Great article and so very true.navid110 wrote: ↑Wed Feb 06, 2019 8:13 am
The bottom line: The Fed’s balance sheet isn’t the threat that market participants sometimes make it out to be, and last week’s announcements do not have significant implications for the interest rate outlook. Market participants would be better off focusing on the economic outlook. This is what will drive monetary policy and the Fed’s decisions about the appropriate trajectory for short-term interest rates over the next year. If the outlook changes, so will the Fed’s thinking.
Overview: As North American traders return to their posts to put the finishing touches on the week's activity, the Dollar Index is extending its advance for a seventh consecutive session. If sustained, it will be the longest advance since February 2017. The rally was sparked after the dovish FOMC statement had sent the greenback lower and the employment data raised the possibility that the Fed overreacted to the stock market volatility. The S&P 500 turned back from the 200-day moving average and gapped lower yesterday (~2719-2724) setting the tone for the still holiday-thinned Asian markets, where the MSCI Asia Pacific Index fell for a third session, to snap a four-week rally. European shares are faring better, and Dow Jones Stoxx 600 is poised to extend its streak for the sixth week. Benchmark 10-Year bond yields are mostly a little lower. Oil is trading heavily, and with WTI for March delivery near $52.40, it is off more than 5% this week, the largest decline since late December. On the other hand, the shock from Vale is still behind iron ore's surge. Today's 5% rally bring it to a five year high.
When the Reserve Bank of Australia left rates on hold and did not appear to change its stance much the Australian dollar traded firm, but subsequent "clarification" has seen the Aussie tumble. Governor Lowe's neutral bias was quantified in today's Monetary Policy Statement. Growth and inflation forecast were cut. The Australian economy is expected to grow 2.5% in the year through June, down from 3.25% previously. And growth in the following year was cut by half a percentage point to 2.75%. The softer inflation forecast was attributed to oil, with core inflation remaining near 2%. The forecasts would suggest an easing bias rather than a neutral stance, that Lowe claims. Yet, the RBA still seems to be counting on the strength the job growth to boost wages and inflation. The underlying issue is whether the weakness in property prices will crimp consumption and growth. Australia's 10-year bond yield fell 13 bp this week to 2.10%. The record low was set in August 2016 near 1.80%.
Japan's December current account surplus, seasonally adjusted, was broadly in line with expectations. A key point to remember is that Japan's current account surplus is not driven by the trade balance as much as the investment income balance. Consider the trade surplus on the balance of payments basis was about JPY216 bln, while the seasonally adjusted current account surplus was roughly JPY1.56 trillion. Separately, and arguably, more importantly, Japan reported the first increase in overall household spending since August. It eked out a 0.1% rise year-over-year in December. On the other hand, Japan's leading economic indicator fell for a fourth month in December, and at 97.9 it is at the lowest level since October 2016.
The dollar's range for the week against the Japanese yen was set on Monday (~JPY109.45-JPY110.15). Thus far today is the first day this week, the dollar has not traded above JPY110, where a $640 mln option expires today. The market does not appear to have given up on trying to establish a hand-hold above JPY110, though it would seem to require stronger equities and/or higher yields. The Australian dollar is off about 2.4% this week (~$0.7075). The next downside target is near $0.7020. The New Zealand dollar also has sold-off this week, and its 2.2% decline (~$0.6750) is the largest since August.
The Euro made a marginal new low for the week, dipping below $1.1325 briefly. The pessimism toward EMU was not changed by today's data, which, on balance, was a bit better than expected. Italy's was not. December industrial output slumped 0.8%. The median forecast in the Bloomberg survey was for a 0.4% rise. However, news from France was better. French industrial production was expected to rise 0.6%. Instead, it rose 0.8% and manufacturing output itself was up 1.0%. This recoups most of the weakness since in November. For its part, Germany reported a considerably smaller trade surplus (13.9 bln euro in December vs. 20.4 bln euros in November, but more importantly, imports and exports recovered smartly. After falling 0.3% in November, exports rose 1.5%. Imports rose 1.2% after falling 1.3% in November.
UK Prime Minister May is still asking for some dilution in the plan for the Irish backstop, even though everyone has said not. Indeed, the backstop is in case no agreement is reached. There cannot be a time limit or it undermines the very purpose of the backstop. It would encourage delay tactics until the time limit passed. Meanwhile, a vote in Parliament that was expected next week looks likely to be delayed. Although everyone says they want to avoid a no-deal exit, it can still be stumbled into, and that continues to worry investors.
If the euro's losses are sustained, it will be the first week since May 2018 that it has fallen in each session. Yet all that has happened is that the euro has gone from the upper end of its range (~$1.15) to the lower end of its range (~$1.13). Indeed, it should not be surprising for the euro to snap its losing streak and close higher ahead of the weekend. Large option expires today $1.1280 and $1.1380 do not seem particularly relevant, but there is a 2.0 bln euro option struck at $1.1365 on Monday that may be interesting. Sterling is trading higher for the second day in a row, but it won't be enough to prevent the second consecutive weekly loss. Yesterday's losses nearly fulfilled a retracement objective (50%) of the rally since the flash crash in early January that is found near $1.2830. Its recovery suggests that perhaps some move was completed. On the upside, a move through yesterday's high near $1.30 would confirm a more constructive near-term technical outlook.
Trade talk optimism was hit yesterday. President Trump apparently indicated that there will be no meeting with China's President Xi before the early March deadline. Economic adviser Kudlow's assessment that there were still sizeable differences gave the sense that the lack of substantial progress was the reason the two presidents won't meet rather than a schedule conflict. At the same time, the battle over Chinese telecom companies continues, and formal action in the US will be forthcoming. Meanwhile, Germany is balking and is opposed to banning Huawei, for example. This will likely server to exacerbate tensions as the US-Europe trade talks move into focus. The UNCTAD found that Europe is poised to benefit the most from US-China trade tensions, though as a percentage of trade, Mexico, Vietnam, Australia, and Brazil may be larger beneficiaries from China looking for alternative sources of inputs.
There are no important US economic releases and the only Fed officials to speak is Daly, the new San Fransico Fed President. Canada reports housing starts and employment figures. The US dollar is breaking a five-week slide against the Canadian dollar This week's 1.6% (~CAD1.3315) gain offsets in full losses from the past three weeks. We see three drivers for the US-Canada exchange rate (short-to-medium term), interest rate differential, equity markets, (risk appetite) and oil prices. All three moved against the Canadian dollar in recent days. The nearby target is CAD1.3330 and then CAD1.3370. Mexico may announce a capital injection into PEMEX today. The central bank, as widely expected left overnight rate at 8.25% yesterday. The peso looks to be going nowhere quickly as the greenback remains chopping in MXN19.00-MXN19.20 range.
Sources: http://www.marctomarket.com/2019/02/dol ... ce-is.html & https://www.investing.com/analysis/doll ... -200385595
- The index picks up pace and is closer to 97.00.
- Yields of the US 10-year note gyrate around 2.67%.
- Fedspeak, NAHB index coming up next.
The greenback, in terms of the US Dollar Index (DXY), is now resuming the upside momentum and advances closer to the key barrier at 97.00 the figure.
US Dollar Index focused on trade, data
The index has regained some shine on Tuesday and is now navigating the area of 2-day highs in the boundaries of the 97.00 milestone. Market sentiment remains cautious and vigilant on developments from the US-China trade negotiations, which are resuming today in Washington.
In the meantime, US markets are slowly returning to normalcy following yesterday’s President’s Day holiday. In this context, yields of the key US 10-year reference stay so far sidelined around the 2.67% handle, a tad below Friday’s peaks.
In the US data universe, Cleveland Fed L.Mester (non voter, hawkish) is due to speak followed by the release of the NAHB index for the month of February.
What to look for around USD
Market participants have considered as positive the recent developments from the US-China negotiations in Beijing ahead of this week’s further talks in Washington. In the meantime, investors will remain vigilant on upcoming results on US calendar and the release of the FOMC minutes. Despite market participants are holding on to the idea of a potential slowdown in the US economy in the next months, the deterioration in overseas fundamentals in combination with ‘softer’ stance in G10 central banks keeps occasional dips in the buck somewhat shallow. This view is reinforced by rising scepticism over a potential halt in the Fed’s tightening cycle this year.
US Dollar Index relevant levels
At the moment, the pair is advancing 0.14% at 96.91 facing the immediate hurdle at 97.37 (2019 high Feb.15) seconded by 97.71 (2018 high Dec.14) and then 97.87 (monthly high Jun.20 2017). On the other hand, a breach of 96.65 (low Feb.18) would aim for 96.41 (55-day SMA) and finally 96.33 (21-day SMA).
Sources: https://forex-station.com (image) & https://www.fxstreet.com/news/us-dollar ... 1902190645 (article)
- The prevalent USD selling exerts some fresh downward pressure.
- A fresh wave of global risk-on trade does little to lend any support.
The USD/CHF pair held on to its weaker tone through the early European session and has now moved within striking distance of over two-week lows, set last week.
The pair met with some fresh supply at the start of a new trading week and was now being weighed down by the prevalent US Dollar selling bias, led by growing market conviction that the Fed might refrain from raising interest rates further.
Meanwhile, a fresh wave of global risk-on trade, triggered by the latest US-China trade optimism and which tends to undermine demand for the Swiss Franc's safe-haven demand, also did little to lend any support or attract any buying interest.
The US President Donald Trump said on Sunday that he would delay a hike in US tariffs on Chinese imports to 25% - originally scheduled for March 1, and raised hopes over a possible resolution of the long-standing US-China trade disputes.
With the USD price dynamics turning out to be an exclusive driver of the pair's momentum, investors now look forward to comments by the Fed Governor Richard Clarida for some impetus amid absent relevant market moving economic releases.
Technical levels to watch
A follow-through weakness below the 0.9980 region (last week's swing low) is likely to accelerate the slide further towards the 0.9945-40 horizontal zone before the pair eventually drops to test the 0.9900 round figure mark. On the flip side, the 1.0020-25 region now seems to have emerged as an immediate hurdle, above which the pair is likely to aim towards surpassing the 1.0050 intermediate hurdle and aim towards conquering the 1.0100 handle.
Sources: https://forex-station.com (image) & https://www.fxstreet.com/news/usd-chf-t ... 1902250851
- Having failed to capitalize on the overnight goodish rebound, the pair faced rejection near 200-hour SMA on Thursday and tumbled to 3-1/2 week lows in the last hour.
- Today's steep declined confirmed the previous session's bearish break through a one-week-old trading range and turned out to be a key factor prompting fresh technical selling.
USD/CHF 1-hourly chart
- The bearish momentum has been strong enough to drag the pair below 100-day SMA and 38.2% Fibonacci retracement level of the 0.9716-1.0100 recent upsurge.
- Oscillators on 4-hourly/daily charts have just started gaining negative momentum and point to an extension of the bearish trajectory towards testing the 0.9900 handle.
- However, oversold conditions on the 1-hourly chart might turn out to be the only factor that might help limit deeper losses ahead of today’s release of advance US Q4 GDP print.
Technical levels to watch
Today Last Price: 0.9948
Today Daily change: -63 pips
Today Daily change %: -0.63%
Today Daily Open: 1.0011
Daily SMA20: 1.0015
Daily SMA50: 0.9939
Daily SMA100: 0.9958
Daily SMA200: 0.991
Previous Daily High: 1.0016
Previous Daily Low: 0.9962
Previous Weekly High: 1.0061
Previous Weekly Low: 0.9981
Previous Monthly High: 0.9996
Previous Monthly Low: 0.9716
Daily Fibonacci 38.2%: 0.9995
Daily Fibonacci 61.8%: 0.9983
Daily Pivot Point S1: 0.9977
Daily Pivot Point S2: 0.9942
Daily Pivot Point S3: 0.9923
Daily Pivot Point R1: 1.0031
Daily Pivot Point R2: 1.005
Daily Pivot Point R3: 1.0085
Source: https://www.fxstreet.com/news/usd-chf-t ... 1902281110
The FOMC says they will not raise rates in 2019.
The FOMC more dovish statement and dot plot has pushed the USD lower, stocks higher and yields lower.
For the USD, the greenback is now lower vs all the major currencies with the exception of the GBP.
For the USDJPY, the pair has tumbled below its 200 hour MA and a lower trend line at 111.23, the 61.8% at 111.16 and is now cracking below the low from March 13 at 111.00.
For the EURUSD, the price is up testing the 61.8% of the 2019 range and the end of February high (both are at 1.1419)
The S&P went from -13 points just before the release to +1.58 points now.
- The Nasdaq moved from -20.75 points before the release to +23 points now.
- The Dow moved from -160.25 points to -49 points now.
IN the US debt market,
- 2 year 2.447% to 2.3899% now
- 10 year 2.585% to 2.545% now
- 30 year 3.000% to 2.988%
Source: https://www.forexlive.com/technical-ana ... n-20190320
- The index is attempting to leave behind the recent correction lower, rebounding from the solid support area around 97.00 the figure.
- The ongoing drop is viewed as corrective only while Immediate target on the upside remains at 2019 highs in the 97.70/75 band ahead of 97.87, June 2017 peaks.
- In the broader picture, the outlook on DXY remains constructive while above the key 200-day SMA, today at 95.90.
DXY daily chart
Source: https://www.fxstreet.com/news/us-dollar ... 1904040719
- The index alternates gains with losses near 97.00.
- Yields of the US 10-year note remain below 2.5%.
- US Producer Prices, Initial Claims next on the docket.
The greenback, in terms of the US Dollar Index (DXY), has managed to regain some composure and is now approaching the key barrier at 97.00 the figure.
US Dollar Index focused on upcoming data
After three consecutive daily pullbacks, the index is now showing some signs of life and it is flirting with another move to the 97.00 neighbourhood.
The mixed tone from the FOMC minutes on Wednesday forced the buck to give away part of the ground gained in response to the dovish tone at the ECB event and its impact on EUR/USD.
According to yesterday’s minutes, members of the Committee did not discuss the probability of rate cuts at the latest meeting, although ‘several’ members see the policy could swing in either direction and ‘some’ members favoured higher rates in the next move by the Fed.
In the US data space, the usual weekly report on the labour market is due along with Producer Prices for the month of March. In addition, Fed speakers will also keep the attention around the buck later in the day: VP R.Clarida (permanent voter, dovish) will speak at the Annual IIF Meeting in Washington, St. Louis Fed J.Bullard (voter, dovish) speaks on ‘Economy and Monetary Policy’, Governor R.Quarles (permanent voter, hawkish) will participate in a FSB Roundtable, Minneapolis Fed N.Kashkari (non-voter, dovish) will hold a Q&A session via Twitter and Governor M.Bowman (permanent voter, centrist) will speak on ‘Community Banking’.
What to look for around USD
DXY keeps tracking the broad risk appetite trends while headlines coming from the US-China/US-EU trade fronts also collaborate with the price action. The recent mixed views from the FOMC minutes reinforce the neutral stance of the Fed in the next months, although a rate raise has not been ruled out just yet. On the greenback’s positive side we find solid US fundamentals, its safe haven appeal, favourable yield spreads vs. its peers and the status of global reserve currency. This, plus the Fed’s neutral/bullish prospects of monetary policy vs. the dovish shift seen in its G10 peers are expected to keep occasional dips in the buck shallow for the time being.
US Dollar Index relevant levels
At the moment, the pair is retreating 0.04% at 96.88 and faces initial contention at 96.85 (low Apr.10) seconded by 96.62 (55-day SMA) and finally 95.74 (low Mar.20). On the other hand, a break above 97.52 (high Apr.2) would expose 97.71 (2019 high Mar.7) and finally 97.87 (monthly high Jun.20 2017).
Sources: https://forex-station.com (Image) & https://www.fxstreet.com/news/us-dollar ... 1904110718 (Article)
- Past slumps in FX volatility have preceded big dollar moves
- JPMorgan global currency volatility gauge at five-year low
Currency traders should brace for a large move in the dollar, if past periods of low volatility are a guide.
Over the last 25 years, there have been three previous troughs in the JPMorgan Global FX Volatility Index. Each time, the U.S. Dollar Index has moved around 10 percent over the subsequent 6-months, according to data compiled by Bloomberg. The volatility gauge is currently trading at its lowest in 5 years.
“We’ve seen this type of pattern show up a number of times before, and each time it did it preceded a major move,” in the dollar, wrote Callum Thomas, founder and head of research at Topdown Charts, in a note to clients. This is great “for both U.S. dollar bulls and bears...the only people it won’t suit is those who expect the U.S. dollar to spend the rest of the year stuck in that tight trading range.”
A trough in currency volatility in 1996 preceded a more than 10 percent rise in the greenback, while a lull in 2014 came before the dollar rose more than 15 percent over the following six months, according to Bloomberg calculations. The volatility slump in 2007 preceded a more than 10 percent drop in the U.S. currency.
Expected swings in foreign-exchange markets have plunged amid a dovish pivot from global central banks and a rally in risk assets after losses late last year. Still, strategists from Morgan Stanley to the Canadian Imperial Bank of Commerce are warning about a return to more volatile markets.
The Dollar Index has risen about 0.8 percent this year, compared to a 4.4 percent gain in 2018 and a 9.9 percent drop the previous year. The U.S. currency has strengthened against half of its Group-of-10 peers and weakened against the other half.
“As we start to move into the middle and second half of the year, markets will need to reassess their assumptions,” Jeremy Stretch, head of Group-of-10 currency strategy at CIBC in London, said on Bloomberg radio. “That may well bring forth a degree of volatility back into the market.”
Source: https://www.bloomberg.com/amp/news/arti ... the-dollar