HotForex Forex News

19:24 Fed s Dudley puts March on the table - UOB

Analysts at UOB explained that the Fedspeak overnight was overall hawkish.

Key Quotes:

"Dudley (voter) said the case for tightening is now ‘a lot more compelling’ and a rate hike is likely in ‘relatively near future’."

"Williams (nonvoter) said a rate increase is up for ‘serious consideration’ at the March meeting."

"Harker (voter) reiterated his view that the Fed could raise rates three times this year."

"All in, the odds of a 25bp rate increase in the March FOMC has increased to 52% overnight from 50% a day earlier, as measured by Fed Funds futures."


19:04 GBP/USD: Brexit weighs and Fed s Dudley sparks March risks for a Fed hike

Currently, GBP/USD is trading at 1.2324, down -0.69% on the day, having posted a daily high at 1.2413 and low at 1.2281.

Brexit battle lines drawn as UK readies divorce papers - Reuters

GBP/USD is on the back foot on Brexit concerns and a resurgence of the dollar. In respect of UK data, we got a stronger-than-expected Feb House price data from the “Nationwide” lender (+0.6%), on expectations consumer credit data for Jan (+GBP1.4bn) but weaker than expected Feb manufacturing PMI (54.6 versus 55.8 expected and 55.7 in Dec), as explained by analysts at Scotiabank, adding:

"Uninspiring data and broader strength in the USD leave the UK a relative under-performer on the day. We think Brexit risks and uncertainties remain a potential drag on the GBP and expect Cable to retest the 1.20 area in the next few weeks as the process moves towards a formal exit from the EU".  Meanwhile, the US dollar is firm on the back of Fed Dudley's recent remarks that March is a likely timeslot for a Fed hike and the market has priced it in. 

GBP/USD levels

The analysts at Scotiabank explained that GBP/USD short-term technicals are bearish and how Cable has dropped out of the low end of the Feb consolidation range. "After trading consistently between 1.2385/1.2580 through last month, weakness implies immediate risk to the 1.2180/85 area", they think. Meanwhile, the outlook is technically bearish below the 4hr 20 and 50 smas clustered below 1.2480.
 


18:49 Brexit battle lines drawn as UK readies divorce papers - Reuters

According to the latest wires, via Reuters, Prime Minister Theresa May says she will file Britain's divorce papers this month. The stage has been set and the future of 65 million Britons and citizens of the other 27 EU states is about to change for the generations to come.  

Key Highlights:

•The EU-27 face politically loaded decisions at a summit expected in April that could set out: what London must settle first - potentially an "exit bill" worth tens of billions of euros; what it must wait for - say talks on a UK-EU free trade deal; and how negotiations will be structured.

•Some see poorer eastern European states, already at odds with the rich powers on various other issues, as particularly vulnerable to London courting them with money - Brexit will blow a hole in the EU's subsidy budget.

•Michel Barnier noted two relevant areas to discuss, one area is what Britain owes - not a final number but how it will be calculated come 2019. Other EU nations want it to pay its share of spending commitments agreed when it was a member. The second area is what rights, of residence, welfare and so on, Britons now living in the EU and Europeans living in Britain may retain after Brexit.

Meanwhile, the GBP/USD pair navigates bearish waters as the cable subjugated to the US dollar and, as of writing, breaks below its 50-DMA and 100-DMA near 1.2320.


18:23 Yen pressured on yields, but watch the squeeze - Scotiabank

In respect of the Yen, analysts at Scotiabank explained that relative to central bank policy appears to be dominating once again, with an impressive widening in the 2Y U.S.-Japan spread toward 155bpts at levels last seen in 2008. 

Key Quotes:

"The move in fundamentals has offset the recent support delivered by sentiment that had pushed JPY toward the February 7 high at the upper end of its multi-month range. 

JPY’s risk profile leaves it vulnerable to knee-jerk, haven-driven gains in periods of risk aversion."

"CFTC positioning in JPY remains bearish, putting JPY shorts at risk of a squeeze."


 


18:13 NZD/USD: bears clearing pathway to previous double top zone 0.7030/50

Currently, NZD/USD is trading at 0.7124, down -1.10% on the day, having posted a daily high at 0.7206 and low at 0.7100.

NZD lost 0.7% overnight with the markets brushing off a strong-terms of trade in favour of RBNZ Wheeler expressing great concern about Trump and trade. In terms of data, NZ Q4 Terms of Trade rose by +5.7%/qtr (mkt 4.0%).  Export volumes fell 5.8%/qtr while import volumes rose 1.2%/qtr and so net trade eats into the analysts at TD Securities GDP forecast (from +1.2% to +0.9%). 

"In an unusual interview before his (newly announced) speech tomorrow, RBNZ governor Wheeler raises concerns on the new Trump administration’s protectionist policies," explained the analysts, adding, " He was quoted that even if NZ exports to US are not tariffed, NZ will be hit by the downturn in the global economy and spillover effects from changes in trade flows. NZD weakened and underperformed on this sentiment."

US: Trump’s plans for fair trade sound like a border tax adjustment - ING

NZD/USD levels 

NZD/USD is testing the 0.7120 support line and has already seen some territory below the 0.71 handle at the aforementioned low exposing the bull's lack of commitment at the handle for a run to 0.7030/50 and the previous double top zone. The upside, 0.7180, 0.7204 and 20 day sma guards 0.7250 and 0.7374 6th Feb highs. 

AUD/USD down 45-pips from highs; short-sellers targeting 0.7615


18:05 US Personal Income and Spending: Good on the surface, weak overall - Wells Fargo

According to analysts from Wells Fargo, despite the good headline, taking into account inflation, the report shows a weak start of the year in personal income and spending.

Key Quotes: 

“Although disposable personal income increased 0.3 percent during the month, the same rate it did in December, real disposable personal income dropped 0.2 percent in January versus an increase of 0.1 percent in December.”

“Personal spending increased only 0.2 percent in January versus a very strong, 0.5 percent, increase in December. However, real personal consumption expenditures (PCE) were down 0.3 percent during the month. This weakness in spending may be a consequence of warm weather during January.”

“Thus, we may see a rebound in the coming months. However, it is not a minor issue for PCE, as it was the weakest performance since January of 2014. That said, we have become used to seeing weak PCE growth during the first quarter of the year since the recovery from the Great Recession. However, this time around it was due to a relatively “new” post Great Recession phenomenon: stronger inflation.”

“Although the first month of the year was disappointing for PCE, we are still encouraged by the strong increase in consumer confidence and the potential effects of this measure on consumer expenditures going forward.”


17:51 WTI leaps to highs above $54.00 post-EIA

The barrel of West Texas Intermediate has recovered the smile on Wednesday, advancing to fresh highs beyond the $54.00 mark following the latest EIA report on crude inventories.

WTI in 2-day peaks on EIA

Prices for the American benchmark of the sweet light crude oil has advanced through the critical $54.00 barrier after the EIA reported US supplies increased less than initially estimated during last week.

EIA informed that crude oil inventories rose by just above 1.5 million barrels during last week vs. a forecasted build of more than 3 million barrels. In addition, Gasoline inventories dropped by more than 500K barrels and supplies at Cushing rose by almost 500K barrels.

The barrel of WTI climbed as high as the $54.40 area following the release, just to lose some ground soon afterwards as the firm note around the buck keeps capping potential bullish attempts.

WTI levels to consider

At the moment the barrel of WTI is gaining 0.19% at $54.11 and a surpass of $54.42 (high Mar.1) would open the door to $54.61 (high Feb.27) and finally $54.94 (high Feb.23). On the downside, the next support lines up at $53.49 (20-day sma) followed by $53.18 (low Feb.28) and then $53.03 (55-day sma).

 


17:47 China: Strong Q1 but slowdown still expected - Danske Bank

Analysts from Danske Bank point out that data is showing a robust first quarter in China, but they warn about tentative signs of a peak.

Key Quotes: 

“PMI manufacturing in February rebounded from the decline in January but overall looks toppish. We expect PMI to decline gradually during 2017 as the boost from housing and infrastructure fades. The export sector serves as a buffer as it is supported by a weak CNY and robust US and European growth.”

“PMI for February rebounded but still in line with top in the cycle in Q1. Chinese leading indicators have pointed to a peak in the cycle for some time.”

“We look for a moderate slowdown during 2017 as the leading indicators support: 1. Slowing housing market 2. Fading boost from infrastructure”.

“Exports serve as a buffer as they are underpinned by (a) stronger global growth and (b) a weaker CNY. Main risk is a hit to exports in case of a trade war with the US. Monetary policy has been tightened moderately but we don’t expect a lot of tightening this year as the cycle fades and inflation is still low.”

 


17:35 EUR/USD rebounds from 1-week lows

EUR/USD bounced to the upside during the last hours after the rally of the US dollar across the board lost strength. The pair bottomed earlier at 1.0512 hitting the lowest level in a week and currently is trading at 1.0535/40, still in negative territory for the day. 

The recovery from the lows was capped by the 1.0545/50 area the continues to be an important intraday resistance. Greenback still holds a bullish tone in the market for the day, but momentum eased. 

The lastest round of US economic data showed a reading of 54.2 in the Market PMI manufacturing index and the ISM rose from 56.0 to 57.7; construction spending fell 1.0% in January surprising market analysts that expected an increase of 0.6%. 

Levels to watch 

To the upside, resistance levels might be seen at 1.0545/50, followed by 1.0585/90 (daily high) and 1.0615/20 (Feb 24 high). On the downside, support could be located at 1.0520, 1.0490/95 (last week low) and 1.0455 (Jan 11 low). 

A daily close below 1.0530 would be the lowest since January 4 and from a technical perspective would add pressure to the 1.0500 handle. A consolidation below 1.0500, could open the doors for a test of December lows. 

EUR/USD


17:31 United States EIA Crude Oil Stocks change came in at 1.501M below forecasts (3.079M) in February 24


17:24 AUD/USD down 45-pips from highs; short-sellers targeting 0.7615

Currently, AUD/USD is trading at 0.7651, down -0.04% or (3)-pips on the day, having posted a daily high at 0.7699 and low at 0.7636.

The Australian dollar vs. American dollar drifted towards the 0.7650 region after 3-consecutive failed attempts to break above 0.77 which translate into a critical resistance level. On the data front, the ISM Manufacturing PMI clocked a positive result at 57.7 or +1.1 above both consensus and previous.

Recession avoided, but for how long?

Dana McCauley reported on the latest growth figures in Australia, "The national accounts released today reveal that Australia’s economy grew by 1.1% in the last quarter, after slipping 0.5% in the three months to December 1."

McCauley further writes, "Australia’s terms of trade — the ratio of the nation’s export prices to its import prices grew by 9.1%, thanks to strong price rises in coal and iron ore, marking a 15.6 per cent improvement on the December 2015 quarter. The nation’s GDP has now grown 2.4 per cent through the year, while its nominal GDP evaluated at current market prices grew by 3.0% to be 6.1 per cent higher."

AUD: Supported by the strong GDP numbers - BBH

Historical data available for traders and investors indicates during the last 9-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 2.46% to 2.39%, up +2.70% on the day at 2.45% or +0.0645.

Technical levels to consider

In terms of technical levels, upside barriers are aligned at 0.7740 (high Feb.23), 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 0.7516 (100-DMA) and below that at 0.7457 (low Jan.16).

On the other hand, Stochastic Oscillator (5,3,3) seems to shift direction 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, RBA's Lowe removed from the table any further 'easing' via rate cuts, however, the interest rate advantage that favors the Aussie 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: losing attractive, but bearish only below 0.7600


17:15 GBP/USD weaker, struggling to retake 1.2300 and above

The selling bias around the Sterling is picking up extra pace today, sending GBP/USD to test fresh 6-week lows in the 1.2280 area albeit finding some bids afterwards.

GBP/USD attention to US data

The pair is following south the rest of the risk-associated assets against the backdrop of a better sentiment around the buck.

Supportive Fedspeak has given extra wings to market expectations of a Fed rate hike at its meeting later in the month, sustaining the sharp move in US yields and in turn bolstering the up move in the greenback. New York Fed W.Dudley (permanent voter, centrist) said on Tuesday that the case for further (Fed) tightening is ‘compelling’, adding to the recent views by FOMC’s Kaplan and Harker.

According to CME Group’s Fedwatch tool, the probability of higher rates this month have climbed to nearly 70%, up from just above 30% the previous day.

Data wise, Markit’s Manufacturing PMI came at 54.2 for the month of February while the more relevant ISM Manufacturing surpassed estimates at 57.7 during the same period.

GBP/USD levels to consider

As of writing the pair is losing 0.60% at 1.2306 and a break below 1.2281 (low Mar.1) would aim for 1.2250 (low Jan.19) and finally 1.1979 (2017 low Jan.19). On the flip side, the initial up barrier aligns at 1.2410 (100-day sma) followed by 1.2474 (20-day sma) and then 1.2572 (high Feb.24).


17:09 USD/CAD spikes to fresh session peak after BOC and US ISM

The USD/CAD pair regained traction and spiked to fresh multi-week tops following BOC monetary policy decision. 

Currently trading around 1.3440-35 region, the pair caught fresh bids after BOC maintained status-quo, and left key benchmark interest rates unchanged at 0.5%. The decision was on expected lines, but the pair managed to attract some follow through buying interest amid solid greenback performance.

Against the backdrop of growing expectations of an imminent Fed rate-hike move at its next meeting on March 14-15, upbeat release of the US ISM manufacturing PMI supported the strong bullish sentiment surrounding the greenback, with the key US Dollar Index holding steady closer to session peak, just shy of the 102.00 handle. 

Meanwhile, a positive trading sentiment around oil markets, with WTI crude oil trading with gains of around 0.5%, failed to lend any support to the commodity-linked currency – Loonie, with the USD price dynamics being an exclusive driver of the pair’s strong up-move for the third consecutive session.

Technical levels to watch

Immediate support is seen at 100-day SMA near 1.3275 region, below which the pair is likely to head back towards 50-day SMA support near 1.3210 region with some intermediate support near 1.3240-35 area. On the upside, momentum above mid-1.3300s now seems to pave way for continuation of the pair's strong up-move further towards 1.3400 handle, en-route 1.3430-35 horizontal resistance.

 

 


17:09 A wave of populism-nationalism is sweeping across the world - BBH

Analysts at Brown Brothers Harriman explained that the conventional narrative is that in the aftermath of the Great Financial Crisis, the economic and political elites in Europe and America are in dispute.  

Key Quotes:

"They simply not delivered the goods, namely a rising living standard for a majority of people.   

A wave of populism-nationalism is sweeping across the world.  It is at once a rejection of the liberal globalism that had been drifting toward the end point of a world government and crystallization of a new national identity. 

There is an alternative scenario. The rise of populism-nationalism is really two responses to the economic and financial crisis.  

The first response was the UK’s referendum to leave the EU and the election of Donald Trump as the US 45th President. These were not populist-national victories.  These were the center-right party in essentially two-party system embracing the at least party of the populist-nationalist agenda. UKIP did not win.  In fact, shortly before the June 2015 referendum, the Conservatives unexpectedly won a majority in the House of Commons.  

In the US, the Republican Party initially resisted Trump’s insurgency candidacy, but later embraced it. This is different from what the Democrats did in 1972.  Then the party nominated a left-wing populist George McGovern. The elites refused to support their party’s candidate, and he went down in flames to Nixon.

Europe has a different response.  The populism-nationalism there is anti-EU and anti-immigration. The level of unemployment in the eurozone is nearly twice that in the US and UK.  Austerity and the influx of immigrants are being blamed on both the distant Brussels elites and the domestic elites. Le Pen wants to preserve the social safety net for French citizens but thinks Brussels is preventing it.  

In no European country is the center-right embracing the populist-nationalist parties.  To the contrary, they are running against them, and no coalition is possible between say the French Republicans and the National Front or between Germany’s CDU and the AfD.  

The most likely scenario is that in the three scheduled elections in the EMU this year (Netherlands, France, and Germany) the populist-nationalist alternative is defeated and is not represented in government.  It is not clear how much sustained influence they will have on the national dialogues.  

Trump has backed away from some of his more extreme international positions, like eschewing the one-China policy, citing China as a currency manipulator on day one and reducing its commitment to the NATO. Instead of pulling out of the World Trade Organization, the US Administration appears to be looking for ways go around its rules.  

Now that the confirmation hearings are over, and the senior economic team is largely in place, examples of talking the dollar down are few and far between. Treasury Secretary Mnuchin is likely to be warned by many of his counterparts at the G20 meeting of finance ministers and central bankers in mid-March to avoid violating the arms agreement in the foreign exchange market:  do not seek export advantage by talking the currency down, or making the dollar an object or target of policy.  

It may also have to be explained that a strong dollar does not refer to any specific level. It does not mean that it is difficult to counterfeit, as former Treasury Secretary Jack Snow once suggested. It means that the US won’t use the dollar as a trade weapon or as a way to reduce its debt burden.  

The dollar was at the center of Bretton Woods’ currency arrangement. It has also been the main reserve asset, one side of more than 90% of foreign exchange trades, and the currency that many commodities are priced and traded in the floating exchange rate era.  

There are two broad scenarios that can change this. The first is a clear, viable, and compelling alternative.  It does not exist today.  Some had thought the euro could be it.  It is not.  The euro is the second most important currency on various metrics, but in many, like use as reserve assets, or turnover in the foreign exchange market, the dollar is more than twice as large. Some talk as if the Chinese yuan can rival the dollar.  Perhaps one day, but it is not just years but decades off.  

The second way the dollar can be dethroned is if the political and economic elite abdicate. The American First and the transactional/mercenary thrust does speak to the US pulling back from the sprawling reaches of the projection of its power. However, like the 1920s and 1930s that are harkened back to, the new American First is more about is more about unilateralism than isolationism.  

The US under President Trump is changing its leadership style, but the liberal order is resilient, in good part because ultimately it is in the US (and many others’) interest.   The trade-off may be the domestic issues become less liberal. The price of holding off the populist-nationalists in Europe also seems to be a shift to the right on domestic issues.   The dollar remains numeraire."


17:01 Canada BoC Interest Rate Decision in line with expectations (0.5%)


17:00 Technical blow in 4hr GBP/USD chart

The set-back taking place in GBP/USD has resulted in a crossover of the 50-period below the 200-SMA.

Under this signature, the 4hr technical picture for GBP/USD remains fragile. However, the risks for a short-squeeze rally also exist, which may commence upon a decisive daily close above today's open. In this scenario, a degree of supply could materialize with a price reaction to the pivotal level charted through the crossover.

17:00 United States ISM Manufacturing PMI came in at 57.7, above expectations (56) in February


17:00 United States Construction Spending (MoM) came in at -1% below forecasts (0.6%) in January


17:00 United States ISM Prices Paid in line with expectations (68) in February


16:46 United States Markit Manufacturing PMI declined to 54.2 in February from previous 54.3


16:40 US stocks resume record setting rally, surge during opening trade amid Fed rate hike talks

Major US equity indices resumed their record setting rally on Wednesday and opened sharply higher, recording gains in excess of 0.75% during opening trade. 

Investors welcomed the US President Donald Trump's reassuring tone during his first address to a joint session of the Congress, albeit lacked any specific details on much awaited tax reforms and infrastructure spending. 

Moreover, growing possibilities for an imminent Fed rate-hike action, against the backdrop of recent hawkish rhetoric from various Fed officials, lifted banking stocks and collaborated to the Wednesday's up-move.

Wednesday's US economic data, showing the Fed's preferred inflation gauge - Core PCE Price Index, rising to the highest level since 2012 further supported market expectations that the Fed would go ahead and raise short-term interest rates during its upcoming meeting on March 14-15.

At the time of writing, the Dow Jones Industrial Average jumped nearly 200-point and surged beyond another milestone of 21,000. Meanwhile, the broader S&P 500 Index added around 20-points to 2,383, and tech-heavy Nasdaq Composite Index gained 47-points to 5,872.
 

 


16:32 USD/CAD keeps the bullish outlook Scotiabank

FX Strategist at Scotiabank Eric Theoret noted the pair’s outlook still remains on the bullish side in the short term.

Key Quotes

“Relative central bank policy is dominant as market participants assess the rapid firming in expectations for Fed tightening, driving a surge in the 2Y U.S.-Canada yield spread above 50bpts to levels last seen in January 2016 when USDCAD was trading in the low 1.40s”.

“Interest rate differentials are set to remain a key near-term driver as we look to Wednesday’s 10am ET BoC policy decision (widely anticipated hold, statement only, no MPR or press conference) with a focus on the statement tone. We anticipate a focus on low inflation, material excess capacity, and labor market slack in an effort to highlight the narrative of policy divergence that Gov. Poloz has sought to communicate”.

USDCAD has met the 1.3320 near-term target identified Tuesday and its gains have pushed it back to the lower bound of the ascending trend channel from May 2016. Momentum signals are bullish, DMI’s are providing confirmation, and short-term MA’s are bullishly aligned. We look to further gains through 1.3380 and the Jan 20 high toward the late December high around 1.36”.

 

 


16:31 Canada RBC Manufacturing PMI up to 54.7 in February from previous 53.5


16:13 USD/MXN down 0.26% on the day; doors opened towards 100-DMA

Currently, USD/MXN is trading at 20.04, down -0.26% or (526)-pips on the day, having posted a daily high at 20.16 and low at 19.96.

The American dollar vs. Mexican peso seems to somewhat 'hold horses' as the greenback recovered 2.58% during the last 3-consecutive trading sessions. Furthermore, the US economic docket aligns ISM Manufacturing PMI, data-driven, and two speeches from FOMC members; Kaplan and Brainard. Hence, after Trump's speech to Congress, market participants seem to expect a 'surprise' rate hike in March and today's releases could deliver that extra boost of confidence dollar bulls craved.

Andrea Jones-Rooy at FiveThirtyEight reported on Mexico's weaker economic outlook if things go south in the US economy, "While the Trump administration may argue that these policies are more about “Making America Great Again” than hurting Mexico, there is a reason for concern that they may also hurt us. One risk is that the policies themselves could damage the American economy, for example, through higher consumer prices and reduced trade."

Although, President Trump had no time to elaborate on 'border tax adjustments' that should not be considered as the end of the topic. Evidently, markets support the US dollar as 10yr yields recovered, however, without further details and actionable steps promises are just that; words in the wind.

Fed looking all set to hike rates in March – BBH

Historical data available for traders and investors indicates during the last 9-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 2.39%, up +2.55% on the day at 2.45% or +0.0609.

Technical levels to watch

In terms of technical levels, upside barriers are aligned at 20.28 (100-DMA), then at 20.86 (50-DMA) and above that at 21.37 (high Jan.27). While supports are aligned at 19.73 (low Feb.27), later at 19.51 (200-DMA) and below that at 19.32 (low Sep.29).

On the other hand, Stochastic Oscillator (5,3,3) seems to head north, but 'extreme attention' over US Treasuries to avoid a market trap. Therefore, there is evidence to expect more Mexican Peso losses 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: 19.72 (low Feb.26), then at 19.46 (low Sep.18), and finally below that at 19.19 (short-term 50% Fib).

On the other hand, upside barriers are aligned at 19.87 (short-term 61.8% Fib), later at 20.20 (low Feb.12) and above that at 20.54 (high Feb.12).

usdmxn

US: Expect a sixth consecutive increase in the ISM manufacturing index in February – BMO CM


16:13 USD/CAD clinches highs near 1.3350 on US PCE, BoC eyed

The greenback is extending its upside momentum vs. its Canadian peer on Wednesday, sending USD/CAD to test fresh daily tops in the mid-1.3300s.

USD/CAD now looks to US ISM, BoC

The pair met extra upside pressure after US inflation figures tracked by the Core PCE rose at a monthly 0.3% during January, surpassing prior surveys. Over the last twelve months, Core PCE rose 1.7% vs. estimates for a 1.8% gain.

Further US data showed Personal Income expanding 0.4% MoM during last month and Personal Spending rising 0.2%, missing forecasts (0.3%) and down from December’s 0.5% advance.

In Canada, the Current Account deficit shrunk to $10.7 billion during the October-December period, although it was short of initial estimates for a $9.8 billion deficit.

Still in the US, Markit’s Manufacturing PMI is due followed by the ISM Manufacturing and the weekly report on crude inventories. Back to Canada, the BoC is expected to leave its monetary status quo unchanged at today’s meeting.

Market bets for a Fed move later this month keep fuelling the upside bias in US yields, widening the spread vs. their peers and thus sustaining the upbeat mood in the buck.

USD/CAD significant levels

As of writing the pair is up 0.22% at 1.3327 and a breakout of 1.3346 (high Mar.1) would aim for 1.3388 (high Jan.20) and finally 1.3575 (23.6% Fibo of the 2016 drop). On the flip side, the immediate support lines up at 1.3280 (100-day sma) ahead of 1.3227 (55-day sma) and then 1.3151 (200-day sma).


16:12 USD/JPY continues to gain traction, taps 114.00 mark

The greenback buying interest picked-up pace during following the US economic releases, with the USD/JPY pair extending Wednesday's strong up-move to the 114.00 handle.

Data released from the US showed the Fed's preferred inflation gauge, Core PCE Index rising 0.3% m-o-m in January, taking the yearly rate to 1.7%. Meanwhile, a slight disappointment from personal spending, (0.2% vs. 0.3% expected) seems to have been negated by personal income that recorded a better-than-expected 0.4% inter-month rise during January.

Mostly in-line with consensus estimates data did little to distort the strong bullish sentiment surrounding the greenback. In fact, the key US Dollar Index extended its march higher, further towards the 102.00 handle after the release, and provided an additional boost to the pair.
 
Meanwhile, upbeat investors’ sentiment, as depicted by strong bullish sentiment around global equity markets, which tends to dent the Japanese Yen’s safe-haven demand, further collaborated to the pair’s strong up-move on Wednesday.

Up next is the release of US ISM manufacturing PMI, in a short while from now, and speech by Dallas Fed President Robert Kaplan, later during NY session, which would be looked upon for additional reinforcement for the pair’s ongoing momentum to fresh two-week highs.

Technical levels to watch

On a sustained break through 114.00 handle, the pair seems all set to head towards retesting 50-day SMA hurdle near 114.45-50 region with some intermediate resistance near 114.25 level. On the downside, 113.75-70 resistance break area now becomes immediate support, below which the pair is likely to drift back towards 113.25 support before eventually dropping to 113.00 round figure mark.

 


15:43 EUR/USD at session lows near 1.0520 after US releases

The EUR/USD pair maintained its bearish bias and move closer to the 1.0500 psychological mark near multi-day lows following US economic releases.

Currently trading around 1.0520 region, the pair maintained its offered tone after data released from the US showed Core PCE index rising 1.7% y-o-y and 0.3% on monthly basis in January. Meanwhile, personal income came-in to show a 0.4% m-o-m rise and personal spending grew at a moderate pace of 0.2% m-o-m.

The data did little to hinder the greenback's strong up-surge on Wednesday, with the key US Dollar Index hitting daily peaks and fast approaching the 102.00 handle against the backdrop of growing prospects for an eventual Fed rate-hike action at its upcoming meeting in two-weeks.

Earlier on Wednesday, even upbeat data released from Germany - employment data and inflation print, and comments from ECB's Weidmann did little to provide any immediate respite, with the US Dollar dynamics being an exclusive driver of the pair’s downslide on Wednesday.

Next on tap would be the US ISM manufacturing PMI, in a short while from now, and speech by Dallas Fed President Robert Kaplan, later during NY session.

Technical levels to watch

A follow through selling pressure below 1.0500 mark, leading to a subsequent drop below 1.0480-75 support, would turn the pair vulnerable to continue drifting lower in the near-term, towards its next major support 1.0400 round figure mark. On the upside, any recovery above 1.0550-55 region might now confront strong resistance near 1.0575 level, above which a bout of short-covering could lift the pair back towards 1.0600 handle.

 


15:37 When is the BoC interest rate decision? How could it affect USD/CAD?

The Bank of Canada will hold its monetary policy meeting today at 1500h GMT. Market consensus expects the central bank to leave the key rate unchanged at 0.50% while the statement should keep the cautious tone and the broad ‘wait-and-see’ mode seen in recent months.

In the same line, the BoC is likely to emphasize the ongoing slack in the labour market, while excess capacity keeps dwindling. In addition, the statement should reiterate the persistent uncertainty over the US economy under the new administration

What can we expect of USD/CAD?

Spot is trading on quite a firm note as of late, returning to 6-week tops beyond 1.3300 the figure backed by the sharp upside in the greenback in response to increasing bets on a potential Fed move at the meeting on March 15. The next interim target appears near 1.3390 (high January 20). If cleared, there is not much in terms of resistance until the Fibo retracement of the 2016 drop at 1.3575 and December tops just above 1.3600 the figure. On the downside, today’s lows around 1.3280 is reinforced by the 100-day sma at same levels ahead of the 55-day sma currently at 1.3228.


15:31 United States Personal Spending below expectations (0.3%) in January: Actual (0.2%)


15:31 Canada Current Account came in at -10.73B below forecasts (-9.75B) in 4Q


15:31 United States Personal Consumption Expenditures - Price Index (MoM): 0.4% (January) vs 0.2%


15:31 United States Personal Income (MoM) above expectations (0.3%) in January: Actual (0.4%)


15:31 United States Core Personal Consumption Expenditure - Price Index (YoY) unchanged at 1.7% in January


15:31 United States Personal Consumption Expenditures - Price Index (YoY): 1.9% (January) vs 1.6%


15:31 United States Core Personal Consumption Expenditure - Price Index (MoM) above expectations (0.2%) in January: Actual (0.3%)


15:20 Situation in the euro bloc is quite good - ECB s J.Weidmann

ECB's Board member and President of the Bundesbank Jens Weidmann said on wednesday that the situation in the euro bloc is 'quite good', while he sees inflation this year well in excess of current forecasts.


15:09 US: PCE core inflation and ISM manufacturing in focus Danske Bank

Analysts at Danske Bank suggest that the release of US PCE core inflation and ISM manufacturing numbers will garner maximum investors’ attention in today’ session.

Key Quotes

“US PCE core inflation for January is due to be released today. PCE inflation has been quite flat at around 1.7% since August with no clear trend. We estimate PCE core was 0.25% m/m and 1.7% y/y in January. The release will be particular interesting in light of the recent repricing of the probability of a hike at the coming March meeting - now at 70%.”

“US ISM manufacturing for February is also due out today. The preliminary manufacturing PMI showed a small decline and the same may be true for ISM given that ISM has recently been a bit higher than PMI. However, regional PMIs have been quite strong.”

“Today EIA will report on US crude stocks last week. Yesterday, API was said to report that stocks rose 2.5mb last week. Hence, the market will be positioned for a similar rise in the official numbers from EIA.”


15:01 South Africa Total New Vehicle Sales declined to 48113 in February from previous 50333


15:01 Germany Harmonised Index of Consumer Prices (YoY) above forecasts (2.1%) in February: Actual (2.2%)


15:01 Germany Consumer Price Index (YoY) above expectations (2.1%) in February: Actual (2.2%)


15:01 Germany Harmonised Index of Consumer Prices (MoM) above forecasts (0.6%) in February: Actual (0.7%)


15:01 Germany Consumer Price Index (MoM) in line with forecasts (0.6%) in February


14:53 US: Core PCE inflation stands out as the highlight in todays session - TDS

Research Team at TDS suggests that the US Core PCE inflation stands out as the highlight amid a number of economic releases.

Key Quotes

“TD expects core inflation to come in slightly weaker than the market due to soft medical service costs; we project core inflation to remain unchanged at 1.7% y/y on a 0.2% m/m gain while the market looks for 1.8% y/y and 0.3% m/m. We are equally downbeat on headline PCE inflation and look for a acceleration to 1.9% from 1.6% on a year-ago basis, below the consensus for 2.0%.”

“TD is in line with the market for personal income and expects a 0.3% m/m print while personal spending should post a 0.4% advance (mkt: 0.3%). For ISM Manufacturing, we look for a decline to 55.5 from 60.0 in February while the consensus expects a slight increase to 56.2. Motor vehicle sales will trickle out throughout the day and give the first barometer of consumer spending for February; market expectations are for a modest acceleration to an annualized 17.7m units.”


14:52 USD/CHF retakes 1.0100 mark and beyond, US data in focus

The greenback continues surge across the board, helping the USD/CHF major to reclaim 1.0100 handle and jump to multi-day tops.

Currently trading around 1.0110-15 region, testing session peaks, the pair regained traction on Wednesday as market participants increasingly shifted their focus to the next FOMC monetary policy meeting, against the backdrop of recent hawkish rhetoric from various Fed officials. 

Growing bets for an imminent Fed rate-hike action at its meeting in two weeks seems to have reignited the greenback's previous bullish trend, with the key US Dollar Index fast approaching the 102.00 handle and collaborated to the strong bid tone surrounding the major.

In addition, the prevalent risk-on mood, which tends to dent the Swiss Franc's safe-haven appeal, is further supportive of the pair's up-move to weekly highs. 

Wednesday's US economic docket features the release of personal income / spending data, the Fed's preferred inflation gauge - Core PCE Price Index and ISM manufacturing PMI, and would be looked upon for fresh impetus during NA session. 

Technical levels to watch

Immediate upside resistance is pegged near 1.0140 level (Feb. 22 high), above which the pair is likely to head towards testing 1.0170 horizontal resistance before eventually aiming to reclaim 1.0200 round figure mark. On the flip side, retracement back below 1.0090 level is likely to get extended towards 1.0060 support, which if broken might now drag the pair, even below 100-day SMA support near 1.0040-35 region, towards retesting parity mark.

 


14:43 Gold down nearly 1% around $1,240

The troy ounce of the precious metal is extending its weekly drop today, testing multi-day lows in the proximity of $1,240.

Gold lower on rate hike bets

Prices for the yellow metal remain entrenched into the negative territory today, losing around 1% and testing lows in the $1,240/45 area in response to the recent sharp pick up in expectations of a Fed move at its meeting later in the month.

USD-supportive Fedspeak in past sessions has given extra wings to the buck, weighing on the USD-denominated universe and prompting Bullion to recede from 3-month highs beyond $1,260. New York Fed W.Dudley said at his interview with CNN on Tuesday that a case for further monetary tightening has become compelling, while his Philly peer P.Harker added that three rate hikes this year stays appropriate as long as data keep the current track.

Later in the session, USD will be in centre stage in light of the releases of ISM Manufacturing, Personal Income/Spending, January’s inflation gauged by the PCE, Markit’s Manufacturing PMI and the Fed’s Beige Book. In addition, Dallas Fed R.Kaplan (voter, hawkish) is also due to speak.

Gold key levels

As of writing Gold is retreating 0.94% at $1,242.15 and a breakdown of $1,228.10 (low Feb.21) would expose $1,217.30 (low Feb.15) and finally $1,210.40 (100-day sma). On the flip side, the next up barrier is located at $1,257.30 (high Feb.28) followed by $1,260.69 (200-day sma) and then $1,263.10 (high Feb.27).


14:28 US: Modest pick-up in core PCE inflation in January coming - Nomura

Analysts at Nomura explain that relevant elements from the January PPI and CPI inflation reports point to a modest pick-up in core PCE inflation in January.

Key Quotes

“Core CPI goods prices, most of which are inputs for the core PCE price index, were stronger than expected in January, up sharply by 0.4% m-o-m. Core CPI service prices were up 0.3% m-o-m, which is a trendlike pace.”

“As for the relevant components from the January PPI report, physician service prices increased relatively strongly by 0.2% m-o-m and airline fares jumped 4.8% m-o-m although hospital service prices did not increase strongly. Altogether, we expect the core PCE index to have increased strongly by 0.3% (0.315%) m-o-m (Consensus: 0.3% m-om). On a year-on-year basis, we forecast a 1.74% increase in the core PCE index (Consensus: 1.7% y-o-y).”


14:25 US: Trumps plans for fair trade sound like a border tax adjustment - ING

In view of the analysts at ING, US President Trump’s address to Congress contained much of what they have come to expect: i) tax cuts for businesses and the middle class ii)  $1trn worth of infrastructure spending (financed by public and private partnership) and iii) fairer trade.

Key Quotes

“Last year’s near US$800bn US trade deficit is very much in focus and Trump’s remarks last night regarding unfair international tax structures point to growing acceptance of Paul Ryan’s border tax adjustment (BTA) plan. Beyond the touted benefits of encouraging onshoring and discouraging corporate tax inversions, the BTA is also ear-marked to generate US$100bn of increased tax revenue – which seems essential to pay for corporate tax cuts elsewhere.”

“There is much literature on why a 20% border tax adjustment necessitates a 25% rally in the dollar. The magnitude of the impact will be disputed, but the direction of travel should be pretty clear and keep the dollar supported into key Trump speeches (talk of tax details being released March 13th). The  dollar is also  being supported by the now 78% probability of  Fed March hike – after Fed insider Dudley said the case for a rate hike had become ‘a lot more compelling’. A strong ISM and the Fed’s preferred measure of inflation, headline PCE, pushing to 2.0% today both point to further dollar strength. DXY to 102.05/10.”


14:22 US ISM manufacturing index likely increased to 57.0 in February - Nomura

Analysts at Nomura note that the US headline ISM manufacturing index improved further to 56.0 in January with broadbased improvement in underlying indicators.

Key Quotes

“Incoming data suggest this index may have increased further in February, consistent with the further improvement seen in manufacturing indexes from other surveys. The headline indexes from the Philly Fed and Empire State surveys were up strongly in February, with broad-based improvement in details, suggesting healthy activity in the manufacturing sector. Moreover, financing conditions remained favorable for this sector as the corporate credit spread narrowed further in February. Considering these data, we expect ISM manufacturing index to have increased to 57.0 in February (Consensus: 56.2).”


14:19 CAD: The known unknowns of Donald Trump to keep BoC cautious today ING

Analysts at ING note that the BoC meet to set interest rates today and little is expected at this meeting, with expectations higher for the April 12th meeting, where a new Monetary Policy Report will be released.

Key Quotes

“So far the BoC has been trying to soften any market expectations of tighter policy – and in fact market pricing is quite restrained currently, just 10bp of tightening priced in over the next 12 months. While Friday’s  release of 4Q16 GDP data will also add to the picture, our view is that the CAD remains vulnerable to various threats from south of the border, such as i) NAFTA renegotiation ii) the introduction of a border tax and iii) early Fed tightening.  1.3310/20 looks an important resistance level for $/CAD (already broken) and a close above it will add confidence to our 3m forecast of 1.40.”


14:19 GBP/USD plummets to six week low near 1.2300 handle, up next US economic releases

After showing some resilience to disappointing UK manufacturing PMI, the GBP/USD pair finally broke through the consolidative phase and tumbled to six week low. 

Currently hovering around the 1.2300 handle, spot accelerated the downslide amid persistent US Dolar buying interest as markets now seem to price-in higher possibilities of an eventual Fed rate-hike action at its upcoming meeting on March 14-15.

Meanwhile, the latest leg of intense selling pressure around the British Pound could be attributed to news relating to Article 50 Bill's, due for a vote in the House of Lords, amendment clause to guarantee rights of EU migrants living in the UK. 

Moreover, possibilities of some stops getting triggered on a decisive break below mid-1.2300s could have further aggravated the selling pressure and collaborated to the pair's sharp slide in the past hour or so.

Next on tap would be the US economic docket, which would be looked upon for some immediate respite for the bulls.

Technical outlook

Valeria Bednarik, Chief Analyst at FXStreet notes, “The downward strength is limited at the time being, although a break below 1.2345, the 50% retracement of the January bullish run should fuel the slide, firstly towards 1.2300 and then towards 1.2270 in the short term. To the upside, the pair needs to extend beyond 1.2440 to reverse the negative tone, and be able to advance towards 1.2485.”

 

 


14:18 USD/JPY downside pressure appears alleviated UOB

According to FX Strategists at UOB Group, the downside momentum around USD/JPY seems mitigated for the time being.

Key Quotes

“The sharp drop to a low of 111.67 and the subsequent strong rebound was clearly unexpected. While the recovery appears to be running ahead of itself, there is scope for further extension to 113.35 but last week’s peak near 113.75/80 is acting a major resistance and is unlikely to yield so easily”.

“The low of 111.67 did not quite reach the major support near 111.55/60. The subsequent strong rebound suggests that the recent short-term downward has eased and USD has likely moved back into a consolidation range, likely between 112.00 and 114.20”.

 

 


14:17 USD/JPY: 120-125 is not distant prospect Deutsche Bank

Taisuke Tanaka Strategist at Deutsche Bank, notes that the US President Donald Trump did not offer details on income tax cuts for the middle class, corporate tax relief or infrastructure investment in his address to Congress.

Key Quotes

“The USD/JPY moved narrowly around ¥113 during the address before climbing to the mid-¥113 level after the president finished. We believe this represented an unwinding of short positions by short-term USD/JPY bearish investors with the reduced uncertainty in political events.”

“Trump said he is drawing up "historic tax reform" plans. Questions over the path toward realization of those plans, such as legislative requirements and negotiations with Congress, are likely to linger. Doubts over Trump's policies appear to have encouraged bearish forecasts for the USD/JPY. However, we believe a more realistic scenario is that tax reforms will be partially or gradually implemented over time.”

“The Fed feels a responsibility to normalize yield levels. The US economy was not notably strong at end-2015 or end-2016, but the upturn to risk-on sentiment in the markets led to a rate hike. By the same thinking, it is natural to assume that any acceleration in growth from fiscal measures would prompt a faster rate hike pace (though the Fed will have to examine carefully the feasibility of any particularly daring steps by the Trump administration).”

“We expect the Fed to raise rates twice in 2017 and four times in 2018, and believe the USD/JPY will head to ¥120-125. Skepticism has been sometimes expressed over this bullish USD/JPY forecast of ours. However, extraordinary cyclical policies could lead to an extraordinary market response. Our forecast of ¥120 in the initial stages of the Abe Market in 2013 similarly raised eyebrows but proved correct in the end.”

“Let us consider two stages. Is the USD/JPY more likely to be below-¥110 or over-¥115 in six months time? Most respondents would choose the latter as well realistic, given expectations for US rate hike. If Trump's policies are even partially realized and the Fed raises rates once by June, we assume the markets will take a positive view.”

“Most market participants would likely anticipate multiple Fed rate hikes ahead. Would we then assume that the USD/JPY would quickly peak at ¥117-118? We imagine that the majority of prognosticators would begin to talk of a rise beyond ¥120. We see bold US fiscal policy action and rate increases not as a short-term market theme but as a medium-term market driver into 2018 and beyond.”


14:14 BoC: Universally expected to keep the overnight target rate unchanged at 0.50% - RBC CM

The BoC is universally expected to keep the overnight target rate unchanged at 0.50% in the statement-only meeting on Wednesday in view of the analysts at RBC Capital Markets.

Key Quotes

“We expect the central bank to retain its cautious tone and reiterate that there remains material excess slack in the economy. Growth has evolved about as expected by the BoC in the January MPR (BoC has 1.5% for Q4; see preview below) and terms of trade have improved, but significant uncertainties remain, especially regarding possible US protectionist trade policies, and non-energy goods exports continue to disappoint (-4.1% y/y in December).”

“Additionally, previous emphasis on policy divergence from the US as the latter is in a “gradual” hiking cycle is likely to remain a theme. Any discussion on the expected bump up in the YoY headline inflation rate in January will likely focus on rising YoY increases in energy prices and that it is not a sign of diminishing economic slack.”


14:11 US: Durable goods, Beige Book and personal spending and income data awaited BMO CM

Analysts at BMO Capital Markets explain that surging Boeing orders at the turn of the year should sweep durable goods orders 2% higher in January.

Key Quotes

 “Core” capital goods orders likely rose for a fourth straight month, reflecting an upswing in business spending. After sagging in the past year, machinery bookings spiked higher after the election, as businesses eyed a lighter taxation and regulatory burden.”  

“Sturdy retail sales should offset a pullback in autos to lift personal spending 0.5% in January. Higher gas prices will also pump the headline figure, implying real spending rose a more moderate 0.2%. That’s still a decent start to the year for consumers (unlike last year), and should anchor a near-3% gain in Q1 consumer spending. Sky-high confidence, rising wealth and wages, and prospective tax cuts should keep households in a spirited mood this year. Besides a tighter job market, personal income was boosted by minimum-wage hikes in many states in January. However, core PCE inflation remains in check owing to a strong dollar and competitive retail climate. An expected 0.2% monthly advance should hold the yearly core rate at 1.7%, similar to last year’s average.”

“The Fed’s previous Beige Book (based on information collected to January 9th) said the economy “continued to expand at a modest pace across most regions”, with labour markets “tight or tightening”. Most Districts said “wages increased modestly”, with widespread difficulty in finding skilled workers and “several” saying the same for even less-skilled jobs. Meanwhile, “pricing pressure intensified somewhat”. The forward momentum displayed by the economy since then suggests the tone of the latest report, which will be based on information collected around February 20th, should be a bit more upbeat, though probably not upbeat enough to drumroll a March 15th rate hike.”


14:07 BoC is widely expected to keep rates steady - BBH

According to the analysts at BBH, Bank of Canada meets and is widely expected to keep rates steady.  

Key Quotes

“The strengthening of the US economy is good for Canada.  The Canadian dollar is the weakest major currency over the past five sessions, losing about 1.2%.  The greenback pushed above CAD1.33 yesterday for the first time in a month, and has seen mild follow-through buying today.  The next important technical area is CAD1.3360-CAD1.3390, which corresponds with the high for the year and the 61.8% retracement objective of the down move from the high at the end of the year near CAD1.36.”


14:04 BoC Preview: Expect no change in policy but outlook uncertainty remains elevated - Nomura

Analysts at Nomura expect the BoC to leave its policy rate unchanged at today’s meeting and believe that it will reiterate that risks on inflation remain roughly balanced.

Key Quotes

“Nevertheless, the statement is likely to focus on the fact that uncertainty remains very high especially regarding US economic policy.”

“Data since the January meeting have been generally on the growth side and point to strong growth at the end of 2016. However, it remains to be seen how much momentum will be carried into 2017, as the improvement in non-energy exports and manufacturing has been modest so far. On the flip side, the latest inflation report showed a very strong increase in headline inflation while the core measures stabilised, albeit at a low level.”

“It may be important for the market to note that there is no press conference following this week’s meeting. This means that we are unlikely to be reminded by the BoC that rate cuts remain on the table. As we have said in the past, taking into account the large downside risk to the outlook, it is normal for the central bank not to exclude any policy response, ie to close the door to a rate cut in case it becomes needed.”

“We remain positive on CAD and continue to believe that USD/CAD could end Q1 at around 1.28, supported by an increase in commodity prices, continued improvement in the Canadian economic outlook and the view that USD is unlikely to appreciate meaningfully.”


14:03 EUR/USD keeps lows in the 1.0530 region, US data on sight

The selling pressure around the common currency is now picking up extra pace on Wednesday, relegating EUR/USD to the lower bound of the range around 1.0530.

EUR/USD weaker ahead of US key data

The greenback keeps its march north unabated during the first half of the week, dragging spot to fresh  multi-day lows in the 1.0530 area and opening the door for a potential challenge of last week lows in sub-1.0500 levels.

Supportive Fedspeak as of late has put a potential rate hike by the Federal Reserve at its March meeting back on the table, boosting the demand for the greenback mainly via a sharp rebound of yields in the US money markets.

Actually, CME Group’s FedWatch tool sees the probability of higher rates later this month at just above 35%, above 44% for the month of May and nearly 45% in June, always based on Fed Funds futures prices.

Later in the session, advanced German inflation figures for the month of February should put the recent pick up in the trend to the test. In the US data space, ISM Manufacturing should be the salient event, seconded by Personal Income/Spending, January’s inflation gauged by the PCE, Markit’s Manufacturing PMI and the speech by Dallas Fed R.Kaplan (voter, hawkish). At the end of the day, the Fed will publish its Beige Book.

EUR/USD levels to watch

At the moment the pair is losing 0.40% at 1.0535 and a breach of 1.0492 (low Feb.22) would target 1.0452 (low Jan.11) en route to 1.0339 (2017 low Jan.3). On the flip side, the next hurdle lines up at 1.0630 (20-day sma) followed by 1.0632 (high Feb.28) and finally 1.0682 (high Feb.16).


14:02 Germany 10-y Bond Auction fell from previous 0.33% to 0.25%


14:02 United States MBA Mortgage Applications up to 5.8% in February 24 from previous -2%


14:00 US: Expect a sixth consecutive increase in the ISM manufacturing index in February BMO CM

Research Team at BMO Capital Markets explains that after hitting a sub-50 reading in August (and in 6 of the 11 months ending then), the US ISM manufacturing index has increased for five straight months to the highest level (56) since November 2014.

Key Quotes

“This five-month pace of improvement has not been seen since 2009, when the economic recovery was just beginning. There are three major reasons for the rebound. First, exporters and domestic firms competing against imports have had time to adjust to a strong U.S. dollar as the pace of appreciation has slowed. Second, firmer oil prices are lifting domestic crude oil production. Third, after contracting for more than a year, investment in machinery is recovering, aided by the post-election surge in business confidence. We should see a sixth consecutive increase in the ISM index in February, as the regional indices from the NY, Philly and KC Feds all jumped in the month.”


13:56 EUR: Finding little traction - BBH

Analysts at BBH suggest that the euro is finding little traction as the euro stalled near $1.0630 yesterday, as it did last week as well.  

Key Quotes

“Since that high, the euro has slid a full cent before finding support near $1.0525.  Two weeks ago, the US premium over Germany on two-year money was less than 200 bp.  It is now near 215 bp, a new extreme since the late 1990s.  We suspect North American dealers will be reluctant to sell the euro without first squeezing the intraday shorts established in the European morning.  The $1.0560-$1.0580 area may offer initial resistance now.”


13:53 Canada: Current account deficit likely narrowed sharply in Q4 BMO CM

Benjamin Reitzes, Senior Economist at BMO Capital Markets, anticipates that the Canada’s current account deficit likely narrowed sharply in Q4 after the prior quarter’s third largest shortfall on record.

Key Quotes

“We’re calling for a $9.8 bln ($39 bln annualized) gap, with a massive improvement on the goods side driving the better headline. Exports rose firmly for a second straight quarter driven by rising commodity prices, while imports saw their largest decline in 7 years (a reversal from the oil platform-driven rise in Q3).”

“The non-merchandise deficit, which widened sharply in the decade to 2013 due to the appreciating Canadian dollar, likely held steady, but remains in a narrowing trend, due to the softer loonie. Our estimate would peg the current account shortfall at around 1.9% of GDP, a 1.7-ppt improvement from the average in the first three quarters of 2016. Assuming commodity prices hold up, the big current account deficits seen in recent years should stay behind us. While a 2%-of-GDP gap suggests there’s room for the C$ to weaken further, filling that gap with foreign funding isn’t likely to prove difficult.”


13:50 AUD: Supported by the strong GDP numbers - BBH

The US dollar is stronger against all the major currencies but the Australian dollar notes analysts at BBH.  

Key Quotes

“News that Australia's economy expanded 1.1% in Q4 16, among the strongest quarterly performances in the past five years, lent support to the Aussie, which continues to encounters offers around $0.7700.  It found bids near $0.7640, which need to be absorbed before it can test the lower end of recent range near $0.7600.”

“The story behind Australia's recovery after the contraction in Q3 was a dramatic (9.1%) improvement in the terms of trade, due to the rise in iron ore and coal prices.  This in turn seems to be a function of the stabilization of the Chinese economy.  News earlier today showed Chinese manufacturing PMI rising to 51.6 in February from 51.3 in January.  Output, new orders and business expectations improved.  The non-manufacturing PMI slipped to 54.2 from 54.6.”


13:48 BoC: No change with rates at 0.50% - Rabobank

Christian Lawrence, Senior Market Strategist at Rabobank, suggests that they can repeat most of the opening paragraph from the 18th January preview with the only exception being a change of date, and this time around there are no analysts surveyed by Bloomberg forecasting a cut.

Key Quotes

“Indeed, we fully expect the Bank of Canada to leave the policy rate unchanged at 0.50% when they meet on Wednesday 1st March. In fact, the announcement is likely to be something of a non-event with almost nothing priced into the front-end. Our long held view has been, and remains, that the BoC is unlikely to move rates at all in 2017.”

“In terms of USD/CAD, we maintain the view that an upward break out of the 1.30-1.32 range is more likely than a downside break and we see a move up to 1.34 before 1.36 as likely to come to fruition in the coming month.”

 


13:46 Will continue with presidential campaign F.Fillon

Presidential candidate Francois Fillon said on Wednesday he will continue with his presidential campaign despite he has been summoned by judicial magistrates on March 15.

Fillon said he is victim of ‘political assassination’, while he added that his innocence presumption principle is being ignored and that the objective of this summon is to charge him. He reiterated he commited no wrongdoing.


13:43 Fed looking all set to hike rates in March BBH

Analysts at BBH suggest that the gains in the US dollar appear to be more a function of shifting expectations of Fed policy than new clarity on fiscal policy.  

Key Quotes

“By Bloomberg's calculation, there is now an 82% chance the Fed hikes in two weeks.  Our interpolation puts the odds at 74%.  New York Fed President Dudley's remark that an increase in rates has become "more compelling" was the catalyst.”

“Seven Fed officials are still set to speak this week.  Governor Brainard speaks after the US markets close today.  Although she is not part of the Fed's leadership core, her insight last year, and particularly the importance of the international settings, was important.  On Friday, both Fischer and Yellen speak.  Given the proximity of the March 15 FOMC meeting, it will be the last significant opportunity to try to shape market expectations.”


13:35 USD/JPY surges to two-week high ahead of US data

The Japanese Yen remained on the back-foot through mid-European session on Wednesday, with the USD/JPY pair surging to nearly two-week highs and inching closer to the 114.00 handle. 

Spot extended previous session's sharp rebound from 100-day SMA support and cleared the 113.75 immediate horizontal resistance amid follow through greenback traction in wake of growing consensus over an imminent Fed rate-hike move at the next FOMC meeting on March 14-15.

The latest leg of up-move in the US treasury bond yields reinforces market expectations and pushed the greenback higher across the board, with the key US Dollar Index testing daily peaks near 101.75 region, and has been supportive of the pair's up-move to the highest level since Feb. 16.

March FOMC rate hike looking more likely now – MUFG

Moreover, a fresh wave of global risk-on, as depicted by strong up-move in the European equity markets, is further driving flows away from traditional safe-haven assets and collaborating to the pair's strong recovery move from nearly two-week lows touched yesterday. 

The US Dollar price dynamics would continue to be a key determinant of the pair's movement on Wednesday and hence, the US economic data would now be looked upon for fresh impetus during early NA session.

Technical levels to watch

From current levels, a follow through momentum above 114.00 handle is likely to get extended towards 114.25-30 horizontal resistance, above which the pair seems all set to head back towards testing 50-day SMA hurdle near 114.45-50 region ahead of 114.96 (Feb. 15 high).

On the downside, 113.50 level now becomes immediate support to defend, which if broken is likely to accelerate the slide towards 113.00 round figure mark, en-route 112.85-80 strong horizontal support.

 


13:19 GBP/USD further downside likely UOB

FX Strategists at UOB Group remain negative on Cable, expecting further retracements in the near term.

Key Quotes

“In line with expectation, GBP extended its down-move but the decline did not have enough momentum to threaten the major 1.2345/50 support (low of 1.2375). Despite the patchy momentum, the undertone is still weak and a move below 1.2345/50 is not ruled out (even though a sustained break below this level seems unlikely). Next support is at 1.2300”.

“GBP hit low of 1.2363 at the time of writing, just above the major 1.2345/50 support. While downward momentum is not exactly impulsive, the current weak undertone is still intact and a break of 1.2345/50 could lead to further extension to 1.2255/60 (with minor support at 1.2300). Only a move back above 1.2470 would indicate that the immediate downward pressure has eased”.

 

 


13:13 USD/JPY scope for a test of 114.74 Commerzbank

In opinion of Karen Jones, Head of FICC Technical Analysis at Commerzbank, recent price action in USD/JPY could allow for a re-test of the 114.70 area.

Key Quotes

“The market has tested the bottom of the range towards 11.59 and recovered – we can only assume that we are about to test the 55 day ma at 114.74. We view the recent low at 111.59 as an interim low. Between 111.59/114.83 the market is side lined. A close above the 115.62 19th January high is needed to reintroduce scope to the key short term resistance offered by the 16 month resistance line at 117.86”.

“Only below 111.59 would introduce scope to Fibonacci support at 109.92 and, if seen, the 200 day ma at 107.73. We look for this to hold (this is also the 50% retracement of the move up from November). However this is not our favoured view - we also note that the recent move lower continues to indicate that this is the end of the corrective move”.

 

 


13:08 Portugal Gross Domestic Product (YoY) increased to 2% in 4Q from previous 1.9%


13:08 Macron stretch lead vs. Le Pen in second round - latest OpinionWay poll

The latest OpinionWay poll results for the upcoming Presidential elections in France is out and showed narrowing gap between Emmanuel Macron and far-right candidate Marine Le Pen for the first round. 

Key poll results:

   •   1st Round - Le Pen 25%(-1), Macron 24% (Unch), Fillon 21% (Unch) 
   •   2nd Round: Macron/Le Pen 63/37% as compared to yesterday's 61/39%


13:08 Portugal Unemployment Rate declined to 10.2% in 4Q from previous 10.5%


13:07 Portugal Gross Domestic Product (QoQ) remains unchanged at 0.6% in 4Q


13:05 EUR/JPY momentum is supportive for attempt higher

On the 4hr EUR/JPY chart, the MACD has moved above zero making the near-term structure supportive for an attempt higher.

Such a momentum indication, unseen for at least for 30 periods, indicates that key price breaks are on the horizon. There is a real threat of EUR/JPY rate moving now considerably higher as buyers may get aggressive in the short term.

13:02 EUR/USD remains a wild card

Bollinger Bands® on EUR/USD 1hr charts continue to reflect a volatile environment, but one with no dominant trend on higher time frames.

ADX tracks below 30 suggesting a sideways price action. Endorsing this view, the 50-period simple moving average is locked in-between the 200 and the 800-period SMAs. From a larger perspective the EUR/USD still appears ranged sideways.

Traders may look for buy opportunities using divergences between price and oscillators, targeting the 800-SMA. A clear break of the 50-SMA below the 200 would switch the tone to bearish.

12:48 BoC to leave the overnight rates on hold - TDS

Research Team at TDS is in line with the universal consensus for the Bank of Canada to leave the overnight rate on hold at its March meeting.

Key Quotes

“The statement is likely to be largely unchanged, echoing the cautious, wait-and-see messaging of the December & January decisions. The Bank is again likely to reference the backup in yields and CAD headwinds with continued emphasis on significant labour market slack and economic divergence with the US.”

“Limited changes to the dovish language may disappoint more hawkish market expectations after relatively positive data of late have pointed to a more constructive outlook. On the contrary, we believe data has been mixed in light of the weakness registered in wage growth, hours worked and core inflation. The outlook also remains highly uncertain due to unclarified US policy changes.”


12:46 USD/CAD continues scaling multi-week tops ahead of BOC

The USD/CAD pair maintained its strong bid tone for the third consecutive session and continued scaling fresh multi-week tops, further beyond 1.3300 handle.

Currently trading around 1.3330-35 region, the pair jumped to the highest level since January 23 amid resurgent US Dollar demand backed by various Fed officials endorsement for additional rate hike in the short term. Market participants now seemed convinced that the Federal Reserve could move towards raising interest rates at its upcoming meeting on March 14-15.

The pair continued gaining traction on Wednesday despite of a positive trading sentiment around WTI Crude oil prices, which tends to benefit the commodity-linked currency - Loonie, and the latest leg of up-move could be attributed to persistent short-covering ahead of the Bank of Canada monetary policy meeting, later during NA session.

Apart from BOC decision, the US economic docket featuring the release of personal income / spending data, the Fed’s preferred inflation gauge – Core PCE Price Index and ISM manufacturing PMI would also collaborate towards infusing a fresh bout of volatility around the major.

US: Upside risk for PCE inflation - AmpGFX

Technical levels to watch

The ongoing momentum seems strong enough to lift the pair beyond mid-1.3300s towards 1.3385-90 resistance area. A follow through buying interest would pave way continuation of the pair’s strong upward trajectory further towards its next major hurdle near 1.3430-35 region.

On the flip side, 1.3315 level now becomes immediate support to defend, below which the pair is likely to slide back towards 100-day SMA support near 1.3280-75 region. A convincing break back below 100-day SMA would accelerate the reversal move further towards mid-1.3200s ahead of 50-day SMA support near 1.3210 region.

 


12:45 BoC likely to maintain status quo BMO CM

Benjamin Reitzes, Senior Economist at BMO Capital Markets, suggests that not much has changed since the January policy meeting for the Bank of Canada heading into today’s policy announcement.

Key Quotes

“The economy is growing perhaps slightly better than expected (but likely within their 0.5 ppt margin of error), and the broader backdrop has evolved largely as anticipated. Moreover, the uncertainties highlighted in recent statements are likely to be reiterated, as we’re no closer to clarity on U.S. fiscal plans.”

“The divergence theme will probably be stressed once again, with the U.S. economy nearing full capacity while Canada still has plenty of slack. Along those lines, prior BoC statements sounded concerned about Government of Canada bond yields being pulled higher with U.S. Treasury yields. That point will probably be worth a mention again, though Canadian yields have been almost steady since the January meeting. (As an aside, the latter reinforces the point that the BoC’s dovish jawboning hasn’t had much impact on the market.) The Canadian dollar is also close to levels that prevailed heading into the January meeting. Given the lack of traction in non-energy export volumes, which no doubt chafes Governor Poloz, the tone of the statement will likely continue to have a dovish slant, keeping the Canadian dollar on the defensive.”

“On the inflation front, the surge in January CPI has it tracking well above the January MPR forecast. However, core inflation remains subdued, even though it has picked up from recent lows, and remains consistent with “material excess capacity”. With the output gap only projected to close around mid-2018, underlying inflation should only slowly accelerate toward 2%.”

“The overall tone of the statement will be cautious. As much as the recent data suggest that the economic backdrop has gained momentum, the BoC will avoid sounding meaningfully upbeat to avoid lifting the loonie and bond yields. Even so, anyone hoping for an overtly dovish statement will probably be disappointed.”


12:40 US: Upside risk for PCE inflation - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that the US PCE deflator is due tomorrow and the market expects the core PCE (less food and energy) to remains steady at 1.7%. 

Key Quotes

“However, the CPI data for January released earlier in the month rose more than expected, and alternative core measures of CPI and PCE are showing evidence of a rising trend.”

“The Cleveland Fed trimmed mean CPI rose sharply in the last two months from 2.03 to 2.24% in Jan, a new high since 2012.  The Cleveland Fed median CPI was at 2.52 in Jan, averaging above 2.50 since August last year (well above the Fed’s 2% target). The Dallas Fed’s trimmed mean measure of inflation, based on 12 months of data was 1.85% in Dec, a high since 2012.”

“The Fed has said that is a residual seasonal bias in the CPI and PCE that tends to make inflation readings higher in the first six months of the year. This appears to be born out in the Atlanta Fed 6mth annualized trimmed mean PCE data shown in the chart above that peaked in June-2016.  It picked up again in December 2016 (even though lows for this series have tended to be in December in earlier years).”


12:34 When is German prelim CPI and how could affect EUR/USD?

German prelim CPI Overview

The German inflation data is up for release later this session at 1300GMT, with the CPI figures expected to rise 0.6% in Feb, versus 0.6% decline seen a month ago, while adding 2.1% annually, compared to the 1.9% result reported in Jan.

Germany's regional CPIs released earlier today painted a rosy picture of the harmonized German CPI report, with Brandenburg inflation for the month of Feb YoY coming in at +2.0% versus +1.7% prev. In Hesse, YoY rose +2.5%, versus +2.4% prev. Meanwhile, in Bavaria, YoY also rose 2.1% versus +1.7% last. In Saxony, Feb inflation YoY came in at +2.4% versus +2.3% prev.  

How could affect EUR/USD?

On a better CP print, we could see a fresh bout of buying interest around the euro, pushing the EUR/USD pair towards 1.06 handle. However, if the readings disappoint, the rate could breach the key support of 1.0520.

Key notes

EUR/USD Forecast: fresh lows expected on a break below 1.0520

From a technical point of view, the pair retains the bearish tone set at the beginning of the day, as in the 4 hours chart, technical indicators keep heading lower within bearish territory, whilst the price remains well below its 20 and 100 SMA, having retreated from this last twice ever since the week started.

About German prelim CPI

The Germany consumer price index released by the Statistisches Bundesamt Deutschland measures the average price change for all goods and services purchased by households for consumption purposes. CPI is the main indicator to measure inflation and changes in purchasing trends. A high reading is positive (or Bullish) for the EUR, while a low reading is negative (or bearish).

 


12:32 Fed seeks to get ahead of the curve - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, notes that the Fed speakers have raised the probability of a 15 March rate hike. 

Key Quotes

“They appear to see the next meeting as offering a window of opportunity to get ahead of a three hike agenda this year, allowing the Fed more space to assess conditions through the middle part of the year in an environment of heightened US government policy uncertainty.  Dudley highlighted the sharp pick-up in consumer and small business optimism and easier financial conditions generated by the strong stock market and narrower credit spreads.”

“The weaker USD this year may also allow space for Fed policy tightening.  While there has been little evidence of the ‘Trump bump’ flowing through to real activity, Dudley still sees the economy operating somewhat above trend and progress towards the Fed’s dual mandate.  The Fed’s Williams added that the Fed is close to achieving its dual mandate.”

“In recent months, the USD has responded negatively to USA policy uncertainty and growing doubts over the capacity of the Trump administration to deliver on its initial promise. In fact, the USD appears to have significantly underperformed its improved yield advantage over the last year.  We continue to see a topsy-turvy FX market this year, but Fed policy tightening may help boost the USD in the near term.”


12:27 March FOMC rate hike looking more likely now MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that it’s now over to the Fed and with the financial markets increasingly pricing in the probability of a rate hike in March, there is certainly a much greater chance that Yellen’s speech on Friday may well support that logic.

Key Quotes

“Why would Yellen at this stage attempt to reverse market pricing given the FOMC have signalled there will be three rate hikes this year even before we know for sure what fiscal stimulus will look like? The latest to shift the market was San Francisco Fed President Williams who stated that a rate increase was on the table for “serious consideration” at the March meeting. St.Louis Fed President Bullard also called for the immediate end to the reinvesting maturing securities on the balance sheet of the Federal Reserve.”

“How has market pricing changed? It’s been pretty dramatic in fact. The March Fed Funds futures contract by our calculation is now indicating a market probability of 70% for a March hike. Three days ago the probability was just 23%.”

“There are perhaps three events to focus on between now and the FOMC meeting – the core PCE inflation report today; the Yellen speech on Friday; and the payrolls report on 10th March. The inflation data today is unlikely to be hugely surprising while assuming the speech by Yellen keeps the markets open to the idea of March it would take a hugely disappointing jobs report to alter market expectations.”

“We now see a much greater chance of a rate hike this month than just a few days ago given our argument in part for the move coming in May was that market pricing was not high enough. With that now having changed, we see less reason to argue for a delay beyond this month.”

“That will ensure the dollar continues to advance over the coming days and assuming Yellen does not wish to alter market pricing then through to the meeting itself and beyond if a hike takes place. Our call of EUR/USD breaching parity remains in place with the 2-year swap spread in favour of US rates breaking to new highs consistent with EUR/USD breaking below the 1.0400 level. Action from the Fed in March could have quite a dramatic shift in market expectations and the rates curve could undergo quite a notable shift higher as the prospects of four rate hikes at each press conference meeting becomes more plausible.”


12:20 GBP/USD off lows near 1.2370 post-UK PMI

The British Pound has managed to leave behind the area of daily lows around 1.2350 vs. the greenback on Wednesday, with GBP/USD now attempting to retake 1.2370 and above.

GBP/USD muted on data

Spot kept the composure after today’s results from the UK docket, with BoE’s Consumer Credit rose more than £1.41 billion during January and Mortgage Approvals increased by nearly 70K during the same period.

In addition, M4 Money Supply has expanded at an annualized 7.0% and Net Lending to Individuals rose to £4.8 billion on a monthly basis. On the less bright side, Markit's Manufacturing PMI dropped to 54.6 in February, missing estimates.

Despite the results have come in on the firm side, the impact on GBP has diluted within the broader context of USD-strength.

Absent further publications in the UK calendar, the focus will now shift to the US docket, with ISM Manufacturing, Personal Income/Spending, January’s inflation gauged by the PCE, Markit’s Manufacturing PMI and the speech by Dallas Fed R.Kaplan (voter, hawkish) all preceding the release of the Fed’s Beige Book.

GBP/USD levels to consider

As of writing the pair is losing 0.08% at 1.2370 and a break below 1.2351 (low Mar.1) would aim for 1.2344 (low Feb.7) and finally 1.2250 (low Jan.19). On the flip side, the initial up barrier aligns at 1.2410 (100-day sma) followed by 1.2474 (20-day sma) and then 1.2572 (high Feb.24).


12:14 USD/CAD inter-markets: Buy the pullbacks on Fed/BOC policy divergence?

The USD/CAD pair is seen extending its rebound from near 1.3050 region so far this week, mainly driven by higher treasury yields, as recent hawkish Fedspeaks raise odds for a March Fed rate hike.

Moreover, the greenback regained ground across the board after Trump’s speech, which highlighted a $ 1 trillion infrastructure spending program and more importantly raised raises the prospects of a more productive relationship between the White House and Congress.

Meanwhile, Loonie fails to buy into any recovery in oil prices, as rising crude inventories as well as US production levels continue to dampen the sentiment around the commodity-currency.

Instead, the major is seen getting highly influenced by widening yield differentials between the 10-year treasury yields and its Canadian counterpart, tilting in favor of the greenback amid divergent monetary policy outlooks between the Fed and Bank of Canada (BOC).

Goldman Sachs raised the probability of a rate hike in March to 60% versus 30% seen previously, while the BOC is expected to make no changes to its monetary policy today. However, the BOC may not rule out further scope for easing in the coming months, taking into account the large downside risk to the outlook.

 


12:04 Russia HSBC Manufacturing PMI : 52.5 (February) vs previous 54.7


12:04 Ireland Purchasing Manager Index Manufacturing dipped from previous 55.5to 53.8 in February


11:58 Dutch election polls point to a tightening between VVD & PVV MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that the first big test of 2017 on whether the populism evident with Trump’s victory and the Brexit vote has spread to Europe comes in two weeks’ time with the general election in the Netherlands.

Key Quotes

“With this event fast approaching it was notable to see the latest opinion poll results from yesterday indicating a decline in support for Gert Wilders and the Freedom Party (PVV) at the expense of PM Rutte’s Liberal Party (VVD). In an EenVandaag poll published yesterday both parties were predicted to take 22 seats, the first time there has been a tie in that particular poll since June 2015. A separate poll (Kantar Public) has the Freedom Party unchanged at 28 seats and the Liberal Party on 27 seats, up 2 seats from previously.”

“There are at least 12 parties that are expected to take seats in the 150-seat parliament and on the showing in yesterday’s opinion poll a coalition circumventing the Freedom Party could be done more easily. However, at closer to 30 seats or certainly over 30 seats, the influence of the Freedom Party would be much greater. A simple majority of 76 is required for smooth passage of legislation through parliament and the greater the Freedom Party’s seat count is the more difficult it becomes for a workable coalition to be formed without PVV inclusion.”

“Furthermore, while the latest opinion polls may point to a loss of momentum for the Freedom Party that would be good news for the political establishment and for the euro, we should not assume that no damage is being done. Immigration has dominated election campaigning and in efforts to weaken the Freedom Party, centre to left-leaning parties have shifted to the right. The Christian Democrats and Labor have both called for border controls to halt new arrivals.”

“There have been 24 opinion polls published on Wikipedia so far this year and based on those polls, PVV has averaged 28.8 seats while VVD has averaged 24.6 seats. In all but 5 of those polls, PVV has polled more seats than VVD. Hence, we suspect PVV would have to garner approaching 30 seats to trigger a negative fallout for the euro in the foreign exchange market. Anything closer to 20 seats for PVV and certainly a count that is less than VVD would fuel a relief rally for the euro. This would be as much related to what this might mean for France as what it might mean specifically for the Netherlands. The implications for the Netherlands might not be clear-cut for a period given it will likely take considerable time to form a coalition, but a poor showing for PVV would help reinforce the view that what happened in 2016 is not likely to be replicated in continental Europe in 2017.”


11:40 GBP/JPY retreats, but remains well-bid near mid-140.00s after UK PMI

Having posted a session high near 141.75 region, the GBP/JPY cross trimmed some of its strong gains, albeit maintained its strong bid tone just below mid-140.00s following UK manufacturing PMI

Spot prices failed to build on previous session’s recovery move from the very important 200-day SMA after the UK manufacturing PMI print fell short of market expectations and came-in at 54.6 for February. The reading was below consensus estimates pointing to a reading of 55.5 and worse than January's 55.9. 

Despite of slightly weaker reading, the cross maintained its strong bid tone in wake of intense selling pressure around the Japanese Yen. The Japanese Yen remained on the back-foot through early European session amid reviving hopes for an imminent Fed rate-hike action at its meeting in two weeks, and has been an exclusive driver of the GBP/JPY pair's ongoing recovery move from the very important 200-day SMA support. 

It, however, remains to be seen if the cross is able to hold / build on to the up-move amid renewed fears of another Scottish independence referendum. Hence, market participants would continue to closely track any fresh development / news that could act as a catalyst for the pair's next leg of directional move.

Technical levels to watch

Sustained move above 141.00 handle has the potential to lift the cross further towards 141.75-80 resistance area, with 141.35-40 area acting as intermediate resistance. Meanwhile on the downside, retracement back below 140.25 level would turn the cross vulnerable to break back below the 140.00 psychological mark and head towards retesting 200-day SMA support near the 139.00 handle.

 


11:35 UK Feb manufacturing PMI: a Big miss on expectations

The manufacturing sector activity in the UK economy showed a bigger-than expected drop and slowed its pace of expansion sharply in February, the latest data from Markit revealed on Wednesday.

The final Purchasing Managers' Index (PMI) in the UK arrived at 54.6 points in Feb, as compared to a previous 55.7 reading. Markets had predicted a drop to 55.6.

Key Points:    

Output and new orders rise solidly, albeit at slower rates

Price inflationary pressures remain elevated

Rob Dobson of Markit commented in the release, “The latest PMI signals that the UK manufacturing sector continued its solid start to the year. Although rates of expansion in output and new business lost impetus in February, growth remained comfortably above the long-run averages. The survey is signalling quarterly manufacturing output growth close to the 1.5% mark so far in the opening quarter which, if achieved, would be one of the best performances over the past seven years. “The big question remains as to whether robust growth can be sustained or whether it will continue to wane in the coming months.”

 


11:33 United Kingdom Net Lending to Individuals (MoM) remains unchanged at 4.8B in January


11:31 United Kingdom Markit Manufacturing PMI below forecasts (55.6) in February: Actual (54.6)


11:31 United Kingdom M4 Money Supply (YoY): 7% (January) vs 6.2%


11:31 United Kingdom M4 Money Supply (MoM) climbed from previous -0.5% to 0.9% in January


11:31 United Kingdom Mortgage Approvals came in at 69.928K, above forecasts (68.65K) in January


11:31 United Kingdom Consumer Credit came in at 1.416B, above forecasts (1.4B) in January


11:30 EUR/USD expected to stick to the rangebound theme UOB

EUR/USD is seen navigating within a 1.0500/1.0680 range for the next 103 weeks, according to FX Strategists at UOB Group.

Key Quotes

“There is not much to add as EUR traded in a relatively narrow range of 1.0568/1.0630 yesterday. However, the failure to move above 1.0630 for the second straight day and the subsequent rapid pullback has resulted in a slight negative undertone”.

“That said, any weakness from here is expected to face solid support at 1.0500. 1.0500 is a rather strong level and a break could lead to a quick move lower to 1.0450/55. On the upside, 1.0630 is likely strong enough to cap any short-term advance, at least for the next 1 to 2 days (next resistance at 1.0680)”.

 

 


11:24 USD/CHF dips expected to be shallow Commerzbank

In view of Karen Jones, Head of FICC Technical Analysis at Commerzbank, occasional pullbacks in USD/CHF should be shallow.

Key Quotes

“The market is consolidating below the 55 day ma at 1.0098. The market recently faltered ahead of 1.0159, the 61.8% retracement of the move down from December and has been correcting lower, dips should remain relatively shallow. While above the .9970 near term uptrend, 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”.

“Only below 9970 would trigger a slide to the .9861/50 recent low and Fibo”.

 

 


11:22 USD: Trump lack of details shifts focus to Fed MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that the dollar looks set to advance further from here with the speech to Congress by President Trump now behind us and with the focus now shifting to the Federal Reserve and monetary policy ahead of a speech on Friday by Fed Chair Yellen and then the FOMC meeting on 15th March.

Key Quotes

“We believe the key take-away for the markets from the speech is not the fact that it lacked detail on policy – that was never likely – but that President Trump was far more conciliatory which raises the prospects of a more productive relationship between the White House and Congress. On policy Trump highlighted the repeal of Obamacare, a USD 1trn infrastructure spending program, tighter border security and increase defence spending suggesting from the reflation policy angle anyway that infrastructure spending may get greater focus than say the tax reform program which has many facets to it. Certainly from the perspective of working with Congress, an infrastructure spending program would have much greater bi-partisan support than would a tax cutting program.”


11:19 WTI off lows, looking to regain $54.00 ahead of EIA

Crude oil prices are trading within a tight range on Wednesday, with the barrel of West Texas Intermediate losing smalls just below the $54.00 mark.

WTI attention to API report

Prices for the WTI are shedding ground for the second consecutive session today amidst a sharp rebound in the greenback in response to rising market expectations of a rate hike by the Federal Reserve at the March meeting.

WTI lost further momentum after the weekly report by the American Petroleum Institute (API) noted late on Tuesday that US crude oil supplies rose by more than 2.5 million barrels during last week.

Crude oil prices stay under pressure for the time being, as concerns over the supply glut seem to have re-emerged in light of the persistent pick up in US drilling activity, as per weekly reports by Baker Hughes. However, the quite high compliance with the OPEC deal on oil production-cuts keeps limiting occasional pullbacks, giving some decent support to prices. Extra support comes also from the speculative community, as crude net longs remain at record levels as per the latest CFTC report.

Later in the session, US ISM Manufacturing should keep the buck in centre stage ahead of the EIA weekly report on crude oil inventories.

WTI levels to consider

At the moment the barrel of WTI is losing 0.17% at $53.92 facing the immediate support at $53.49 (20-day sma) followed by $53.18 (low Feb.28) and then $53.03 (55-day sma). On the other hand, a surpass of $54.23 (high Feb.28) followed by $54.61 (high Feb.27) and finally $54.94 (high Feb.23).


11:08 EUR/GBP reverses majority of previous session gains ahead of UK PMI

The EUR/GBP cross snapped three consecutive days of winning streak and has now reversed majority of previous session gains to six day peaks. 

Currently trading around 0.8520-15 region, a fresh wave of selling pressure around the EUR/USD major in wake of by reviving bets for an eventual Fed rate-hike action at the next FOMC meeting on March 14-15 coupled with the ongoing political uncertainty in the Euro-zone, has been a key factor for the shared currency's underperformance against its British counterpart. 

The downslide, however, has been limited and the cross has held above the 0.8500 psychological mark amid some bearish sentiment surrounding the GBP/USD major as well, led by renewed fears of another Scottish referendum and impending Brexit concerns. 

Today's UK economic docket features the release of manufacturing PMI, which is expected to tick lower from January's 55.9 to 55.5 in February and might provide some opportunities for short-term traders during European session.

Technical levels to watch

A follow through retracement below 0.8500 psychological mark could get extended towards 0.8480-75 horizontal support, below which the cross seems vulnerable to head back towards 0.8425 strong horizontal support. On the flip side, momentum above 0.8540 immediate resistance now seems to lift the cross beyond 0.8590 (Feb. 17 high), and 0.8600 handle, towards testing 100-day SMA hurdle near 0.8625 region.

 

 


11:06 EUR/USD struggles to recover above 1.0550 on data

The EUR/USD pair moves-off five-day lows and struggles to extend the recovery above the mid-point of 1.05 handle, in response to mixed Euro area final manufacturing PMI reports. While better-than expected German employment data had virtually no impact on the common currency.

The major fell sharply to daily lows on the European open, as the greenback caught a fresh bid-wave against its main peers, with the European traders reacting to Trump’s pro-growth comments made during his address before the Congress.

With the Eurozone PMIs behind, all eyes now remain on the German Prelim CPI data and US ISM manufacturing PMI report due later in the session ahead.  

EUR/USD Technical Levels

Dukascopy Team noted, “The common European currency opened Wednesday's trading against the US Dollar near the 1.0575 level. However, during the first hours of the day's trading the rate moved lower, and passed the closest support level before a large range without any level of significance.”

Due to that fact the currency exchange rate positioned itself for a major fall, as the closest support was at the 1.0491 level, where the weekly S1 located at. It is likely that the rate will fall to this support soon, and there it will be stopped for at least a while, as the lower Bollinger band is closing in to support the weekly S1,” the Team added.

 


11:00 Turkey Exports increased to $11.3B in February from previous $10.53B


11:00 Greece Markit Manufacturing PMI: 47.7 (February) vs 46.6


11:00 European Monetary Union Markit Manufacturing PMI came in at 55.4, below expectations (55.5) in February


10:59 Germany Unemployment Rate s.a. meets expectations (5.9%) in February


10:59 Germany Unemployment Change came in at -14K below forecasts (-10K) in February


10:56 Germany Markit Manufacturing PMI came in at 56.8, below expectations (57) in February


10:51 France Markit Manufacturing PMI below expectations (52.3) in February: Actual (52.2)


10:46 Italy Markit Manufacturing PMI registered at 55 above expectations (53.5) in February


10:45 RBA to begin winding back very accommodative policy Goldman Sachs

Analysts at Goldman Sachs came out with their latest note on the RBA monetary policy outlook, following the release of better-than expected Aus Q4 GDP figures earlier today.

Key Points:

If the upward revisions are incorporated into the data, the annual gain in GDP is above that forecast by the RBA (in its February SoMP)

The Reserve Bank of Australia is better placed then to begin winding back "very accommodative" policy

Upbeat on wages, real net national disposable income increased at its quickest pace since the first quarter of Q 2011

Forecast a first rate hike in Q1 of 2018 (up 25bps)


10:39 GBP/USD bounces-off 1.2350 ahead of UK PMI

Fresh bids emerged at the mid-point of 1.23 handle, allowing a tepid-bounce in GBP/USD back towards the immediate resistances located near 1.2380 region.

The GBP bulls were rescued from three-week troughs, after the treasury yields stalled its upward march and eased-off highs, while Trump’s speech led risk-on rally in the European equities also underpinned the sentiment around the risk currency GBP.

The immediate focus for the major now remains on the upcoming UK manufacturing PMI data, which is expected to tick lower to 55.5 in February versus January’s 55.9 reading. Poor PMI report may cap the recovery in cable, and could push the cable back towards multi-week lows.

GBP/USD Levels to consider            

At 1.2390, the resistances are aligned at 1.2443/50 (10-DMA) and 1.2466 (20-DMA) and below that at 1.2500 (zero figure). On the flip side, the supports are lined up at 1.2351 (3-week low) and 1.2300 (round figure) and below that at 1.2256 (Jan-end lows).

 


10:37 EUR/USD seen lower in the medium term Danske Bank

Jens Pedersen, Senior Analyst at Danske Bank, assessed the prospects for the pair in the short to medium terms.

Key Quotes

“Trumps long awaited speech late last night US time did not bring much new in terms of details on tax and spending policy, and price actions in the majors have been relatively modest overnight”.

“Hawkish comments from FOMC members Dudley and Williams suggesting that a March rate hike is still an option for the Fed supported the USD and has sent EUR/USD down towards the 1.0550 level this morning. As such, we still see EUR/USD grinding lower in the coming months targeting 1.05 in 3M as support to the common currency is likely to remain weak ahead of the French presidential elections in April and May”.

“However, the two key drivers for a lower EUR/USD in the near term (US tax policy and FOMC reprising) look increasingly exhausted with a March rate hike from the Fed now priced with a two-third probability and given that it might take some time before the Trump administration is ready to announce more details on its spending and tax plans”.

 

 


10:31 Switzerland SVME - Purchasing Managers Index: 57.8 (February) vs 54.6


10:28 AUD/USD temporary top around 0.7740 UOB

FX Strategists at UOB Group suggested the pair could have carved a temporary top around recent highs in the 0.7740 region.

Key Quotes

“The bullish phase that started one month ago has finally ended with the move below 0.7660 yesterday”.

“The high of 0.7741 seen last Thursday is likely a temporary top. The current pullback from the high appears to have scope to extend lower to 0.7605/10, possibly extending lower to 0.7570”.

“At this stage, any decline is viewed as a corrective pullback and a period of sustained weakness is not expected. Resistance is 0.7710 but AUD has to move above 0.7740 to indicate that the current short-term weakness has stabilized”.

 

 


10:24 USD/JPY clings to strong gains near mid-113.00s

The USD/JPY pair built on overnight sharp rebound from 100-day SMA support and jumped to multi-day tops, beyond mid-113.00s.

Spot gained fresh traction on Wednesday after comments hawkish from various Fed officials, reviving hopes Fed rate-hike action at its meeting on March 14-15, acted as a catalyst to push the greenback  higher across the board. 

The greenback got an additional boost from the US President Donald Trump's proposed $1 trillion infrastructure program and commitment to lower taxes, during his first address to a joint session of Congress. Trump's speech, however, lacked any specific details / timeline for the said reforms but did little to hinder the greenback's strong up-move, with the key US Dollar Index inching back towards the 102.00 handle. 

Meanwhile, upbeat Chinese manufacturing PMI further lifted investors' risk appetite, which tends to weigh on the Japanese Yen's safe-haven appeal, and collaborated to the pair's positive bias for the third consecutive session.

Later during NA session, a slew of important US macro data - personal income / spending data, Core PCE Price Index and ISM manufacturing PMI, alongside speech from FOMC member Kaplan, would be looked upon for fresh impetus. 

Technical levels to watch

Immediate resistance is pegged near 113.75 level, above which the pair seems more likely to surpass 114.00 handle and head towards its next major hurdle at 114.30-40 region (nearing 50-day SMA). On the downside, weakness below 113.25 level could drag the pair back below 113.00 handle, towards 112.80-75 support area.

 


10:21 EUR/USD remains directly offered below 1.0630 Commerzbank

Karen Jones, Head of FICC Technical Analysis at Commerzbank, noted EUR/USD should stay offered while below 1.0630.

Key Quotes

“The market has again failed at its 20 day ma at 1.0630 and is directly offered below here. Resistance is reinforced by the 1.0670 3 month downtrend and we continue to target recent lows at 1.0352/40”.

“The market will remain directly offered below short term downtrend at 1.0670 and last weeks high at 1.0679. Above here lies 1.0820/29, which represents the 50% retracement and the recent February high”.

“Only above 1.0830 would introduce scope to 1.0875 December high and the 200 day ma at 1.0955”.

 

 


10:17 Spain Markit Manufacturing PMI came in at 54.8, below expectations (56) in February


10:12 US Dollar probing highs near 101.80, US data eyed

The greenback – when tracked by the US Dollar Index – keeps its bullish note well and sound on Wednesday, currently testing the critical resistance area around 101.70/80.

US Dollar up on rate hike hopes

The index is advancing for the fourth straight session so far today, flirting at the same time with the area of 7-week tops around 101.70 amidst a renewed buying impetus around the buck, all in response to a pick up of the probability of a Fed’s rate hike at its March meeting.

The likeliness of the Fed tightening its monetary conditions later this month has been boosted by recent auspicious comments by several FOMC governors. In fact, Dallas Fed R.Kaplan (voter, hawkish) argued the Fed should start removing policy accommodation while he noted the next hike should take place ‘in the near future’. In the same line, Philly Fed P.Harker (voter, hawkish) sees three rate hikes this year as appropriate as long as data remains on current track, while New York Fed W.Dudley (permanent voter, centrist) said the case for further tightening is compelling.

Yields in US money markets have reverted the recent drop following the supportive Fedspeak and the positive message from Trump’s SOTU speech on Tuesday, accompanying and sustaining the up move in the index.

Later in the NA session, the greenback should stay in centre stage in light of the publications of February’s, US ISM Manufacturing, Personal Income/Spending, January’s inflation gauged by the PCE, Markit’s Manufacturing PMI and the speech by Dallas Fed R.Kaplan (voter, hawkish). Closing the docket, the Fed will publish its Beige Book.

US Dollar relevant levels

The index is advancing 0.41% at 101.75 facing the next up barrier at 101.95 (23.6% Fibo of the November-January up move) followed by 102.96 (high Jan.11) and finally 103.81 (2017 high Jan.3). On the downside, a breach of 101.22 (low Mar.1) would open the door to 100.79 (20-day sma) and then 100.64 (low Feb.24).


09:59 USD/ZAR: Too strong to be true - Natixis

Nordine NAAM, Research Analyst at Natixis, notes that since the start of the year, the South African rand has extended its rise against the US dollar and euro to what are its highest levels since 2015.

Key Quotes

“As result, the USD/ZAR pulled back below 13 in February. When it comes to emerging currencies, the South African rand has recorded the second strongest increase, up 6.15% against the US dollar and up 5.14% against the euro since the start of the year. Despite this flourish, our view is that the South African currency seems fragile and likely to correct in 2017 given the many negative factors, notably at macroeconomic level and, especially, at political level.”

“Expectations are that GDP growth will reach 1.0% in 2017 given the absence of structural reforms. The agricultural sector is the only one expected to see an improvement in 2017, household consumption being penalised by the very high 27% unemployment rate. Inflation is unlikely to pull back inside the central bank’s official range of between 3% and 6% at the end of the year given that crude oil prices are on the rise. Since real rates are near zero, the South African Reserve Bank will not be able to cut its key policy rates, which are likely to be kept on hold. Finally, the government does not have much leeway at fiscal level.”

“Capital outflows accelerated in 2016, with negative investment flows of $8.8bn for the equity market, and there have been further outflows since the start of 2017, totalling $1.3bn.”

“The major risk for financial assets is at political level. With the ANC leadership elections scheduled at the end of December, there is a not insignificant risk that President Zuma will reshuffle the government to foil one of his adversaries, namely Finance Minister Pravin Gordhan, who is very much appreciated by the markets given his determination to press ahead with a fiscal consolidation. Clearly, most credit rating agencies would be likely to downgrade the country’s credit rating if there is a government reshuffle and this threatens to undermine efforts to cut the fiscal deficit. There follows that South Africa is at risk of losing its Investment Grade status. Currently, the country is rated BBB- by S&P, BBB- by Fitch and Baa2- by Moody’s.”

“Besides these country risks, there are risks linked to the appreciation of the US dollar and US long interest rates, which would penalise the South African rand by accelerating capital outflows. This week, Donald Trump’s State of the Union Address could at long last confirm that there will indeed be a fiscal stimulus package. This in turn would be likely to stoke expectations of a rise in the Fed Funds rate and US dollar. After that, there will be the FOMC meeting on 15 March.”

“Despite all these risks, notably at political level, the USD/ZAR could test 12.64 and the EUR/ZAR 12.90 before both pairs going to recover towards 14 in coming months.”


09:44 China: Official PMI rises in February - Nomura

Analysts at Nomura note that China’s official manufacturing PMI ticked up to a higher-than-expected 51.6 in February from 51.3 in January (Consensus: 51.2; Nomura: 51.4).

Key Quotes

“The Caixin PMI also rose to a stronger-than-expected 51.7 in February from 51.0 in January (Consensus: 50.8). The leading indicators point to improving momentum.”

“By component, most sub-indices rose in February, led by output, raw material inventory and the employment sub-indices. The new orders and new export orders both rose and remained in expansionary territory, pointing to an improvement in external and domestic demand. The purchasing price sub-index moderated slightly to 64.2, suggesting PPI inflationary may moderate somewhat on a sequential basis but, considering the low base in last February, PPI year-on-year should pick up further this February.”


09:41 NZD/USD under intense selling pressure, plummets to 0.71 neighborhood

After repeated failures to sustain strength above 0.7200 handle, the NZD/USD pair came under intense selling pressure on Wednesday and plunged to the lowest level since January 17.

Tuesday's hawkish comments from various Fed officials lifted market expectations for an eventual Fed rate-hike action at the next FOMC meeting on March 14-15 and triggered a sharp up-move in the US treasury bond yields. Surging bond yields boosted the US Dollar across the board and is weighing heavily on higher-yielding currencies - like the Kiwi. 

The pair even shrugged off upbeat release of New-Zealand Overseas Trade Index and Chinese Manufacturing PMI print and accelerated the downslide below important moving averages (50,100 and 200-day SMAs) confluence support near the 0.7140-30 region. Meanwhile, possibilities of some stops getting triggered on a decisive break below this important confluence support could have further aggravated the selling pressure, dragging the pair closer to the 0.7100 handle. 

Focus now shifts to the US economic docket, which includes the release of personal income/ spending data, Fed's preferred inflation gauge - Core PCE Price Index and ISM manufacturing PMI for February, for some immediate respite for the bulls and fresh impetus for the pair's movement during NA session. 

Technical levels to watch

A follow through selling pressure below 0.7100 handle would turn the pair vulnerable to continue drifting lower towards 0.7050-45 intermediate support ahead of 0.7020-15 strong horizontal support. On the upside, moving averages confluence support break area near 0.7130-40 region now seems to act as immediate strong hurdle, which if cleared could lift the pair towards 0.7160 resistance ahead of 0.7190 strong barrier.

 


09:32 Sweden Purchasing Managers Index Manufacturing (MoM) declined to 60.9 in February from previous 62


09:30 GBP/USD tumbles to lows near 1.2350 ahead of UK PMI

The selling pressure around the Sterling is now picking up pace, dragging GBP/USD to the area of 1.2350, or fresh daily lows.

GBP/USD weaker on USD-buying, UK data on sight

Spot is retreating for the fourth session in a row so far today, threatening to break below the consolidative theme that has been prevailing since late January against a backdrop of increasing buying interest surrounding the greenback.

The demand for USD has been once again fuelled by the likeliness of a Fed’s move later this month, all in response to the hawkish tone by Fed speakers in past sessions, which has somewhat offset Trump’s SOTU speech on Tuesday.

At his speech before Congress, Trump failed to give extra details on his plans to boost infrastructure and his recently announced ‘phenomenal’ tax reform, although the general tone was seen as quite positive by investors, lending extra legs to USD rally.

Later in the session UK’s Manufacturing PMI for the month of February is due along with BoE’s Consumer Credit, Net Lending to Individuals, M4 Money Supply and Mortgage Approvals.

On the USD-side, US ISM Manufacturing is expected to have eased a tad last month, seconded by Personal Income/Spending, January’s inflation gauged by the PCE, Markit’s Manufacturing PMI and the speech by Dallas Fed R.Kaplan (voter, hawkish). Closing the docket, the Fed will publish its Beige Book.

GBP/USD levels to consider

As of writing the pair is losing 0.14% at 1.2363 and a break below 1.2351 (low Mar.1) would aim for 1.2344 (low Feb.7) and finally 1.2250 (low Jan.19). On the flip side, the initial up barrier aligns at 1.2410 (100-day sma) followed by 1.2474 (20-day sma) and then 1.2572 (high Feb.24).


09:27 Sources: Russias oil production declines in February - RTRS

Reuters quoting sources familiar with the matter, citing that the Russian oil output in February declined to 11.1 mln bpd from 11.247 mln bpd in October.


09:22 UK: PMI-based GDP indicator would point to growth of 0.40.5% q/q in Q1 2017 RBC CM

According to the analysts at RBC Capital Markets, if the Market/CIPS UK PMIs were to hold steady at January levels, then the PMI-based GDP indicator would point to GDP growth of 0.4–0.5% q/q in Q1 2017.

Key Quotes

“This would be a slowing in growth and a 0.4% q/q outturn would be consistent with our expectations, so the February numbers will be useful in either confirming the January growth estimate or signaling risks in either direction. Another theme to look out for is whether or not the surveys show the upward pressure on prices rising. In the manufacturing and service sectors in particular, input price sub-indices are at elevated levels and have led the pick-up we are now starting to see in CPI inflation.”

“For the manufacturing PMI, we look for a small drop to 55.5 from 55.9 last time; in construction, a February print of 51.9 from 52.2; and in services, an unchanged outcome of 54.5.”


09:18 Sell AUD/CHF at 0.7715 - ANZ

Daniel Been, Head of FX Strategy at ANZ, suggests that on a tactical basis the risk reward for owning the AUD is starting to shift, and a move lower, at least on the crosses, is becoming increasingly likely.

Key Quotes

“The market was pricing too much hope – in particular surrounding the US reflation story. Indeed, our risk sentiment measure has hit levels which has rarely not led to a spike in risk aversion, and historically, this has at the very least stalled the rally in the AUD.” 

“Similarly, while in the very near term we expect that global growth will remain resilient, the signal that has been sent by global order to inventory ratios is likely to be as good as it gets. This too could weigh on cyclical currencies like the AUD.”  

“As such, the global tail-wind which has benefited the AUD for much of this year, will likely dissipate for now. On the domestic front there is little that can offset this fading tailwind.”  

“Despite the positive commodity price shock that we are experiencing, pass though is proving significantly slower than in previous cycles, and will likely remain so. Further, the recent data pulse has been relatively disappointing – particular on the wages front - and this will keep the RBA on the sidelines for some time.” 

“Given all of this we think that there is some risk of near term weakness in the AUD, though we favour selling it on crosses, rather than against the USD. We recommend selling AUD/CHF.”  

“We think that the CHF presents a good long candidate to sell against. Our PCA residual analysis shows that there has been unusual weakness in the CHF, over and above that which is justified by USD strength. With the SNB also not actively easing (though still admittedly focused on the level of the currency), and with a lower political premium relative to the EUR, this seems unjustified for now and as such it presents a good alternate funding for an AUD short.”  

“Sell AUD/CHF at 0.7715, targeting 0.7445. We will reassess the trade at 0.78.”


09:15 When is UK manufacturing PMI and how could affect GBP/USD?

UK manufacturing PMI overview

The UK manufacturing PMI for February is due for release today at 0930GMT, and is expected to show that the pace of expansion in the activity to have deteriorated last month. The index is seen coming-in at 55.5 versus January’s 55.9 reading. 

Deviation impact on GBP/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 10 and 50 pips in deviations up to 1.65 to -2.50, although in some cases, if notable enough, a deviation can fuel movements of up to 80 pips.

How could affect GBP/USD?

A positive surprise in the manufacturing sector activity report would send the spot higher for a re-test of 1.24 handle. On the other hand, a bigger-than expected drop in the PMI reading could knock-off the GBP/USD pair closer to 1.2300 levels and breach of the last would yield a test of Jan-end lows near 1.2250 region.

An upside surprise should rescue the bulls from the ongoing losing streak witnessed in the major; in wake of speculation surrounding another Scottish independence referendum.

 Key notes

GBP/USD confirms a bearish break-out on talks of March Fed rate-hike, manufacturing PMIs eyed

“Market participants on Wednesday will look forward to the release of key manufacturing PMI prints from the US and UK for fresh impetus.”

About UK manufacturing PMI

The Manufacturing Purchasing Managers Index (PMI) released by both the Chartered Institute of Purchasing & Supply and the Markit Economics captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the Manufacturing PMI is an important indicator of business conditions and the overall economic condition in UK. A result above 50 signals is bullish for the GBP, whereas a result below 50 is seen as bearish.

 


09:15 Gold extends slide for 3rd straight session, drops to weekly low

Gold extended its rejection move from the very important 200-day SMA resistance and pulled-back farther from the 3-1/2 month highs touched on Monday.

Currently trading at multi-day lows, around $1243 level, the precious metal drifted lower for the third consecutive session in wake of hawkish comments from the Federal Reserve officials on Tuesday, which raised market expectations for a March Fed rate-hike action. Growing Fed rate-hike bets lifted the US treasury bond yields and weighed on the non-yielding yellow metal. Rising bond yields also underpinned the US Dollar demand and further dented demand for dollar-denominated commodities - like gold. 

Furthermore, Wednesday's upbeat Chinese manufacturing PMI, easing concerns of economic slowdown in the world's second largest economy, drove flows away from traditional safe-haven assets and also collaborated to the metal's downslide to weekly lows. 

A slew of US macro data on Wednesday would continue to influence hopes of a rate increase and provide fresh impetus for the metal during early NA session.

Technical levels to watch

Immediate support is seen at $1240 level, below which the commodity seems to extend the corrective slide towards $1225 horizontal area with some intermediate support near $1235 level. On the upside, momentum above $1246-47 immediate barrier now seems to confront resistance near $1257 level. Any further up-move might continue to be restricted at the very important 200-day SMA strong hurdle near $1261-62 region.

 

 


09:08 UK: Manufacturing PMI for February to print 55.7 figure - TDS

Research Team at TDS expects today’s UK manufacturing PMI for February to register 55.7, a notch below consensus of 55.8.

Key Quotes

“This would still leave it sitting near its highest levels since 2014 as UK manufacturers benefit from the decline in sterling, which recent data suggests is being used to boost exporters’ profit margins rather than used to lower prices in order to compete and expand output.”

“The House of Lords continues to debate the Article 50 bill, with votes expected sometime Wednesday on protecting the rights of EU nationals in the UK and on giving the UK parliament a more meaningful vote on the Brexit deal at the end of negotiations.”


09:02 EUR/USD weaker, flirting with lows near 1.0550

The increasing bid tone around the buck has prompted EUR/USD to abandon the area of recent highs and retreat towards the current 1.0555/50 band, or daily lows.

EUR/USD attention to data

The pair is now losing ground for the second consecutive session, coming down to test multi-day lows in the mid-1.0500s amidst a solid rebound in the demand for the US Dollar.

In fact, expectations of a rate hike by the Federal Reserve at its meeting later this month have been boosted following supportive Fedspeak as of late. While Trump’s SOTU speech on Tuesday failed to shed more light on his plans on spending and tax reforms, investors deemed the tone as fairly positive (at least not negative), collaborating in turn with the improved mood around the buck.

EUR/USD gained extra downside pressure following a sharp pick up in US yields vs. the rest of its G10 peers.

Looking ahead, final February prints of the Manufacturing PMI in Euroland are unlikely to grab some attention, although market participants will closely follow the preliminary inflation figures in Germany during last month.

Across the pond, US ISM Manufacturing should be the salient event, seconded by Personal Income/Spending, January’s inflation gauged by the PCE, Markit’s Manufacturing PMI and the speech by Dallas Fed R.Kaplan (voter, hawkish). Closing the docket, the Fed will publish its Beige Book.

EUR/USD levels to watch

At the moment the pair is losing 0.18% at 1.0558 and a breach of 1.0492 (low Feb.22) would target 1.0452 (low Jan.11) en route to 1.0339 (2017 low Jan.3). On the flip side, the next hurdle lines up at 1.0630 (20-day sma) followed by 1.0632 (high Feb.28) and finally 1.0682 (high Feb.16).


09:02 Switzerland UBS Consumption Indicator fell from previous 1.5 to 1.43 in January


09:01 EUR/JPY short-term extreme overbought

The 4hr RSI was printing below 50% most of the last three weeks and recently broke above the 60% mark.

EUR/JPY was in sell mode -the 50SMA placed below the 200SMA on 4hr charts-, until it failed to cooperate with these trend indicators. Now the oscillators point to a short-term extreme overbought zone which may allow sellers to adhere to a continuation move with the prevailing down trend.

However, should the pair extend its recovery from multi-week lows into a new trend, short positions may require a contingency plan.

09:01 United Kingdom Nationwide Housing Prices s.a (MoM) came in at 0.6%, above forecasts (0.2%) in February


09:01 United Kingdom Nationwide Housing Prices n.s.a (YoY) came in at 4.5%, above expectations (4.1%) in February


08:50 Australia: Economic activity supporting hawks TDS

Annette Beacher, Chief Asia-Pacific Macro Strategist at TDS, notes that Australia’s Dec qtr GDP rebounded by +1.1%/qtr (Q3 unchanged at –0.5%/qtr) outpacing most analyst estimates as well as the RBA’s implied forecast of +0.8%/qtr.

Key Quotes

“Combined with several other upbeat activity prints, the AUD reversed last night’s sell-off, and the 3-10s yield curve has bearsteepened via 10yr yields +7bp.”

“What was highly unusual (and welcome) about this report was strong growth experienced in prices and volumes, last seen in mid-2011, and before that, Mar qtr 2008.”

“GDP expanded by 2.4% in 2015 and 2.5% in 2016, below the accepted 2¾% estimate of trend growth. Our tracking for 2017 is for more of the same 2.6%, and we forecast a return to above-trend 3% for 2018, as does the RBA.”

“Today is a good day for TD’s out of consensus RBA-tohike-in-November base case, as this strong GDP report was accompanied by (1) strong Feb manufacturing PMI print (59.3); (2) an outsized jump in Feb house prices (to be +11.7%/yr) and (3) Feb Chinese manufacturing PMIs outpaced expectations (official 51.6 and Caixin 51.7).”

“We turn to tomorrow’s Jan trade surplus (TD +$A3.5b, mkt +$A3.8b) and Jan building approvals (TD +0.5%, mkt –0.5%) for more Mar qtr activity updates.”


08:48 Forex Today: USD lifted by Trump, a busy calendar ahead

An eventful Asian session, with Trump trade ruling roost and adding to the overnight strength seen in the greenback across the board. While the treasury yields also regained poise amid overall risk-on environment, in wake of Trump’s boost to the infrastructure program and his commitment towards pro-growth policies. The Aussie remained underpinned by better-than expected Australian Q4 GDP data as well Caixin Chinese manufacturing PMI report.

Moving on, we have a busy economic calendar ahead, with the European session filled with manufacturing PMI releases from across the Euro area and UK, alongside Germany’s jobs and inflation data. In the NA session too, we have a flurry of macro news from the US docket, of which the ISM manufacturing PMI and core PCE price index data will hold the key, while Canada has current account data, followed by the Bank of Canada (BOC) policy decision. Last, but not the least, FOMC member Kaplan is scheduled to speak at Paul Quinn College, in Dallas.

Main topics in Asia

White House releases Trump's speech excerpts: "We are developing a historic tax reform"

The White House has released the following excerpts from President Donald Trump's first address to a joint session of Congress, as prepared for delivery, the Associated Press reports. 

Trump calls for Congress to approve legislation to produce $1 trillion investment in infrastructure

As part of his speech to Congress, US President Trump has called for Congress to approve legislation that produces $1 trillion investment in infrastructure, which will be financed through public and private capital.

China's Feb Caixin PMI: Growth picks up

China Caixin Manufacturing PMI for February came at 51.7 vs 50.8 last, with new business increasing at a faster pace amid solid upturn in new export sales, while employment declined at softest rate in two years.

Australia's Q4 GDP: Major beat on expectations

Australia's Gross Domestic Product (QoQ) for Q4 came at 1.1% vs 0.7% exp and -0.5% last, while the yearly reading registered 2.4% vs 1.9% exp and 1.8% last.

Fed’s Bullard: No need to be aggressive with rate hikes

More comments crossing the wires from St. Louis Fed President James Bullard, as he continues to speak on the monetary policy program.

Key focus for the week ahead                                                  

EUR/USD back below 5-DMA as USD recovers Trump-led losses

Looking ahead, markets will continue to assess Trump’s rhetoric, as attention turns towards fundamentals, with the final manufacturing PMI reports up on the sleeves from the Euro land, followed by the German Prelim CPI data and US dataflow.     

GBP/USD - Offered above 50-DMA, clocks fresh 3-week low

GBP/USD ran into fresh offers above the 50-DMA level seen at 1.2397 and dropped to 1.2363; the lowest since February 7.

Goldman Sachs raised odds of March Fed rate hike to 60%

Analysts at Goldman Sachs increased the probability of a March Fed rate hike to 60% versus 30% seen previously.


08:46 US: Trumps speech to Congress was long on vision, short on details HSBC

Kevin Logan, Chief US Economist at HSBC, suggests that big set-piece speeches by the President to the Congress are often long on vision and short on details and if the financial markets were looking for new, detailed, information about tax reform or infrastructure spending in the President’s speech last night, they were probably disappointed.

Key Quotes

“On tax reform, President Trump said that his “economic team is developing historic tax reform that will reduce the tax rate on our companies so that they can compete and thrive …”, but there were no details about tax changes that have been recently discussed in Congress such as the disallowance of net interest deductibility, expensing of capital outlays, territorial versus a worldwide tax system, border tax adjustments, et cetera.”

“On infrastructure spending, Mr. Trump said only that he would ask Congress to approve legislation that produces USD1.0trn in infrastructure investment – financed through both public and private capital. This is not necessarily a request for USD1.0trn in federal spending. Nor was any timetable mentioned on when the infrastructure spending would take place.”

“President Trump’s suggestions for the reform of “Obamacare” generally conformed to many of the proposals in the “Better Way” blueprint put forward by the House Republican leadership. The blueprint leans heavily on tax credits and Health Care Savings Accounts rather than direct subsidies to purchase health insurance. Trump also hinted that he would support Better Way proposals to shift the Medicaid program to a per capita cap or to a block grant system.”

“One new twist was a suggestion that he would work “to bring down the artificially high prices of drugs.” This is a proposal that is usually associated with Democratic Party officials and is not something that one often hears from Republicans.”

“As expected, President Trump endorsed higher levels of military spending, but he did not propose any specific increase in the defense budget. We will have to wait for the release of the Administration’s proposed budget sometime in the next few weeks to learn the extent of potential fiscal policy changes.”


08:41 NZ: Q4 terms of trade rose by 5.7% - TDS

Analysts at TDS note that the New Zealand’s Q4 Terms of Trade rose by +5.7%/qtr (mkt 4.0%) and the export volumes fell 5.8%/qtr while import volumes rose 1.2%/qtr and so net trade eats into their GDP forecast (from +1.2% to +0.9%). 

Key Quotes

“In an unusual interview before his (newly announced) speech tomorrow, RBNZ governor Wheeler raises concerns on the new Trump administration’s protectionist policies. He was quoted that even if NZ exports to US are not tariffed, NZ will be hit by the downturn in the global economy and spillover effects from changes in trade flows.  NZD weakened and underperformed on this sentiment.”


08:34 USD/CAD digesting strong up-surge to multi-week tops, BOC awaited

The USD/CAD pair was seen building on to previous two session's strong up-move back above 100-day SMA and held above 1.3300 handle near 5-week tops.

Currently trading around 1.3310-15 region, the pair has been persistently weakening since the beginning of this week despite of a range bound action around the key US dollar index and WTI crude oil, which tends to derive demand for the commodity-linked currency - Loonie. 

Tuesday's up-move, however, was led by hawkish comments by a number of Fed officials on Tuesday, which revived hopes for a Fed rate-hike action at its upcoming meeting in March. Meanwhile, possibilities of some short-stops getting triggered on a decisive strength above 50-day SMA strong hurdle near 1.3200 handle could have further aggravated the up-move, lifting the pair back above 100-day SMA for the first time since Jan. 24.

Today's key focus would be BOC monetary policy decision where the central bank is widely expected to hold rates steady but market attention would be on policymakers' comments, which might trigger a fresh bout of volatility in the major. 

Technical levels to watch

Immediate resistance is pegged near 1.3335 level (Jan. 23 high), above which the pair seems to aim towards 1.3385-90 resistance (Jan. 20 high) ahead of 1.3435-40 strong hurdle. On the flip side, weakness below 1.3300 handle now seems to find immediate support at 100-day SMA near 1.3275 region, which if broken is likely to drag the pair back towards 1.3235-30 intermediate support, en-route 50-day SMA resistance turned support near 1.3215-10 region.

 


08:11 Fed: Now is the time to start getting serious on rates - Rabobank

Michael Every, Head of FMR at Rabobank, suggests that the Fed are apparently deciding that after an incredibly-long period of all-talk and very, very little action, now is the time to start getting serious on rates.

Key Quotes

“Further hawkish Fedspeak from Williams and Bullard, including such choice phrases as giving “serious consideration” to a March hike, have seen odds of that eventuality soar to 70%, an incredible shift in just a few days. Short-end US Treasury yields have soared in response – 2s leaped  7bp to 1.26% yesterday and were at 1.29% in Asia this morning, while 10s rose just 3bp and a further 2bp today to 2.41%, meaning a bear flattening of the US curve.”


08:07 BOJs Sato: Rising US yields won t cause BOJ rate hike

More comments crossing the wires from the BOJ monetary policy board member Sato, this time speaking with the media on the central bank’s policy and Trump’s speech.

Key Headlines:

Most appropriate yield curve would be a little steeper

Understandable, the yield on 10 year bonds swing a little

Not sure of the BOJ needed to conduct fixed rate operation

Rising US yields won't cause BOJ rate hike

Not surprising if CPI hits1% towards end of this year

Possible keeping 10 year bond at 0% becoming very tough


07:55 Long EUR/CAD at 1.3995 levels - Westpac

Research Team at Westpac recommends to go long on EUR/CAD cross at 1.3995 levels while maintaining a stop loss of 1.3930 for the target price of 1.4210.

Key Quotes

G10 crosses offer cleaner opportunities near term given binary risks round President Trump's address before Congress, FOMC Chair Yellen's speech later this week and payrolls next week.”

“Eurozone data has been persistently firm, the PMI’s and confidence surveys signaling upside risks to the near term growth profile. Retail sales (Friday) are likely to rebound from disappointing Dec.”

“On the Canadian side there have been some constructive developments: Jan headline CPI at 2.1% is back above the BoC's 2% mid-range target, while international trade, employment and manufacturing have been on the stronger side too. The risks of a NAFTA trade shock have receded as well, President Trump recently signaling that Mexico is in the cross hairs moreso than Canada. But, it hasn't all been one-way: core inflation readings remain very subdued, retail sales have underwhelmed two months in a row, building permits have fallen and BoC concerns about tighter financial conditions stemming from higher global rates will still be in place. Altogether the BoC - meeting tomorrow - is unlikely to change tack just yet and overarching narrative should continue to lean toward potential easing.”

“While the near term event risk would seem to favour further EUR/CAD upside CAD has curiously already sharply underperformed this week and as such current levels in EUR/CAD do not offer an ideal entry point. We prefer to buy a pullback toward 1.40.”


07:52 BOJs Sato: Fine for BOJ to raise rate before hitting 2% inflation target

Bank of Japan (BOJ) board member Sato crossed the wires last minutes, via Livesquawk, noting that its fine for the central bank to raise rate before hitting 2% inflation target.


07:49 USD/JPY: Bulls face exhaustion near 100-DMA

The rebound seen in USD/JPY during mid-Asia lost pace near 100-DMA resistance located near 113.60 region, with the pair drifting slightly lower heading into early Asia.

The latest leg down in the major can be partly attributed to BOJ board member Sato’s comments, citing that it’s fine for BOJ to raise rate before hitting 2% inflation target. Also, stalled USD buying collaborated to the retreat in USD/JPY from daily top previously posted at 113.62.

The spot regained upside momentum and rallied to test 100-DMA barrier, as the buck was boosted by Trump’s $ 1 trillion boost to the infrastructure program and his commitment to lower taxes for the benefit of the corporates.

The major may get influenced by the broader market sentiment ahead of the US ISM manufacturing PMI, Core PCE price index and Fed’s Kaplan’s speech due on the cards later today.

USD/JPY Technical levels to watch 

The major finds immediate resistance at 113.62 (100-DMA). A break above the last, the major could test 113.90 (50-DMA) and 114.50 (zero figure) beyond the last. While to the downside, the immediate support is seen at 112.53 (5-DMA) next at 112 (zero figure) and below that at 111.70 (Feb 9 low).

 


07:32 Australia RBA Commodity Index SDR (YoY) rose from previous 55.7%to 56% in February


07:23 US: Underlying strength in the economy is stronger than the headline numbers suggest - ANZ

Con Williams, Rural Economist at ANZ, explains that while the 2nd estimate of US Q4 GDP was unchanged at just 1.9% (exp 2.1%), the underlying strength in the US economy is stronger than the headline numbers suggest.

Key Quotes

“This momentum looks like it will be carried into Q1 2017 with recent forward looking indicators pointing toward 2½% growth. Current momentum was again highlighted overnight with February consumer confidence rising to 114.8 with both present and future expectations indices lifting. It’s the highest headline reading since July 2001 and typically implies firm consumption growth. It might also have implications for encouraging people back into the labour force (increasing participation rate), which would be good news for growth from a structural perspective and help offset demographic headwinds.”

“Regional manufacturing surveys were strong overnight too. The likes of the Chicago PMI bounced to 57.4, and above the November 2016 election bump. Underlying details were nearly all upbeat, with business, prices, new orders, employment, and production signalling expansion. Backlogs of orders fell and inventories rose.”

“So all up over the past six months the US economy has grown at a 2.7% saar clip. That is above potential growth estimates of 1.8%. The Fed has been prepared to let the economy run "hot", but for how long is the question, especially with the new administration targeting 3%+ growth? If the FOMC wants the optionality of tightening in March, it will need to talk up that prospect this week.”


07:08 Abes adviser: Any border tax the US imposes should not violate WTO rules

Yasutoshi Nishimura, an adviser to the Japanese PM Abe crossed the wires last minutes, via Reuters noting that any US border tax should not violate WTO rules.

Key Points:

Wants to tell the US that any border tax it imposes should not violate World Trade Organisation rules

Not ruling out a US-Japan free trade agreement, but negotiations are not likely to start soon


06:55 AUD/USD turns negative near 0.7650, Aus GDP shrugged-off?

The AUD/USD pair reversed sharply from stronger Aus Q4 GDP data-led rally and now flirts with the mid-point of 0.76 handle amid resurgent broad based USD demand.

The greenback rebound against its main competitors, backed rallying treasury yields, in a delayed reaction to Trump’s speech before the Congress, especially after the US President announced a $ 1 trillion infrastructure program that will be financed by both public and private capital, while sticking to his promises on tax cuts.

However, the downside appears capped as upbeat Australian growth numbers and solid China PMI data continue to buoy the sentiment around the Aussie somewhat. Australia’s Q4 GDP data, which arrived at 1.1% q/q versus 0.7% expectations and -0.5% previous, with the economy avoiding a recession.

Next on tap for the major remains the US data releases and FOMC member Kaplan’s speech due later in the American session.

AUD/USD Levels to watch   

At 0.7670, the pair finds the immediate resistance at 0.7710 (Feb 27 high) above which gains could be extended to the next hurdle located 0.7743 (multi-week high) and 0.7780 (psychological levels). On the flip side, the immediate support located at 0.7635 (daily S1). Selling pressure is likely to intensify below the last, dragging the Aussie to 0.7600 (round figure) and below that 0.7542 (200-DMA).

 


06:53 Australia: Sharper than anticipated bounce in Q4 GDP - Westpac

Analysts at Westpac note that the Australian economy rebounded in the December quarter 2016, with a sharper bounce than anticipated as the Q4 GDP was 1.1%, after a -0.5% while annual growth lifted to 2.4% from 1.9%, but is still down from 3.1% in June.

Key Quotes

“GDP expanded by 1.1% in Q4, exceeding expectations (market median 0.8% and Westpac 0.9%). Annual growth strengthened to 2.4% from 1.9%, but is still down from the recent high of 3.1% June.”

“Recall that the economy contracted in Q3, -0.5%, the first decline since the floods of March 2011 and before that the GFC impact in Dec 2008. The surprisingly weak result in Q3 reflected a number of one-offs, including bad weather, and the disruption from the July Federal election.”

“Since then, the election has passed, RBA rate cuts in 2016 are having some impact, the mining investment drag has eased, global commodity prices have surged and global conditions have improved.”

“Domestic demand grew by 1.2% in Q4, more than reversing a 0.4% dip in Q3, to be 2.1% above the level of a year ago. All components of domestic demand advanced in Q4. That includes business investment, which rose 1.9%, following 12 consecutive quarterly declines.”

“The outlook for 2017 remains constructive. RBA rate cuts in 2016 are having some impact, housing finance has rebounded. The mining investment drag is waning. The Federal election is behind us – removing some uncertainty around public policy. The labour market is expected to improve, as suggested by forward indicators. Higher commodity prices are boosting national income and there will be a supply response, in coal for example. Global conditions have improved, supported by very expansionary monetary policy globally.”


06:46 NZ: Terms of trade bounced strongly in Q4 to its highest level since Q2 2014 - ANZ

Philip Borkin, Senior Economist at ANZ, explains that largely on the back of stronger dairy prices, New Zealand’s terms of trade bounced strongly in Q4 and is back at its highest level since Q2 2014.

Key Quotes

“It is therefore at historically strong levels and is clearly a key factor underpinning NZD valuations. While the outlook from here is probably more one of stability than further strong gains, the historically high level is providing a clear boost to national purchasing power. That said, associated volume data suggest net exports will again drag on GDP growth in Q4 (to a larger degree than we expected), providing a clear offset to higher prices for the likes of the current account balance and farm incomes.

  • The OTI goods terms of trade surged 5.7% q/q in Q4, beating consensus expectations (4.0% q/q). It is the first lift in two quarters and takes the index back to its highest level since Q2 2014, which was a multi-decade high. In fact, it is now only 3.7% below those levels. 
  • NZD export prices rose 4.8% q/q. And with the NZD TWI lifting around 1% over the quarter, this actually implies an even bigger lift in “world price” terms. While most major export categories recorded stronger NZD export prices in the quarter (with the exception of wool), the largest gain by far was in dairy prices, which rose 14% q/q. 
  • NZD import prices fell 0.8% q/q, implying relatively flat “world” prices. After some large increases, NZD prices for petroleum and petroleum product imports lifted a more modest 0.6% q/q in Q4. Quarterly movements in other components were also reasonably modest. 
  • Associated volume data suggest net exports will again drag on GDP growth in Q4. Seasonally adjusted export volumes fell 5.8% q/q, led by an 8.1% q/q drop in dairy export volumes. In fact, weak dairy export volumes are no doubt a key factor supporting higher prices. Import volumes rose 1.2% q/q, with mixed movements at the components level. While we had not envisaged the extent of net export drag suggested by these figures, at this stage we are maintaining our Q4 GDP growth estimate at 0.7% q/q.”

06:39 US Q4 GDP (Second estimate): Unchanged with stronger consumption - Natixis

Thomas Julien, Research Analyst at Natixis, notes that the US GDP was left unchanged at 1.9% QoQ ar in Q4-16 (below expectations) as the upward revision of consumption was offset by a set of small downward revisions in business and residential investment, changes in inventories and government spending.

Key Quotes

“Looking forward, available statistics suggest that GDP is still growing above its potential in early Q1-17.”

GDP growth was left unchanged at 1.9% QoQ at annual rate in Q4 2016 in the second estimate, lower than expectations (consensus: 2.1% and Natixis: 2.3%). Consumption was revised significantly upward with now higher spending for both durable and nondurable goods and for services. Yet, this was entirely offset by a set of downward revisions in business and residential investment, changes in inventory and government spending. All in all, final sales to private domestic purchasers (an indicator of the underlying trend) rose at a faster pace in Q4: 3.0% after 2.8% QoQ ar in the first estimate.”  

In short, even though the details of report are mixed, the underlying trend remains solid. Looking forward, job gains and accelerating wages should keep supporting household expenditures. Capex spending will also benefit from the recent rise in oil prices while the construction sector should continue to improve gradually. This week’s ISM should provide an update of the current trend in economic activity.”


06:38 Japans Aso: Economic growth is more important than fiscal balance

Japanese finance minister Taro Aso is also up on the rostrum, speaking on the fiscal policy alongside PM Abe and BOJ Governor Kuroda.

Key Headline:

Economic growth is more important than fiscal balance


06:29 BOJs Kuroda: Fiscal policy and BOJ easing can have synergy effects

Bank of Japan (BOJ) Governor Kuroda crossed the wires last minutes, making a speech in Parliament again today.

Headlines:

Fiscal policy and BOJ easing can have synergy effects


06:26 Japan s Abe: Flexible fiscal policy important to speed up deflation exit

Japanese PM Abe was on the wires, speaking in Parliament on the need for flexible fiscal policy.

Key Headline via Reuters:

Flexible fiscal policy important to speed up deflation exit


06:20 Australia: Mixed messages from Q4 GDP - ANZ

Felicity Emmett, Senior Economist at ANZ, comments that after the shock 0.5% q/q drop in Q3, Australian GDP bounced a strong 1.1% in Q4 and as they expected much of the weakness in Q3 was temporary and growth bounced broadly across the economy.

Key Quotes

“GDP bounced by a strong 1.1% q/q in Q4 to bring annual growth up to 2.4% from an upwardly revised 1.9% in Q3 (previously 1.8%). This was stronger than market forecasts, and stronger than the RBA’s forecasts of around 0.8% q/q.”

“Today’s report suggests that there was a broad improvement in momentum in the economy in late 2016. Consumer spending bounced, housing grew solidly, non-mining investment picked up, and public spending rebounded. Export volumes turned around, turning the net exports contribution positive. The better tone to the activity data is consistent with the improvement in business conditions and the employment data and has continued into early 2017.”

“Is this strength sustainable? While there are a number of positives in terms of the outlook, including for business investment and the external accounts, the question remains as to whether growth in consumer spending can continue to outpace household income growth. Wages are the largest component of household income and the overall wages bill fell 0.5% in the quarter, while overall household income grew just 0.2% (compared with 1.2% growth in nominal consumer spending). Moreover, high and rising household debt in an environment of persistently low wages growth is likely to eventually crimp consumer spending in our view.”

“While growth was stronger across the board, the inflation indicators in today’s report were particularly weak. The household consumption deflator rose just 0.3% and is up only 0.9% over the past year. More importantly, the GDP measure of wages fell 1.0% q/q and is 0.1% lower than a year ago. This weakness drove unit labour costs down 1.4% in the quarter to be down 0.4% over the year.”

“For policy, while the RBA will be pleased with the confirmation that the Q3 drop in activity was temporary, the weakness in wages and the implications for the inflation outlook are concerning. Nominal unit labour costs are a key input into the RBA’s underlying inflation models, and the persistent weakness points to an ongoing absence of domestic costs pressures. In aggregate, we think the rate hikes are a very low way off and the RBA seems set to keep rates on hold for the foreseeable future.”


06:14 Australia: Recession fears overblown as Q4 GDP rebounds - NAB

Research Team at NAB notes that the Australian real GDP rebounded in the December quarter 2016, with the contraction in the September quarter clearly a temporary blip. 

Key Quotes

“Real GDP increased by a stronger-than-expected 1.1% q/q (NAB: 0.9% q/q, Mkt: 0.8% q/q), following the contraction of 0.5% q/q in Q3. Year-ended growth picked up to 2.4% y/y, from 1.9% y/y in Q3. This was arguably not a full rebound, with GDP increasing an average of just 0.3% per quarter in the second half of 2016. Farm GDP was particularly strong (+9.7% q/q) owing to a record grains harvest, while non-farm GDP was somewhat softer than headline GDP at 0.9% q/q and 2.0% y/y.”

The bounce back was relatively broad-based across expenditure components, and across the states, and our estimates of non-mining GDP (including non-mining investment) were solid. Corporate profits benefited from a surge in the terms of trade, however labour income was particularly weak. While GDP growth will be strong in coming quarters, should the terms of trade boost reverse as our commodity price forecasts imply while weakness in labour income continues, the economy’s trajectory could be weaker than many (including the RBA) anticipate.”

Solid economic momentum near-term will likely keep the RBA on the sidelines for much of 2017.  While there is clearly spare capacity in labour and product markets, the RBA aims to balance its inflation and employment objectives against financial stability considerations, particularly given the surge in house prices in key markets in late 2016 amidst already high household debt levels.”

We are not as sanguine about growth in 2018 as the RBA, and forecast a pull-back in 2018, as the contributions from LNG exports, temporarily higher commodity prices and residential construction fade, while household consumption remains constrained by weak labour income growth. Our year-ended growth forecasts do pick up to 3% by Q3 2017, but then drop to 2% by Q4 2018, much lower than the RBA’s 2¾ - 3¾%.”

“Current RBA optimism is expected to fade about the outlook later in 2017, and we see a 25bp easing in November 2017 as necessary to prevent a rise in unemployment and inflation undershooting again in 2018.”

 


06:03 RTRS Survey: OPEC compliance with oil curbs rises to 94% in February

According to the latest Reuters Survey, OPEC’s compliance to the oil output deal has remained strong for the second straight month in February, rising to 94%.

In January, OPEC delivered 82% of the promised cuts, according to a Reuters survey and over 90% according to OPEC's own report.

Key findings from the survey:

“The Reuters survey showed Saudi Arabia's output fell slightly in February from an already deep reduction in January taking the total curb achieved to 744,000 bpd, well above the target cut of 486,000 bpd.”

“Thus, Saudi Arabia continued to compensate for the weaker adherence of other members, including Algeria, Iraq, Venezuela and even its key ally the United Arab Emirates, which cut output by 33,000 bpd -- well below the target reduction of 139,000 bpd.”

“Iraq trimmed exports from its southern ports in February, boosting its compliance, the survey found, and shipping schedules suggest exports may fall more in March.”

“UAE officials and industry sources say the UAE will move closer to its OPEC target in coming months, improving average compliance during the six-month duration of the supply cut rather than focusing on month-by-month performance.”


06:01 GBP/USD - Offered above 50-DMA, clocks fresh 3-week low

GBP/USD ran into fresh offers above the 50-DMA level seen at 1.2397 and dropped to 1.2363; the lowest since February 7.

Eyes UK manufacturing PMI

The UK manufacturing PMI for February is expected to print at 55.5, which is largely unchanged from the January figure of 55.9.

The CBI data released earlier this week Demand for UK-manufactured goods strengthened in the three months to February with order books at two-year high. The weaker Pound is seen fuelling the rise in the input costs.

The data was released on February 20 and the British Pound had responded positively. Hence, Cable could strengthen today only if the actual number prints way above the estimate of 55.5.

On the other hand, a weaker-than-expected number could strengthen the offered tone around GBP.

GBP/USD Technical Levels

The spot was last seen trading around 1.2366. A breakdown of support at 1.2346 (Feb 7 low) would open up downside towards 1.24 (zero figure). A violation there could yield sell-off to 1.2260 (Jan 20 low). 

On the other hand, a lift above 1.2405 (100-DMA) would expose 1.2442 (5-DMA), above which a major hurdle is seen at 1.25 (zero figure).

 


05:51 EUR/USD back below 5-DMA as USD recovers Trump-led losses

The EUR/USD pair is back in the red zone and meanders near daily lows, as the US dollar staged a solid comeback from Trump’s speech induced declines, lifting the USD index back near five-day highs of 101.57.

The pick-up in buying interest behind the greenback across the board is mainly driven by resumption of the ongoing rally in the treasury yields, as markets continue to cheer increased odds of a March Fed rate hike, following upbeat US GDP numbers and hawkish comments by Fed officials Kaplan, Williams and Dudley.

Looking ahead, markets will continue to assess Trump’s rhetoric, as attention turns towards fundamentals, with the final manufacturing PMI reports up on the sleeves from the Euro land, followed by the German Prelim CPI data and US dataflow.     

EUR/USD Technical Levels

In terms of technicals, Omkar Godbole, Analysts at FXStreet notes, “A break above 1.06 (zero figure) would expose 1.0642 (38.2% of 1.0341-1.0829) and 1.0677 (Feb 17 high). On the downside, support is seen at 1.0577 (5-DMA) and 1.0565 (previous day’s low), under which a major support is seen at 1.05 (zero figure). “ 

 


05:46 USD/JPY finds takers under 1-hour 200-MA, clocks fresh session high

The Dollar-Yen pair’s drop below 1-hour 200-MA level of 112.91 proved to be short lived as the spot jumped to a fresh session high of 113.45 levels. 

The greenback was offered in an initial response to Trump speech, which lacked policy specifics. However, markets seem to have taken heart from Trump’s optimistic tone and 1 trillion dollar infrastructure spending plan. 

With Trump speech out of the way, the focus is back on the Fed March rate hike bets, which have been boosted to 62% from 30%, courtesy of the hawkish talk from the Fed officials. 

Later in the day, personal spending and income report and core personal consumption expenditure figure would hit the wires. 

USD/JPY Technical Levels

A break above 113.73 (Feb 22 high) would expose 114.00 (zero figure), above which the spot could target 114.43 (50-DMA). On the other hand, a breakdown of support at 112.97 (10-DMA) could yield a sell-off to 112.72 (5-DMA) and 112.55 (Feb 23 low). 

 


05:32 US Treasury Sec Mnuchin: Must simplify tax code and cut company tax rates

Comments from the US Treasury Secretary Mnuchin crossed the wires, after the Treasury emailed a statement, Reuters reports.

Headlines:

Must simplify tax code and cut company tax rates


05:28 NZD/USD: Sellers back in control, eyes 100-DMA

The Kiwi extended its bearish momentum into fourth day today, now revering towards daily lows, after having stalled its recovery near 0.7185 region.

Currently, the NZD/USD pair drops -0.51% to 0.7155, looking to session lows of 0.7145. The bears fought back control over the last hour, after the greenback regained lost footing across the board from Trump’s speech induced minor-sell-off.

Moreover, renewed strength seen behind the treasury yields triggered the latest leg down in the NZD/USD pair. Higher treasury yields dampen demand for the NZD as an alternative higher-yielding currency. While weaker NZ fundamentals continue to keep any recovery short-lived.

Further, markets appear to overlook upbeat Caixin Chinese manufacturing PMI data, as the USD dynamics continue to remain the key driver across the fx board today, in wake of Trump’s Congressional address.

NZD/USD Levels to consider

To the upside, the next resistance is located at 0.7200 (zero figure), above which it could extend gains to 0.7231 (daily R1) and from there to 0.7250 (psychological levels). To the downside immediate support might be located at 0.7121 (100-DMA) and from there to at 0.7100 (round figure), below which 0.7074 (Jan 16 low) would be tested.

 


05:20 Gold trims losses as dollar weakens

Trump’s “high on rhetoric, low on substance” speech weakened the US dollar, thus helping gold recover from the session low of $1242 to $1246 levels.

Lack of policy specific

The speech was the most optimistic one from Trump, but lacked policy specifics. The president promised ‘big, big cut’ in taxes and revealed 1 trillion dollar infrastructure plan that would be funded by public and private money.

Nothing that we heard today is a surprise to the markets, thus the dollar index fell to a 50-DMA level of 101.23. The metal was last seen trading around $1235 levels.

The gains are being capped by the hawkish comments from the Fed officials and the resulting rise in the short duration and long duration treasury yields.

Gold Technical Levels

A breakdown of support at $1240.88 (61.8% Fib expansion) could yield a sell-off to $1234.60 (Feb 14 high) and $1229.40 (50% Fib expansion). On the higher side, breach of $1249.31 (session high) could see prices revisit $1257.23 (78.6% Fib expansion) and $1263.87 (Feb 27 high).

 


05:03 Goldman Sachs raised odds of March Fed rate hike to 60%

Following the hawkish comments from Fed officials Kaplan, William and Dudley, analysts at Goldman Sachs increased the probability of a March Fed rate hike to 60% versus 30% seen previously.  

At the same time, Goldman Sacks lowered the chance of a May hike to 10% (from 20%) and June to 25% (from 40%), Bloomberg reported.


04:52 Dollar Index drops to 50-DMA as Trump is still in campaign mode

The Dollar Index (DXY) dropped to 50-DMA support of 101.23 as Trump outlined policy plans, but did not shed light on the details, thus making the speech sound more like a Presidential campaign speech. 

High on rhetoric

Everything that Trump has talked so far - from immigration, fiscal spending, job growth and repealing Obamacare - offers nothing new that would boost market’s appetite for the US dollars. 

The bar of expectations has been set very high and it is essential that Trump offers policy details in the remaining part of the speech. 

Dollar Index Technical Levels

The index was last seen trading around 101.30 levels. A break below 101.23 (50-DMA) would expose the psychological figure of 101.00, under which the losses could be extended to 100.78 (previous day’s low). On the higher side, violation of resistance at 101.57 (session low) could yield a revisit to 101.76 (Feb 15 high) and 102.00 (zero figure) levels. 

 


04:47 GBP/USD better bid near 1.2400 on Trumps speech

A fresh bout of buying interest gripped the GBP/USD pair, following Trump’s speech before the Congress, which weighed negatively on the treasury yields and dragged the greenback lower across the board.

Trump’s congressional address offered no new surprises or details on his fiscal agenda and was full of same old promises to make America great again, all of which disappointed markets once again, as evidenced by some fresh selling in the US dollar versus its main competitors. Meanwhile, the USD index turns negative near 101.30 levels, retreating from 101.57 highs, while the treasury yields eased-off highs across the curve.

With Trump’s speech, out of the way, focus now remains on the UK manufacturing PMI data and a flurry of US economic releases, including the ISM manufacturing PMI report, due later in the NA session.

GBP/USD Levels to consider            

At 1.2390, the resistances are aligned at 1.2447/50 (10-DMA) and 1.2470 (20-DMA) and below that at 1.2500 (zero figure). On the flip side, the supports are lined up at 1.2364 (3-week low) and 1.2344 (Feb 7 low) and below that at 1.2300 (psychological levels).


04:32 EUR/USD turns positive as Trump lacks substance

Trump’s speech so far is high on rhetoric and low on substance. EUR/USD is thus in a recovery mode, now trading mildly positive on the day around 1.0580 levels.

It’s a campaign speech

The budget speech is sounding more like the campaign speech which is full of positivity, but is once again devoid of details.

No wonder, the treasury yields have backed-off from the session highs. The 2-year yield, which traded earlier today around 2.30%, now trades at 2.28%. Consequently, the dollar is losing height. The spot clocked a high of 1.0589 and was last seen trading around 1.0580 levels.

EUR/USD Technical Levels

A break above 1.06 (zero figure) would expose 1.0642 (38.2% of 1.0341-1.0829) and 1.0677 (Feb 17 high). On the downside, support is seen at 1.0577 (5-DMA) and 1.0565 (precious day’s low), under which a major support is seen at 1.05 (zero figure).  

 


04:31 Trump calls forCongress to approve legislation to produce$1 trillion investment in infrastructure

As part of his speech to Congress, US President Trump has called for Congress to approve legislation that produces $1 trillion investment in infrastructure, which will be financed through public and private capital.

White House releases Trump's speech excerpts: "We are developing a historic tax reform"

 


04:29 USD/JPY surrenders 113 handle on Trumps rhetoric

The greenback manages to hold onto recovery gains against most of its majors, keeping the USD/JPY pair underpinned somewhat, after Trump failed once again to offer details into his fiscal spending plans and tax reforms during his Congressional address, leaving markets unimpressed. The US President Trump sang the same old tune that Obama care will be replaced, while at the same time noted the rhetoric on tax cut plans.

Despite, a non-event Trump’s address, the major manages to find support from rallying treasury yields, in wake of hawkish comments from Fed’s William Dudley, Robert Kaplan and John Williams. However, it remains to be seen that for how long the spot will defend gains amid yet another Trump disappointment.

Next of note for the major remains a fresh batch of US economic updates due later in the NA session, while markets will continue to digest Trump’s latest speech.

USD/JPY Technical levels to watch 

The major finds immediate resistance at 113.59 (100-DMA). A break above the last, the major could test 113.90 (50-DMA) and 114.50 (zero figure) beyond the last. While to the downside, the immediate support is seen at 112.53 (5-DMA) next at 112 (zero figure) and below that at 111.70 (Feb 9 low).

 


04:09 White House releases Trump s speech excerpts: We are developing a historic tax reform

The White House has released the following excerpts from President Donald Trump's first address to a joint session of Congress, as prepared for delivery, the Associated Press reports. 

Excerpts of Trump's speech: 

— Each American generation passes the torch of truth, liberty and justice — in an unbroken chain all the way down to the present.

— And we've spent trillions of dollars overseas, while our infrastructure at home has so badly crumbled.

— We have begun to drain the swamp of government corruption by imposing a five-year ban on lobbying by executive branch officials — and a lifetime ban on becoming lobbyists for a foreign government.

— By finally enforcing our immigration laws, we will raise wages, help the unemployed, save billions of dollars, and make our communities safer for everyone.

— As promised, I directed the Department of Defense to develop a plan to demolish and destroy ISIS — a network of lawless savages that have slaughtered Muslims and Christians, and men, women and children of all faiths and beliefs.

— We will work with our allies, including our friends and allies in the Muslim world, to extinguish this vile enemy from our planet.

— But to accomplish our goals at home and abroad, we must restart the engine of the American economy — making it easier for companies to do business in the United States, and much harder for companies to leave.

— My economic team is developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone.

— At the same time, we will provide massive tax relief for the middle class.

— Tonight, I am also calling on this Congress to repeal and replace Obamacare, with reforms that expand choice, increase access, lower costs and at the same time provide better health care.

— Mandating every American to buy government-approved health insurance was never the right solution for America.

— The way to make health insurance available to everyone is to lower the cost of health insurance, and that is what we will do.

— Obamacare is collapsing — and we must act decisively to protect all Americans. Action is not a choice — it is a necessity.

— So I am calling on all Democrats and Republicans in Congress to work with us to save Americans from this imploding Obamacare disaster.

— My administration wants to work with members in both parties to make childcare accessible and affordable, to help ensure new parents have paid family leave, to invest in women's health, and to promote clean air and clear water, and to rebuild our military and our infrastructure.

— True love for our people requires us to find common ground, to advance the common good, and to cooperate on behalf of every American child who deserves a brighter future.

— Today is Rare Disease Day, and joining us in the gallery is a rare disease survivor, Megan Crowley. Megan was diagnosed with Pompe Disease, a rare and serious illness, when she was 15 months old. She was not expected to live past 5.

—On receiving this news, Megan's dad, John, fought with everything he had to save the life of his precious child. He founded a company to look for a cure, and helped develop the drug that saved Megan's life. Today she is 20 years old — and a sophomore at Notre Dame. Megan's story is about the unbounded power of a father's love for a daughter.

— Finally, to keep America safe we must provide the men and women of the United States military with the tools they need to prevent war and — if they must— to fight and to win.

— I am sending Congress a budget that rebuilds the military, eliminates the defense sequester, and calls for one of the largest increases in national defense spending in American history.

— My budget will also increase funding for our veterans. Our veterans have delivered for this nation — and now we must deliver for them.

— The challenges we face as a nation are great.

— But our people are even greater.

— And none are greater or braver than those who fight for America in uniform.

— But we know that America is better off, when there is less conflict — not more.

— We must learn from the mistakes of the past — we have seen the war and destruction that have raged across our world.

— The only long-term solution for these humanitarian disasters is to create the conditions where displaced persons can safely return home and begin the long process of rebuilding.

— America is willing to find new friends, and to forge new partnerships, where shared interests align.

— Think of the marvels we can achieve if we simply set free the dreams of our people.

— Cures to illnesses that have always plagued us are not too much to hope.

— American footprints on distant worlds are not too big a dream.

— Millions lifted from welfare to work is not too much to expect.

— And streets where mothers are safe from fear — schools where children learn in peace — and jobs where Americans prosper and grow — are not too much to ask.

— When we have all of this, we will have made America greater than ever before.

— The time for small thinking is over.

— The time for trivial fights is behind us.

— We just need the courage to share the dreams that fill our hearts.

— The bravery to express the hopes that stir our souls.

— And the confidence to turn those hopes and dreams to action.

— From now on, America will be empowered by our aspirations — not burdened by our fears.


04:02 AUD/JPY fails just below 87.00 post-China PMI, Trump eyed

The AUD/JPY cross ran into offers and slipped sharp from daily tops reached just shy of 87 handle, as markets digest better-than expected Caixin China’s manufacturing PMI report.

AUD/JPY back below 20-DMA

The AUD/JPY pair advances +0.39% to 86.69, easing-off three-day highs reached at 86.87. The cross jumped to daily highs in a knee-jerk reaction to solid Chinese manufacturing numbers, however, quickly surrendered a part of the gains, as investors look to take profits off the table ahead of the US President Trump’s Congressional address.

Earlier on the day, AUD/JPY rallied hard in response to stronger Australia’s Q4 GDP data, which arrived at 1.1% q/q versus 0.7% expectations. Also, at the same time, broad yen weakness amid a better risk sentiment collaborated to the upbeat tone behind the cross.

Technical Levels

Higher side: 87 (round figure), 87.58 (daily S3)

Lower side: 86.22 (50-DMA), 85.01 (100-DMA)

 


04:01 USD/CAD warns of a stronger rally attempt

A well bid USD/CAD elevates the ADX above its 50 level, signal of a highly constructive trend on 1hr charts.

What makes the higher settlement in the ADX rare -although not unprecedented- is the fact that it was printing below 35 ten hours ago.

Such an outperformance encourages momentum traders to pile in, and adjust positions by means of trailing stops. This may have the opposite effect of a corrective slide, driving the prices towards the 200-hour SMA to find less impulsive buyers.

03:58 AUD/USD unmoved by upbeat China data, focus on Trump speech

Better-than-expected Caixin China manufacturing PMI release has failed to move the AUD/USD pair, leaving it unchanged around the session high of 0.7665 levels as investors await Trump speech.

The Caixin PMI came-in at 51.7, beating the estimated figure of 50.8. The government data- NBS PMI released earlier today also bettered estimate of 51.1.

Calm before storm?

President Trump is set to deliver his budget speech in a few minutes. Trump Bump could turn into Trump Slump if President Trump once again keeps mum about the details of the fiscal plan. Experts say it is likely to be a general policy outlook and not a detailed talk.

Risk sentiment could also take a hit if Trump talks about trade wars/trade protectionism and imposing tariffs on Chinese exports.

AUD/USD Technical Levels

A breakdown of support at 0.7618 (Feb 14 low) could yield a sell-off to 0.76 (zero figure), under which a major support is seen at 0.7520 (200-DMA). On the higher side, breach of 0.7678 (100-DMA) could see the pair revisit 0.7707 (Feb 27 high) and 0.7741 (Feb 23 high).

 


03:49 China s Feb Caixin PMI: Growth picks up

China Caixin Manufacturing PMI for February came at 51.7 vs 50.8 last, with new business increasing at a faster pace amid solid upturn in new export sales, while employment declined at softest rate in two years. Addiionally, input cost inflation eased to four-month low.

Summary

Chinese manufacturing companies saw a stronger improvement in overall business conditions in February, with output and total new orders both rising at faster rates than at the start of the year.

The latest upturn in new work was supported by the fastest increase in new export business since September 2014. At the same time, employment declined at only a marginal pace that was the slowest seen in two years.

Despite easing since January, the rate of input price inflation remained sharp which prompted firms to raise their prices charged. Looking ahead, manufacturers signalled the strongest degree of optimism towards future output growth since May 2015.

Commenting on the China General Manufacturing PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said: “The Caixin China General Manufacturing PMI was 51.7 in February, up 0.7 points from the previous month and the jointsecond highest in four years. The output and new orders subindices rebounded from a month ago."

Dr. Zhengsheng Zhong added: "Stocks of purchases returned to expansion, but stocks of finished goods continued to decline. It remains to be seen whether the restocking by manufacturers can be sustained. Input and output prices continued to rise rapidly, but at slower rates compared with the previous month. The Chinese manufacturing economy continued to recover in February. But it is premature to jump to the conclusion that the recovery is entrenched. The second quarter is likely a key period to look at forfuture trends.”


03:47 China Caixin Manufacturing PMI came in at 51.7, above expectations (50.8) in February


03:46 BOJs Sato: Agree with current easing framework in principle

Bank of Japan (BOJ) board member Sato crossed the wires last minutes, via Bloomberg, speaking at a meeting with business leaders in Tokushima.

Key Points:

Policy should not be bound by 80tln yen JGB purchase figure

Market participant price outlook is not so bullish

Natural to think purchase size of JGBs will gradually drop

Natural to think JGB amount to drop if 0% yield goal maintained

Agree with current easing framework in principle

Most appropriate yield curve should be a little steeper

Long term rates face upwards pressure if CPI exceeds forecasts


03:42 China Caixin Manufacturing PMI above expectations (50.8) in February: Actual (51.6)


03:42 GBP/USD - lowest daily close since January 23

The overnight hawkish comments from the Fed officials boosted March Fed rate hike bets and strengthened the bid tone around the US dollar.

GBP/USD thus suffered its worst daily close since January 23. The spot closed at 1.2382 and extended losses in Asia to 1.2364 levels. Tuesday’s daily close was also below 50-DMA and 100-DMA seen at 1.2397 and 1.2404 levels, respectively.

It’s all about Trump

The dollar demand is entirely dependent on what Trump says during his budget speech today. Impatient markets need details of the fiscal plan; only then the continuation of the Trump trade appears likely, else there is a risk of a sell-off in the US dollar and other risk assets.

GBP/USD Technical Levels

The spot was last seen trading around 1.2375 levels. A lift above 1.2405 (100-DMA) would expose 1.2442 (5-DMA), above which a major hurdle is seen at 1.25 (zero figure). On the lower side, a breach of 1.2346 (Feb 7 low) would open up downside towards 1.24 (zero figure). A violation there could yield sell-off to 1.2260 (Jan 20 low). 

 


03:41 Trumps speech will lay out an optimistic vision for the country Rabobank

Michael Every, Head of FMR, Asia-Pacific, Rabobank, offers insights on what to expect from Trump’s congressional address due out shortly.

Key Quotes:

“Apparently, the speech will “ “Will lay out an optimistic vision for the country that crosses the traditional lines of party, race and socioeconomic status. It will invite Americans of all backgrounds to come together in the service of a stronger, brighter future” for the US, and will be addressed “to ALL Americans AS Americans—not to a coalition of special interests and minor issues.”

“Specific agenda talking points are apparently to include: tax and regulatory reform; making the workplace better for working parents; addressing the “disaster of Obamacare”; education; and a great rebuilding of the American military, which is so far the one that seems to be making the fastest headway. So, let’s wait and see…”


03:32 Feds Bullard: No need to be aggressive with rate hikes

More comments crossing the wires from St. Louis Fed President James Bullard, as he continues to speak on the monetary policy program.

Key Headlines:

Looks like 2017 growth won't be "gangbusters"

Still expecting two percent growth this year 

No need to be aggressive with rate hikes

Expects upcoming PCE numbers to be "hot" following CPI data

Does not think uncertainty over trump administration policies will be resolved soon enough to warrant adjusting policy

Would be "overkill" for fed to try to preempt impact of new fiscal policies


03:25 US 3-month Treasury yield jumped 10 bps on hawkish Fed comments

The short duration and the long duration treasury yields jumped this Tuesday morning after the comments from the Fed officials boosted March Fed rate hike bets to 62%.

The three-month treasury yield jumped 10 basis points to 0.6%. The 10-year yield added 7 basis points and now trades around 2.424%. The 2-year yield jumped 9 basis points to 1.304%.

The two-year yield currently sits at the highest level since Dec 15. New York Fed President William Dudley said that the case for tightening monetary policy "has become a lot more compelling" since Trump's election.

John Williams, president of the San Francisco Fed and a non-voting member, said there is no need to delay a rate hike with the economy at full employment and inflation headed higher.


03:19 Excerpts of Trump speech out: Historic tax reforms

Ahead of US President Trump's address to Congress, due at 2GMT,  excerpts of texts have been published, noting that Trump is preparing "historic tax reforms". 

Live Stream – President Trump to address Congress

Headlines

Massive tax relief for middle classes

Enforcing immigration laws will save billions, help the unemployed

 


03:18 PBOC sets USD/CNY at 6.8798 vs 6.8750

PBOC sets USD/CNY at 6.8798 vs 6.8750


03:13 Trump to deliver uplifting speech Wilbur Ross

US commerce Secretary, while speaking to Bloomberg, said President Trump is set to deliver “uplifting speech” and added that 2018 is likely to be a good year for the US economy.

While talking about trade deals, Ross said “making NAFTA a fair deal is a key priority and that there is no point in making trade deals if they aren’t enforced”.


02:58 China NBS Manufacturing PMI registered at 51.6 above expectations (51.1) in February


02:58 China Non-manufacturing PMI: 54.2 (February) vs previous 54.6


02:58 USD/CNY fix model projections: 6.8834 - Nomura

Analysts at Nomura offered their projection for the USD/CNY fix as 6.8834.

Key Quotes:

"Our model1 projects the fix to be 84 pips higher than the previous fix (6.8834 from 6.8750) and 145 pips higher than the previous official spot USD/CNY close of 6.8689. The basket implied change is 192 pips higher than the previous official spot USD/CNY close (6.8881 from 6.8689)."


02:56 The Fed March rate hike is back on the table

March Fed rate hike odds as represented by CME Group 30-Day Fed Fund futures prices have jumped from 31% yesterday to 62% today.

The sharp rise is due to hawkish comments from Fed’s William Dudley, Robert Kaplan and John Williams. NY Fed President William Dudley expressly stated that the case for a rise in interest rates has become “a lot more compelling”.

Moreover, with rate hike bets above 60%, the rate hike looks even more compelling. Traditionally, the Fed has hiked rates only after probability was at least above 60%.

The rate hike bets could tumble if Trump does not detail his fiscal plan/falls short of market expectations, leading to risk-off action in the markets.

 

 


02:54 Live Stream President Trump to address Congress

President Donald Trump will address congress today and the live stream will air on Youtube at 1pm Sydney time, 11 am in Tokyo, 2am GMT,  and 9pm EST. 

President Trump's address will take place in the House of Representatives and the specifics that markets are looking for from the Republican president are concise and language of his aims to make good on promises to tackle tax reform, boost infrastructure spending and simplify regulations he said that have been are harming business under the Obama administration. 

Key Notes 

  • When is Trump's joint session of Congress? 
  • Policy details and tone will be key in Trump speech to Congress - Reuters
  •  White House: Immigration will be mentioned in Trump's address to Congress
  • Fed's Williams: Rate increase up for 'serious consideration' at Fed's March meeting
  • China, US affirmed importance of "constructive bilateral relationship" - State Dept
  • DXY inter-markets: not so ‘phenomenal’
  • US: Tax reform scope matters more than timing – RBC CM

More about Donald Trump

Donald Trump is the 45th President of the United States and is currently serving his first 100 days of office. He has been one of the most controversial presidents of America and has indeed shaken up the FX space as a major driving force.  Trump came to power without prior government or military experience and he is the first American president that came without prior political experience since Dwight D. Eisenhower.He has promised to reform the American economy with a protectionist system; this is a concern for globalism and world trade but deemed positive for the US economy and US dollar.


02:42 Australia escapes technical recession, AUD/USD fades spike to 0.7663

Australia fourth-quarter GDP came-in at 1.1% quarter-on-quarter, beating the estimate of 0.8%. This is a big rebound from the prior quarter’s 0.5% contraction.

The data not only shattered expectations, but also meant Australia avoided a technical recession. The AUD/USD, which was already in a recovery mode ahead of the data release, jumped to a session high of 0.7663 only to fall back to 0.7650 levels.

Moreover, the rebound in the GDP was largely expected and priced-in. Furthermore, investors have turned cautious ahead of President Trump’s budget speech.

The bid tone around the US dollar strengthened earlier today hawkish comments from Fed’s William Dudley, Robert Kaplan and John Williams.

Focus on Trump speech

The demand for the US dollar could spike if Trump unveils details of the fiscal plan and manages to meet market expectations. Trump trade is at a risk fizzling out of Trump keeps mum on the details of the tax plan.

AUD/USD Technical Levels

A breakdown of support at 0.7618 (Feb 14 low) could yield a sell-off to 0.76 (zero figure), under which a major support is seen at 0.7520 (200-DMA). On the higher side, breach of 0.7678 (100-DMA) could see the pair revisit 0.7707 (Feb 27 high) and 0.7741 (Feb 23 high).

 


02:36 USD/JPY: breaks the 113 handle ahead of Trump s big event for markets

Currently, USD/JPY is trading at 113.14, up 0.74% on the day, having posted a daily high at 113.21 and low at 112.30.

Despite a mixed backdrop from Wall Street and lower stocks, USD/JPY is bid to the aforementioned highs in Tokyo as traders get behind the dollar ahead of the main event that will be with Trump's address to Congress in the coming hours. 

When is Trump's joint session of Congress?

The dollar regained demand on with hawkish comments from Fed officials calling for a rate hike as soon as next month and an additional two this year. The US/Japanese spread continues to favour the greenback and the major has rallied from 111.67 overnight lows. 

USD/JPY levels

USDJPY broke above the February 7 multi-month low at 111.63 and its 100 day MA (111.91) and has gone on to break the resistance is expected in the 112.80-113 area. The [rice trades above the 4hr 50 sma at 112.88 and the 20 sma on the same time frame at 112.42 below that come as support levels on a break back below the 113 milestone level. The 200 smoothed ma at 112.113.39 on the 4hr time frame guards the psychological 114 handle and 114.83. " A close above the 115.62 19th January high is needed to reintroduce scope to the key short-term resistance offered by the 16-month resistance line at 117.91," argued analysts at Commerzbank. 


02:31 Australia s Q4 GDP: Major beat on expectations

Australia's Gross Domestic Product (QoQ) for Q4 came at 1.1% vs 0.7% exp and -0.5% last, while the yearly reading registered 2.4% vs 1.9% exp and 1.8% last. The data has boosted the Australian Dollar across the board. 

GDP SUMMARY

The Australian economy grew by 1.1% in seasonally adjusted chain volume terms in the December quarter.

Household final consumption expenditure contributed 0.5 percentage points and public capital formation contributed 0.3 percentage points to growth.

Private non-financial corporations Gross operating surplus increased by 16.5%.

Compensation of employees decreased 0.5%, but was 1.5% higher through the year.

The Terms of trade increased by 9.1%.


02:31 Australia Gross Domestic Product (YoY) came in at 2.4%, above expectations (1.9%) in 4Q


02:31 Australia Gross Domestic Product (QoQ) above expectations (0.7%) in 4Q: Actual (1.1%)


02:31 Japan Nikkei Manufacturing PMI fell from previous 53.5 to 53.3 in February


02:23 Trump to outline the fiscal plan, how would gold respond?

Gold has retreated from $1263.87 (highest since Nov 11, 2016) to $1245 (support offered by the rising trend line drawn from Jan 27 low and Feb 17 low).

The weakness in the Asian session could be explained by the 10 basis points rise in the three-month US treasury yield following hawkish comments from Fed’s William Dudley, Robert Kaplan and John Williams.

Impatient markets need details of the fiscal plan

The Trump trade looks exhausted and may fall apart if Trump is high on rhetoric and low on substance again. The risk-off tone in the markets could strengthen the haven demand for the yellow metal.

Moreover, Trump may have a hard time meeting expectations, given the hype surrounding his policy plan.

Nevertheless, markets could see Trump bump - II if Trump details the fiscal plan. That would also boost the treasury yields, Fed rate hike bets and the US dollar and thus weigh over gold.

Gold Technical Levels

The metal was last seen trading around $1244/Oz. A breakdown of support at $1240.88 (61.8% Fib expansion) could yield a sell-off to $1234.60 (Feb 14 high) and $1229.40 (50% Fib expansion). On the higher side, breach of $1249.31 (session high) could see prices revisit $1257.23 (78.6% Fib expansion) and $1263.87 (Feb 27 high).

 

 


02:17 When is Trump s joint session of Congress?

Trump speech to Congress Overview

The US President Donald Trump will address Congress today and give a speech with details of his economic plans. What markets are looking for is conviction and a more conciliatory tone. There will be a live stream at 1pm Sydney time, 11 am in Tokyo, 2am GMT,  and 9pm EST. The market is eagerly awaiting specific details on the fiscal plans and their timing to be closely scrutinised. However, there are real concerns that Trump may not be able to communicate through the complicated workings of the US economy and if his delivery is too vague markets will be disappointed again, jeopardising the Trump reflation trade once again. The address will take place in the House of Representatives and the specifics that markets are looking for from the Republican president are concise and language of his aims to make good on promises to tackle tax reform, boost infrastructure spending and simplify regulations he said that have been are harming business under the Obama administration. 

How could it affect the dollar?

The U.S. dollar index (DXY) is a measure of the value of the U.S. dollar relative to the value of a basket of currencies of the majority of the U.S.'s most significant trading partners. The DXY has risen and fallen sharply throughout its history, reaching its high point in February 1985 with a value of 164.72 and its low point in March 2008 with a value of 70.70. Today, the dollar has been elevated with expectations of Trump "revving up" the US economy in 2017 with increased fiscal spending with an increase of inflation that the Fed would need to raise interest rates incrementally to keep ahead of the curve. 

DXY rallied from 96.00 area when Trump won the elections to a high of 103.82 where the dollar lost traction down to 99.24 recent lows before recovering back to above the psychological 100 mark and the current spot at 101.34. Should Trump disappoint markets, the dollar could take a big hit and we could be quickly looking at the 100 psychological and milestone level again. However, should markets digest the address as positive for the US economy, the reflation trade is back on, yields will be higher and the dollar stronger targeting previous Trump fuelled aforementioned highs.

Key notes

  • Policy details and tone will be key in Trump speech to Congress - Reuters
  •   White House: Immigration will be mentioned in Trump's address to Congress
  • Fed's Williams: Rate increase up for 'serious consideration' at Fed's March meeting
  • China, US affirmed importance of "constructive bilateral relationship" - State Dept
  • DXY inter-markets: not so ‘phenomenal’
  • US: Tax reform scope matters more than timing – RBC CM

About Trump's address to a joint session of Congress

President Donald Trump will address a joint session of Congress on Tuesday, February 28 at 9 p.m. ET/2GMT.


02:02 United Kingdom BRC Shop Price Index (YoY): -1% (February) vs -1.7%


01:58 Fed s Bullard: Fed has essentially achieved its dual mandate

James Bullard, President of the Federal Reserve Bank of St. Louis,  is crossing the wires, noting that the Fed has essentially achieved its dual mandate, adding that the policy rate remains relatively low over horizon 

Headlines

Fed should be allowing the balance sheet to normalise naturally 

Maintaining the Fed's current $4.4 trillion in securities and other assets as it begins to raise its policy rate, Bullard said, means the central bank is in effect pushing up short-term borrowing costs while its asset holdings pull down long-term rates.

That "twist" in the yield curve is something the Fed has not debated as a policy choice, Bullard said, and could be prevented by letting the balance sheet begin to shrink.

As it stands the Fed reinvests any Treasury or mortgage holdings that mature each month, maintaining its total stock of holdings. It has said that practice would continue until the process of raising interest rates to a more normal level was "well underway."

Ending balance sheet reinvestment may allow for a more natural adjustment of rates across the yield curve," Bullard said, and also give the Fed more room to react with new asset purchases in the event a new crisis develops. 


01:52 Japan Capital Spending: 3.8% (4Q) vs -1.3%


01:34 When is Aussie Q4 GDP and how could this affect AUD/USD?

Aussie GDP Q4 Overview

We have the Australian: Q4 GDP that is forecasted to increase 0.9% as the economy rebounds following a contraction of 0.5% in Q3, as explained by analysts at Westpac, "Partials have been mixed with inventories coming in below expectations and net exports moderate, whereas company profits and public demand surged. This has led to a revised Q4 GDP equated by 0.8% domestic demand, 0.2% net exports, -0.2% inventories and a statistical discrepancy of 0.1% due to the higher GDP income estimate."

How could it affect AUD/USD?

AUD/USD has already been sold off in recent trade on a resurgence of the dollar and indeed the Fed speakers who came across hawkish with Williams, albeit a nonvoting member for the FOMC, stating that a case can be made for a March hike. The price has fallen away from 0.7692 to a low of 07645 and breaking below the recent formed sideways channel support line. Therefore, the GDP data could further extend the downside on a miss in expectations given the previous quarter's poor performance and speculation that the RBA would need to cut interest rates. An inline outcome or anything better than expected would bring the 0.77 handle back into the picture and a break of 0.7720 opens the recent YTD highs at 0.7740, especially when considering the account balance outcome from yesterday.

Key Notes

Aussie current account balance a plus for the Aussie - Nomura

"The relative improvement in Australia’s current account position is a positive for AUD from both flow and valuation perspectives." 

About Aussie GDP

The Gross Domestic Product released by the Australian Bureau of Statistics is a measure of the total value of all goods and services produced by Australia. The GDP is considered as a broad measure of the economic activity and health. A rising trend has a positive effect on the AUD, while a falling trend is seen as negative (or bearish) for the AUD.


00:51 NZD/USD: testing fresh lows at 0.7180 ahead of 0.7120

Currently, NZD/USD is trading at 0.7186, down -0.29% on the day, having posted a daily high at 0.7206 and low at 0.7182.

Fed's Williams: Rate increase up for 'serious consideration' at Fed's March meeting

NZD/USD has given way to the greenback breaking below the 0.72 handle to test the bull's commitments at 0.7180 after sliding gradually from 0.7238 overnight highs. The drivers came overnight in US data and in early Asia with hawkish Fed speakers before the NZ t Q4 Terms of Trade +5.7% q/q vrs the expected +4.0%. US data overnight was mixed with strong consumer confidence but  GDP Q4 was unchanged at 1.9% vrs the revision to 2.1% that had been expected.

Fed's Williams (a non-voting member and usually Hawkish) saying that he sees a March hike getting more serious consideration and Fed's Dudley saying that the case for a rate hike is more compelling while Fed's Harker repeated comments that three hikes in 2017 are appropriate. We now await Trump's address to Congress today that will be streaming from 2pm Sydney time, 9pm Eastern, 2am GMT and the market will be looking for his fiscal plans and their timings.

NZD/USD levels 

Analysts at Westpac are expecting a neutral outlook having been stuck around 0.7200 for the past few weeks and unlikely to see too much US dollar movement ahead of the Trump speech. Meanwhile, the price has dropped below the 20 and 50 smas on the hourly sticks which brings in the 200 smoothed sma on the four charts ahead of 0.7120 support below 21st Feb lows at 0.7128 guarding the previous double top zone at 0.7040/50 zone. To the upside, 0.7204 and 20 day sma guards 0.7250 and 0.7374 6th Feb highs. 


00:33 Australia AiG Performance of Mfg Index rose from previous 51.2to 59.3 in February


00:09 USD/JPY rallies but still lacks conviction before a break of 114.80

USD/JPY has sky rocketed on the back of the dollar king reminding us who is the boss. The majority of the sessions overnight were harbouring a softer dollar as markets continue to feel disappointed by the let down that was the Trump trade as well as a potential hike from the Fed as soon as March - both of which have been set back by performance in the US economy and the order of which Trump intends to support and improve the US economy with domestic fiscal policy. 

However. Fed speakers came to the rescue at the Wall Street close with Fed's Williams (a non-voting member and usually Hawkish) saying that he sees a March hike getting more serious consideration and Fed's Dudley saying that the case for a rate hike is more compelling while Fed's Harker repeated comments that three hikes in 2017 are appropriate. We now await Trump's address to Congress today that will be streaming from 2pm Sydney time, 9pm Eastern, 2am GMT and the market will be looking for his fiscal plans and their timings.

USD/JPY levels

USD/JPY is still within a range and only a move through 113.80 might change the state of play otherwise. A break on to the 114 handle and above 114.80 changes the game play to a bullish scenario. "A close above the 115.62 19th January high is needed to reintroduce scope to the key short-term resistance offered by the 16-month resistance line at 117.91," argued analysts at Commerzbank, adding, " Only below 111.59 would introduce scope to Fibonacci support at 109.92 and, if seen, the 200 day ma at 107.69."


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