- China said they will put tariffs on 128 US products.
- The three main indices saw dramatic moves down this week.
Wall Street Indices continued to tumble this Friday as Trump imposes tariffs on 50 billion worth of Chinese goods. The S&P 500, the Dow Jones and the Nasdaq had their worst week since January 2016
The S&P 500 Index dropped 1.85% after yesterday’s loss of 2.5% which was the biggest loss in six weeks. The Dow Jones Industrial Average lost 510 points or 2.12% while yesterday it lost more than 700 points as worried investors were anxious to dump stocks in favor of the safety of Treasury bonds and the Japanese yen which has broken an important support at 105.50 on the USD/JPY pair.
This week the Dow plunged 5.7% and the S&P 500 plummeted 5.9%, while the NASDAQ dropped 6.5%.
“Tariffs mean a trade war and the news has the world’s investors running for the exits,” says Chris Rupkey from MUFG Union Bank.
In response to US tariffs, China's commerce ministry proposed a list of 128 US products as potential retaliation targets. China said it will take measures against the 128 US goods in two stages if it cannot reach an agreement with Trump. China could also take legal action under World Trade Organization rules.
The technology sector is also at risk as China is going to retaliate to the tariffs by more tariff on US goods. Facebook continued sinking losing almost 4% on Friday alone and down nearly 20% from its high at $195 made in 2018 as Cambridge Analytica gathered data from 50 million Facebook profiles without asking its users.
S&P 500 Index weekly chart
Dow Jones Index weekly chart
Nasdaq weekly chart
The Monetary Policy Committee at the Bank of England has sounded more hawkish in the past month or so according to analysts at Wells Fargo. They look for the central bank to hike rates by 25 bps at its next policy meeting on May 10.
“CPI inflation in the United Kingdom fell from 3.0 percent in January to 2.7 percent in February, which could compel the Monetary Policy Committee (MPC) to remain on hold for the foreseeable future. But the labor market and the broader economy appear to be performing well, and the MPC has sounded more hawkish in the past month or so. We look for it to hike rates 25 bps at its next policy meeting on May 10.”
“The strong payrolls number helped to push the unemployment rate down to 4.3 percent, the lowest rate in 42 years.”
“It appears that the economy continues to expand at a reasonable rate in the first quarter.”
“The MPC surprised market participants at its last policy meeting in early February when it said that “the UK economy has only a very limited degree of slack,” and that “monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period” than previously anticipated. In its March policy statement the MPC reiterated its view that spare capacity will be used up by the end of next year. Although the MPC voted 7-2 to keep rates on hold this week, the two dissenting members of the committee presumably voted to hike rates.”
“A few weeks ago we brought forward our expectation of another MPC rate hike, which we had originally penciled in for the August policy meeting, to May due to the more hawkish MPC rhetoric and the incoming data flow. We currently expect that the MPC will then remain on hold until early 2019, but we acknowledge that there is a reasonable probability that it could hike rates yet again later this year. As the MPC itself noted, a major uncertainty facing the U.K. economy remains the Brexit negotiations. If this uncertainty should start to weigh on growth later this year, then the MPC likely will remain on hold after its expected rate hike in May.”
Analysts from Danske Bank, do not expect EUR/GBP to move significantly lower before receiving more clarification on how will be the future relationship.
“This week, the EU and UK reached an agreement on a transition period lasting from 30 March 2019 until year-end 2020. While positive, it is not the game changer and in any case a deal was widely expected. The negotiations on the future relationship are going to be much more complicated, not least with respect to the outstanding Irish border issue.”
“EUR/GBP fell on the transition agreement but we do not expect EUR/GBP to move significantly lower before we get more clarification on what the future relationship is going to look like.”
“We target EUR/GBP at 0.86 in 6M and 0.84 in 12M. Our call for a lower EUR/GBP is also supported by Bank of England, as the BoE meeting this week has not changed our view that the BoE will hike twice this year (May and November).”
According to analysts from Rabobank, point out that a hawkish Bank of England and a transitional deal on Brexit is good news for the pound. They see a stronger pound emerging in the medium-term but they warn that there could still be choppy waters to be navigated in the coming months.
“The fact that the BoE chose not to use its March policy meeting as an opportunity to push back against market expectations of a May rate hike endorses the risk of a spring move. That said, the pound was quick to give up the gains made immediately after the BoE’s March policy statement. Although the news that two members had voted for an immediate rate increase provided a hawkish headline, the market was already very strongly priced for a May move. Looking forward the pound is likely to continue deriving support from expectations that the Bank could hike rates both in May and potentially in November. However, politics related to Brexit could yet create scope for volatility in sterling during the course of the next 12 months.”
“In December sterling’s better tone soon soured as the market began to contemplate that the Brexit procedure could still run into significant hurdles. Although the Brexit process has clearly progressed since then, the forthcoming trade talks could still unsettle GBP bulls.”
“For the BoE, the progress made on Brexit talks removes a hurdle to potential rate hikes. Comments from MPC member Vlieghe this week suggesting that he sees the potential for “one or two” quarter-point rate increase per year over the forecast period has strengthened market expectations that the BoE is determined to normalise policy over the medium-term. Although a May move is well price in, the GBP could potential draw further support from expectations of a persistent series of rate hikes, though this would necessitate firm evidence that wage inflation was gathering pace.”
“Assuming that the bones of a free trade deal is in place by the end of March 2019 we see GBP recovering to the EUR/GBP 0.84 (this will shortly become our 12 mth forecast). That said, on the assumption that uncertainty regarding Brexit could undermine GBP in the coming months we still see risk of a move back to 0.89 on a 3 mth view.”
Krishen Rangasamy, analyst at National Bank of Canada, points out that February’s inflation was higher-than-expected, with surprises coming mostly from core categories.
“Canada’s consumer price index rose 0.6% (not seasonally adjusted) in February, allowing the year-on-year inflation rate to climb to 2.2%, the highest since October 2014. In seasonally adjusted terms, CPI rose 0.2%.”
“Looking at core measures of inflation, on an annual basis, the CPI-trim and CPI-median both stand at 2.1%, while CPIcommon moved up to 1.9%.”
“February’s inflation data was hotter than expected, with surprises coming mostly from core categories. Price pressures are apparent in both goods and services. This generalized uptick in prices is, however, consistent with an economy with no remaining slack after last year’s GDP surge.”
“Assuming seasonal patterns hold in March, headline CPI is on track to grow in Q1 by 2.1% year-on-year, i.e. well above the 1.7% estimated by the Bank of Canada in last January’s Monetary Policy Report. Also, the average of the three annual core measures now stands at 2.03%, the highest since February 2012. And this surge is not just about base effects. Recent momentum of different core inflation measures confirm the build-up in core price pressures.”
“Our in-house replication of CPI-Trim and CPImedian, show both measures running, on a 3-month annualized basis, well above the Bank of Canada’s 2% midpoint target ? CPI-Trim at 2.7% and CPI-median at 2.4%. But given ongoing uncertainties with regards to trade (NAFTA negotiations) and housing (B20 impacts), the inflation-targeting central bank may choose to look the other way and stick with its loose stance for another few months.”
- OPEC/Non-OPEC agreement is extended beyond 2018.
- The buyers have been relentless and prices are now flirting with $66.
Crude Oil WTI is trading at around $65.81 a barrel as it pulled back yesterday on China tariffs fears but the bulls came back as the Saudi Oil Minister declared that the Opec and Non-Opec agreement will likely be extended beyond 2018.
Al-Falih, the Saudi Arabia’s Energy Minister said “We still have some time to go before we bring inventories down to the level we consider normal and we will identify that by mid-year when we meet in Vienna. And then we will hopefully by year-end identify the mechanism by which we will work in 2019.” He also added: ”OPEC members will need to continue coordinating with Russia and other non-OPEC oil-producing countries on supply curbs in 2019 to reduce global oil inventories”, according to Reuters.
The other positive note for crude is that that the OPEC deal compliance was a whopping 138% in February, which was their best compliance to a deal ever recorded.
Also boosting the oil price this week was the inventory statistics of the API and EIA which showed a draw while analysts were expecting a build. Total inventories of -7 million barrels put oil stocks to 1% below the key 5-year average.
The nuclear arms race between Iran and Saudi Arabia as well as Venezuela oil production falling also contributed to support the black gold.
Morgan Stanley upgraded their oil price target to $82.50 for mid-year as an increase in seasonal demand in the coming month and geopolitical tensions are seen as positive factors for oil prices.
Crude oil WTI daily chart:
Next resistance is seen at 66.70, 2018 high; followed by the 70.00 figure which should act as a price magnet. To the downside, support is seen at 64.23 Thursdays' low; followed by 63.39 which is the 61.8% Fibonacci retracement from the January-February bear leg.
According to analysts from Danske Bank, in the US, there are several important data releases over the coming two weeks that include the PCE core inflation on Thursday and the following week, the March jobs report.
“PCE core inflation for February is due for release on Thursday. CPI core came in at 0.2% m/m in February and, therefore, we expect PCE core inflation to come in at 0.15% m/m, which translates into 1.5% y/y, unchanged from January. Normally, there is some noise in the data, so we do not think we should read too much into the stronger-than-expected numbers from December and January. Still, we think there are upside risks for core inflation because of the tax reform but it will take time for it to materialise.”
“Next week also brings the personal spending numbers for February. Retail sales fell for the third month in a row in February which is surprising as consumer confidence is extremely high. This points to a slowdown in consumer spending in Q1 but overall we remain positive on private consumption due to the high degree of optimism among others.”
“After the FOMC meeting on Wednesday, a lot of Fed members are due to speak in coming weeks, which should give us further insight into who expects three and who expects four hikes this year.”
“The following week brings the labour market report for March, when focus will once again be on average hourly earnings. Overall, the labour market has been in good shape, which we expect to continue. Average hourly earnings rose by only 0.1% m/m in February (2.6% y/y). We estimate average hourly earnings increased by 0.2% in line with the recent trend, which would translate into annual wage growth of 2.7% y/y. Hence, the underlying inflationary pressure still seems fairly moderate. The week after Easter also brings the ISM manufacturing index for March.”
- Pound among best performers of the week on BoE and Brexit optimism.
- DXY drops to monthly lows after Fed rate hike and amid concerns of a global “trade war”.
GBP/USD rose on Friday and recovered from yesterday’s losses. The pound resumed the rally and climbed back above 1.4100. The pound was about to end the week with strong gains.
The pound opened the week on Monday with important gains on the back of advances in Brexit talks, breaking above 1.3950/60. Accelerated to the upside on Wednesday following the FOMC meeting boosted by a decline of the US dollar. On Thursday, Cable peaked at 1.4212 after the release of the Bank of England’s decision and minutes but failed to hold above 1.4200 and reversed. Today gained ground during the US session, consolidating weekly gains.
“The pound was quick to give up the gains made immediately after the BoE’s March policy statement. Although the news that two members had voted for an immediate rate increase provided a hawkish headline, the market was already very strongly priced for a May move. Looking forward the pound is likely to continue deriving support from expectations that the Bank could hike rates both in May and potentially in November. However, politics related to Brexit could yet create scope for volatility in sterling during the course of the next 12 months”, said analysts from Rabobank.
GBP/USD was about to end far from the weekly top but the bullish trend remains intact. If it manages to finish above 1.4150, it would be the highest weekly close since the Brexit referendum (June, 2016).
In the US, next week will bring more speeches from FOMC members that will be particularly interesting after Wednesday’s rate hike. Regarding data, the Personal Income and Spending report is due on Thursday including the PCE core inflation (indicator followed closely by the Fed) and on Wednesday, Q4 GDP 3rd estimate.
“After a hectic week in the UK, next week is set to be quieter, as there are no important events scheduled yet and mostly tier-2 data releases. The most interesting release is the service index (measuring actual growth in the service sector) in January. The week after Easter is more interesting, as we are due to get PMIs for March,” wrote analysts at Danske Bank.
Market participants will also look at what the White House does regarding tariffs and the response from the rest of world, particularly China as concerns about a trade war continue to rise.
Next week volume is likely to drop toward Friday. Wall Street will remain closed on the 30th due to Good Friday.
- US Personal Consumption Expenditure Prices (PCE) are scheduled next week on Thursday.
- AUD/USD traders are cautious as the week is ending virtually unchanged.
The AUD/USD is trading at around 0.7732, up 0.51% on the day so far as the dominant theme in the market on Friday seems to be the development of an all-out trade war as Trump seem decided to impose tariffs on steel and aluminum on the EU. Mrs. Lagarde, from the IMF, warned that trade wars benefited nobody.
Next week will see the US GDP readings on Wednesday as well as preliminary PCE which is the favorite inflation indicator of the Federal Reserve while on Thursday will see the final US CPE. No macro data is expected to be released from Australia.
AUD/USD monthly chart:
The AUD/USD is trading below both its 100 and 200-period simple moving averages. The 50-period simple moving average has been rejected so far in March, which is considered a bearish sign. February saw the rejection of the 200-SMA. The Aussie has been evolving in a bull channel since mid-2015 and although the move lasted almost three years it might be considered as a correction from the 2011-2015 bear trend. Thus implying that a continuation of the bear trend at some point appears more likely than a bull acceleration at this stage. We have to see if the rate differential will come into play in the medium-term. Technical indicators RSI and MACD remain constructive to the upside so far.
AUD/USD weekly chart:
It seems the week is going to close little changed below the 50 and 200 SMA as the bears made an attempt below 0.7700 but failed as the bulls stepped back in to lift the market back up. The RSI and MACD are bearishly configured, implying that there might be an underlying bear trend going on.
AUD/USD daily chart:
The AUD/USD this week kept consolidating in the lower part of the 3-month wedge bull flag supported at the 0.770 level. As to make a statement, the bear rejected the 100-period simple moving average on two occasions. Support is clearly the 0.7700 level after which it seems that the only significant level in sight would be the 0.7550 cyclical low established on December, 8 -2017. Resistance is seen at 0.7780 high of the week and 0.7850 previous supply zone.
- The AUD/NZD is currently supported at the 1.0650 level.
- A clear brekdown would open the doors to the 1.0500 level.
The AUD/NZD is currently trading at around 1.0643 down 0.29% on the day so far as trade wars intensify between the US and China.
Earlier in the week the RBNZ left its interest rate unchanged for the 16th month in a row without surprise while the Reserva Bank of Australia in its RBA minutes offered also little new information, stating: “GDP growth is expected to exceed potential growth over 2018, further progress on jobless rate, and CPI to likely be gradual. Yet, household spending and wage growth outlook are still uncertain, warranting" careful monitoring”.
AUD/NZD weekly chart
The AUD/NZD is apparently about to finish the week on a bearish note. The market could contain prices above 1.0750 and the 200-period simple moving average as the bears even manage to trade now below the 100-period simple moving average. Both RSI and MACD indicators are in negative territories suggesting the bear momentum is well underway as the 6-week trading range might come to an end. The price has broken and rejected the 61.8% Fibonacci retracement from the July-October 2017 bull run.
AUD/NZD daily chart
The 1.0640 level is the level the bulls are currently defending from bear attack. On Monday 19, and Tuesday 20 March, the bulls were able to form a micro double bottom and drive the market back up to 1.0750 but the move has been completely retraced on Thursday and Friday. The RSI is not confirming the last bear leg as it is posting a slight bullish divergence, while the MACD has turned into a bearish mode. 1.0600 was an important level back in the summer 2017 and might be the last bastion for bulls before they give up. Further down support I seen a the 1.0500 psychological level. To the upside bulls need to re-conquer the 1.0750 resistance previously tested this week; quickly followed by the 1.0800 top of the range which now may seem like miles away.
AUD/NZD 1-hour chart
While price action has been trading down, the RSI is showing a positive divergence on the 1-hour chart. However, bulls will need to break out above the last swing high at 1.0670 to have a chance of a rebound.
New home sales dropped 0.6% in February. Analysts at Wells Fargo highlighted that sales for January were revised up and sales are about where they were expected to be for the month.
“New home sales fell 0.6 percent in February but still came in close to the consensus estimate of a 620,000-unit annual pace. Sales for January were revised up from a 593,000 to a 622,000-unit pace. On a year-to-date basis, new home sales are running 2.2 percent ahead of their year-ago pace.”
“The supply of homes for sale at the end of February rose to 305,000 units, which is the most since March 2009. All of the increase came from homes not yet started or under construction.”
“The median price of a new home rose 0.6 percent to $326,800 and is up 9.7 percent year over year. We do not expect that pace to be maintained, particularly given the rise in inventory in the South.”
National Bank of Canada’s analysts Jocelyn Paquet points out that today’s report on Canadian retail sales disappointed consensus for the third straight month but notes that it was not entirely negative.
“Canada’s retail sales increased just 0.3% in January, disappointing consensus which was looking for a 1.1% print. That result comes after a -0.7% reading in December which was the worst monthly decline observed in 21 months”.
“In real term, Canada’s retail spending was up just 0.1% in January, following a mediocre -0.6% print the prior month.”
“The retail result for January came in below consensus for a third month in row, perpetuating a rather lackluster sequence for consumer spending in the country. In fact, total nominal sales are at the roughly the same level they were back in October.”
“Most of the recent weakness can be attributed to the motor vehicles/parts segment. Sales in that category are down 10.9% in annualized terms over the last three months. Still, January’s report was not entirely disappointing. Sales of electronics, which account for a growing share of total retail spending, registered another healthy advance and are now up 15.2% on their level a year ago.
“Looking at quarterly data, real retail sales are on pace to shrink 0.9% in annualized terms in Q1, a result that may translate into a negative contribution to growth for consumption spending in the quarter.”
- EUR/USD post modest gains amid a slide a of the USD.
- Euro hit a fresh high at 1.2363 but remains limited above 1.2360.
EUR/USD continues to move around 1.2350 with limited volatility. The pair reached a fresh daily high at 1.2363 after finding support at 1.2325. The euro trades near the 1.2360 zone as DXY tests daily lows.
A weak US Dollar moved EUR/USD to the upside. The greenback failed to benefit from a better-than-expected economic report from the US (Durable Goods Orders). US Dollar Index Futures are testing the 89.00 support area, down 0.35% for the day. Among market movers is gold, rising more than 1%. Wall Street opened in positive but failed to hold to gains. The DOW JONES was falling 0.40%.
The trend change in US stocks added support to the euro and the yen. USD/JPY dropped back below 105.00 while EUR/GBP erased daily losses during the last hour.
On a weekly basis, EUR/USD is about to post a gain of around 70 pips (biggest gain since early February). Still the chart shows the pair moving sideways around the 1.2350 level as it has been the case since late January.
To the upside, immediate resistance is seen at 1.2360, followed by 1.2410 (last week high) and 1.2460/80 (long-term downtrend). On the downside, support levels could be located at 1.2330 (20-hour moving average), 1.2295 (Mar 23 low) and 1.2240 (weekly low).
William De Vijlder, analyst at BNP Paribas, points out that the Federal Reserve has an “asymmetrical loss function: avoiding a recession is more important than avoiding the risk of overheating”. He added that the Fed’s tone remains cautious despite upbeat growth projections.
“The Federal Reserve faces two asymmetries. The first is the asymmetric loss function. This is largely by choice because it wants to avoid triggering a recession (fighting recessions has become increasingly difficult). Chairman Powell insisted in his press conference on Wednesday on the need not to tighten too quickly. Otherwise inflation would rise insufficiently which would make it more difficult to tackle the next recession when it comes. The second asymmetry is imposed on the central bank.”
“Engineering an uplift in inflation towards the 2% target looks like a huge task. Faced with these two asymmetries, insisting that the inflation objective is symmetrical, like Jerome Powell re-iterated on Wednesday, becomes an obvious, not to say inevitable, conclusion: allowing a temporary inflation overshoot is the price to pay for the wish to avoid the most uncomfortable part of the loss function (a recession) that could ensue from what would turn out to be a prematurely restrictive policy stance.”
“Nobody seems to believe in the resurrection of the Phillips curve. All this helps explaining the relaxed reaction of bond markets: a temporary inflation overshoot won’t stop the Fed from sticking to a gradualist approach and if the FOMC has doubts about the Phillips curve, why speculate against this? At the end of the day, financial market positioning has become as data-dependent as central bank policy.”
- Gold bulls are alive since the Fed dovish hike.
- $1400 is seen at the line in the sand.
Gold is trading at around 1346 up 1.36% on the day so far as trade wars between the US and China intensify.
Gold weekly chart
Gold is consolidating and grinding higher in an ascending triangle pattern. Resistance is seen at the high of the year close to the 1365 mark, followed by 1375 the 2016’s high which is only $25 away from the 1400 psychological level. According to many analysts, the 1400 level is the line in the sand that would confirm the bull trend in the yellow metal. Price action is above the 50, 100 and 200-period simple moving average and both the RSI and MACD indicators are trading in positive territories.
Gold daily chart
Gold, this Friday tested the 1350 level. After breaking from the bull flag formation on Wednesday on the Fed dovish hike where the US Dollar was sold across the board. Both the MACD and RSI indicators are constructive for bulls. The next key level is seen at approx 1360 high of the year while the 1400 level is the ever-important psychological level discussed in the weekly chart analysis. Support is seen at 1330 previous resistance discussed on Thursday; followed by the low of the range at 1306 which supported the price throughout the first months of 2018.
Gold 4-hour chart
Gold made a two legged-moved ABCD pattern from the lows of the range at 1306 to the 1350 figure. The technical picture suggests that this might be a logical location for a pullback to occur. The RSI and MACD indicator are seen as bullish and no trend reversal seems to be on the cards as bulls have been relentless since Wednesday. Support is initially seen at 1340 which is the 23.6% Fibonacci retracement from the Wednesday-Friday bull leg; followed by 1330 former resistance level which now becomes support. With the army of moving averages just below the level as seen on the 240-minute chart. Resistance is seen in the 1360-1365 area with the high of the year.
Today’s report showed that durable goods orders rose 3.1% in February, after falling during the previous two months. According to analysts at Wells Fargo, even with the rebound, business spending looks to have slowed during the first quarter.
“Capital spending and output measures were notably weak in December and January, which has raised some doubts about the outlook for business spending despite all the euphoria surrounding recent tax changes. The state of business spending, however, looks much stronger following the February durable goods report.”
“Durable goods orders rose 3.1 percent in February, nearly double consensus expectations. While it is not unusual for total durable goods orders to miss so wide off the mark given notoriously large and volatile components like aircraft and defense items, February’s miss can in large part be traced to a surprisingly strong increase in core capital goods orders.”
“For months now, we have written that the “hard” data on spending must converge with the sky-high readings of “soft” survey data. Business confidence, as measured by the NFIB Small Business Optimism index, has been at multi-decade highs, while the ISM manufacturing index sits at a 14-year high. Today’s report helps to narrow the gap, but the recent trend in orders still looks soft relative to the breakneck pace registered last fall. With a decline the previous two months, core orders are increasing at just a 0.6 percent annualized pace the past three months, which is down from an 18 percent clip as recently as November.”
“Even with today’s solid rebound in core orders, it is unlikely we will ee a third straight quarter of double-digit increases in equipment spending. We currently expect growth in real equipment spending to moderate to about a 7 percent pace in first quarter, which still looks fairly solid in our view coming on the heels of the tremendous strength of the second half of last year.”
- Canadian Dollar remains firm on Friday around 1.2840.
- USD stays offered post-tariffs on China, DXY in daily lows.
- Canadian CPI surpassed estimates, Retail Sales came in softer.
The Canadian Dollar keeps the positive note so far this week and is now forcing USD/CAD to navigate the area of weekly lows in the vicinity of 1.2840.
USD/CAD weaker on USD-selling, data
Spot quickly faded yesterday’s advance following the increasing selling bias surrounding the buck, particularly as consequence of the recently announced tariffs on US imports from China ($60 billion).
Concerns over the probability of a global trade war have been reignited soon after President Trump announced the new trade measures, impacting on the buck and the risk-associated universe.
Adding to CAD-buying, Canadian inflation figures tracked by the CPI showed headline consumer prices up 0.6% inter-month in February and 2.2% on a yearly basis. Additionally Core prices rose 0.7% MoM and 1.5% over the last twelve months.
Further releases in Canada saw headline Retail Sales expanding 0.3% MoM in January and sales excluding the Autos sector advancing 0.9%.
In the meantime, spot is navigating the lower end of the weekly range, trading at shouting distance from monthly lows in the 1.2800 neighbourhood (March 12) and extending the correction lower from fresh 2018 tops beyond 1.3100 the figure recorded earlier in the week (Monday).
USD/CAD significant levels
As of writing the index is losing 0.65% at 1.2855 and a breach of 1.2803 (low Mar.12) would expose 1.2722 (38.2% Fibo of the 2017 drop) and finally 1.2651 (200-day sma). On the other hand, the next up barrier is located at 1.2975 (10-day sma) seconded by 1.3126 (2018 high Mar.19) and finally 1.3195 (resistance line off 2016 top).
- The index extends the decline to lows in the mid-89.00s.
- US 10-year yields rebounded from lows in sub-2.80% zone.
- US Durable Goods Orders came in stronger in February.
The US Dollar Index remains unable to pick up some pace at the end of the week and keeps orbiting around the 89.50/40 area, or weekly lows.
US Dollar in 4-week lows
The greenback is suffering the increasing risk aversion in the global markets as investors remain concerned over the likeliness of a global trade war. These jitters have been exacerbated after President Trump announced on Thursday $60 billion tariffs on US imports from China.
Latest news on the matter cites Chinese Ambassador to the US saying the country is ready to increase its purchases from the US, stressing at the same time that China is still trying to avoid a trade war.
In the meantime, DXY stays firm on the way to close the first week in the negative territory after two consecutive declines, falling into the prevailing consolidative scheme playing since late February.
On the data front, US Durable Goods Orders surprised to the upside in February, while New Home Sales disappointed expectations during the same period.
US Dollar relevant levels
As of writing the index is down 0.36% at 89.51 facing the next support at 89.41 (low Mar.22) seconded by 89.07 (low Jan.26) and then 88.25 (2018 low Feb.16). On the other hand, a break above 89.89 (10-day sma) would aim for 90.44 (high Mar.20) would and finally 90.57 (high Feb.8).
The Kiwi Dollar is seen sidelined vs. the buck in the next weeks, according to FX Strategists at UOB Group.
24-hour view: “While the ‘target’ indicated at 0.7260 yesterday was exceeded, the subsequent sharp and rapid pullback from a high of 0.7263 was not exactly expected. NZD has likely made a short-term top and the current price action is viewed as part of a consolidation phase. In other words, we expect NZD to trade sideways from here, likely within a 0.7180/0.7240 range”.
Next 1-3 weeks: “NZD edged above the key 0.7260 resistance (high of 0.7263) and as mentioned yesterday, a breach of this level would indicate that the 0.7154 low seen earlier this week is a short-term bottom. In other words, the recent mild downward pressure has eased. However, the more than one-month long neutral phase is still intact but NZD is more likely to trade sideways for now, likely between 0.7160 and 0.7300”.
Major US equity indices seesawed between tepid gains/minor losses during the opening hour of trade on Friday amid the prospect of a global trade war.
Stocks attempted to bounce back after yesterday's brutal sell-off, in what was seen as a delayed reaction to the Trump administration's announcement to impose tariffs on Chinese imports and subsequent tariff retaliation from China.
This, against the backdrop of recent duties on steel and aluminum imports, fueled concerns over US-China tit-for-tat measures and forced investors to assess the global implication of a potential trade war between the world's two largest economies.
On the economic data front, durable goods orders jumped 3.1% in February, posting the largest gains since last summer and supported the initial leg of up-move on the last trading day of the week.
Investors now look forward to a trio of Fed speakers - Minneapolis Fed President Neel Kashkari, Dallas Fed President Rob Kaplan and Boston Fed President Eric Rosengren, which might influence Fed rate hike expectations and drive sentiment surrounding riskier assets - like equities.
Meanwhile, the ongoing underperformance by technology stocks, led by the recent weakness in shares of social media giant – Facebook, over data privacy issue, might further contribute towards keeping a lid on any meaningful recovery for the markets.
FX Strategists at Scotiabank remain neutral/bearish on the pair while they note a decent resistance in the 1.2970/90 band.
“The USD has consolidated late week losses around the 1.29 area over the past 24 hours and despite the strong rebound in funds from Thursday’s low, we think near-term risks are tilted lower for the USD still”.
“Intraday patterns suggest the USD is consolidating in a bear flag formation and we expect USD weakness to resume on a break under 1.2905 this morning. We see support in the mid 1.28s and, key, last week’s low at 1.2804, which looks very reachable in the event of a push under 1.29. We see resistance at 1.2970/90”.
- The pair managed to regain 105.00 and above and now tests daily highs.
- USD remains weak within a generalized risk-off sentiment.
- Yields US 10-year reference navigating highs around 2.83%.
USD/JPY has now gathered some upside traction and is now testing the area of daily peaks in the 105.15/20 band.
USD/JPY weaker on US tariffs
Spot plummeted to fresh YTD lows near 104.60 in early trade following heightened risk aversion after President Trump announced $60 billion tariffs on US imports from China.
The move sparked a sell off in the riskier assets and pushed the VIX index (‘panic indicator’) to fresh tops beyond the 25.00 mark, all collaborating in fresh demand for the safe haven JPY.
The ongoing rebound has been in tandem with the bounce off session lows in yields of the key US 10-year reference, flirting with 2.84% after bottoming in sub-2.80% levels.
In the data space, US Durable Goods Orders expanded more than expected in February and New Home Sales came in below estimates at 618K units, or down 0.6%.
USD/JPY levels to consider
As of writing the pair is losing 0.11% at 105.16 facing the next support at 104.65 (2018 low Mar.22) followed by 102.54 (low Nov.3 2016) and finally 101.15 (low Nov.9 2016). On the other hand, a breakout of 106.08 (10-day sma) would open the door to 106.29 (21-day sma) and then 106.64 (high Mar.21).
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