Growth in spending over the past few months was sluggish, and our Q1 GDP tracking estimate has been hovering below 1.0% q-o-q saar since the end of March. Similarly, the Atlanta Fed’s GDPNow tracking estimate has been below 1.0% since 5 April.
Today’s trade and inventory data from the March Advance Economic Indicators Report by the Census Bureau, on balance, lowered our tracking estimate. The advance estimates of both retail and wholesale inventories for March were weaker than expected. Plus, February wholesale inventories were lowered. These readings imply weaker than expected inventory accumulation in Q1. Previously, we had expected some pick-up in inventory buildup in March as a result of weakness in final sales, but that was not the case.
The advance estimate of March goods trade deficit was slightly narrower than we anticipated, but this was not enough to offset the drag from inventories. Additionally, incoming information suggests that the BEA will not incorporate annual revisions to retail sales into the advance estimate of Q1 GDP. After annual revisions to retail sales lowered core retail sales in Q1, we revised down our tracking estimate to 0.8% from 1.0% on Wednesday.
The reversal of the impact of these revisions on our Q1 GDP tracking model was positive to our tracking estimate. Combining these developments this week, we lowered our Q1 GDP tracking estimate by 0.6pp to 0.2% q-o-q saar from 0.8%."
Analysts at Westpac explained today that the ECB remained on hold and retained its easing bias, disappointing those expecting hints that a QE tapering signal may be in the pipeline.
Global market sentiment: The ECB remained on hold and retained its easing bias, disappointing those expecting hints that a QE tapering signal may be in the pipeline. German interest rates fell in response, and US rates fell in sympathy.
Interest rates: US 10yr treasury yields fell from 2.32% to 2.28% following the ECB, while 2yr yields fell from 1.28% to 1.25%. Fed fund futures yields slipped, now pricing a June rate hike as a 75% chance (from 80% yesterday).
Currencies: The US dollar index initially rose and fell for little net change. EUR fell from 1.0920 to 1.0853 and then recovered to 1.0880. USD/JPY eked a sideways range of 111.05-111.57. Commodity currencies were again under pressure, coinciding with the Trump Administration’s latest attack on imports – aluminium. AUD made a fresh four-month low of 0.7440 before rebounding to 0.7470 in NY. NZD similarly fell to 0.6848 – an 11-month low – before recovering to 0.6880. AUD/NZD rose from 1.0820 to 1.0876.
The ECB left its policy rates unchanged, maintained its QE schedule at EUR 60bn per month for the remainder of the year, and retained its implicit easing bias. Draghi did not give any hints a QE tapering signal may be forthcoming at the June meeting, saying said there had been no discussion of exit strategies.
German HICP inflation jumped from 1.5% to 2.0% in April, mainly due to Easter effects. Some payback in May is likely, but combined with other survey measures of inflation pressures suggests a rising trend.
US durable goods orders rose 0.7% in March (vs 1.3% expected), with ex-transport orders falling 0.2% - the first decline since June 2016. Wholesale inventories fell 0.1% (vs +0.2% expected)."
After rising 200 pips above Friday's closing level during the first three days of the week, the EUR/USD pair is marching towards a negative daily close for the second time in a row. Hurt by Draghi's comments, EUR/USD slipped to mid-1.08's on Thursday and found support there. The pair went into a consolidation phase afterward and is trading at 1.0870, down 0.3% on the day.
The ECB didn't make any changes to its monetary policy. The only somewhat surprising factor was a slight change to the wording of Draghi's pre-prepared opening statement. Instead of 'moderate,' Draghi said that the recovery in the euro area was broad-based and strong.
However, he also highlighted that the Governing Council hadn't discussed a QE exit strategy and repeated that they could extend the QE beyond 2018 if it were deemed necessary. Following Draghi's statements, Euro bulls lost control of the market.
The only noteworthy data for the euro tomorrow will be the retail sales change from Germany. Later in the day, the GDP growth from the U.S., which is expected to ease to 1.3% from 2.15 (YoY) for the first quarter of 2017, will be watched closely by the participants.
The initial support for the pair could be seen at 1.0850 (daily/yesterday's low) ahead of 1.0785 (200-DMA) and 1.0740 (Mar. 29 low). To the upside, resistances align at 1.0900 (psychological level), 1.0950 (Apr. 27 high) and 1.10 (psychological level).
Data source: FX Street
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