Hi everyone, and welcome! Market finally decided to break the monotony this Friday, and dollar isfalling strongly across the board. Euro approaches to key 1.3800 after general market optimism improved this European morning. As comment on past Daily Wrap Up Webinar, markets has left Greece and other countries debt issues a side for the time to be. Better than expected Industrial Production data helped the case; dollar is down also against Pound, but Gbp is far from testing 1.5200 key area; only a weekly close above it could change the bearish momentum in the pair. Anyway, I guess we are going to have some quiet now, some small downside corrective movements, and market players will wait for US Retail Sales data in a couple of hours. reading is expected under previous month, so a better than expected data, despite not so positive, could trigger further risk appetite, and intraday trend likely to extend till the end of the American session.
http://www.fxstreet.com/fundamental/economic-calendar/
Have a great day
The EUR has fallen 10% vs. the dollar in 4-month’s and is now contained in this narrow monthly range. Is this the fair value of the EUR? It’s lost 5% this year over European sovereign debt problems and the possibility that Trichet will fall behind Bernanke in hiking rates. The contagion scenario, referring to Spain and Portugal, has traders leaning left of center in their EUR positions. However, the record ‘short’ bets are in danger of feeling a ‘whiplash effect’. A natural healthy cleansing of the ‘weaker shorts’ is on the horizon. A G7 ‘bear market’ rally will force these weak dollar longs to exit their positions and provide an opportunity to add to the stronger healthy shorts. Something has to give and this morning’s surprising European industrial numbers with its healthy revisions coupled with some risk appetite should see us test some EUR technical resistance levels. Will the US retail sales headline be a ‘friend or foe’ to the EUR?
The US$ is weaker in the O/N trading session. Currently it is lower against 13 of the 16 most actively traded currencies in another ‘subdued’ trading range.
In the US yesterday, both the nominal and real trade balances improved. The improvement in the price-controlled is what flows through to GDP and it should reverse the deteriorating trend that had been in place over the previous two-months. That being said, the nominal trade balance improved more than anticipated (+$37.3b vs. $-41b.). One notices that the dollar value of imports fell faster than the decline in exports. The drop in nominal exports was focused on the transportation sector. This sub-sector is highly volatile, as large monthly gains create ‘unsustainable base effects for the next month’. Surprisingly, other export categories produced considerable strength (telecom equipment climbed +6.4%, consumer goods were up +1.3% etc). It’s the decline in imports that concerns analysts the most. It was broadly based. Notably, only apparel (+1.6%), food and beverage (+1.7%) and services (+0.4%) were up. All other major categories of imports fell.
The claims and employment reports should be heading towards solid footing after the ‘blizzard induced spikes’ we witnessed last month. So it’s expected that US jobless claims will be able to report further improvement going forward. Yesterday’s US initial claims number revealed another weekly improvement (+462k) from the spike induced print of last month (+498k). By the end of Mar. we should be back to pre-blizzard reporting. This should provide a solid footing for the next NFP report. Again, distorted by weather conditions, we witnessed continuing claims push a tad higher (+4.558m vs. +4.521m). It’s important to note that the weekly print lags initial claims by one week. So, optimistically, we should see an improved print going forward. Finally, both extended (+163k vs. +178k) and emergency (+5.68m vs. +5.52m) fell last week. Analysts remain confident that they expect to see further improvements in these programs over the coming months.
The USD$ is weaker against the EUR +0.30%, GBP +0.36%, CHF +0.38% and JPY +0.03%. The commodity currencies are stronger this morning, CAD +0.07% and AUD +0.17%. Yesterday we saw evidence in Canada that potentially will put ‘upward’ pressure on core-inflation. Firstly, there was a rise in new house prices (+0.4%), and secondly, a faster than expected pace of industrial capacity’ (70.9% vs. +70%) in the Canadian economy. This is strong proof that Canada is moving away from an emergency rate setting (+0.25%). Trader’s opinions vary on the timing of a hike, consensus is probably July. However, both June and Sept. cannot be ignored. The BOC will certainly have its work cut out. All along they have been vocal on a stronger loonie effect on sustainable growth. Surely, with the currency flirting with parity, its value is doing a hiking job? The Canadian monthly rise in new house prices met expectations for the third-straight month or almost +5% annualized. It’s worth noting that the level of new house prices is only +1.3% away from the all-time record of two-years ago. The fourth Q capacity utilization climbed a percentage point higher than expected to +70.9%. That’s on top of a +1.3% upward revision to the previous quarter’s rate. The rate has climbed a whopping +3.2% points in six-months. Despite being below pre-crises levels, it continues to provide support for robust growth and an end to emergency interest rate policies. Canada’s trade picture continued to improve in Jan. (+$0.8b vs. +$0.2b). Exports rose while imports dipped for the first time in two-months. Digging deeper into the report, trade was weaker than the headline number implies, as all of the growth in exports was due to prices, with both export and import volumes down on the month. Despite remaining the darling of growth currencies and even with commodities prices ‘to and fro’ there is an appetite to own the currency as speculators gamble on these ‘growth’ prospects. For now, ahead of this morning employment report, the currency continues to congest vs. its southern partner. The trend remains your friend. Expect better buying of the domestic currency on USD rallies in the medium term. Record IMM long growth currency positions may put a spoke in the wheel.
In the O/N session the AUD traded near its seven-week high from Jan. vs. the dollar as traders bet ‘accelerating growth’ will prompt its RBA to increase interest rates. The weaker than expected Australian employment report (+0.4k vs. +15.2k) earlier this week only provided an opportunity for speculators to add to their positions. In Feb., the economy added the fewest jobs in six-months. Some have suggested that the RBA ‘has room to slow the pace of future interest-rate increases (+4%)’. The pause in the employment boom ‘may prompt some consumers to trim spending in coming months’. Of late, robust Chinese export numbers have had investors demanding higher yielding growth currencies. Expect Chinese policy tightening to eventually cool the demand for the AUD as a ‘first play’ growth currency, but until then, the trend remains your friend. Last week the RBA hiked rates by +25bp to +4%. Governor Stevens said ‘rates should be closer to average’, which policy makers have indicated may be 75bp higher than the current +4%. The market expects the RBA to hike with a ‘gradual approach’. Continue to expect better buying on deeper pull backs (0.9178).
Crude is higher in the O/N session ($82.38 up +27c). Crude was little changed yesterday despite the initial sell off on speculation that China might have to implement various exit strategies after recording the highest inflation rates in 16-month. Their CPI print of +2.7% in Feb. increases pressure on the Government to somehow suppress inflation and probably growth. This week’s EIA reports are supporting the ‘bull’ technicals. The weekly report showed a decline in supplies of gas and distillate fuels. Gas stocks dropped -2.96m barrels to +229m vs. an expected ‘little change’ scenario. Distillate supplies (heating oil and diesel) decreased -2.22m barrels to +149.6m. It was expected that stockpiles were to fall by only -1m barrels. On the flip side, crude inventories rose +1.43m barrels to +343m vs. an expected climb of +2m barrels. An OPEC report this week stated that member states will need to produce more oil than previously estimated. It’s expected that the members need to be pumping +28.94m barrels a day to satisfy this years global demand. That’s an increase of +190k barrels a day over last year’s projections. OPEC meet next week to decide production quotas. Already member representatives say that ‘no new decision’ about production levels is expected at the meeting as ‘projected demand levels are still much less than OPEC’s current production’. This scenario will increase stockpiles. With momentum and an investor attitude that the economic situation will not get much worse should support commodities on pull-backs.
For a fourth-consecutive trading session this week the ‘yellow metal’ has struggled. It managed to print new weekly lows yesterday morning as the dollar tries to maintain its buoyancy vs. the EUR, thus reducing the demand for the metal as an alternative asset. Thus far this morning the dollar has struggled. Speculation of tightening monetary policies in China could add additional pressure to the commodity. Comments earlier this week, also from China, have managed to weigh on the commodity. Authorities indicated that ‘bullion probably will not be the country’s main reserve investment’. Technically that means they will ‘have to hold dollars’. It’s all about the performance of the dollar. Currently, any signs of weakness and we will have buyers happily entering the market. Until then, the bulls are the unlucky investors. Close to current levels, EU sovereign debt concerns have had investors seeking some sort of portfolio surety back in Feb. Will we see the same interest at these lower levels ($1,111)?
The Nikkei closed at 10,751 up +86. The DAX index in Europe was at 5,945 up +16; the FTSE (UK) currently is 5,621 up +5. The early call for the open of key US indices is lower. The US 10-year backed up 1bp yesterday (3.74%) and is little changed in the O/N session. The US yield curve, especially the long-end, has felt the pressure of supply, finally. The short end of the curve has been better bid despite the plethora of product this week. The appetite is been aided by Fed rhetoric stating that ‘low interest rates are likely to be needed for some time, as high unemployment lingers and inflation stays below target’. The 2’s/bonds spread managed to widen out to new-records ahead of the last auction of the week, the long bond ($13b). Yesterday’s 30-year auction was again well received. The bid-to-cover ratio was 2.89 compared with 2.36 in Feb. and 2.68 in Jan. The average has been 2.44 from the past 4-auctions. Indirect-bids (proxy for Cbanks) were +24%, compared with +28.5% in Feb. and +40.7% in Jan. The average was +38.4% for the last 4-auctions.
Risk appetite, macro data and supply-and-demand statistics seemed to align for bullish crude traders. Yet despite begin given the fundamental green light (and notably still backed by impressive buying momentum over the past month), the active crude futures contract on the NYMEX was forced to retrace its morning thrust to a fresh, eight-week high just above $83. Whether using a fundamental, technical,
Markets have quieted considerably including the USD/CHF giving credence to a potential breakout. We have placed our entry below the lower bound of the short-term support level with the longer-term barrier providing insurance below. Recent risk appetite has been founded more on relief than optimism which doesn’t make for a sustainable trend. Greece finding solutions for its credit issues
The consensus is expecting an improvement on all counts. And though imports and exports are expected to pretty much offset each other, the gains from the prior period are expected to favor exports.
Regardless of todays reaction up or down of the Canadian dollar, its likely to be a big reaction.
I say that because the Canadian dollar is so far little changed from when markets opened up in Asia overnight. And weve gotten through the markets opening up in Europe, too, without much change.
This tight, sideways trading inherently builds up momentum that typically lends itself to sharp breakouts, to the upside or downside. But to add to the pent up energy, USDCAD is trading right along its pivot (p).
That is, its hugging a major level that can motivate a substantial price move. And on top of that, the range between pivot support (s) and pivot resistance (r) levels (calculated based on the pivot) are very tight. A tight pivot range tends to mean a powerful, wide-ranged day.
Though we havent seen any action yet ...
[see graph below]
Some of the subsequent move will depend upon the risk appetite feel in the market when the data is released soon. But the Canadian dollar has been rather strong, relative to other major currencies:
A number in-line with or better than expected may spark a move toward strength that comes to an end quickly on the view that the Canadian dollar is already over-extended (due to the view that Canadas economy will fare better as the US makes its way back toward more normal levels of growth.)
But, the Canadian dollar is butting its head at major weekly resistance for the second time. If there doesnt appear to be any real appetite for risk, and if trade balance numbers come in worse-than-expected, then its a pretty good better that the Canadian dollar gets hit hard today.
Good luck today ...
John Ross Crooks III
www.blackswantrading.com
