Trade War and Trump European Trip Boost US Dollar

The US dollar was higher across the board against major pairs on Friday. Trade war concerns rose heading into the weekend and the comments from US President Donald Trump during the week sparked a rally of USD buying. Trump has been outspoken on NATO, trade and the Brexit deal while economic indicators and the US Fed have been supportive of the greenback. The Trump administration has said that it would add 10 percent tariffs on additional $200 billion Chinese goods if the Asian nation retaliates. U.S. Federal Reserve Chair Jerome Powell highlights the week with his semi annual testimonies.

  • US retail sales expected to slow down
  • Fed Chair Powell to testify before congress and senate committees
  • Canadian inflation and retail sales data out on Friday

**Dollar Firmer on Trade Tensions and Fed Comments **

The EUR/USD fell 0.80 in the last five sessions. The single currency is trading at 1.1648 after the EUR lost ground int he first four days of the week, only to mount a half hearted recovery on Friday. The pair started the week trading at 1.1763 and will close at 1.1685. Hawkish Fed member rhetoric and strong inflation indicators in the US did their part on the fundamental side, but with geopolitics playing such an important part the focus of investors was on the ongoing trade war with China. The USD became a safe haven and attracted flows looking to hedge against uncertainty.



The U.S. Federal Reserve has lifted interest rates twice already in 2018 and Fed members have been out in numbers endorsing one or two more additional hikes. The tone of the testimonies from Chair Powell to the congress and senate committees will guide the currency.

European inflation data will be released on Wednesday and is expected to remain steady at 2.0 percent. US retail sales data is expected to drop to a small gain of 0.4 percent but the emphasis will be on Fed Chair Powell’s testimony alongside other member comments during the week. The G20 financial summit will be held in Buenos Aires starting on Friday, July 20 which will be interning as trade spats have escalated to tariff wars but have yet to fully impact global markets.

Yen Loses Safe Haven Appeal

The USD/JPY gained 1.83 percent during the week. The currency pair is trading at 112.47 with the yen one of the biggest losers against the USD in the past five sessions. The Japanese currency shed its safe haven status as a major source of its exports has been targeted in the trade wars (auto) and the US yield curve flattening making the greenback a more attractive destination.



Bank of Canada Hike Can’t Compete with Trade Concerns

The USD/CAD gained 0.65 percent in the last five days. The currency pair is trading at 1.3174 even after the Bank of Canada (BoC) made the benchmark interest rate 25 basis points higher on Wednesday. The official rate is now 1.50 percent, closing the gap with the Fed funds rate alongside some hawkish forecasts of the economy by Governor Poloz.


Canadian dollar weekly graph July 9, 2018

The main headwind for the loonie has been the current geopolitical climate, trade in particular. The Canadian economy is heavily dependant on its relationship with the US and the Trump administration has been pushing for a deep NAFTA renegotiation in exchange to exempt Canada form other tariffs.

The loonie got little support from oil prices with West Texas Intermediate falling since the higher than expected supplies coming online. The weekly inventories posted a large drawdown, but ends of disruption in Libya and a softer stance on Iranian oil by the US is pushing crude prices down. US officials are considering dipping into the oil receiver to prevent a sharp price increase.

Brexit Pressure and Trump Comments Take Down Pound

The GBP/USD lost 0.81 percent in the last week. The currency pair is trading at 1.3178 in the aftermath of a softer Brexit plan drafted by Prime Minister Theresa May was published. The strategy has already resulted in multiple resignations from hard line Brexiteers in May’s government but so far has been short on details. The EU withdrawal bill will be voted next week and then the UK government will sit down with the EU to keep hashing out the Brexit negotiation



UK data will be released that could end up putting the Bank of England (BoE) August rate hike out of reach. Labor data, inflation and retail sales are all due during the week. The Brexit negotiation continues to be a bumpy ride and that is only on the domestic side, EU negotiators might not agree with May’s promises back home regardless of the political cost.

Sunday, July 15
10:00pm CNY GDP q/y
Monday, July 16
8:30am USD Core Retail Sales m/m
USD Retail Sales m/m
6:45pm NZD CPI q/q
9:30pm AUD Monetary Policy Meeting Minutes
Tuesday, July 17
4:30am GBP Average Earnings Index 3m/y
4:30am GBP BOE Gov Carney Speaks
10:00am USD Fed Chair Powell Testifies
Wednesday, July 18
4:30am GBP CPI y/y
8:30am USD Building Permits
10:00am USD Fed Chair Powell Testifies
10:30am USD Crude Oil Inventories
9:30pm AUD Employment Change
Thursday, July 19
4:30am GBP Retail Sales m/m
Friday, July 20
8:30am CAD CPI m/m
8:30am CAD Core Retail Sales m/m

What sparked the dollar rally ? ( OANDA Trading Podcast on Money FM 89.3)

Stephen Innes Head of Trading Asia tells Michael Switow why the yen is weak, and stocks are rallying.

Money FM Singapore 89.3

 

 

Bank of Canada Expected to Hike on Wednesday

The US dollar is mixed against majors on Tuesday. The JPY has lost as risk appetite is back in vogue with investors and the GBP has risen after the market digested the resignations of pro-Brexit members of Theresa May’s government. The Bank of Canada (BoC) will publish its rate statement on Wednesday, July 11 at 10:00 am EDT. The market has priced in a 96 percent chance of an interest rate hike. BoC Governor Stephen Poloz will host a press conference where he could offer further insight into the decision or hedge if market reaction is too extreme in his view.

  • Bank of Canada (BoC) expected to hike rate by 25 basis points
  • US Weekly crude inventories forecasted to drop after API drawdown of 6.8M barrels
  • Bank of England (BoE) Governor Carney to speak in Boston

Loonie Awaiting Bank of Canada Decision
The USD/CAD gained 0.05 percent on Tuesday. The currency pair is trading at 1.3114 ahead of the central bank meeting. Monthly Canadian GDP data at the end of June surprised to the upside and with a positive business outlook added to a strong jobs report the Canadian central bank will be looking to close the gap with the U.S. Federal Reserve funds rate. Fed members have signalled that more rate lifts are coming and two have already been priced in. The BoC is in no hurry to hike, but there is pressure to act later in the second half of the year if it decides to hold in July.


usdcad Canadian dollar graph, July 10, 2018

While the lift in interest rates will not be a surprise, there is more anticipation for what BoC Governor Stephen Poloz has to say. Hawkish comments from BoC Governor Stephen Poloz earlier in the month taken into consideration for the meeting, although the market is forecasts more dovish remarks given the uncertain global trade scenario. If Poloz maintains a neutral to hawkish there could be a sharp movement in the currency.

Commitment of Trades (CoT) data out of the CFTC shows large investors are bearish on the currency, which could create a short squeeze scenario all depending on what Poloz ends up communicating to the market.

The Canadian economy had a solid start to 2017, but the pace kept slowing down as the Trump administration attacks on trade were gaining steam. The uncertainty about trade made the start of 2018 a difficult one for the loonie and until recently the worst performer against the USD from major currencies.

Elections in Mexico and the upcoming midterms in the US make a NAFTA renegotiation less likely this year, which minimizes but does not take out of the equation an end of the trade deal. Fundamental indicators in Canada have improved giving the central bank some room to close the gap between the US and Canadian interest rates.

Yen on the Back Foot as Risk Appetite Returns

The USD/JPY lost 0.38 percent in the last 24 hours. The currency pair is trading at 111.27 a six month high for the USD against the JPY. The yen is a preferred safe haven during times of uncertainty, but as investors seek returns they quickly sell the Asian currency. Trade war fears have waned this week and emerging markets have been the biggest winners at the expense of the JPY.



Pound Rises as PM May Survives Leadership Challenge

The GBP/USD gained 0.18 percent on Tuesday. Cable is trading at 1.3279 on the midst of Theresa May fighting for a soft Brexit and her job. On Friday it all seemed to have worked out with little opposition for her plans of an orderly divorce with the EU that allowed the UK to have access to the single market. Hard Brexit backing members of the cabinet started resigning over the weekend. The pound started to drop as Boris Johnson resigned and concerns rose of a confidence vote against PM May. The fact that May has survived a leadership challenge and some encouraging comments out of Brussels have boosted the currency.



The Conservative party remains divided, but the Eurosceptics do not have enough fire power to topple May so for now a soft Brexit is the only viable strategy. May has the support from Michael Gove, but if that were to change it could mean her ouster, with Gove a likely replacement.

Market events to watch this week:

Wednesday, July 11
10:00am CAD BOC Monetary Policy Report
10:00am CAD BOC Rate Statement
10:00am CAD Overnight Rate
10:30am USD Crude Oil Inventories
11:15am CAD BOC Press Conference
11:35am GBP BOE Gov Carney Speaks
Thursday, July 12
7:30am EUR ECB Monetary Policy Meeting Accounts
8:30am USD CPI m/m
8:30am USD Core CPI m/m

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

Bank of Canada Rate Hike OANDA Market Beat Podcast

OANDA Senior Market Analyst Alfonso Esparza reviews the major upcoming market news, macro analysis and economic indicator releases that will impact currencies, stocks other asset classes.

Subscription available on iTunes https://goo.gl/TZEWRW and GooglePlay https://goo.gl/cRBk39. Tune in every Tuesday and don’t miss a beat as we cover the hottest trends impacting the markets in the week ahead. Trading is high risk. Losses can exceed investment.

Trade Uncertainty Hits Dollar Confidence

The US dollar fell against major pairs on Friday despite a strong June NFP report.

The impending start of tariffs against Chinese goods and the retaliation from the Asian nation on US exports put downward pressure on the dollar.

The US economy added 213,000 jobs and wages rose 0.2 percent but it is the threat of trade war escalation that put pressure on the US currency.

The Canadian dollar advanced against its southern neighbour ahead of the Bank of Canada (BoC) rate statement on Wednesday. The BoC could hike rates to keep up with American interest rates.

The weekend brought a major showdown in England as Theresa May presented a soft Brexit strategy to her party that prompted some of the more hardline Brexiteers to quit, jeopardizing May’s position as leader of the party.

– UK Manufacturing expected to bounce back
– Bank of Canada (BoC) to hike interest rate to 1.50%
– US inflation to keep rising at 0.2% m/m

USD/CAD – Loonie Rallies on Inflation Data

Statistics Canada data this morning showed that headline inflation in Canada slowed last month, while measures of underlying prices strengthened to their highest level in 18-months.

Canada’s consumer-price index rose +1.7% y/y in January, following a +1.9% advance in December.

Market expectations were for a +1.5% lift. On a month-over-month basis, prices rose +0.7% in January versus an expected print of +0.4%.

Digging deeper, today’s report indicated underlying, or core, inflation strengthened in the month. Underlying prices rose in a range from +1.8% to +1.9%, for an average of +1.83% – the highest level since mid-2016. The average in the previous month was +1.76%.

The ‘loonie’ is up +0.51% against the U.S dollar, trading atop of C$1.2659. The CAD was trading north of C$1.2712 just before this morning’s release.

Fed Rhetoric to Dictate Dollar Direction

Friday February 23: Five things the markets are talking about

Ahead of the U.S open, Euro equities are struggling for direction after a positive Asian session as the market debates the outlook for central banks ‘normalizing’ their policies.

Euro bonds have gained along with Treasuries, while the dollar steadies after yesterday’s drop.

With no U.S data on the docket today, the market will shift its attention towards a plethora of Fed speakers doing the rounds.

First up will be New York Fed Chief, William Dudley, who kicks off proceedings at 10:00 am EDT as he addresses the “Monetary Policy Forum” in Chicago.

Note: Dudley is making his final rounds of appearances before his retirement.

Appearing at the same conference shall be Boston Fed President Rosengren, who is one of the Fed’s more “dovish” members, but who is not a “voter” this year.

Ms. Mester, the President of the Cleveland Fed, will be speaking at the same conference this afternoon at 1:00 PM EDT. She is a “voter” this year and a “hawk.”

Finally, Mr. Williams, the President of the San Francisco Fed, a “voter” on the FOMC this year and generally considered a “moderate,” will be speaking to a group on the west coast on the economy and monetary policy at 03:40 pm EDT.

1. Stocks gain in thin trading

In Japan, stocks rallied in light trade as receding fears of more aggressive U.S interest rate hikes boosted sentiment. The benchmark Nikkei ended +0.7% higher. For the week, it was up +0.8%.The broader Topix gained +0.8%.

Down-under, Australia’s S&P/ASX 200 closed +0.8% higher to cap its best week since Oct. In S. Korea, the Kospi had its best day since Oct. 10 rising +1.5%.

In Hong Kong, stocks rose overnight, capping a holiday-shortened trading week, as main indexes managed to recover much of the damage done during the recent rout. The Hang Seng index rose +1.0%, while the China Enterprises Index gained +1.7%.

In China, shares extended their rebound overnight, on sign’s that the Chinese government is once again supporting the stock market. The blue-chip CSI300 index ended up +0.5%, while the Shanghai Composite Index gained +0.6% in a holiday-shortened week. Both indexes have rebounded over +7% from a low print on Feb. 9.

Note: One of China’s largest insurance companies, Anbang Insurance Group, was seized as it violated laws and regulations that could seriously endanger the solvency of the company.

In Europe, regional indices trade mixed this morning with strength in the Italian MIB offset by weakness in the Spanish Ibex and FTSE.

U.S stocks are set to open in the ‘black’ (+0.3%).

Indices: Stoxx600 flat at 380.4, FTSE -0.2% at 7238, DAX +0.1% at 12470, CAC-40 flat at 5310, IBEX-35 -0.2% at 9858, FTSE MIB +0.4% at 22541, SMI -0.6% at 8917, S&P 500 Futures +0.3%

2. Crude oil prices rally, gold little changed

Crude oil prices remain better bid and range bound following the release of this week’s EIA inventory report, which showed a somewhat surprising decline in crude oil inventories on the order of -2.3m barrels compared to the average increase of +3.4m barrels in the previous five-years.

U.S oil production last week was steady at +10.27m bpd, a record level, while crude exports jumped to more than +2m bpd, close to a record +2.1m hit in October.

Crude bulls are beginning to ask if the “bull” rally could fade away as the U.S. oil production undermines the OPEC production cut commitments.

Note: The decline in crude inventories was particularly acute in Cushing. U.S oil refineries averaged approximately +15.8m bpd during the week ending February 16 or about -330k fewer bpd than last week previous.

Ahead of the U.S open, gold prices are little changed, but the ‘yellow metal’ remains on track for its sharpest weekly drop in nearly three-months. Spot gold is down -0.1% at +$1,329.16 an ounce.

Note: Prices gained +0.6% Thursday, their biggest one-day percentage rise since Feb. 14. The precious metal remains on track for its biggest weekly fall since the week ended Dec. 8, 2017.

3. Sovereign yields fall

Capital markets remains somewhat sceptical that the recent streak of data on wage growth, consumer prices and producer prices points to a rapid acceleration in inflation on either side of the Atlantic.

Data this morning from the Eurozone showed that consumer price growth slowed slightly last month (see below), but the core-measure edged a tad higher for the first time in months.

The ten-year U.S yield has eased, but remains atop of their 2014 high print, while those on German bunds dropped to the lowest since early January.

The yield on 10-year Treasuries decreased -2 bps to +2.90%. In Germany, the 10-year Bund yield has fallen -2 bps to +0.70%, the lowest in four weeks. In the U.K, the 10-year Gilt yield has declined -2 bps to +1.546%. In Japan, 10-year JGB’s yield has dipped less than -1 bps to +0.05%, the lowest in more than seven-weeks.

4. Dollar on the back foot

The U.S dollar is modestly weaker as the market is apparently ready to accept as a given that the Fed shall move at least three times this year to tighten monetary policy and to raise the overnight fed funds rate. The only question is whether the Fed shall move for a fourth time and by how much?

For the ‘single’ unit, it’s not only next weekend’s Italian general election (Mar 4) that poses a risk to the EUR (€1.2313), but also Sunday week is the same date that Germany’s SPD party members will vote on the proposed CDU/SPD coalition. The market is currently pricing in a +40-50% chance of a rejection, a result that could see Chancellor Angela Merkel step down.

Elsewhere, the pound (£1.3950) has edged a tad higher after U.K’s PM Theresa May won the backing of her divided Brexit “war cabinet” to ask for an ambitious trade deal with the E.U.

The SEK (€10.0388) is a tad softer outright as the market felt that the Riksbank Feb minutes this morning were on the softer side with concerns lingering over inflation and the exchange rate given the recent negative surprise with Jan CPI data.

5. Eurozone Jan CPI unrevised, but still a distance from target

Eurostat said consumer prices in the 19 countries sharing the ‘single unit’ fell -0.9% m/m in January for a +1.3% y/y increase.

Ex-food and energy, or core-inflation, fell -1.3% m/m and rallied +1.2% y/y, accelerating from +1.1% in the previous three months.

An even broader measure of core inflation, which in addition excludes alcohol and tobacco prices, also increased to +1.0% y/y in January from +0.9% in the previous three-months.

Forex heatmap

Higher Yields Pushing Dollar Up

Tuesday February 20: Five-things the markets are talking about

Overnight, global stock indexes have declined along with U.S futures, while the ‘big’ dollar has rallied a tad as U.S Treasury yields back up towards their four-year highs.

No central bank meetings are scheduled for this week although minutes from the latest FOMC (Wed) and the ECB meetings (Thurs.) will be published.

Note: Given the forthcoming March FOMC meeting (March 20 -21) when markets expect another +25 bps increase, dealers will be looking for signs that the majority of the committee is aligned for the increase. They also will be looking to see how the FOMC’s views on inflation have evolved.

In the U.K, there will be two major releases – the labor market report (Wed) and the second estimate of Q4 GDP (Thurs.) Elsewhere, Canada will post December retail sales (Thurs.) and consumer prices for January (Fri).

With little to no economic U.S data on tap, the markets focus now turns to the U.S Treasury department, which opens its auction floodgates beginning with today’s record supply of +$151B of three- and six- month bills (Total new debt supply is +$258B this week).

The U.S debt sales should provide a better market understanding of how steep yields can back up in the short-term.

Note: Fed policy makers speaking this week include NY Fed President Dudley and Atlanta Fed President Bostic and Cleveland Fed President Mester is among speakers at the U.S Monetary Policy Forum in NY.

1. Global stocks see ‘red’

Asian equities took their cue from Monday’s European bourse direction as U.S stocks and Treasuries took a break for the Presidents’ Day holiday.

In Japan, the Nikkei fell -1%, surrendering some of its early-week rise thanks to weakness in its electronics and banking sectors. Selling came despite a slip in the yen outright (¥107.10). The Topix fell -0.7%.

Down-under, the Aussie’s S&P/ASX 200 ended flat. In S. Korea, the Kospi fell -1.1%, dragged lower by index heavyweight Samsung Electronics, which dropped another -2% after falling -1.3% on Monday.

In Hong Kong, the Hang Seng Index pared an early slide, down -0.2%, on its first full day of trading in nearly a week. The main benchmark in Singapore fell -0.2%; while Indian’s Sensex was last up +0.4%.

Note: With Chinese and Taiwanese markets still closed for the Lunar New Year holiday, investors should be cautioned against reading too much into recent price action due to thin volumes.

In Europe, indices trade mostly higher across the board following the weakness seen yesterday, with the FTSE under performing being weighed on by HSBC and BHP Billiton following results.

U.S stocks are set to open in the ‘red’ (-0.8%).

Indices: Stoxx600 flat at 378.3, FTSE -0.5% at 7213, DAX -0.1% at 12373, CAC-40 flat at 5257, IBEX-35 +0.2% at 9829, FTSE MIB +0.1% at 22582 , SMI flat at 8907, S&P 500 Futures -0.8%

2. Oil markets mixed, Brent and WTI move in opposite directions

U.S crude prices are still carrying momentum from Friday’s gains due to yesterday’s President Day’s holiday while international Brent prices have eased.

U.S West Texas Intermediate (WTI) crude futures are at +$62.31 a barrel, up +63c, or +1% from Friday’s close. Ongoing supply reductions from Canada to the U.S due to pipeline reductions are supporting WTI prices.

Brent crude has eased on the back of a dip in Asian stocks and a stronger dollar. Brent crude futures are at +$65.54 per barrel, down -13c, or -0.2% from yesterday’s close.

Note: Oil markets remain well supported due to supply restraint by the OPEC. Yesterday, OPEC Secretary-General Barkindo said the organization registered a +133% compliance with agreed output reduction targets in January.

However, soaring U.S production is threatening to erode OPEC’s efforts. Last week, the amount of U.S oilrigs drilling for new production rose for a fourth consecutive week to +798.

Ahead of the U.S open, gold prices have slid for a third consecutive session as the ‘mighty’ buck rebounds from its three-year lows, while the market waits Wednesday’s Fed minutes for clues on the outlook for U.S interest rates. Spot gold is down -0.2% at +$1,343.22 an ounce.

3. Sovereign yields trade atop record highs

This is a huge week for bond investors, as the U.S Treasury prepares to sell +$258B worth of new debt, starting with today’s record sale of +$151B of three- and six- month bills. These debt sales should provide a better understanding of how steep U.S yields could back up in the short-term.

After building up a record “short” position in U.S 2-year futures and historically large short positions across other maturities, higher volatility this month has seen a sharp reduction in these record shorts over the past week.

The biggest reversal was in two-year product – net short positions were slashed by +76,772 contracts to -133,986.

The U.S 10-year is now at +2.92% ahead of the first trading day this week after yesterday’s holiday.

In Japan, BoJ Governor Kuroda did not discuss monetary policy during an appearance in parliament. Speculation has been swirling about the possibility the BoJ might scale back its stimulus since they reduced their purchases of JGB’s last month.

Down-under, the Reserve Bank of Australia (RBA) reiterated in its minutes of this month’s policy meeting that inflation is expected to “only gradually” accelerate as the economy strengthens and wage pressures increase.

4. Dollar gains against most G7 pairs

Ahead of the U.S open, the U.S dollar has seen some steady gains outright versus G7 currency pairs, aside from sterling. The gains are reflective of U.S yields pushing a tad higher.

Sterling has jumped from its overnight low of £1.3934, to again trade north of the psychological £1.4000 handle on news that the European Parliament is putting a document together outlining its desire for an “association agreement” with post-Brexit Britain. This is a break from the position of the chief E.U negotiator Barnier and could allow Britain to retain “privileged” access to the single market.

5. German ZEW Survey moves off from record highs

Germany’s ZEW Indicator of Economic Sentiment recorded a decrease of 2.6 points this month and currently stands at 17.8 points.

The indicator remains slightly below the long-term average of 23.7 points. The assessment of the current economic situation in Germany decreased by 2.9 points, with the corresponding indicator currently standing at 92.3 points.

Comments from ZEW President Wambach: “The latest survey results continue to show a positive outlook for the German economy. The assessment of the current economic situation is still on a very high level and the economy is expected to improve in the coming six months. Economic growth in Germany is substantially driven by the very good development of both the global economy and private consumption. Inflation expectations for Germany and the Eurozone have also started to increase.”

Forex heatmap

Don’t go barking up the wrong tree in the Year of the Dog

Don’t go barking up the wrong tree in the Year of the Dog

A predictable wave of profit taking and risk reduction, as is standard form ahead of US long weekends, dominated Friday session leading to USD gains as US  yields pulled back. And while the broader  US dollar negativity continues to seep through capital markets, some traders are suggesting of potential shifts in conviction levels while others believe  Friday to be little more than pre-weekend risk reduction. But one thing that’s clear, even the most prolific purveyors of price action are baffled regarding the breakdown of historical correlations across most asset classes.

One telling feature, however, is long-term investors continue to shun the greenback and this should continue to weigh on near-term sentiment. So no don’t  go barking up the wrong tree in this Year of the Dog, stick to the basics and follow the flow.

By way of the ordinary course of developments, the various market holiday observances might challenge liquidity conditions. Golden Week celebrations continue across Asia through Wednesday, while both the US and Canada take holidays Monday. Still, it could be an actionable week with numerous Fed speakers on tap and the FOMC minutes are sure to liven things up. Keep in mind; March rate hike is all but entirely priced-in so the markets will be keying on forwarding guidance.

As the markets pivot to Fed speak and the FOMC minutes this week, “deficit mania” is sounding a few decibels lower this morning.But none the less, ongoing concerns about swelling deficit’s and the Feds sequence of interest rate normalisation should be the markets key focus this week and the primary drivers of near-term volatility.

And while US Bond yields eased on Friday,  traders see icebergs ahead suggesting Friday’s price action was little more than a reprieve amidst a bear market.

Equity Markets

Equity markets continue climbing the wall of worry despite inflationary fears gaining momentum and Bond Yields moving higher.Eventually, something has to give, but so far investors are betting on corporate earning rather than the shifting macro narratives.

Oil markets 

Oil prices finished modestly higher on Friday to chalk up a weekly gain as prices continue to see-saw between the binary descriptions from OPEC’s ongoing efforts to blow out the worldwide glut against the indications of rising U.S. production.Although Fridays price movements were likely  position sensitive amid USD risk reduction and book squaring ahead of tomorrows Oil contract expiration

We should expect the WTI whipsaw to continue as debate rages between US shale and OPEC, but we’re starting to carve out near-term ranges as longer-term oil bulls remain in dip buying mode with shale oil hedger looking to sell upticks.
Gold Markets

Gold prices eased late Friday as the dollar tentatively lifted off the canvas, despite taking a standing eight count earlier in the session when the DXY hit a three year low. A couple of hours USD short covering is unlikely to change the broader USD negativity, but when coupled with inflationary concerns heightening and a probable follow-up correction in equities markets around the corner, golds haven demand should continue to glitter.

On the physical side of demand, China Lunar New Year has seen few gold bars change hands despite physical premiums easing as futures prices continue to grind higher.

G-10 Currency Markets

Japanese Yen

Although the reappointment of Kuroda and the reshuffle of deputy governors is slightly more dovish BoJ, it is hard to reverse USDJPY downside given that continuous USD weakness could further drag USDJPY into the abyss. With the tables turned upside down on ten year US yield to JPY correlation and the US ” deficit mania. ” likely to return, USDJPY is in a precarious position.

Predictably we heard from Japan as Currency Chief Asakawa that he’s readying the necessary action to prevent “one-sided” currency moves, but with the Buck getting pounded against all major currencies, Japans verbal intentions are falling on deaf ears.
The Euro

The pace of the EURUSD rally post-CPI last week surprised everyone but none the less if not for timely comments( seems always to happen when EUR rallies) from ECB Cœuré, we should have closed closer to the 1.2500 rather than 1.2400 handles. His remarks spooked the markets in pre-weekend risk reduction mode after he suggested policymakers are unanimous in sequence when market positioning was suggesting the Hawks were gaining the upper hand. But at some juncture, the market will ignore this verbal balderdash, and in reality, 1.3000 shouldn’t be unimaginable before long predicated on strong fundamentals, the realisation of more hawkish ECB guidance but also the mechanics of the taper could reverse bond outflows.

Asia FX

Malaysian Ringgit 

External drivers and specifically the broader USD moves will dictate the Ringgit momentum this week with the critical focus on USDJPY 106 level.But on the positive side of the equation, one of the primary headwinds that we considered to be a negative for the Ringgit was higher US yields which typically and historically have supported the USD. But the US interest rate to FX correlation broken, and despite USD bond yields pushing much higher t, the USD continues to sell off.

The markets are still feeling the hangover effect from the Chinese Lunar New Year, and risk appetite is waning and with a plethora of Fed speak along with the FOMC minutes likely to cause an uptick in volatility this week, offshore demand could remain muted. None the less, 106 level USDJPY will be a crucial US dollar sentiment gauge, and if the market pushes through again this week, we could see the Ringgit move to 3.87 and below as traders would then set sights on the critical 3.85 level.

Singapore Dollar

The US CPI fallout was somewhat unusual; triggering moves out of the dollar and into riskier currencies, so the SGD benefited as the CNH rallied hard this week.But  CNH could start to underperform. Let me qualify this next comment as no one, and I mean no one knows what the Pboc are going to do. So we can only make hay from innuendo and strategically placed criticisms from regulators in HK  press. But there seems to be a  pickup in debate onshore about the merits of further RMB appreciation which could dent SGD appeal. But in the mean times, we should enjoy the SGD strength ( not because I get paid in SGD, although that is always a welcome bonus). But there is some real value appeal that has emerged in SGD  ahead of this weeks budget, as a rosier outlook in the statement could be the precursor to monetary tightening.But also appealing to foreign investors is the government will take measures to cover the current operating fiscal deficit gap.

Dollar Regains Ground Ahead of Fed Minutes

Higher US inflation fails to spark dollar revival

The US dollar depreciated across the board versus major pairs despite consumer prices rising more than expected. Inflation anxiety had triggered a sell-off in global stock markets with the Fed expected to ramp up their interest rate hike path yet the dollar did not benefit as higher rates have already been priced in by the market. Fiscal uncertainty driven by political factors continue to confound investors with stock indices rebounding this week and the dollar hitting a 2014 low. The paradox in consumer spending and retail sales continues as Americans remain confident in the economic outlook yet core retail sales remain flat and taking into consideration auto sales they actually dropped by 0.5 percent. The dollar showed some signs of life on Friday as it gained against a basket of major pairs, but not enough to offset the losses earlier in the week.

  • Fed to release minutes of January meeting
  • Kuroda renominated as Governor of Bank of Japan (BOJ)
  • Lower trading activity with start of Chinese New Year celebrations and 3 day weekend in NA

Dollar Recovers on Friday But Still Underwater this Week



The EUR/USD gained 1.62 percent in the last five days. The single currency is trading at 1.2448 with the EUR recovering against the earlier losses versus the USD suffered earlier in the month. US inflation rose more than expected and US treasuries dropped in prices as investors sold them anticipating higher rates this year. Bond yields rose with the 10 year at four year highs (2.93 percent). The correlation between higher yields and a stronger currency is broken at the moment for the USD as the confidence in the stability of the US economy is up for debate. Fundamentals are strong and would point to a higher dollar, but political uncertainty around fiscal stimulus has made it hard to quantify the effects of actual and proposed legislation on the currency. The U.S. Federal Reserve will publish the minutes from its January Federal Open Market Committee (FOMC) meeting on Wednesday, February 21 at 2:00 pm EST. The meeting was the last presided by Chair Janet Yellen and is not expected to bring any surprises, but could prepare the market on what to expect in March when Chair Jerome Powell heads his first FOMC.

The USD went through a topsy-turvy week, with Wednesday’s release of consumer price index data providing the most volatility. The market forecasts were slightly improved with a 0.3 percent monthly gain. The employment report in February 2 was the first data point that suggested a stronger inflationary pressure. Stock markets had already suffered two difficult weeks and the dollar rose as the inflation data was released only to quickly give back all gains and end up in the red.

President’s day in the US will give some investors a much needed rest from a high octane trading week. The Lunar New Year celebrations will also affect trading volumes as Hong Kong and China markets will remain closed until Thursday. Stock markets had a positive week after stronger corporate results erased earlier losses.



The USD/JPY lost 2.38 percent during the week. The currency pair is trading at 106.19 as the JPY keeps gaining. The government issued a statement where it was clear there is no need for intervention and the market took it as a sign to keep buying the yen. The tone changed slightly on Friday as the currency kept appreciating and there were some warning that the trade is one sided. The softness of the USD and uncertainty about how the American government will deal with growing twin deficits and political drama has boosted the JPY due to some safe haven flows.

The reappointment of BOJ Governor Haruhiko Kuroda along with other nominations of economist who favour further easing did not factor into Yen pricing in the short term, but should impact the growing gap between rates in Japan and the United States. In the short term, lack of stability in politics and fiscal uncertainty are overriding higher growth and interest rate expectations in the US.



Oil prices advanced during the week. The price of West Texas Intermediate is trading at $61.21 with most of the gains in energy coming from dollar softness. Oil prices suffered losses earlier in the month as higher production in Canada, Brazil and the United States is anticipated given the high prices and producers in those nations not bound to the Organization of the Petroleum Exporting Countries (OPEC) production cut agreement. Lack of traction of the US currency is keeping prices above $60.

A small rise in oil rigs in Baker Hughes was not enough to derail energy prices specially with an underlying weak US dollar. The OPEC agreement with other major producers has stabilized oil prices after the freewill caused by overproduction. The question remains if demand for energy has recovered to the point that even after the agreement timeline runs out supply will not once again outweigh demand causing another drop in prices.

Market events to watch this week:

Monday, February 19
7:30pm AUD Monetary Policy Meeting Minutes
Wednesday, February 21
4:30am GBP Average Earnings Index 3m/y
9:15am GBP Inflation Report Hearings
2:00pm USD FOMC Meeting Minutes
Thursday, February 22
4:30am GBP Second Estimate GDP q/q
8:30am CAD Core Retail Sales m/m
11:00am USD Crude Oil Inventories
4:45pm NZD Retail Sales q/q
Friday, February 23
8:30am CAD CPI m/m

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

US/German Bond Yield Gap Hits 10-month high

The gap between German and U.S. 10-year borrowing costs reached its widest point since April 2017 on Thursday after a higher-than-expected inflation print in the United States led to a sharp sell-off in U.S. Treasuries.

While investors also shed European government bonds on the data – bond markets in the world’s major developed economies tend to track each other as many investors switch between them – political risks kept a cap on yields.

The yield on 10-year U.S. Treasuries, which moves inversely to price, touched a fresh four-year high of 2.94 percent in European trade, after data on Wednesday showed consumer prices rose more than expected in the world’s largest economy in January.

This raises the pressure on new Federal Reserve chief Jerome Powell to prevent a possible overheating of the economy.

“The inflation data weighed on the U.S. Treasury market, and now you will have fiscal stimulus when the economy is running at full employment,” said Commerzbank strategist Michael Leister, referring to U.S. President Donald Trump’s $200 billion infrastructure spending plan.

“But in Europe the risks have become a bit more balanced and there’s still some demand for Bunds,” he said.

Though European bond yields have risen sharply since the start of December, this move has lost some steam as concerns around German coalition talks and an upcoming Italian election renewed the bid for “safe haven” bonds.

In addition, while most expect the European Central Bank to reduce extraordinary stimulus sooner rather than later, rate hikes are still a good distance away with a booming European economy yet to leave a lasting mark on inflation.

But while German 10-year government bond yields also rose after the release of the U.S. consumer price data – they were 3 basis points higher at 0.78 percent on Thursday – this was still below the recent 2-1/2 year high of 0.81 percent.

The “transatlantic spread” between U.S. and German 10-year government bond yields opened Thursday at 216 basis points, a level last seen ten months ago.

Most other euro zone government bond yields were also higher by 3-4 bps, partly driven upwards by large bond sales by Spain and France on the day.

AUCTION STATIONS

The move towards higher yields across the euro zone has certainly boosted demand in some quarters, and this was on display on the French and Spanish auctions on Thursday.

France in particular was swamped with demand as investors put in enough orders to cover an 8 billion euro sale of bonds twice over, while Spain also generated strong demand, particularly for its shorter-dated debt.

“I have been watching to see at what point these positive yields on semi-core bonds start attracting international investors, and so for me this France result looks pretty interesting,” said Mizuho strategist Antoine Bouvet.

Spain’s bond auction result was also positive, especially given that Italy and Portugal have already conducted sales this week, he added.

Reuters