The USD is starting the New York session slighty lower against the major currencies after some fairly significant swings through the Asian and European markets.
The USD started the week on a broadly firm note in Asian trade but lost ground steadily against most currencies as the trading day developed, with the GBP, EUR and CAD all erasing quite significant losses at writing. GBP/USD has gained a cent on Brexit hopes while EUR/USD gained 40 pips or so from the low of the day on wire reports that the ECB discussion is moving from ending QE to interest rates path. USD/CAD tumbled sharply from the low 1.31 area in early London trade. The USD has, however, gained modestly versus the JPY and CHF (slightly) despite European equity markets sliding.
Markets remain sensitive to trade concerns as G20 finance ministers and central bankers meet in Argentina and sentiment remains fragile in this respect. Developed market bonds are mostly lower on the day, however, as fixed income markets focus on Wednesday’s FOMC meeting outcome. Markets have fully priced at 25bps hike this week and will likely take a stronger directional cue from the Fed’s policy outlook; watchers think there may be some downside risk for the USD running into the decision, with a lot of good news factored in to markets currently, growth momentum slowing in Q1 after a robust start and perhaps the Fed consensus not shifting enough this week to reflect Chairman Jerome Powell’s remarks during recent congressional testimony that suggested the Fed could tighten four times in total this year.
NORTH AMERICA
The US industrial sector expanded in Feb-18. Industrial production rebounded more than expected to increase 1.1% MoM, the largest gain in 4 months following a revised 0.3% MoM decline in January. Rise in mining and construction output offset a decline in utilities as a warmer weather reduced demand for electricity. The mining sector recorded substantial gain at 4.7% MoM as oil and gas extraction accelerated. Growth in O&G extraction was at a historic high of 12% YoY. Capacity utilisation rose to 78.1% in Feb-18 (Jan: 77.4%) the highest reading since Jan-15 but still below its long run average of 79.8%.
Homebuilding slumped in Feb-18 as housing starts which measures new home constructions dropped more than expected by 7.0% MoM (Jan: +9.7%). Growth in construction of single family units was offset by a sharp decline in multi-family projects. Forward-looking building permits was equally downbeat, dropping 5.7% MoM (Jan: +5.9%) after increasing a revised 5.9% MoM in January. Despite that, sentiments improved as University of Michigan consumer sentiment registered a higher reading at 102 in Mar-18 (Feb: 99.7).
EUROPE
Inflation in the Eurozone remained benign in February as headline CPI softened more than expected to 1.1% YoY (Jan: +1.3%) while core CPI held steady at 1.0% as expected. Absence of inflationary pressure will allow ECB to keep its policy normalisation plans at a measured pace. In the UK, house prices gained pace after softening for the past 3 months. The Rightmove house prices increased 2.1% YoY in Mar18 (Feb: +1.5%) indicating a slight recovery.
ASIA
In Japan, final reading of industrial production fell 6.8% MoM in Jan-18 (Dec: +2.9%) dragged by substantial fall in shipment output at 5.6% MoM which coincides with the drop in capacity utilisation in the manufacturing sector. Industrial production also grew at a slower pace of 2.5% YoY (Dec: +2.7%). However in a separate release, Japan trade balance rebounded to record a surplus of 3.4b in Feb-18 (Jan: -944.1b) albeit less than expected.
EUR/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Technical: 1-3 Day View – Range continues contracting the close below 1.23 opens 1.2240 next, failure here opens 1.2190 ahead of pivotal 1.2090. Daily close above 1.2330 opens 1.2548
1-3 Week View – As 1.2130 now acts as support expect a test of 1.2635 as the next upside objective. Weekly close below 1.19 neutralises bullish objectives opening a test of 1.14.
Retail Sentiment: Neutral
Trading Take-away: Neutral
GBP/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish
Technical: 1-3 Day View – The daily close over 1.3925 opens 1.4093, however a close below 1.3920 suggests a false break and another retest of 1.37 bids.
1-3 Week View – As 1.3650 supports 1.45 becomes the next upside objective, only a close back below 1.34 would jeopardise the bullish advance.
Retail Sentiment: Neutral
Trading Take-away: Neutral
USD/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Technical: 1-3 Day View – As 108.44 acts as resistance 103.22 is the next downside objective, near term resistance is sited at 107, with near term support sited at 106.04
1-3 Week View – The close below 108 negates the broader bullish theme and opens the psychological 100 magnet as the next downside objective, only a close above 108.50 stabilises the pair, opening 112.50
Retail Sentiment: Bullish
Trading Take-away: Short
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Technical: 1-3 Day View – Breach of 131 sets a top to target 128.50 as 131 now acts as resistance. A close over 133 stabilises the pair opening a retest of 135
1-3 Week View – The closing breach of 131 concerns the bullish consolidation bias opening a test of 128.50 while this area supports there is a window to retest and breach cycle highs above 137
Retail Sentiment: Bullish
Trading Take-away: Short
