Will it be a Valentines Day Massacre for the Dollar?

Wednesday February 14: Five things the markets are talking about

Are financial markets justified going from a growth story to an inflation narrative?

Today’s U.S consumer price index (08:30 am) is being touted as one of the most significant economic releases in a number of years as capital markets seek to understand the recent plunges in global equities and sovereign bonds.

With investors already on edge, they are expected to renew this months convulsion on any sign that U.S inflation is exceeding expectations at a rate that may entice the Fed to quicken its plans for tightening monetary policy.

Already this month, after a stronger U.S non-farm payroll (NFP) print and wage numbers, investors have sent U.S Treasury yields aggressively higher and instigated a rout in equities that pushed them into the first correction in 18-months.

Note: Market expectations are looking for the core-CPI (ex-food and energy) to rise +1.7% in January y/y compared with the +1.8% increase in December. U.S retail sales are also out this morning and are expected to have increased for a fifth consecutive month.

A higher CPI will give the USD strength, lead to higher yields and lower equity prices, but a tepid headline print could cause more of a problem, especially with record short U.S 10-year treasury position and a market focusing on President Trump’s proposed budget and the rise in U.S twin deficits.

Note: Lunar New Year celebrations for the Year of the Dog begin, affecting China, Hong Kong, Taiwan, Singapore, Malaysia and Indonesia. Chinese mainland markets are closed Feb. 15-21.

1. Stocks mixed reaction

In Japan, the Nikkei share average dropped to a fresh four-month low overnight as investor sentiment was again sapped by worries about U.S inflation data due this morning. The Nikkei ended -0.4% lower, its lowest closing since early October. The broader Topix fell -0.8%.

Down-under, the Aussie S&P/ASX 200 index fell -0.3%, following a +0.6% rise on Tuesday. In S. Korea the Kospi closed out the overnight session up +1.1%, helped by a +3% jump in Samsung.

In Hong Kong, shares rebound sharply ahead of Lunar New Year holiday. Trading will resume on Feb 20. At close of trade, the Hang Seng index was up +2.27%, while the Hang Seng China Enterprises index rose +2.14%.

In China, stocks rebounded overnight, but volumes were thin, as many traders had already left for the weeklong Lunar New Year holiday. Chinese markets will reopen on Feb. 22. At the close, the Shanghai Composite index was up + 0.46%, while the blue-chip CSI300 index was up +0.8%.

In Europe, regional indices trade higher across the board following a rebound in Wall Street yesterday and strength in U.S futures this morning.

U.S stocks are set to open in the black (+0.4%).

Indices: Stoxx600 +0.7% at 373.2, FTSE +0.7% at 7216, DAX +0.7% at 12286, CAC-40 +0.6% at 5139, IBEX-35 +0.5% at 9693, FTSE MIB +0.2% at 22071, SMI +0.9% at 8832, S&P 500 Futures -+0.4%

2. Oil dips on looming oversupply and weak U.S dollar, gold higher

Oil prices have dipped overnight, pressured by lingering oversupply including rising U.S inventories. However, the prospect of Saudi output dropping next month, economic growth hopes and a weaker U.S dollar all combined to limit losses.

Brent crude futures are at +$62.68 per barrel, down -4c. Brent was above +$70 a barrel earlier this month. U.S West Texas Intermediate crude futures are at +$59.06 a barrel, down -13c from yesterday’s close. WTI was trading above +$65 in early February.

On Wednesday, the Saudi energy ministry said that Saudi Aramco’s crude output in March would be -100k bpd below this month’s level while exports would be kept below +7m bpd.

Stateside, yesterday’s API report showed that U.S crude inventories rose by +3.9m barrels in the week to Feb. 9, to +422.4m.

Note: That is due to soaring U.S crude production, which has jumped by over +20% since mid-2016 to more than +10m bpd, surpassing that of top exporter Saudi Arabia and coming within reach of Russia, the world’s biggest producer.

Oil traders will take their cue from today’s EIA print (10:30 am EDT) and U.S inflation release.

Ahead of the U.S open, gold prices have rallied for a third consecutive session overnight to hit a one-week high, buoyed by a weaker U.S dollar, while the market awaits U.S inflation data for clues on the pace of future Fed rate increases. Spot gold is up +0.3% at +$1,332 an ounce.

3. Sovereign yields little changed

Earlier this morning, Sweden’s Central Bank (Riksbank) kept their repo rate unchanged at -0.5%. Deputy governor Henry Ohlsson voted to raise rates, but the central bank’s signals on inflation were more downbeat. The inflation forecast for this year was downgraded to +1.8% from +2%. The statement indicated that policy makers would start raising the rate in H2 of 2018. Policy makers stressed that was important not to raise the rate too early and was committed to stimulus to prevent inflation setbacks.

Elsewhere, fixed income seeks guidance from today’s U.S CPI release. The yield on U.S 10-year Treasuries fell less than -1 bps to +2.83%. In Germany, the 10-year Bund yield declined -2 bps to +0.74%, while in the U.K, the 10-year Gilt yield dipped -1 bps to +1.618%. In Japan, the 10-year JGB yield decreased -1 bps to +0.07%, the lowest in more than five weeks.

4. Dollar on soft footing

The USD remains on soft footing ahead of key Jan CPI data for the U.S.

The EUR/USD is steady, trading atop of the €1.2350 area after various European GDP data highlighted better economic growth prospects (see below).

USD/JPY tested ¥106.85 overnight for 15-month lows. The pair came off its worst level to approach 107.50 just ahead of the N.Y session after Japanese officials reiterated that they had no comments on forex levels.

In S. Africa, political optimism that President Zuma would resign has sent the ZAR currency to its best level in nearly two-years outright. The South African Democratic Alliance (DA) leader Maimane (opposition) has stated that its motion to dissolve parliament was processed by Speaker. USD/ZAR is at $11.85 ahead of the open stateside.

The Swedish krona has been volatile after the Riksbank interest rate decision. The krona briefly rose soon after the announcement, but has since pared those gains EUR/SEK last trades flat on the day at €9.9163, compared with €9.8952 before the decision.

5. Euro-zone economy ends 2017 on a high note

Note: There were a number of European GDP releases in the Euro session highlighting better economic growth prospects – Germany mixed; Netherlands beat and Italy a miss.

Industry helped drive the euro-zone’s +0.6% expansion in Q4. This morning’s ‘flash’ estimate of Q4 GDP is the second release and confirms that quarterly growth slowed a tad from Q3’s +0.7% to +0.6%.

There is no breakdown until the next release; however, expenditure evidence would suggest that weaker consumer spending growth was the main driver of the slowdown, while investment expanded after Q3’s contraction and net trade again made a positive contribution to growth.

Digging deeper, industry appears to have made a stronger contribution to GDP growth than in Q3. Following the consensus-beating +0.4% monthly rise in IP in December.

Forex heatmap

US Dollar Rout Continues With Inflation Data in the Horizon

Safe haven flows after the stock market collapse favour JPY and CHF

The US dollar is once again on the back foot on Tuesday. The currency is softer against major pairs ahead of key US inflation data for January. The U.S. Federal Reserve along with traders will be looking at the consumer price figures for signs of higher inflation and further validations of their plans to keep raising US interest rates in 2018. The U.S. non farm payrolls (NFP) report earlier in the month boosted the USD with a positive wage growth signal at 0.3 percent monthly gain. The market will be watching the core CPI released on Wednesday, February 14 at 8:30 am EST looking for confirmation.

  • US January inflation expected to underperform
  • US Oil producers putting downward pressure on prices
  • US inflation trend to continue on Thursday with the release of the PPI



The EUR/USD gained 0.52 percent on Tuesday. The single currency is trading at 1.2355 ahead of the release of monthly inflation and retail sales data in the US. The U.S. Federal Reserve is expected to lift rates 3 or more times this year, but to do so it would need inflation in the US to pick up, as this was the biggest debate within the central bank last year. Doves within the Federal Open Market Committee (FOMC) are pushing for more patience, until inflation rises, while the hawks who lost Chair Yellen as their biggest supporter would rather raise rates sooner rather than later. The core consumer price index, the Fed pays more attention to this data point that excludes food and energy, is expected to come in at 0.2 percent. Retail sales are forecasted to have gained 0.2 percent in January, but the core reading to have advanced by 0.5 percent by removing auto sales.

The tumble in stocks prices has had a negative effect on the confidence in the US economy. The employment report released on February 2 posted higher than forecasted number of jobs and more importantly hourly wages rose by 0.3 percent. Several dollar rallies that started with a strong employment report have been cut short by disappointing inflation and retail sales data. This time around the USD has not been able to find solid footing in 2018. With a stock market correction and bond yields at four year highs inflation takes a more important role as it could solidify the case of Fed hawks and make way for a 4 rate hike scenario. The USD has been impacted by improving growth around the globe and other central banks have hiked or signalled and end to low rates cutting the lead of the U.S. Federal Reserve and reducing the attractiveness of the dollar. A higher than expected inflation figure could trigger a US currency recovery alongside a drop in the stock market as higher rates would be forthcoming. Vice versa a lower than expected consumer price gain could sink the dollar even lower as the market is already pricing in 3 rate hikes and could start reevaluating that position with weak inflationary pressures.

European politics have reached some stability with the German coalition now in place but with the upcoming Italian elections in March the boat is sure to rock. Economic fundamentals have been strong in the eurozone with Germany leading the way as usual. The gap between the U.S. Federal Reserve and the European Central Bank (ECB) is closing with regarding monetary policy. The ECB is expected to end its QE program and could even lift interest rates later this year. The week will bring minor indicator releases in Europe with the German central bank chief Jens Weidmann speaking in Frankfurt on Wednesday, February 14 at 3:00 am EST. Earlier that day the GDP figures for Germany will be released with a 0.6 percent growth expected.



The USD/JPY lost 0.84 percent in the last 24 hours. The currency pair is trading at 107.73 as the JPY has benefited from risk aversion and risk appetite moves. Usually the USD is the main beneficiary of a risk aversion move, but given some of the global uncertainty is happening in Washington and Wall Street the greenback is not the sturdiest safe haven for investors. The USD is soft ahead of inflation and retail sales data with both having to overcome concerns.

The Japanese Prime Minister Shinzo Abe is expected to reappoint Haruhiko Kuroda as the head of the Bank of Japan (BOJ) for his second term and that in itself could be a sign the central bank is ready to start dealing back some of its massive stimulus program.

Market events to watch this week:

Wednesday, February 14
8:30am USD CPI m/m
8:30am USD Core CPI m/m
8:30am USD Core Retail Sales m/m
8:30am USD Retail Sales m/m
10:30am USD Crude Oil Inventories
7:30pm AUD Employment Change
Thursday, February 15
8:30am USD PPI m/m
Friday, February 16
4:30am GBP Retail Sales m/m
8:30am USD Building Permits

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

USD Under Pressure as Traders eye U.S Inflation

Tuesday February 13: Five things the markets are talking about

Euro equities are trading steady despite a late down swing in Asia, as investors wrestle to find direction after this month’s early collapse.

The dollar has weakened against G10 currency pairs while Treasuries have edged a tad higher along with gold. Crude is heading for its first advance in eight sessions.

Investors are looking to tomorrow’s U.S. consumer-price data for some clues on direction, given that pressure on stocks have been stemming from the outlook for inflation.

The market is expecting U.S consumer-price index to probably increase at a moderate pace last month along with U.S retail sales – both due out tomorrow.

Note: Lunar New Year celebrations for the Year of the Dog begin, affecting China, Hong Kong, Taiwan, Singapore, Malaysia and Indonesia. Chinese mainland markets are closed Feb. 15-21.

1. Stocks mixed review

In Japan, the Nikkei share average closed at a four-month low overnight as investors turned somewhat risk averse as the yen rallies outright. The Nikkei ended -0.7% lower, its lowest closing level in four months.

Down-under, Aussie shares tracked Wall St into positive territory. The S&P/ASX 200 index rose +0.6% at the close of trade, after a -0.3% yesterday. In S. Korea, the Kospi climbed +0.35%.

In Hong Kong, stocks rose overnight, tracking a global rebound, on bargain hunting. At close of trade, the Hang Seng index was up +1.29%, while the Hang Seng China Enterprises index rallied +0.88%.

In China, stocks rebounded, supported by investor sentiment aided by signs of government support and record bank lending last month. At the close, the Shanghai Composite index was up +1%, while the blue-chip CSI300 index was up +1.19%.

In Europe, regional indices trade mostly lower taking the lead from weaker U.S futures. The FTSE trades little changed following a slightly hotter CPI reading, as Gilt yields pare declines.

U.S stocks are set to open in the ‘red (-0.6%).

Indices: Stoxx600 -0.1% at 372.7, FTSE flat at 7173, DAX -0.1% at 12266, CAC-40 -0.1% at 5133, IBEX-35 -0.6% at 9708, FTSE MIB -0.5% at 22215, SMI -0.3% at 8799, S&P 500 Futures -0.6%

2. Oil prices firm on weaker dollar, gold higher

Oil prices are better bid, supported by a rebound in global equities, as well as by a weaker dollar, which potentially supports more fuel consumption.

Brent crude futures are at +$62.97 per barrel, up +38c, or +0.6% from Monday’s close. U.S West Texas Intermediate (WTI) crude futures are at +$59.60 a barrel, up +31c or +0.5% from yesterday’s settlement.

The stronger prices came after crude registered its biggest loss in two years last week as global stock markets slumped.

Nonetheless, rising U.S production continues to undermine the efforts led by the OPEC and Russia to tighten markets and prop up prices.

Note: U.S oil production has rallied above +10m bpd, overtaking top exporter Saudi Arabia and coming within reach of top producer Russia.

There are also strong signals the output will rally further. Data last Friday showed that U.S energy companies added 26 oilrigs looking for new production, boosting the count to +791, the highest since April 2015.

Gold prices have hit a one-week high overnight, aided by a weaker dollar and as the market awaits for tomorrow’s U.S inflation data for clues on the pace of interest rate hikes. Spot gold is up +0.4% at +$1,327.81 an ounce.

Note: Yesterday, the yellow metal rose +0.5%, its biggest single-day percentage gain in more than one week.

4. Sovereign yields fall

G7 sovereign bond yields look attractive across the curve after yields rallied on a recovering global economy and on expectations central banks will tighten policy faster than previously thought.

With the lack of economic market news the fixed income market looks attractive and reason why yields fell in the overnight session.

The yield on U.S 10-year Treasuries fell -3 bps to +2.83%, the biggest drop in more than a week. In Germany, the 10-year Bund yield declined -2 bps to +0.74%, the lowest in a week, while in the U.K the 10-year Gilt yield has dipped -1 bps to +1.601% despite the higher inflation print (see below).

4. Sterling reaction muted

The pound (£1.3896) has edged a tad higher after U.K January annual inflation unexpectedly remained at +3% (see below) as worries about the U.K. getting a transitional deal after breaking up from the E.U persist. EUR/GBP trades down -0.1% at €0.8868. Although the high inflation number will add to expectations for another BoE hike, futures prices would suggest that the market has priced in two rate increases for the next 12-months.

Note: PM Theresa May’s government will aim to address the Brexit transition in a series of six speeches by the prime minister and other senior ministers in the next few weeks, which her office dubbed “The Road to Brexit.” May’s first speech is to be delivered at a conference in Munich next Saturday, while Foreign minister Boris Johnson will begin the series with a speech tomorrow.

Elsewhere, the USD is modestly lower as President Trump’s proposed budget brings into focus the U.S twin deficits. The EUR/USD (€1.2337) is higher by +0.2%, while USD/JPY (¥107.55) is lower by -0.9% as fixed income dealers ponder the limits of an expansionary BoJ policy.

5. U.K inflation above target in January

Data this morning showed that U.K consumer prices rose +3% y/y in January. This headline print suggests that the Bank of England (BoE) case for higher borrowing costs is somewhat justified to bring borrowing costs back to its +2% annual goal.

The ONS said that the price gains were driven by clothing, footwear and recreational goods and services, especially tickets for zoos and gardens.

Note: Market consensus was expecting annual inflation in January to slow to +2.9%, from +3% m/m.

U.K Inflation has been above the BoE’s +2% annual target for 12-consecutive months. Last week the BoE said that they expected to raise interest rates at a swifter pace than they anticipated last year to contain growth in prices.

Note: The BoE raised its benchmark rate for the first time in a decade in November, to +0.5%. Futures prices suggest that the central bank will lift it again as soon as May.

Forex heatmap

A day of calm

A day of calm

Equity markets have begun the week on a somewhat positive not picking up from Friday rebound as bargain hunters have returned on the first sign of stability. I guess if you owned a stock for fundamental reasons seven days ago and its 5 % lower this week, why not add to the portfolio? So the story goes.

While the Vix has pulled back to the 25 zone, it’s very trying to view this weeks stock market bounce anything other than technical correction after critical Global benchmarks had one of the there worst performances in years. However, the market is trying to find a positive equilibrium, and if we can get through this week’s critical US CPI relatively unscathed, then it would most certainly look as if last week was little more than a corrective episode rather then the commencement of a bear market.

None the less, government bond yields have found some stability after yields moved higher, albeit in very thinly traded Bond markets.
But certainly adding to the semblance of calm which has started the week. But concerns abound that the Bond Markets have only begun to factor in both the global reflation trade and burdening supply which could drive US bond yields considerably higher.

Oil  Markets

Ignoring US supply-side concerns, OIl markets attempted to make a half-hearted recovery overnight on little more than an equity market correlated bounce and indeed the weaker USD added to the momentum.

Despite the Oil market exhibiting all the hallmarks of technical trading, toppling from massively overbought conditions to retracing on an equity correlated bounce. But technical momentum or not, with the EIA data around the corner, it’s hard not to overlook their expectations that U.S. crude output may rise to 11 million bpd by the end of the year.

However, global demand remains firm, and despite the shale oil boom the supply tightening narrative remains prevalent with OIL towing the line.

Battle lines are forming in an around the WTI 60.00 bpd level which should make for an exciting market this week.

Gold Markets

Gold prices were supported by a weaker dollar and physical demand ahead of Chinese lunar new year. The equity market carnage has abated, and the waves of cross assets selling to replenish equity margins have temporarily decreased providing a calmer market to re-establish Gold longs. But prices should remain within a range ahead of this week US inflation data as the US CPI will be a monster print for the markets inflation views and could provide a catalyst for Gold to bounce higher.
Currency Markets

The US dollar traded lower as currency traders are analysing the rebounding global equity markets. Lots of noise but little momentum as traders are keying on this week’s US CPI with volumes and liquidity density much lower to start the week.

Japanese Yen

The markets continue to digest the potential FX trading leverage cap for individuals in Japan. Mrs Watanabe was a considerable player in the market( especially for Retail brokers), so we’re keeping a close eye on the developments

As for the Yen, we seem to be at a crossroads in all Asian markets with currency markets barely budging looking for some inflation clarity in Wednesday CPI. The fear is that a higher print will send bond yields sky high and equity markets will tumble once again.

Australian Dollar

A rebound in risk sentiment has seen USD haven hedged unwind and buoyed commodity markets.As such, the Aussie dollar has found some solid footing this morning
Malaysian Ringgit

We’re at a bit of a crossroads this week as the markets are grappling with inflation versus the global growth narrative.

An uptick in inflation will lead to higher yields and will present the most significant headwind for the Ringgit. While the market has priced in 3 US rate hikes for 2018, a sudden uptick in US inflation could quicken the pace of the FED interest rate normalisation and could weigh negatively on regional sentiment.

We expect the market to trade in a tight range ahead of this domestic GDP and US CPI. Both monster data points for the Ringgits near-term fate

FX and Equities Brace for a Bumpy Week

Monday February 12: Five things the markets are talking about

Investors are bracing for another bumpy ride this week after market volatility has returned with a vengeance, delivering the biggest rout in global stocks in a number of years.

Despite stocks getting a reprieve overnight, investor fears of interest rate hikes that started the market correction continues to persist.

Last week, the CBOE volatility index ended almost three times higher than its Jan. 26 level. The ten-year Treasury yield finished last week atop of where they started at +2.85%.

Stateside, this week’s inflation report – U.S consumer-price data on Wednesday – could be the catalyst for a major struggle between equities and bonds that triggered the initial market turbulence.

Elsewhere, while the coming week is absent of G10 central bank meetings, there are a number of important economic indicators to be released. In the U.K, consumer and producer price indexes and retail sales for last month should be a challenge for the pound (£1.3560). While in Japan, its first estimate of Q4 growth along with last month’s producer price index and December’s machinery orders (a proxy for capital spending) should be capable of moving the yen (¥108.70).

Later today, President Trump will deliver his 2019 budget blueprint.

1. Stocks breath a ‘sigh of relief’

Global equities overnight have found some temporary support while volatility remains elevated.

Note: In Japan, equity markets were closed due to a bank holiday Feb. 12, while Chinese New-Year celebrations for the ‘Year of the Dog’ begin (Feb 15-21) and follow across much of Asia, including Hong Kong, Taiwan, Singapore, Malaysia and Indonesia.

Down-under, the Aussie S&P/ASX 200 was down -0.6%, weighed down by a fresh -1.6% drop in the energy sector, while in S. Korea, the Kospi rallied +0.4%.

China and Hong Kong stocks rebounded after last week’s aggressive sell-off. In China, the Shanghai Composite index was up +0.8%, while China’s blue-chip CSI300 index was up +1.3%. In Hong Kong, the Hang Seng Index was up +0.71%.

In Europe, regional indices are trading sharply higher across the board following on from a sharp rebound on Wall Street Friday and positive Asian markets.

U.S stocks are set to open deep in the ‘black (+1.2%).

Indices: Stoxx600 +1.5% at 374.1, FTSE +1.2% at 7181, DAX +1.9% at 12336, CAC-40 +1.5% at 5153, IBEX-35 +1.5% at 9785, FTSE MIB +1.1% at 22404, SMI +1.8% at 8831, S&P 500 Futures +1.2%

2. Oil prices rally +1%, gold higher

Oil prices start the week better bid, recovering some of this month’s steep losses as global equities find some firm footing after last week sea of red.

Brent crude futures are at +$63.54 per barrel, up +75c, or +1.2% from Friday’s close. U.S West Texas Intermediate (WTI) crude futures are at +$60.04 a barrel – that’s up +84c, or +1.4% from the close.

The stronger prices came after crude registered its biggest loss in two years last week as global stock markets slumped.

Nonetheless, rising U.S production continues to undermine the efforts led by the OPEC and Russia to tighten markets and prop up prices.

Note: U.S oil production has rallied above +10m bpd, overtaking top exporter Saudi Arabia and coming within reach of top producer Russia.

There are also strong signals the output will rally further. Data on Friday showed that U.S energy companies added 26 oilrigs looking for new production, boosting the count to +791, the highest since April 2015.

Ahead of the U.S open, gold prices have edged a tad higher as the dollar eased against G7 currency pairs after last week’s rally. Expect investors to take their cues from this weeks U.S inflation data. Spot gold is up +0.3% percent at +$1,320.19 an ounce.

Note: Prices touched their lowest since Jan. 4 at +$1,306.81 last week.

3. Sovereign yields creep higher

U.S and eurozone government bond yields have edged higher overnight, heading back towards multi-year highs on unease that a pick up in inflationary pressures globally and a strong domestic economy will encourage the ECB and the Fed to signal to be more aggressive than originally priced in at the beginning of the year.

In Europe, bond yields across the bloc were +1-2 bps higher in early trade, while in the U.S the 10-year note trades atop of its four-year highs.

In Germany, the 10-year Bund yield is up almost +2 bps at +0.77% and within sight of its nearly three-year high hit last week at around +0.81%. The yield on the U.S 10-year note has rallied +4 bps to +2.90%, the highest in more than four years, while in the U.K, the 10-year Gilt yield has gained +4 bps to +1.605%.

4. The U.S dollar’s quiet trading session

A broad-based flight to safe haven, such as U.S treasuries or the Japanese yen (¥108.70), has not happened to date despite the recent turmoil on equity markets.

The dollar ‘bulls’ are looking for the USD to rally this week, despite financial market volatility to remain high near-term as looser U.S fiscal policy and upside risk to U.S. inflation raises concerns.

Overnight, FX saw a quiet session ahead of some key inflation data this week (U.K Jan CPI Feb 13 and U.S Jan CPI on Feb 14).

Note: The recent pick up in global bond yields has been led stateside, while capital market wait for more details from President Trump’s budget and his infrastructure plan.

EUR/USD (€1.2272) is little changed, but holding below the psychological €1.23 handle. On the weekend, ECB’s Nowotny (Austria) reiterated the concerns about attempts by the U.S to politically influence the exchange rate.

GBP/USD (£1.3860) trades atop of Friday’s close despite the BoE having turned more rates ‘bullish’ last week. Dealers are now putting more weight on Brexit concerns as the U.K previously admitted that the growth potential of the economy had declined.

USD/JPY (¥108.70) is steady as Japanese markets were closed for a bank holiday.

5. Swiss inflation still super low

Data this morning showed that Swiss consumer prices slid -0.1% in January from December leaving the annual inflation rate at +0.7% and slightly below expectations.

Digging deeper, the decrease compared with the previous month is due in particular to the decrease in prices for outpatient hospital medical services. Prices for air transport also declined, along with prices for clothing and footwear, in particular because of sales. In contrast, prices for overnight stays in hotels, heating oil and electricity increased.

Inflation is still low despite the Swiss National Bank’s (SNB) efforts to raise it through negative interest rates and a willingness to intervene in currency markets.

Forex heatmap

US Dollar Surges Amidst Volatility

BoE Signals Higher Interest Rates in the UK

The US dollar had its strongest week against major currency pairs in twelve months. Even as the United States is suffering a bout of political uncertainty the dollar became a safe haven as stocks and bonds saw massive moves this week. The signing of a federal budget by US President Donald Trump boosted the dollar ahead of the release of retail sales and inflation data next week. Central banks are moving away from record low interest rates around the globe.

  • UK inflation expected at 2.9 percent
  • US inflation potential rise has markets worried
  • EU Brexit negotiator warns UK about transition risks



The EUR/USD lost 1.77 percent in the last five trading days. The single currency is trading at 1.2235 after heavy losses were registered by European equities to follow in line with the drop in American markets. The rise in wages in the latest U.S. non farm payrolls (NFP) report triggered a surge of the US dollar as investors are buying the currency as higher rates are in the horizon. Higher inflation is expected and will be one of the economic indicators under review this week. The US Bureau of Labor Statistics will publish the Consumer Price Index (CPI) on Tuesday, February 13 at 8:30 am EST. Core inflation is expected to have gained 0.2 percent in January with anything above could drive the US currency even higher.

European politics have reached some stability with the German coalition now in place but with the upcoming Italian elections in March the boat is sure to rock. Economic fundamentals have been strong in the eurozone with Germany leading the way as usual. The gap between the U.S. Federal Reserve and the European Central Bank (ECB) is closing with regarding monetary policy. The ECB is expected to end its QE program and could even lift interest rates later this year. The week will bring minor indicator releases in Europe with the German central bank chief Jens Weidmann speaking in Frankfurt on Wednesday, February 14 at 3:00 am EST. Earlier that day the GDP figures for Germany will be released with a 0.6 percent growth expected.

The market will be following US releases more closely after a strong week for the USD. Producer Price Index data will be released on February 15 at 8:30 am EST with a forecasted gain of 0.4 percent after the prices of goods fell last month.

Data released on Friday by the CFTC showed short positions of the US dollar shrank for the first time in six weeks signalling a change in investor sentiment towards the greenback.


Canadian dollar weekly graph February 5, 2018

The USD/CAD gained 1.52 percent in the last five days. The currency pair is trading at 1.2613 after the start of Monday trading at 1.2416. The stock market sell off has seen a growing appetite for US dollars as well as the end of some short USD positions. Canadian data was few and far between and it overall did not help the loonie. The Trade balance grew from 2.7 billion last month to 3.2 as imports grew by 1.5 percent in December, while export only did so by 0.6 percent. Canadian employment data was released on Friday and did not paint a pretty picture. Canada lost 88,000 positions well below expectations of a 10,000 gain in January. There was a slowdown anticipated after two back to back 70,000 plus gains, but the drop surprised even the more pessimistic analysts. The fact that most of the losses came in part time positions took some of the sting from the report and could be explained in part by the rise of minimum wages in Ontario.

Next week will be quiet in the Canadian economic calendar with the relatively new ADP non farm report due out on Thursday, February 15 at 8:30 am EST. and Foreign purchases of securities on Friday, February 16 at 8:30 am EST.



The GBP/USD lost 2.17 percent this week. The currency pair is trading at 1.3814 despite a hawkish Bank of England (BoE) singling a rate hike sooner rather than later. The biggest downwards pressure comes from comments by the EU Brexit negotiator Michel Barnier said Brussels as disagreements between the UK and the European Union remain. The words: “A transition is not a given”, was a shock after the Brexit divorce appeared to be headed to a more amicable end. The fragile situation of the conservative government after their narrow triumph in the snap elections they themselves triggered has left them in a position of weakness at this stage of the negotiation.

The Bank of England (BoE) hosted its first super Thursday of the year on February 8. The central bank was openly hawkish about inflation and its willingness to hike sooner than later. The BoE could move interact rates higher as soon as May. The release of the Consumer Price Index on Tuesday, February 13 at 4:30 am could validate the strong messaging from the BoE if inflation stay above the 2 percent target.

Market events to watch this week:

Tuesday, February 13
4:30am GBP CPI y/y
9:00pm NZD Inflation Expectations q/q
Wednesday, February 14
8:30am USD CPI m/m
8:30am USD Core CPI m/m
8:30am USD Core Retail Sales m/m
8:30am USD Retail Sales m/m
10:30am USD Crude Oil Inventories
7:30pm AUD Employment Change
Thursday, February 15
8:30am USD PPI m/m
Friday, February 16
4:30am GBP Retail Sales m/m
8:30am USD Building Permits

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

USD/CAD – Loonie flash plummets on weaker jobs report

  • Canada Jan Net Jobs -88,000 From Dec
  • Canada Jan Net Jobs Forecast At +10,000
  • Canada Jan Full-Time Jobs +49,000; Part-Time -137,000
  • Canada Jan Avg Hourly Wages +3.3% From Year Ago
  • Canada Labor Force -73,700 In Jan From Dec
  • Canada Jan Participation Rate At 65.5% Vs 65.8% In Dec
  • Canada’s unemployment rate ticked up last month after hitting a 10-year low in December, as both the public and private sectors shed workers.

    The Canadian economy lost a net -88k jobs in January on a seasonally adjusted basis. The market expectations were for an increase in employment of +10k.

    Canada’s unemployment rate ticked a tad higher to +5.9% in January, up from a revised reading of +5.8% in December.

    The loonie took it on the chin immediately, moving from C$1.2601 to an intraday dollar high of C$1.2694. The CAD has since pared all of those losses and then some, trading atop of C$1.2600.

    The CAD bears will have been disappointed with the initial price action as there were looking for better USD levels to sell their longs. A plethora of dollar sell orders had been scattered atop of the psychological C$1.2700 handle.The USD/CAD is trading lower on the day at C$1.2585.

    Equities Lose $5 Trillion as Bulls Slay Bulls

    Friday February 9: Five things the markets are talking about

    **Stateside, the House of Representatives has approved the bill to fund the U.S government and has raised spending limits over two-years, it is now sending the measure to President Trump.**

    Investors should expect market turbulence to continue this year as pullbacks and volatility become more common in the wake of rising central bank interest rates and sovereign bond yields.

    The growing consensus is that increasing market volatility should not be capable of derailing the underlying economic expansion or fundamentally dent risk assets, it does however make many things less predictable.

    Ahead of the U.S open, European stocks have pared their decline and U.S stock futures have gained despite an Asian session seeing red, with China’s bourses tumbling the most in 24-months.

    Elsewhere, Treasury yields have backed up to trade atop of their four-year highs as the ‘buck’ edged lower. Crude oil is heading towards its worst week in 12-months on concerns of over growing U.S supply and gold prices have temporarily stopped the bleeding.

    On Tap: Canadian employment numbers are out at 08:30 am EDT. Is the market about to see a deep revision to the last two-months of massive job gain headlines?

    1. Stocks Sea of red

    In Japan, the Nikkei share average tumbled again overnight, mirroring Wall Street’s losses, with oil-related equities leading the broad declines as crude prices slumped. The Nikkei finished down -2.3%, bringing its weekly loss to -8.1%. The broader Topix was -1.9%, down -7.1% for the week.

    Down-under, Aussie shares slumped to a near four-month low overnight hammered by renewed selling on worries of higher inflation and interest rates. The S&P/ASX 200 index fell -0.9%. The benchmark has declined -4.6% on the week, its biggest loss in over 24-months. In S. Korea, the Kospi index fell -1.8%.

    In Hong Kong, stocks crumble and cap the biggest weekly fall since the global financial crisis. At close of trade, the Hang Seng index was down -3.1%, the Hang Seng China Enterprises index fell -3.87%. For the week, the Hang Seng tumbled -9.5%, the biggest weekly loss since October 2008, while the HSCE posted a weekly loss of -12.01%.

    In China, stocks were crushed and suffered their worst day in almost two-years, with blue-chip led carnage dragging the markets into correction territory. The benchmark Shanghai Composite Index tumbled -4.0% and the blue-chip CSI300 ended the day down -4.3%.

    In Europe, regional indices trade mostly lower, but are off their session lows after a rebound in U.S futures ahead of the open stateside. Increased outlook for higher rates from the Bank of England (BoE) is weighing on the FTSE.

    Indices: Stoxx600 -0.5% at 372.1, FTSE -0.4% at 7144, DAX -0.3% at 12221, CAC-40 -0.4% at 5129, IBEX-35 -0.7% at 9689, FTSE MIB -0.3% at 22407, SMI +0.1% at 8768, S&P 500 Futures +0.7%

    2. Oil slides towards steep weekly loss as supply fears mount, gold higher

    Oil prices are on track for their biggest weekly loss in 10-months after hitting new lows overnight after data this week showed U.S crude output had reached record highs and the North Sea’s largest crude pipeline reopened following an outage.

    Brent futures are down -30c at +$64.51 a barrel. Yesterday, Brent fell -1.1% to its lowest close since Dec. 20. U.S West Texas Intermediate (WTI) crude is down -42c at +$60.73 a barrel, having settled down -1% Thursday, its lowest close since Jan. 2.

    Note: Brent futures have lost around -9% from their four-year January high print of +$71. Futures positions suggest that investors are sitting on the largest ‘bullish position in history.

    Earlier this week, the U.S. Energy Information Administration (EIA) upped its 2018 average output forecast to +10.59m bpd, up +320k bpd from its last forecast 10-days ago.

    Note: The output is now higher than the previous bpd record from 1970 and above that of top exporter Saudi Arabia.

    Ahead of the U.S open, gold prices have edged a tad higher after hitting more than one-month lows yesterday, as the correction in equities drove investors towards safe-haven assets like gold. However, gold ‘bulls’ should expect a stronger U.S dollar and concerns over rising global interest rates to keep gains somewhat capped. Spot gold is up +0.1% at +$1,320.72 an ounce.

    Note: On Thursday, gold prices touched their lowest since Jan. 4 at +$1,306.81 an ounce.

    3. Equity pain brings relief to bonds

    The Eurozone and U.S bond yields have edged a tad lower as renewed global stock selling has managed to lend some support to safe-haven debt markets.

    Bond yields have been backing up aggressively all week as investors brace for an end to easy-monetary policies by G7 central banks.

    Note: Yesterday’s more hawkish than expected Bank of England (BoE) was the latest catalyst to cause fixed income to steepen sovereign yield curves.

    The yield on U.S 10-year Treasuries has decreased less than -1 bps to +2.84%. In Germany, the 10-year Bund yield fell -1 bps to +0.76%, while in the U.K the 10-year Gilt yield declined -2 bps to +1.617%.

    4. Dollar jives and dips

    Market risk aversion sentiment remains to the fore, but the G10 forex pairs continue to stay locked within their recent ranges. The U.S dollar bull, and they are dwindling; maintain that it’s the Fed who may be caught behind the curve on rates. Next week’s U.S CPI may very well put the ‘cat amongst the pigeons.’

    Note: The greenback has caught a bid now that the House of Representatives has approved the bill to fund the U.S government.

    Elsewhere, the EUR/USD (€1.2254) is little changed, the pound continues to benefit, albeit struggling after the U.S funding announcement, from the Bank of England saying on Thursday that it expected to “increase interest rates earlier and faster” than previously projected, seen by many to mean a likely May rate rise.

    The Chinese currency is on track for its first weekly loss in nine-weeks as the yuan (¥6.3400) has weakened against the dollar in thin volume.

    5. U.K industrial output falls on North Sea pipeline shutdown

    Data this morning showed that U.K. manufacturing continued to grow in the final month of 2017, but overall industrial production fell by more than anticipated due to an emergency shutdown of a North Sea pipeline.

    In monthly terms, U.K. factory output grew by +0.3%, in line with market expectations, the eighth consecutive month of growth.

    However, overall industrial production, meanwhile, declined by -1.3%, +0.4% more than forecast.

    Separately, the ONS said that the U.K.’s trade deficit widened in December, driven by increased oil imports and rising prices. The December goods trade deficit stood at -£13.6B – significantly wider than expected (-£11.8B e)

    Forex heatmap

    Hawks coming home to roost

    Hawks coming home to roost

    Equity markets were trounced on the back of Global yields parading to multi-year highs Thursday. Indeed, it was less dovish Fed speak that continued to be the driver, and the BoE provided a hawkish bounty for good measure.

    The ruckus in the bond pits these days appears hell-bent on marching towards 3 % 10Year UST yields much quicker than anyone had suspected which suggest equity markets will come under the hammer for some time to come. Yields are becoming the real storyline as a combination of tighter monetary policy and the US burdening deficit leading to more supply, suggests we have crossed a 2.75 % 10Y UST bridge of no return, and the ride could get bumpier for equity investors.

    The issue is not so much the 3% level but rather the pace that Bond yields have been rising in the US that is sending the markets into disarray. The rapidity of the moves has caught the markets by surprise, and we are going through the predictable panicked repricing of most asset classes.

    Oil Markets

    Crude prices continued to tank overnight as the commodity complex has suffered dearly due to the uptick in market volatility. But the toxic combination of rising US output and a stronger US dollar has nullified OPEC production cut momentum.

    With the markets factoring in US crude production to continue hitting new record highs through 2018, the supply dynamics suggest a move below $ 60 WTI is in the offing.
    Gold Markets
    Gold toppled to a five-week low after the Bank of England whispered a sooner and more substantial rate rises after revising their growth and inflation forecast. The quicker than expected shift on Central Bank Monetary Policy outlooks coupled with the rapid increase in US bond yields continues to dampen investor sentiment. However, Gold prices quickly recovered as the equity market drawdowns continue to attract risk off hedges while the Syria Standoff with Turkey is offering support on the geopolitical front.
    Currency Markets

    The Australian Dollar

    The rise in US bond yields has toppled the Aussie dollar and dented risk sentiment as global equity market continues to tumble.

    Market volatility is weighing negatively on commodities, add in a dose of dovish RBA rhetoric, and therein lies the heart of the Aussie dollar woes.

    Also, the Aussie was trampled on when USDCNH shot up from 6.3050 to 6.3750 as it seems that China is opening up more channels for outflows to slow RMB appreciation. (See below)

    The Aussie dollar tends not to flourish in these types of markets.
    The $ Bull in the China Shop: Chinese Yuan

    The dollar bull was let loose in the China shop yesterday as a confluence of events had trader paring back short US dollar risk from the morning fix.

    The fix came in a bit higher than expected which usually causes a bit of a move higher but, it was the article in China Economic Daily that was creating the most noise as the report urges corporates to enhance FX risk management. (Nudge Nudge)
    China has also resumed its Qualified Domestic Limited Partnership plan after a two-year halt, granting licenses to about a dozen global money managers that can raise funds in China for overseas investments. While it does not have a massive Foreign Exchange flow impact,  and  more symbolic than anything else,  it is none the less suggestive that the Pboc is less sensitive to capital outflow

    Given that positions were skewed short US dollar, the confluence of events had traders covering positions aggressively knowing that liquidity will be sure to dry up the closer we get to Lunar New Year.

    The China trade numbers were perceived disappointing ( I have opposite view) which contributed to some currency negativity.

    But from any logical perspective, it was hard to ignore the Mainland equity fire sales this week which certainly had a negative bias on currency sentiment

    The Malaysian Ringgit

    Negative regional currency signals abound.

    The rapid repricing higher in US bond yields has taken investors by surprise. Moreover, with US yields looking to push higher, we could be in for a bit more pain before the markets find some solid footing.

    Higher US yields are supporting the USD and weighing on global equity sentiment which is hurting overall regional risk appetite.

    US record crude production continues to weigh negatively on oil prices.

    The proximity of Chinese Lunar New year has traders paring back risk.

    The market, at least for now, is hedging against the Fed potentially leaning more hawkish, which is explaining the uptick in USD, US Yields and lower equity markets.

    Pound jumps on ‘Hawkish’ BoE

    Thursday February 8: Five things the markets are talking about

    The global equity markets remain unnerved as U.S bond yields again trade atop of their four-year highs after U.S congressional leaders reached a two-year budget deal to raise government spending by almost +$300B.

    The bi-partisan deal is expected to stave off a government shutdown, while at the same time widen the U.S federal deficit even further – bond dealers suggest that it could lead to a faster tightening cycle on inflation worries.

    Note: The Senate and the House are both expected to vote on the proposed deal today, amid some opposition on both sides of the aisle.

    1. Stocks mixed results

    In Japan, the Nikkei share average rallied overnight, driven higher by bargain hunters. The Nikkei ended up +1.1%, but has still lost nearly -6%on the week. The broader Topix rose +0.9%.

    Down-under, shrugging off early weakness on falling commodities stocks, the Aussie benchmark finished modestly higher, up for a second consecutive day, the S&P/ASX 200 rose +0.2%.

    In Hong Kong, stock prices steadied after a five-day losing streak. At close of trade, the Hang Seng index was up +0.42%, while the Hang Seng China Enterprises index fell -0.43%.

    In China, stocks ended lower to post a third consecutive session of losses overnight, with the benchmark Shanghai index hitting a six-month low, despite trade data showing the country’s performance exceeded expectations. At the close, the Shanghai Composite index was down -1.42%, while the blue-chip CSI300 index was down -0.96%.

    Note: China trade balance (USD): +$20.3b vs. +$54.7be; Exports y/y: +11.1% vs. +10.7%e, Imports y/y: +36.9% (fastest growth since Feb 2017) vs. +10.6%e. The yuan dropped the most in two-years amid speculation that policy makers will step up efforts to rein it in after trade figures missed estimates.

    In Europe, regional indices are trading lower across the board, mirroring the decline in Wall Street yesterday.

    U.S stocks are set to open in the black (-0.2%).

    Indices: Stoxx600 -0.5% at 378.3, FTSE -0.6% at 7236, DAX -1.0% at 12466, CAC-40 -0.6% at 5226, IBEX-35 -0.8% at 9901, FTSE MIB -0.6% at 22840, SMI -0.2% at 8958, S&P 500 Futures -0.2%

    2. Oil slides as U.S output soars, gold lower

    Oil prices have hit new six-week lows overnight after data showed U.S crude output had reached record highs and the North Sea’s largest crude pipeline reopened following an outage.

    Brent crude futures are down -14c at +$65.37 a barrel, while West Texas Intermediate (WTI) is down -15c at +$61.64 a barrel.

    Note: Brent futures have lost around -8% from their four-year January high print of +$71. Futures positions suggest that investors are sitting on the largest ‘bullish position in history.

    The U.S. Energy Information Administration (EIA) this week upped its 2018 average output forecast to +10.59m bpd, up +320k bpd from its last forecast 10-days ago.

    The output is now higher than the previous bpd record from 1970 and above that of top exporter Saudi Arabia.

    Ahead of the U.S open, gold prices have extended their drop and printed a fresh four-week low, on a firmer dollar and market expectations of more U.S rate hikes this year. Spot gold is down -0.4% at +$1,312.41 per ounce.

    3. BoE to tighten sooner rather than later

    The Bank of England (BoE), as expected, kept rates steady this morning, but indicated it is likely to ‘tighten’ monetary policy “faster and further” than it had anticipated three months ago.

    In the BoE’s view, investors had expected one quarter-point rise in 2018 and subsequent years. But at that rate, inflation would still be slightly above target in early 2021, so a slightly more aggressive series of moves is needed.

    The BoE vote was unanimous to keep rates at +0.5%. Gilt yields have jumped, with 5-year backing up to +1.066% from +1% before the decision.

    Yesterday, the Reserve Bank of New Zealand (RBNZ) again held overnight rates at a record low and projected they will stay there until mid-2019 as inflation remains subdued amid slower economic growth.

    “Monetary policy will remain accommodative for a considerable period” according to acting Governor Grant Spencer.

    4. Pound jumps on ‘Hawkish’ BoE

    Sterling (£1.4035) has rallied aggressively across the board after the BoE brought forward its rate hike expectations – the pound was trading atop £1.3885 before the announcement and EUR/GBP has fallen -0.87% to a new one week low of €0.8750 from €0.8812 beforehand.

    USD has consolidated its recent gains after its best daily performance in four months yesterday. The greenback caught a bid after the White House and Senate leaders stated that deal had been reached on a two-year budget that included large increases to both defense and non-defense spending.

    Elsewhere, the EUR/USD (€1.2259) remains within striking distance of its two-week low outright as the pair tested €1.2235 in the overnight session. A plethora of ECB speakers have provided little new clues on the outlook for the Eurozone. From the techies, the key support for the pair remains at the psychological €1.21 level.

    USD/JPY (¥109.67) is edging back to the upper end of its recent range with the 110 level back in play.

    5. German goods exports soar to new records

    Data from the German Statistical Office (Destatis) showed that exports of German goods hit a new high last year, amid strong global demand for premium engineering goods.

    Exports of goods surged +6.3% to almost €1.3T last year to mark a new record.

    Digging deeper, Germany’s plant and machinery makers remain upbeat, with strong demand from China and the U.S. contributing to a +4% rise.

    Forex heatmap