New York Forex Report: Trade War Talk Weighs
New York Forex Report: The USD is trading mixed against its G10 counterparts; USD losses following yesterday’s FOMC meeting extended through the London session initially but the USD has steadied – and made back some ground – through European trading as markets cut back positioning ahead of the expected unveiling of US tariffs on China. The JPY is out-performing on the day, followed by the CHF; the AUD is the primary under-performer in the major currency space. Note that the Fed’s rate hike yesterday puts the FF target rate above the RBA’s 1.50% cash rate for the first time since 2000. Unusually, the CNH is quite obviously under-performing its regional peers and ranks among the weaker major currencies on the session so far. Global stocks are lower on the session and developed market bonds are better bid, giving broader markets a distinct feel of risk off as investors hunker down ahead of the first shots being fired in a possible trade war. There is a full slate of US data releases to work through this morning as well as some central bank speak (BoE’s Ramsden, following today’s unchanged decision, and BoC Deputy Governor Wilkins comments will be on the wires this afternoon). On average, the USD generally trades softer overall from here through until Q4, with Apr generating the worst monthly returns on average for the DX since the 1990s.
NORTH AMERICA GDP growth forecasts were raised by 0.2-0.3ppt to 2.7% and 2.4% for 2018 and 2019 respectively (previous 2.5% and 2.1%) while unemployment rate was revised lower to 3.8% and 3.6% for the respective two years (previous 3.9% for 2018 and 2019). Inflation forecasts have however been kept largely unchanged this and next year with just a minor tweak in core PCE inflation from 2.0% to 2.1% for 2019 (2018 maintained at 1.9%). Longer run forecasts for these macro variables were also left generally unchanged at 1.8% for real GDP growth, 2.0% for PCE inflation and 4.5% for unemployment rate (revised from 4.6%). Both Bloomberg and Reuters reported (21 Mar) that US President Donald Trump is set to announce tariffs against China over intellectual- property violations on Thursday (22 Mar). Reuters did not give a figure but Bloomberg puts it at US$50bn of tariffs, targeting more than 100 different types of Chinese goods, and the value of the tariffs was based on U.S. estimates of economic damage caused by intellectual property theft by China. White House official Raj Shah said in an emailed statement on Wednesday (21 Mar) :“Tomorrow the president will announce the actions he has decided to take based on USTR’s 301 investigation into China’s stateled, market-distorting efforts to force, pressure, and steal U.S. technologies and intellectual property.”
EUROPE In Europe, we have the EU leaders’ summit beginning today (22-23 Mar) and expectation is UK and EU negotiators will announce an inprinciple Brexit deal over a transitional period & the Summit will see full agreement on the text. The UK unemployment rate slid lower for the three months ended Jan-2018 to 4.3% (Dec: 4.4%) while wage growth picked up for the three months ended Jan-18 to increase 2.8% (Dec: +2.7%). Number of jobless claims increased to 9.2k in Feb-18 (Jan: -1.6k). Contrary to yesterday’s headline inflation which cooled more than expected, acceleration in wage growth suggest that inflation might be picking up in the near term hence providing a hint as to whether the BOE is raising interest rate in May. Investors are expecting a 56.0% probability of rate hike in May. In a separate release, manufacturing orders deteriorated in Mar-16 to 4.0 (Feb: +8.0) while net cash requirement for public sector recorded at £18.6b Feb-16 (Jan: -£26.2b)
ASIA US Treasury Secretary Mnuchin said that he has worked on options for Trump to impose US investment restrictions on China as part of intellectual property investigation. He assured that the Trump administration is open to listening to China on commitments Beijing is willing to make and he believes smaller, private discussions with Chinese officials can be more productive now than large, public dialogues.
EUR/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Neutral
Technical: 1-3 Day View – Range continues contracting frustrating both sides, yesterdays close below 1.2250 opens 1.2150, however another whipsaw and close above 1.2360 sets 1.2570 in bullish sites
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: Bearish
Trading Take-away: Long
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 sees price testing the anticipated 1.4093 resistance, as 1.3990 supports 1.4145 is the next upside target.
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: Bearish
Trading Take-away: Long
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
EUR/JPY
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 132.70 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
