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11
Forex / China's CSI 300 Rises for Seve...
Last post by PocketOption - Feb 25, 2024, 06:29 am
China's CSI 300 Rises for Seventh Consecutive Session and Offshore Yuan Strengthens for the Sixth Session

Overview: The dollar is trading quietly
after being sold yesterday. It is still soft against the dollar bloc and the
Swiss franc but is firmer against the other G10 currencies. Narrow ranges have
dominated. Emerging market currencies are mixed, with central European
currencies and the Taiwan dollar trading softer. The offshore Chinese yuan is
firmer for the sixth consecutive session. The highlights of today's North
American session features minutes from last month's FOMC meeting, a $16 bln
sale of 20-year Treasuries, and Nvidia's earnings. 

Most large
equity markets in the Asia Pacific region fell but Hong Kong and China. The CSI
300 rallied four consecutive sessions before the Lunar New Year holiday and is
up in each of the three sessions since returning. Disappoint earnings are
weighing on Europe's Stoxx 600. It is off for the second consecutive session. US
index futures are also trading lower. European benchmark 10-year yields are
slightly firmer today, mostly less than a basis point. The US 10-year yield is
near 4.26%, off nearly two basis points. This year's high was set last week
near 4.33%. Gold is edging higher for the fifth consecutive session, which if
sustained, would match the longest advance since Sept-Oct 2022. It is trying to
establish a foothold above $2030. This month's high was set on February 1 near
$2065. April WTI was turned back from $78.55 yesterday, and follow-through
selling today has pushed it to around $76.30.

Asia Pacific

The seasonal
pattern held, and Japan's merchandise trade balance deteriorated in January
from December.
 Yet, the same robust seasonal pattern points to improvement
when this month's figures are reported in March. Japan reported a small trade
surplus in December, only the third monthly trade surplus in 2023 after having
none in 2022. In January, a seasonally adjusted basis, Japan reported its first
trade surplus since May 2021. Japan's goods exports were up 11.9% (9.7% in
December) on a year-over-year basis in January, while goods imports were off
8.7% (-6.9% in December). Exports for led by autos and semiconductor-related
products. Imports fell for the tenth month on falling coal and natgas. Recall
that net exports contributed 0.2% to Japan's Q4 23 GDP after being flat in the
previous quarter. Japan's current account surplus (~3.6% of GDP in 2023) is
driven not from merchandise trade but from interest, dividends, royalties, and
licensing fees earned abroad.

Although the
Reserve Bank of Australia refuses to rule out another rate hike, the market
does. 
The futures and swaps market show a clear bias toward expecting
the next move to be a cut, even if not right away. The swaps market has a
little more than a 50% chance of cut in the next six months. The futures market
has slightly less than a 95% chance of a cut in August. It has one
quarter-point cut and around 80% chance of a second cut discounted before the
end of the year. Earlier today, Australia reported hourly wages rose 0.9% in Q4
23 after a 1.3% jump in Q3. The 4.2% year-over-year increase is the most since
Q1 09. In Q1 09, Australia's quarterly CPI was 2.4% year-over-year, and it
slowed to 1.4% in Q2 09 and 1.2% in Q3 09.

The dollar
traded on both sides of Monday's range against the yen yesterday but settled
well within it. 
The greenback continues to consolidate and is in about a
15-20-tick range around JPY150 so far today. The dollar's session high was
recorded yesterday near JPY1.45 after Finance Minister Suzuki
said he was watching the foreign exchange market with "a sense of
urgency," code words, as it were for threatening material intervention.
The MOF's international bureau chief Mimura indicated that Japan was in
constant contact with other countries in case the need for intervention arises.
We are skeptical of the allusions to coordinated intervention and suggest the
danger is that official comments are diluting the word cues if they are not
backed by action. Although the dollar has risen for seven consecutive weeks,
ostensibly meeting the definition of a one-way market, implied volatility
suggests an orderly market. Benchmark three-month volatility fell to 8.3% yesterday,
the lowest in three months. Last year's low was closer to 8%.

The Australian
dollar rose to almost $0.6580 yesterday, culminating a five-day rally that
began from below $0.6445, the low since mid-November.
 It
settled above its 20-day moving average (~$0.6540) for the first time since
early January. The five-day moving average (~$0.6530) is crossing above the
20-day moving average for the first time since January 5. The daily momentum
indicators have also turned up. It is in about a quarter-cent range today below
$0.6575, and the $0.6600-25 area offers formidable resistance. The US dollar
has stalled in the last three months near CNY7.20. 
We suspect that if
the greenback were to strengthen above JPY151 that it would also likely move
above CNY7.20. The dollar settled below its 20-day moving average against the
offshore yuan for the first time in nearly a month. It fell to a three-week low
near CNH7.1810 today but has rebounded back toward CNH7.20. Still, the dollar
is lower against the offshore yuan for the sixth consecutive session, the
longest decline in more than six months. The dollar was sold to almost
CNY7.1780 today, its lowest level since February 2. It recovered to almost
CNY7.19 in late dealings. The PBOC set the dollar's reference rate at CNY7.1030
(CNY7.1068 yesterday). The average projection in Bloomberg's survey was
CNY7.1890 (CNY7.1979 yesterday). 

Europe

Yesterday's
rally in EMU bonds, which saw yields fall 3-4 bp, was attributed to news that
Q4 23 negotiated pay moderated to 4.5% from the record high of 4.7% in Q3 23.
 Last
week, ECB President Lagarde said that wages were "an increasingly
important drivers of inflation dynamics in the coming quarters."  Of
course, it is not simply wages but wage growth in light of the weak
productivity, which ECB board member Schnabel underscored at the end of last
week. The Q1 24 negotiated wage settled is due in May. Moreover, given the work
showing the relationship between widening profit-margins and inflation, it is a
shame the ECB did not address the return to capital at the same time as drawing
attention to the returns to labor. Still, leaving the substance of the argument
aside, the purpose of drawing attention to wages is to push against speculation
that the weak economy and falling inflation alone justify a rate cut. Even as
recently as the end of last month, the swaps market had an April cut fully
discounted. Now, it is a little less than half priced in. 

On the other
hand, Bank of England Governor Bailey suggested that the market pricing of the
trajectory of BOE policy was reasonable. 
The swaps
market has about a 65% chance of a cut in June, virtually unchanged from a week
ago. The market also has three cuts this year fully discounted and a small
(less than 10%) chance of a fourth cut. Recall that at the of last month, the
market had four cuts priced in and about a little more than a 50% chance a
fifth move. Bailey also sounded an optimistic note, suggesting that the UK's
"very small recession" may be over, in a reference to the last week's
news that the economy contracted in Q3 23 and Q4 23. The median forecast in
Bloomberg's monthly survey is for the British economy to grow by 0.1% this
quarter and 0.2% in the second quarter. 

The euro
reached nearly $1.0840 in North America yesterday, its best level since the US
employment data on February 2. 
It briefly pierced the 200-day moving
average (~$1.0825) and met the (61.8%) retracement of the loss from February 2
high that was slightly shy of $1.09. The daily momentum indicators have turned
up and the technical tone is solidifying. The five-day moving average
(~$1.0785) could cross above the 20-day moving average (~$1.0790) before the
end of the week for the first time since the January 4. That said, euro is
struggling today. It is has been capped near $1.0820 and was sold to session
lows near $1.0790 in early European turnover. A move below $1.0780 warns of a
false breakout. Sterling also advanced yesterday. It took out
the 20-day moving average (~$1.2640) and rose to a five-day high near $1.2670. The
close, below the 20-day moving average was less inspiring. It is consolidating
in about a third-of-a-cent range above $1.2600 today--between roughly between
the five-day moving average (~$1.2605) and the 20-day moving average
(~$1.2635). Sterling's high from last week was about $1.2685, and that met the
(61.8%) retracement of its decline the pre-US jobs. Nearby resistance is likely
in the $1.2635-40 area. 

America

The minutes
from last month's FOMC meeting will be released toward the end of the North
American session today.
 The firmer than expected CPI an PPI reports
since the FOMC meeting seem to lend credence to the caution that Chair Powell
expressed at the press conference and other officials have echoed. The minutes
will be read, looking for some insight it what would boost the Fed confidence
that inflation is on a durable path toward its target. To be sure, the Fed's
Summary of Economic Projections have anticipated the first cut before inflation
is at 2%. Powell seemed to suggest a low bar to achieve greater confidence. It
did not require better data but a continuation of what has already been seen.
The market will also be looking for insight into QT, especially as it appears
that the increase in T-bill issuance has absorbed the flows out of the Fed's
reverse repo facility. This means bank reserves are little changed from when QT
began. Lastly, Powell previously acknowledged that as the quarter progresses,
the Summary of Economic Projections, which are simply a snapshot of official
expectations based on the data currently available, can become dated. However,
so far, and that is ahead of the next jobs report and CPI, we suspect that the
three rate cuts that the median expected would be appropriate this year is
still the base case.

Canada's
January CPI surprised on the downside. 
Canada's consumer prices have
fallen, not just risen slowly, over the past five months; not by much (almost
-0.5% at an annualized pace). January's CPI was flat, and the median forecast
was for a 0.4% increase. The year-over-year rate eased to 2.9% from 3.4%. Given
the base effect--Canada's CPI rose at an annualized rate of 6.4% in the
February-April period last year--inflation will likely continue to moderate in
the coming months. The underlying core measures fell to an average of 3.35%
from 3.6% in December 2023. Mortgage and rents lift shelter costs, and
excluding shelter, Canada's CPI was 1.5%. The market recognized that the
inflation may begin forward the first rate cut. The odds of a cut in April
increased to a little more than 40% from less than 30% at the end of last week
and on Monday. The swaps market has slightly more than an 85% chance of a cut
in June, up from about 58% in the previous two sessions. The market now has
four cuts fully discounted this year and about a 40% chance of a fifth
reduction. This is the most in a month. Canada's two-year note yield fell by 15
bp to 4.14%, and the discount to the US jumped nearly 10 bp to 44 bp, the most
in two months. 





















































The
Canadian dollar paid the price for the general risk-off, the drop in US
equities, and the softer than expected CPI. 
The Canadian
dollar lost about 0.25% against the greenback. The US dollar rose for the third
consecutive session against the Canadian dollar and reached CAD1.3530. It is
threatening to extend the advance into the fourth session, as it made a
marginal new high already today near CAD1.3535. Initial resistance is seen
around CAD1.3545 and then last week's high, closer to CAD1.3585. Less
than half an hour before $545 mln in options expired, the dollar briefly traded
below the MXN17.00 strike. 
It was back above there at expiry and
greenback posted a potential key reversal against the peso by trading on both
sides Monday's range and closing above its high. Initial resistance is seen in
the MXN17.09-MXN17.12 area. It is in a narrow range so far today
(~MXN17.0425-MXN17.0770). On the other hand, greenback fell for the fourth
consecutive session against the Brazilian real. The dollar reached almost BRL4.9250,
its lowest level since the US jobs data on February 2. The 200-day moving
average is closer to BRL4.92 and the low since mid-January is around BRL4.90.
There was talk of equity managers shifting from Mexico to Brazil, and as if on
cue, yesterday the Bovespa rose about 0.5% and the Bolsa fell by about as
much. 


 Disclaimer


Source: China's CSI 300 Rises for Seventh Consecutive Session and Offshore Yuan Strengthens for the Sixth Session
12
Forex / Dollar Slips but Dip may Offer...
Last post by PocketOption - Feb 25, 2024, 06:29 am
Dollar Slips but Dip may Offer New Opportunity

Overview: The US dollar is offered today. It is
trading softer against all the G10 currencies, with the yen the notable
exception, and it is flat. The Antipodean are leading the way, taking out last
week's highs, as has the euro. That said, the intraday momentum indicators are
stretched as NY dealers return from the long holiday weekend. The Scandis are
also trading above last week's highs. The yen, sterling, Canadian dollar, and
Swiss franc are still inside last week's ranges. Most emerging market
currencies are trading with a firmer bias today, as well, led by central
European currencies. The Chinese yuan is also slightly firmer after banks cut
the five-year loan prime rate by 25 bp. A handful of Asian currencies are
softer, including the Thai baht following the Prime Minister's call for a
special central bank meeting to cut rates.



Some profit-taking was seen on Japanese
stocks. South Korea's Kospi and Australia's ASX also traded off, but most of
the other large bourses in the region rallied. The Stoxx 600 in Europe is
threatening to snap a four-day advance and is nursing minor losses in late
morning turnover. US equity indices are trading softer. European bonds are
rallying. Benchmark 10-year yields are off mostly 2-4 bp, though the yield of
the 10-year Gilt is off seven basis points. The US 10-year Treasury is slightly
below 4.27%, about a single basis point lower. The softer dollar and softer
rates are lifting gold to a five-day high above $2027. Last week's high was a
little above $2031. April WTI is consolidating between about $77.55 and $78.55.



Asia Pacific





Chinese bank cut the five-year loan prime
rate by a record 25 bp to 3.95% today.
It was the first cut since last June. The one-year loan prime
rate was unchanged at 3.45%. The lower rate could allow a decline in the
minimum mortgage rates. However, the average rate of new mortgages in December
were already a record low of slightly below 4% in the major cities.



The PBOC last cut the benchmark one-year
Medium-Term Lending Facility rate by 15 bps last August.
 The large state-owned banks have not
fully passed it through to the prime rates. The one-year prime rate was
cut by 10 bps, and the five-year rate was not cut at all. This would seem to
suggest that the large state-owned banks do not always do what Beijing wants.
The same is true for lending to the property sector. We think this gap is
important. It means that despite the ownership structure, Beijing does not have
absolute control. It suggests that Beijing, like other governments, may
struggle to coordinate and implement some of its edicts. 



The dollar remains in the range set last
Tuesday of approximately JPY149.25-JPY150.90.
 The daily momentum indicators may be trying to turn
lower, but the recent consolidative price action looks more like a continuation
pattern than a reversal. The US rates may still be the key and it does not look
like the 10-year Treasury yield has peaked. The Australian dollar is
rising for the fifth consecutive session today, matching the longest advancing
streak since last June. 
It is trading at its best level since the
February 2 US jobs data, reaching $0.6560 in the European morning.
Nearby resistance is seen near $0.6565. Having initially fallen through
yesterday's lows (~$0.6525), a close above yesterday's high (~$0.6550) would
help lift the tone. The RBA minutes showed that while a rate hike was
discussed, the decision was to leave policy steady earlier this month. The US
dollar continues to knock on CNY7.20.
Both in January and now in February, the
dollar has hovered slightly below CNY7.20. The price action may spur
speculation that this the in new cap. The PBOC set the dollar's reference rate
at CNY7.1068. The upper end of the 2% range is near CNY7.2490. The average
projection in Bloomberg's survey was CNY7.1979. 



Europe





A vicious cycle is threatening Europe. As growth forecasts are cut, the
projected budget deficits, as a percentage of GDP widen, prompting governments
to cut spending. Last week, the EC cut this year's growth forecast by a third
to 0.8%. As we noted yesterday, the French government cut this year's growth
projection from 1.4% to 1.0% and reduced spending. The Bank of France and the
IMF are slightly lower, at 0.9%. The median forecast in Bloomberg's monthly
survey is for 0.7%. The French budget deficit was about 4.8% of GDP in 2024,
and the EU sees it at around 4.4% this year. The Bundesbank warned yesterday
that the German economy is likely to contracting here in Q1. Last week, the
German government slashed this year's growth forecast to 0.2% from 1.3%. It
also took a knife to next year's projection, cutting it to 1% from 1.5%. Last
week's updated EC forecast now sees German growth at 0.3% this year and 1.2% in
2025. The budget deficit was about 2.2% of GDP last year and may fall to 1.6%
this year. The EC predicts that the Italian economy will grow by 0.7% this year
and 1.2% next year, which is largely in line with the IMF's forecasts. The
budget deficit is expected to fall from about 5.0% last year to 4.4% this year,
according to the EC. The central bank of Spain projects 1.6% in 2024 and 1.9% in
2025. The IMF's forecast is for 1.5% and 2.1% growth, respectively. Last year's
budget deficit, which was a little more than 4%, is expected to narrow to about
3.2%, according to the EC. The poor economic backdrop is likely to impact the
June EU parliament elections and the composition of the new European
Commission. The preliminary signs point to a shift to the right.



In aggregate, the eurozone budget deficit
narrowed from about 3.6% of GDP in 2022 to about 3.2% last year.
 The EC expects it to narrow to
around 2.8% this year. Recall that the US budget deficit in FY23 was about 6.3%
of GDP (~5.4% in FY22). The Congressional Budget Office expects the budget
deficit to narrow during the current fiscal year to 5.4%, assuming a 1.5% GDP
growth. The reason the US has a significantly higher budget deficit is not
because of some "exorbitant privilege." After all, the US pays
considerably higher interest rates than the eurozone (~190 bp more than Germany
on 10-year yields, 80 bp more than Greece, and almost 40 bp more than Italy).
The difference is ideological. Former ECB President Draghi once quipped that
ordoliberalism is part of the central bank's DNA. The same could be said about
the EU. Ordoliberalism rejects the Keynesian use of fiscal policy to manage
demand and the "normal" business cycle. The US has been a net
creditor throughout its history, with only a couple of exceptions. Pax
Americana was built with debt. 



The euro has poked above last week's high,
slightly above $1.08, in the European morning. 
It traded in about a quarter-cent range
yesterday and made a marginal new four-day high slightly below $1.0790. It
has not closed above $1.08 since February 1. The euro is also fraying the
20-day moving average, which is also a little below $1.08. The single currency has
not closed above the 20-day moving average since January 2. It briefly traded
below $1.07 in the middle of last week. Three-month implied volatility is at a
new two-year low a little below 5.80%. The next technical target may be in the
$1.0820-30 area. With its own four-day high yesterday (~$1.2630),
sterling met the (61.8%) retracement of the leg down seen after the US CPI last
week.
 It is trading quietly but firmer and trying to re-establish a
foothold above $1.2600. Sterling looks set for more consolidation. Three-month
implied vol has also fallen to a fresh two-year low below 6.4%. A close below
around $1.2565 or above $1.2650 would be notable. 



America





With the sole exception of February 2022,
the US index of leading economic indicators has fallen since the end of 2021.
 It will be reported shortly and is
expected to have fallen by 0.3% last month. In past cycles, the duration and
pace of decline has been associated with economic contractions. We cite this to
illustrate the uniqueness of this business cycle. Bloomberg's monthly survey
conducted in late January found a median forecast of 1.1% growth in Q1 24 at an
annualized pace. While it is still early in the quarterly data cycle, the
Atlanta Fed GDP tracker stands at 2.9%.



Canada's headline CPI fell in the last
four months of 2023 (-0.6% at an annualized rate).
 Today, it reports January CPI. The
median forecast in Bloomberg's survey is for a 0.4% increase. Yet, owing to the
base effect (0.5% increase in January 2023), the year-over-year rate may ease
to 3.2%-3.3% from 3.4%. In February-May last year, Canada's CPI rose at an
annualized rate of 6%. With a conservative assumption that headline CPI rises
by 0.3% a month on average in the Feb-May period this year, the headline rate
will slow to around 2.5%. More importantly and troublesome for the Bank of Canada,
the underlying core rates have made little progress in recent months. The
weighted median was 3.5% in October, 3.6% in November, and 3.6% in December.
The trimmed mean was 3.6% last July and stood at 3.7% in December. The simple
core rate (excluding food and energy) fell from 5.3% at the end of 2022 to 3.2%
in September 2023 and finished last year at 3.4%.



The swaps market has about a 90% chance
that the first Bank of Canada cut will be delivered in July.
 As recently as mid-January, the
market had three quarter-point cuts discounted by then. Late last December, the
swaps market discounted approximately 160 basis points of easing this year. By
the first part of last week, it had fallen to around 60 bp and now is a little
over 80 bp. Despite the dramatic adjustment in Bank of Canada interest rate
expectations, the Canadian dollar has traded heavily. It is off about 0.4% this
month after falling by 1.4% in January. Canada's two-year yield is at a 35 bp
discount to the US, virtually unchanged since the end of last year. 



The US dollar rose a little above
CAD1.3500 earlier today before reversing.
It slipped below the CAD1.3480 in Europe. Still, the US
dollar has forged a shelf near CAD1.3460-5 in the past few sessions. If
this area holds, the risk is for another push higher. The three-month high
recorded last week was near CAD1.3585. We suspect the risk extends toward
CAD1.3625, the (61.8%) retracement of the losses from Q4 23 decline (~CAD1.3900
to CAD1.3175). The Mexican peso traded quietly yesterday. The
dollar spent the session inside the pre-weekend range (~MXN17.03-MXN17.10).
Today, it has slipped below last week's low, to make a new marginal new low
near MXN17.02. The greenback has settled within the MXN17.00-MXN17.25 range
since the middle of January with one exception. It has not traded below
MXN17.00 since January 16. There are options for almost $545mln struck there
that expire today. The dollar has been in band against the Brazilian real, as
well. Since mid-January, with a couple of exceptions on an intraday basis, the
dollar has traded between BRL4.90 and BRL5.0. Options for about $450 mln struck
at BRL5.0 expire today. The peso is less volatile than the real (three-month
implied is about 9.6% and 10.7% respectively). The peso has held up better than
the real (~-0.4% vs. -2.1%). The overnight target rates are both at 11.25%.
Mexican equities are off almost 1% this year, while the Bovespa is off about
4%. 



 



 Disclaimer


Source: Dollar Slips but Dip may Offer New Opportunity
13
Forex / China Returns, the US is on Ho...
Last post by PocketOption - Feb 25, 2024, 06:29 am
China Returns, the US is on Holiday, and the Dollar Consolidates

Overview: US markets are closed for President's Day,
while China's markets re-opened from the long Lunar New Year holiday. Mainland
stocks advanced, while the yuan slipped slightly. The US dollar is mostly
softer but in narrow ranges. The Antipodeans and yen lead, while the Swiss
franc the only G10 currency that is slightly softer. Most emerging market
currencies are lower, led by about a 0.5% loss of the South African rand. The
Mexican peso's and South Korean won's small gains are the exceptions. 

Stocks in the Asia Pacific
region were generally higher, led by China, but foreign inflows lifted South
Korea's Kospi by 1.2%. Japan's markets were mixed. Europe's Stoxx 600 is
treading water. It advanced 1.4% last week, its fourth consecutive weekly gain.
US index futures are slightly firmer with no cash market today. There is much
anticipation of Nvidia's earnings in the middle of the week. European 10-year
yields are mostly 1-2 bp lower today. Gold set recorded the low for the year
last Wednesday near $1984 and is rising for its third consecutive session today.
It traded to $2023, just ahead of resistance in the $2024-$2025 area. April WTI
settled before the weekend near $78.45, its highest close since early last
November. It is consolidating today in a roughly $77.65-$78.35 range.

Asia Pacific

China returned from the
Lunar New Year holiday.
Optimism
of a recovery in consumption helped mainland stocks trade higher. Mainland
shares that trade in Hong Kong rallied 4.75% last week. It was the first
back-to-back gain since last November. However, today the CSI 300 rose almost
1.2%, while the Chinese shares that trade in HK fell by 1.3%. The PBOC kept the
one-year Medium-Term Lending rate steady (2.5%), and Chinese banks will likely
do the same with the loan prime rates tomorrow, though there is a small chance
that they pass through more of last August's PBOC rate cut.

The contraction of the
Japanese economy in Q4 23 surprised nearly all economists.
Consumption and business investment fell
for the third consecutive quarter. This is the longest streak since Q2 08-Q1
09. Capex fell for four quarters, from Q2 12 through Q1 13. These are the two
sectors that need to be monitored closely to see the economy is contracting for
a third quarter. The preliminary January machine tool orders are worrisome. Domestic
orders collapsed by 20% on the month, and foreign orders were off nearly half
as much.

The dollar approached JPY152
in 2022 and again in 2023. There seems little to prevent another test.
Last week, MOF officials issued their
first warning of the year about the exchange rate, but the dollar finished
higher the seventh consecutive week. Although intervention could happen outside
of Japanese hours, there is a bit more a diplomatic hurdle. We suspect while by
various measures the yen is extremely undervalued (OECD's model of purchasing
power parity puts at more than 50% below fair value), material invention would
not receive a sympathetic hearing by the US Treasury. Moreover, a claim of undesirable
volatility also rings hollow. Three-month implied vol fell to 8.7% the end of
last week, a new low since early last December. The greenback is trading
quietly, albeit with a softer bias today. Initial support has been found
slightly below JPY149.90 and additional support is seen in the JPY149.50-60
area. The Australian dollar rose four sessions last week, the most in
three-months, though the magnitude of last week's gain was minor, around 0.10%.
It finished last week on a week firm note, setting a new five-day high
ahead of the weekend. But it settled slightly below the 20-day moving average
(~$0.6540). This area corresponds to the (61.8%) retracement of the Aussie's
sell-off since the US jobs data on February 2. It set a high near $0.6610
before the data, and today, briefly traded above $0.6550, its best level since
then. A close now below $0.6525-30 would be disappointing. Before the
holiday, the US dollar settled at about CNY7.1935. It held above there today
and reached around CNY7.198.5
   It has not traded above CNY7.20
in three months. The PBOC set the dollar's reference rate at CNY7.1032
(CNY7.1063 before the holiday). The average forecast in Bloomberg's survey was
CNY7.1946 (CNY7.1919 previously). The dollar slipped against the offshore yuan
for the fourth consecutive session. It has not traded below CNH7.20 since
February 7.

Europe

At the end of last month,
the swaps markets had an ECB cut fully discounted for an April and 160 bp of
cuts all year.
Now it has
about a 45% chance of an April cut and almost 107 bp of cut this year. At the
end of January, the swaps market had the first rate BOE rate cut fully priced
in June and almost a 50% chance of a second. Now, the market sees the chance of
a June hike as also an even money proposition. Since the end of last year, the
extent of BOE rate cuts this year has reduced to 68 bp from 113 bp at the end
of January. Despite these developments, the euro is off about 0.4% this month
and sterling has lost around 0.6%.

Last week, the EC lowered
its forecast for eurozone growth this year to 0.8% from 1.2% previously.
It also shaved 2025 growth to 1.5% from
1.6%. Inflation previously was projected to fall to 3.2% this year, but now is
seen near 2.7%, which incidentally is same as the ECB's December projection. The
EC's 2025 inflation forecast for the eurozone is 2.25, while the ECB's is 2.1%.
Earlier today, France's Finance Minister Le Maire cut the forecast for French
growth this year to 1% from 1.4%. To maintain the budget deficit target, he
also announced 10 bln euro in new spending cuts. 

The euro has a three-week
rally in tow to start this week.
In fact, it has risen in seven of the last nine sessions. It
posted its highest close of last week before the weekend. Still, it has failed
to close higher on a weekly basis since the second week of the new year, and
even then, it rose by less than 0.1%. We think the euro is forging a low and a
close above $1.08 would be constructive. We have identified a band of
resistance ($1.0810-30) and above there, a push above $1.0865 boost confidence
that a low in in place. It is in less than a fifth of a cent range today below
$1.0790. Sterling settled on a firm note ahead of the week, slightly
above $1.2600.
 The low was set after the soft CPI last Wednesday
(~$1.2535), but sterling shrugged off the disappointing GDP the following day
and closed higher on Thursday and Friday. Initial resistance is seen in the
$1.2635-50 area. Sterling has not closed above that band since the US
employment report on February 2. It has held above $1.2600 so far today, but
met sellers near $1.2630, a four-day high. 

America

A key issue is whether the
firmer than expected CPI and PPI changed the Fed's outlook.
We do not think so for four reasons. First,
the decision in March, May or June will not be determined by January CPI. Second,
the bar to boost the Fed's confidence was set low by Fed Chair Powell who said
good data was sought, not necessarily better data. Third, the price dynamics
suggest the PCE deflator will be more subdued. Fourth, the fall in retail sales
and industrial output warn that the real sector weakness at the start of the
year. Several Fed officials speak this week, and most will address the economic
outlook. 

While monetary policy has
been very much focus, fiscal policy comes back to the fore.
Specifically, the last continuing
resolution for authorizing federal government spending expires March 1 and
March 8. Many Republicans are opposed to another short-term resolution. However,
time is of the essence. The House of Representatives went on recess last week
and do not return until February 28. The Senate is taking off this week, and
when it returns, the first order of business will be to hear the impeachment
case against Homeland Security Secretary Mayorkas (impeached by the House of
Representatives by a 215-214 vote).

After pulling back from the
CPI-inspired rally to CAD1.3585 high 2024 high, the US dollar found support
before the weekend near CAD1.3460.
It settled near CAD1.3485. It has held below CAD1.3500 today and
has been in a narrow range mostly below CAD1.3490 and above CAD1.3470. Nearby
resistance is around CAD1.3520 and then in the CAD1.3540 area. Canada reports
January CPI tomorrow, and with the holiday in the US today, there is even more
reason to look for a consolidative session. The greenback recorded last
week's low ahead of the weekend slightly below MXN17.03.
 It is holding
barely above there today, while staying below MXN17.07 in quiet
turnover. On February 5-6, the US established a range of slightly below
MXN17.01 and about MXN17.28. It continues to work the range. In the week
through last Tuesday, February 13, speculators in the futures market boosted
their net long peso position by 13k contracts, the most since the end of last
November, to almost 100.5k contracts (500k pesos per contract, or ~$29.3k),
which is the largest since mid-March 2020. Since the end of last October, the
bulls have been amassing a large gross long peso position, with the exception
of two reporting week. The bears had been extending their gross short position
too. And for the fourth time since the end of last October, the bears covered
last week. The 10k contracts covered was the most since last June and
represents almost an 18% reduction of the gross short position, the most in
absolute and proportional terms since last June.





























 

Disclaimer



Source: China Returns, the US is on Holiday, and the Dollar Consolidates
14
Forex / Week Ahead: China Returns and...
Last post by PocketOption - Feb 25, 2024, 06:29 am
Week Ahead:  China Returns and Flash PMI Featured after US Rate Adjustment was Extended

The US
January CPI and PPI came in stronger than expected and this extended the
recovery in US interest rates. In turn that helped underpin the dollar. We do
not think the data itself changes the Fed's stance. At least seven Fed
officials speaking in the coming days will test this hypothesis. There are still
several key reports before the data dependent FOMC meets again in about four
weeks. Owing to the different weights and methodology, the PCE deflator, which
the Fed targets, is likely to be better behaved. Still, the two-year Treasury
yield popped above 4.70% at the end of last week, a new three-month high. The
dollar has risen against most of the major currencies for six of the seven
weeks to start the year. There are a couple of exceptions to note. The yen has
fallen for seven consecutive weeks and the threat of intervention by MOF
officials had little sustained impact. The other exception is the Australian
dollar and the Scandis. They have moved higher for two weeks in a row. This may
be a function of risk-appetites that have driven the S&P 500 and
NASDAQ to new record highs. Europe's Stoxx 600 and the Nikkei near record highs.

The largest publicly traded US commercial
real estate company reported better than expect earnings and offered a positive
outlook on the beleaguered sector. The KBW index of regional banks rose around
3.5% on the news and snapped a two-week, 8.5% drop. The Federal Reserve's vice
chair for supervision Barr confirmed that regulators are monitoring
the commercial real estate loans closely and have increased the downgrades to
some lenders' supervisory ratings. In addition to these developments that need to be monitored, the data
highlight in the week ahead is the preliminary February PMI. It will take a
significant surprise to shake-off the sense of US-positive divergence after
Japan and UK reported contractions in Q4 23. China returns from its long
holiday. Estimates of strong domestic travel fanned optimism of a recovery in
consumption. Chinese officials seem committed to providing more stimulus and
they could begin by cutting the one-year benchmark rate early Monday. However,
we note that the last cut (August 2023) has not been fully transmitted to the
prime rates.

United States: The monthly cycle of important data is
behind us for January. Existing home sales are due, but they tend not to be a
market-mover. But for the record, existing home sales have fallen in 20 of the
past 24 months through the end of 2023. They were at 2010 levels (3.8 mln SAAR)
in December and are expected to have risen by almost 5% last month. The hope is
that lower mortgage rates will help boost activity. Housing starts rose 7.6%
last year after plummeting 24% in 2022. The preliminary February PMI will be reported.
The PMI is part of the narrative about the re-acceleration of the economy. The
manufacturing PMI rose to 50.7 in January. That is the highest since September
2022. The service PMI rose four consecutive months through January, and at
52.5, the highest since last June. The composite reading stood at 52.0 in
January, matching the high from H2 23. It was at 50.1 in February 2023. 

Lastly, on February 21, the minutes from
last month's FOMC meeting will be released. At the meeting, Fed Chair Powell
pushed as explicitly as possible against market speculation of a March rate
cut. Since the FOMC meeting, most Fed officials seemed to echo Powell's
sentiment that while confidence is increasing that inflation is on a
sustainable path to the 2% target. Right now, it does not look like there will
be dissents from a Fed decision in March to stand pat. The impact from the
slightly higher than expected January CPI was not offset by the weakness in
retail sales and industrial production. After the firmer PPI, the futures
market downgraded the probability of a cut in May to about 37%, or half of what is was a week ago. As we saw a few times last year, the market is also converging
with the Fed's view. Recall that in December's dot plot, the median official saw
three cuts would likely be appropriate this year. As recently as a month ago,
the market was pricing in six quarter-point cuts and nearly 70% chance of a
seventh cut. Now, it is discounting three cuts fully and almost a 60% chance of
a fourth. 

The Dollar Index has rallied from almost
102.75 before the January jobs data to nearly 105.00 after the January CPI last
week. It consolidated back to around 104.20 before the PPI lifted to about
104.65. The Dollar Index has advanced in six of the first seven weeks of the
year, and the one down week was for a loss of 0.1%. The momentum indicators are
stretched but they have been overextended for the better part of the past four
weeks. We are looking for a sign that the advance, or this leg of it, is over. We
do not see it on the charts yet, but the it was unable to sustain the gains scored on the back of the PPI and finished softly ahead of the weekend, setting new three-day lows.  Initial support is seen in the 103.70-85 area.

China:  Mainland market re-open after the long Lunar New
Year celebration. We expect new measures to support the economy, which may
entail more efforts to stabilize the equity market. In terms of data, the Q4 23
current account and new house prices, and the yuan's share on SWIFT are not
market movers. Chinese data has long been regarded as suspect. It has often not
seemed internally consistent. Many observers attribute political motivations
and selectively take some data points, disregard others, and depict on consistent
narrative, though rarely generate testable hypothesis. We agree with those who
suggest that a significant difficulty arises out of Beijing's reluctance to
fully jettison the old Soviet-era Material Product System and adopt the UN's
System of National Accounts. 

The PBOC will return and set the benchmark
one-month Medium-Term Lending Facility rate (2.50%). A cut would seem to be in
order, but Chinese banks have not fully passed on the last cut (August 2023).
These are the same institutions whenever they act in the foreign exchange
market are suggested to always be doing the PBOC's bidding. That said, a cut in
the MLF may be done on the condition, understanding, or knowledge that the bank
will pass it along this time via the loan prime rates, which are set on
Tuesday. 

There is some optimism that the reports of
increased domestic travel during the long Chinese holiday is an indication of
stronger demand. This helped fuel the 2.7% pre-weekend rally in the index of
mainland shares that trade in Hong Kong. While this may be supportive of the
yuan, the nearly 1% decline of the Japanese yen since the holiday began and the
nearly 0.4% rise in the Dollar Index are drags on the yuan, in our
understanding of what moves the exchange rate within the band the PBOC set with
the daily reference rate. Also, we note that the offshore yuan was fairly
stable while the mainland was closed. The dollar settled near CNH7.2150 when
the holiday began and ended last week near CNH7.2200. 

Japan: Japan's trade balance always (without fail since at
least the early 1970s) deteriorates in January. Japan reported a rare monthly
trade surplus in December. In fact, it was the third monthly trade surplus
Japan recorded since July 2021. In 1984, Japan's exports were about 14% of GDP.
Some policymakers who helped draft Trump's tariffs, which the Biden
administration has largely left in place, said it was too much and the world
could not absorb it. That thinking was part of what led to the Plaza Agreement
(1985) that coordinated dollar-selling intervention. In 2023, Japan's exports
were almost 22% of GDP. However, as is the case with the US, exports are not
the primary way Japanese companies service foreign demand. Sales by branches
and affiliates of Japanese companies outstrip exports by several magnitudes.
The historically strong yen and foreign protectionism led to moving large parts
of industry (think autos and auto parts) offshore. Japan will also see the
preliminary February PMI. Japan's manufacturing is still under pressure. The
manufacturing PMI popped above the 50 boom/bust level last May, but that was a
one-month wonder and outside of that exception, has been below 50 since
November 2022. On the other hand, with one exception, the service PMI has been
above 50 since the end of Q1 22. The composite PMI stood at 51.5 in January,
its best reading since last September. Last February, it was at 51.1.

The dollar gained against the Japanese yen
for the seventh consecutive week. MOF officials took the first step onto the
intervention escalation ladder by warning against rapid moves and threatening
action even outside of its time zone. The dollar slipped about half-of-a-yen.
The greenback extended its decline on the disappointing US retail sales and
industrial production report but closed the week on more solid note after the
firm PPI. The dollar approached JPY150.90 at its best last week and the low was
slightly above JPY149.55. The weekly settlement was above JPY150 for the first time since last November. Last year's high was near JPY152, and there appears
little on the charts to deter a test. We note that the 15% rally in the Nikkei
so far this year is worth about 7.7% to unhedged dollar-based investors, which
is better than the return in the S&P 500 or NASDAQ.

Eurozone:  The eurozone continues to stagnate
or worse and this is in stark contrast with the US. The preliminary February
PMI, the main data point of the week is unlikely to change investors' minds.
The composite bottomed last year in October at 46.5. It has not fallen since
then but stood at a still lowly 47.9 in January. In February 2023, the
composite PMI was at 52. Growth impulses are weak and there is little on the
horizon for optimism. The ECB's forecasts anticipate a second year of less than
1% year-over-year growth.

The euro settled lower for the fifth
consecutive week after trading on both sides of the previous week's range. The
euro traded slightly above $1.08 at the start of last week and proceeded to
fall below $1.07 for the first time in three months after the US CPI. In the
last three sessions, the close was at the upper end of the day's range, and
higher lows were seen on Thursday and Friday. To be anything of note, from a
technical perspective, the euro needs to overcome a band of resistance between
roughly $1.0810 and $1.0830. Given the extent of the euro's sell-off this year
(after rallying ~4.4% in Q423), and the extent that US rates have backed up, we
are looking for some technical sign that a durable low is in place. A move
above the band of resistance would qualify.

United Kingdom: The UK economy contracted in Q4 23 for the
second consecutive quarter. The strong January retail sales and upcoming
preliminary Feb PMI may fuel hope of a better start to 2024. The service PMI
rose for the fourth consecutive month in January and at 54.3 was the highest
since last May. The manufacturing sector, however, is struggling. The PMI was
last above 50 in July 2022. The composite, which is a function of output in
manufacturing and services rose every month in Q4 23 and in January. It stands
at 52.9, its highest since last May. It was at 53.1 in February 2023. 

The larger-than-expected decline in
headline CPI last month saw sterling fall to about $1.2535 on February 14. That
was the low for the week. The market took little notice
that the Tories lost both of last week's byelections and will likely lose the
one on February 29 too.  Sterling settled back in its previous range ($1.26-$1.28) ahead of the weekend. Nearby resistance is seen in the $1.2625-50 area. 

Canada:  Canada's CPI fell at an annualized rate in Q4 23.
The base effect warns of a significant slowing of Canada's inflation in the
coming months. Recall that in the first four months of last year, Canada's
inflation rose at an annualized rate of slightly more than 6.3%. As these drop
out of the 12-month comparison, headline inflation will moderate. However, this
may not have happened very much last month. On February 20, Canada reports
January CPI. The median forecast in Bloomberg's survey is for a 0.4% month-over-month
increase which would allow the year-over-year rate to slip to 3.6% from 3.7%. The
rub for the central bank is that the underlying core measures have stopped
improving. The trimmed mean stalled in Q4 at 3.5% and finished the year at
3.7%, which is where it was in June 2023. The weighted median fell to 3.5% in
October 2023 but was at 3.6% in November and December. Softer underlying rates
of inflation, on the heels of the second consecutive loss of full-time jobs may
see expectations for a rate cut brought forward. December retail sales will be
reported on February 22. At the end of last month, StatsCan reported that
receipts for retailers rose 0.8% in December, which is the largest increase
since April. However, this reflects higher prices, with volumes up a more
modest 0.2%.

The US dollar rallied from around
CAD1.3440 to CAD1.3585, a new high for the year, in response to the US CPI. It
spent following three days paring the gains. It recorded a low near CAD1.3460
ahead of the weekend. The greenback managed to eke out a small gain for the
week (less than 0.2%), but it was the sixth weekly gain in the past seven. The
week that it fell (week ending on February 9), it slipped by less than 0.1%.
The US dollar has not taken out a significant technical level or carved out a
reversal pattern. Trend line support begins the new week near CAD1.3445 and
finishes the week by CAD1.3475. On the upside, the next technical objective is
the CAD1.3600-25 area. 

Australia:  The flash PMI is the Australia's data
highlight in the coming days. It is more promising than the eurozone but
not as strong as the US. After spending the preceding 10 months below 50,
Australia's manufacturing PMI popped to 50.1 in January from 47.6 in December.
The 2.5-point rise is the largest since September 2021. The service PMI was
below 50 in January (49.1) for the fourth consecutive month. Last February, it
was at 50.7. The composite PMI finished 2023 at 49.1, a four-month high. Still,
the disappointing January employment report (0.2% rise in the unemployment rate
to 4.1% and creating 11k full-time jobs after losing 109k in December) may
temper enthusiasm.

The Australian dollar was resilient. It
dropped to around $0.6440 after the US CPI, which was a new three-month low,
but recovery steadily. Ahead of the weekend, it set a marginal new two-week high near $0.6545). The 20-day moving
average is near $0.6540, and the Aussie has not closed above it since January
3. The 200-day moving average is around $0.6565. The momentum indicators are
encouraging. 

Mexico: The second look at Mexico's Q4 GDP and CPI
for the first half of February are the main reports in the week ahead. Recall
that the initial estimate was that the Mexican economy expanded by less than
0.1% in Q4 23. The median forecast in Bloomberg's survey was for 0.3% growth.
At its meeting earlier in February, the central bank shifted its forward
guidance and signaled a rate cut is coming, as early as next month. The CPI for
the first half of February must rise by less than 0.3% (and 0.35% for the core rate)
for the year-over-year pace to slow. Even if there is some disappointment, the
fact of the matter is that with headline and core inflation near 4.9% and
4.75%, respectively in January, the overnight rate of 11.25% is pinching and
seems unnecessarily high.







































Latam currencies were three of the top
four best performing emerging market currencies last week. Peru, Colombia, and
Mexico eked on minor gains against the greenback (and were joined by South
Africa). The Mexican peso made a marginal new seven-day high ahead of the
weekend. The greenback approached MXN17.03 and the market has shown a
reluctance to push it below MXN17.00. It has not traded below there in two
months. Three-month implied volatility has slipped to nearly 9.5% at the of
last week, a two-and-a-half year low. The low-vol environment is conducive for
carry-trade strategies. Trendline resistance is seen a little below MXN17.21 at
the start of the new week. 

















 


Disclaimer


Source: Week Ahead:  China Returns and Flash PMI Featured after US Rate Adjustment was Extended
15
Forex / Quiet End to a Busy Week
Last post by PocketOption - Feb 25, 2024, 06:29 am
Quiet End to a Busy Week

Overview:  The US dollar is winding down this week on
a quiet note. Most of the G10 currencies are trading within yesterday's ranges.
On the week, only the Scandis are set to close with gains, though with a little
effort, the Australian dollar could too. The Japanese yen and Swiss franc are
the laggards off 0.65%-0.75% this week. Most emerging market currencies outside of
central Europe are firmer. The South African rand is the strongest this week,
followed by four Latam currencies (though not the Brazilian real ~-0.4%, in its
Carnival-holiday shortened week).

The Nikkei drew closer to its record high
with modest gain that brought this week's advance to 4.4%. Mainland shares that
trade in HK rose 2.7% today amid reports of heavy travel during the Lunar New
Year holiday, which encouraged speculation of increased consumption. Among the
region's largest markets only Taiwan fell today after setting a record
yesterday. Europe's Stoxx 600 is trading firmer for the fourth consecutive
session. It is up about 1.5% this week, its fourth consecutive weekly advance.
Strong earnings are helping lift the NASDAQ futures. The cash index is poised
to gap higher. The S&P futures suggest another record high will be seen in
the cash market today. Benchmark 10-year yields are higher today. European
yields are mostly 1-2 bp firmer, but the strong UK retail sales are weighing
more on Gilts, where the yield is up four basis points. It was flat for the
week coming into today. The 10-year US Treasury yield is up three basis points
to 4.26%, which is about an eight-basis point gain on the week. Gold continues
to modest recovery after falling to $1984 after the US CPI report this past
Tuesday. It is trading near $2007. April WTI is consolidating after two days of
sharp swings that saw a range of roughly $75.50-$78.50. On the week, it is
slightly higher after rallying 6.2% last week.

Asia Pacific

With Q4 23 Japanese GDP reported
yesterday, the tertiary sector index for December is not so important. 
Still, it is notable that it snapped a
three-month decline (~8.8% annualized), which is the worst H1 20 when Covid was
raging. The risk of a recession in Japan this year seems low. Economists look
for the world's third largest economy to grow by a little less than 1% this
year, which is in line with the latest IMF's forecast. The Bank of Japan seems
a bit more optimistic with a 1.2% forecast.

Separately, Japan's MOF reported weekly
portfolio flows. 
Through
the first six weeks of the year, here is what the flows look like: Japanese
investors are buying more foreign stocks and bonds than they did at the start
of last year. One contributing factor is the launch of a new tax-exempt
retirement savings plan. The government's balance of payments data showed
Japanese investors bought a record amount of foreign equities and investment
trusts in January (~JPY1.2 trillion or ~$8.1 bln). The MOF figures are slightly
lower. The weekly data show Japanese bought about JPY4.5 trillion of foreign
bonds in the first six weeks of the year. They purchased JPY2.6 bln of foreign
bonds in the same period last year. Many observers thought the BOJ's raising
the cap on 10-year JGBS would spur Japanese investors to repatriate funds, and
in this reckoning US Treasuries were particularly vulnerable, and US yields
were rising. However, according to Japanese data US government bonds were
bought at a record pace in 2023 (~JPY18 trillion). Japanese investors also
bought about JPY843 bln of foreign stocks so far this year after purchasing
JPY110 bln in the first six weeks of 2023. Meanwhile, foreigners have stepped
up their purchases of Japanese stocks. They have bought about JPY3.4 trillion
this year so after having bought about JPY365 bln in the first six weeks of
last year. Foreign investors have bought about JPY1.3 trillion of Japanese
bonds this year through last week after selling around JPY4.1 trillion in the
first six weeks of last year. 

The dollar was sold to session lows
yesterday near JPY149.55 after the disappointing retail sales report. 
It frayed the trendline drawn off the low
seen before the US jobs data on February 2. As US rates found support, the
dollar recovered to about JPY150.25 before consolidating in a little more than
a 10-pip range on either side of JPY150. It continues to trade quietly today,
in a narrow range of about JPY149.85-JPY150.35. Still, barring a sell-off in
North America today, the greenback would extend this year's advance to the
seventh consecutive week. The Australian dollar reached almost $0.6530
yesterday in North America, gaining almost 0.5% despite the disappointing
Australian employment report. 
It has held above $0.6505 so far today
and is testing yesterday's highs in the European morning. The Aussie must
re-establish a foothold above $0.6550 to improve the technical tone. Even then,
the high for late January was near $0.6625 and the high before the US jobs
report was about $0.6610. The dollar is trading quietly against the
offshore yuan. It is in a range of roughly CNH7.2170-CNH7.2230.
That is
more of less the low since the mainland closed on February 8. The high was set
earlier this week near CNH7.2370. It has stayed well within 2% band around the
last onshore fix, without any apparent intervention or reports of state-owned
bank activity. 

Europe

The data-packed week for the UK ends on a
positive note. 
January
retail sales, which are reported in terms of volume rather than price, jumped
3.5%. That is the most since the early days of the recovery from Covid in early
2021. It also follows a dreadful 3.3% decline (revised from -3.3%) in December.
All sectors showed an increase except clothing. Still, overall sales volumes
slipped by 0.2% in the three months through January from the previous
three-month period. This week's data showed a somewhat more resilient labor
market and wages pressures that did not ease as much as expected, softer than
expected headline inflation, though sticky service prices, which ticked up, and
the second consecutive contracting quarter in Q4 23. However, net-net there has
been a small decline in rate cut expectations based on the swaps market. The
swaps market has slightly less than a 60% chance that the first cut is
delivered by the end of H1, down from 67% at the end of last week. It has about
73 bp of cuts priced in this year compared with about 78 bp at the end of last
week.

Who will be the first G10 country to cut
interest rates?
 Based
on the current set of information, we are inclined to think it will be the
Swiss National Bank. Earlier this week, Switzerland reported January harmonized
headline CPI of 1.5%, down from 2.1% in December. The median forecast in
Bloomberg's survey was for a 2.0% reading. The national core rate slipped fell
to 1.2% from 1.5%. The SNB meets on March 21 and a rate cut seems increasingly
likely. The Swiss economy contracted by 0.1% in Q2 23 and grew by 0.3% in Q3
23. It will report Q4 GDP at the end of the month and the latest Bloomberg
survey found a median forecast for 0.2%. Switzerland last raised it policy rate
in June 2023 to 1.75%. The euro fell to a seven-year low against the Swiss
franc late last year near CHF0.9255. It poked a little above CHF0.9500 this
week, a two-month high. Chart resistance is seen around CHF0.9550. Trendline
resistance and the 200-day moving average are near CHF0.9580. That said, the
momentum indicators are getting stretched. 

The euro traded to $1.0785 yesterday,
stalling in front of the week's high set Monday near $1.0805.
 A narrow fifth-of-a-cent range is
prevailing today (~$1.0755-75). There is a band of resistance from around
$1.0810 to $1.0830 that needs to be overcome to lift the tone. And recall that
before the US employment data, the euro has approached $1.09. More immediately,
if the euro does not settle above $1.0785, it would close lower for the third
consecutive week and six of the first seven weeks of the year. Sterling
recovered from a low seen near $1.2540 after the poor Q4 GDP.
 It set
the session high a little above $1.26 in North America, on the back of the
weaker dollar. It is in slightly more than a quarter-cent range today above
$1.2575. Sterling settled slightly below $1.2630 last week. It has risen only
one week this year and is off by 1.1%, making it the best performing G10
currency halfway through Q1 24.

America

US January housing starts are expected to
have fallen. 
It
would be the second consecutive decline. It would make it the fourth
consecutive January that housing starts fell. The data are seasonally adjusted
but there might be a residual seasonal factor. Still the Q4 average of 1.45 mln
is the highest three-month average since October 2022. January producer prices
are also due. They typically do not move the market. Despite talk about
pipeline inflation, most seem to recognize the weak relationship with CPI and
the PCE deflator.

We suggested a
soft CPI report and weak retail sales would cap US rates and the dollar. 
As it turned out, the CPI was a bit firmer
than expected, but the retail sales report was exceptionally poor. The January
retail sales drop was four-times larger than the median forecast in Bloomberg's
survey and the December series was revised lower. The 0.8% headline decline was
largest since last February. Autos and building materials led the decline, but
9 of the 13 categories fell. Poor weather may have contributed to the drop, but
the downward revision to December suggests something more. The core measure,
which excludes autos, gasoline, food services, and building materials, fell by
0.4%. The median forecast was for a 0.2% gain. On top of that, industrial
output defied expectations for a 0.2% gain and fell 0.1% last month, led by
0.5% decline in manufacturing production. Manufacturing output fell in five
months in 2023. Mining/drilling output fell by 2.3%, the third decline in the
past four months. Utility output, likely aided by the weather, rose by 6%,
after declining by a little more than 3% over the previous three months. The
two early February Fed surveys, from NY and Philadelphia, ticked up, but do not
have much heft in the capital markets. And look at the volatility of the NY
survey:  from -14.5 in December to -43.7 in January to -2.4 in February.
Still, after yesterday's data, there was practically no change in the odds,
reflected in the Fed futures, of a rate cut in May (~45%, down from ~73% at the
end of last week. 































The Canadian dollar climbed almost 0.6%
yesterday, its biggest gain of the year.
 This reflected the weaker greenback and the risk-on mood
illustrated by the rally in the S&P 500 that closed the gap from Tuesday's
sharply lower opening. The US dollar slipped to a marginal new three-day low
near CAD1.3460 today before consolidating. It is holding mostly below
CAD1.3485. The Loonie is the second best performing G10 currency at the start
of 2024, with about a 1.75% loss. Trendline support for the US dollar is seen
near CAD1.3450, though the week's low was set on Monday closer to CAD1.3430.
Last week, it settled near CAD1.3460. The greenback is trading at a new
low for the week against the peso near MXN17.0340 today. 
The week's
high was set after the US CPI near MXN17.2285. Last week's low was
slightly below MXN17.01. With only one exception on a closing basis, the dollar
has traded between MXN17.00 and MXN17.25 for the past month. Barring a recovery
and close above MXN17.0880, the dollar would have fallen for the third
consecutive week. This would be the eighth weekly decline in the past 10 weeks.































 

Disclaimer


Source: Quiet End to a Busy Week
16
Forex / Divergence Highlighted by Back...
Last post by PocketOption - Feb 25, 2024, 06:29 am
Divergence Highlighted by Back-to-Back Quarterly Contractions in Japan and the UK but Little FX Reaction

Overview: There has been a string of disappointing
economic news today. Japan's economy surprisingly contracted in Q4 23 and the
Q3 contraction was a little deeper than initially estimates. Australia's jobs
growth was weaker than expected and unemployment rose to 4.1%, matching the
highest since November 2021. The UK's economy contracted more than expected in
Q4 23, its second consecutive quarter without growth. That seems like poor news
ahead of today's two byelections. The reaction in the foreign exchange market
is just as surprising as the data. The yen strengthened, and the dollar briefly
traded below JPY150. The Australian dollar dipped but recovered. On the other
hand, sterling is languishing and is the only G10 currency that is trading
lower today in the European morning. Emerging market currencies are more mixed.
Most currencies in central Europe are lower, while the South African rand, a
few Asian currencies, and the Mexican peso are a little firmer.

Asia Pacific equities were higher after
the US equity market gains yesterday. The main exception was South Korea's
Kospi. Taiwan led the rally with favorable news from the chip space, and the
Taiex rose by 3%. The Nikkei gapped higher to new multiyear highs. Europe's
Stoxx 600 is up a little more than 0.5% to set new high for the year. US index
futures are trading firm ahead of a slew of data before the session begins. Benchmark
10-year yields tumbled in the Asia Pacific region, playing a bit of catch-up,
while European yields are 1-3 bp lower. The 10-year US Treasury yield is off
about three basis points to 4.22%, which puts it up about five basis points
this week. Gold reached almost $1984 yesterday, a two-month low, but has
steadied today, though still below $2000. April WTI recorded a bearish outside
day yesterday and rising US inventories and worries about weak demand are
pushing back to the week's low set Monday near $75.50. 
 

Asia Pacific

In an unexpected development, Japan's
economy shrank for the second consecutive quarter in Q4 23.
The 0.4% contraction quarter-over-quarter
stands in stark contrast to the median forecast in Bloomberg's survey that
anticipated 1.1% expansion after contracting by 0.8% in Q3 (revised from
-0.7%). Consumption and business investment contracted again. Consider the
backdrop, the fiscal support (~5% budget deficit last year), the monetary
support, including negative policy rate and negative real interest rates, the
weak yen. Policy would seem to facilitate growth. Yet, one is also reminded
that Japan's population has been falling for 14 years and any growth itself is
remarkable. There are two key questions. If the economy is contracting with
such policy settings, what will it take? With the national core inflation rate
likely to follow Tokyo's and move below target, will BOJ Governor Ueda's plans
to exit the negative policy rate be disrupted? New tax cuts at the start of the
new fiscal year and the spring wage round are important (as we already knew). Ueda's
plan to raise rates has not met opposition from the political or business
circles. This seems unlikely to changed that. Negative real rates are where the
economic stimulus arises. Even at zero (and the effective rate is already at
-0.005% rather than at the target of -0.10%), overnight target rate must be
regarded as stimulative. It seems more like a technocratic approach than an
economic judgement. 

Australia disappointed too. After a horrific December that saw
Australia lose 63k jobs and about 109.5k full-time positions (revised from
~106.5K), the labor market barely stabilized last month. Australia
gained 500 jobs (median in Bloomberg's survey was for 25k jobs). About 11k
full=time positions were filled. After falling by 0.4%, the most since
September 2021, the participation rate was unchanged at 66.8%. It had reached a
record of 67.3% last November. The unemployment rate ticked up to 4.1% (from
3.9%). It is not only higher than expected, but it matches the highest since
November 2021. The employment data spurred the market to boost the chances of
an August cut to around 95% from 63% yesterday. Still, it was about 88% at the
end of last week. The market has about 46 bp of cuts discounts for this year,
while up from 35 bp yesterday, it had finished last week at 50 bp. Earlier this
month, the futures market had two cuts discounted and a little more than a 70%
chance of a third. 

The dollar's range yesterday
(~JPY150.35-JPY150.85) was set in Asia Pacific hours.
 Consolidation was seen in the
European and North American sessions. Softer US rates seems to be outweighing
the poor GDP news in Japan. The dollar trended gently lower through the Asia
Pacific session and reached a low slightly below JPY150 early European turnover.
The intraday momentum indicators are stretched, but a recovery in the greenback
may depend on the reaction to the string of US data today. After bottoming
near $0.6440 on Tuesday, the Australian dollar trended higher all day
yesterday. 
It was trading slightly below $0.6500 late in the North
American afternoon. It backed off to about $0.6480 on the disappointing jobs report
but recovered to probe the $0.6500 area in the European morning. Initial
resistance is seen around $0.6520, but the key to the near-term outlook by be
the $0.6550 area. A push above it would lend credence to the idea that
Tuesday's leg down completed the move. The somewhat heavier US dollar tone
also spilled over against the offshore yuan.
 The greenback made a
marginal new session low after the Asia Pacific session ended near CNH7.2200
and held above there today. The dollar remains in the range set on Tuesday
(~CNH7.2125-CNH7.2335). 

Europe

With Q4 GDP confirmed yesterday at flat,
the eurozone economy has not grown net-net since Q3 22. 
The Bundesbank is warning that the German
economy will stagnate in Q1 "at best." and the finance ministry has
warned a contraction is possible. In fact, the Germany economy has not grown
since  invaded e in Q1 22. With Q4 eurozone GDP behind us, there is
not much interest in today's December eurozone trade figures. For the
record, it reported a 13.0 bln euro trade surplus in December. Last year's
average monthly trade surplus was about 5.0 bln. On a 12-month moving average
basis, this is the most since the end of 2021.

The UK reported that the economy
contracted by 0.3% in Q4 23, the second consecutive quarterly contraction and a
bit more than expected.
 Consumption,
exports, and government spending fell in the fourth quarter. Yet, it seems that
the back-to-back quarterly contraction will not be enough to get the Bank of
England to change its rhetoric. Still, due to the base effect and weak economy,
inflation is likely to fall sharply in the coming months, and it could still
get the BOE to cut rates before September, which is when the swaps market has
the first cut fully discounted.

Around the time European markets closed
yesterday, the euro set the session high near $1.0735. 
Several hours in the Asia Pacific session
and in the European session yesterday, it traded below $1.07 for the first time
in three months. The euro edged a little higher today to about $1.0740, the
lower end of a resistance band that extends to $1.0765. Without taking out the
upper end of that band, the bears will feel emboldened and the late euro longs,
more pressure. In the past two CFTC reporting weeks, (the last one ending Feb
6, after the jobs data), the non-commercials (speculators) have added to their
gross long euro position (by 7.2k contracts or 900 mln euros). Sterling
was the only G10 currency that failed to gain against the dollar yesterday and
it is trading a bit heavier today. 
Still, it is holding above
yesterday's low (~$1.2535), which is above last week's low (~$1.2520). Key
support is seen at $1.2500, and sterling has not traded below there since last
November. A convincing break would target the $1.2430 area, at least initially.
It is the (50%) retracement of sterling's Q4 23's eight-cent rally. 

America

We had suggested yesterday, despite the
dramatic market reaction to the January CPI report. we did not think the Fed's
views would be altered significantly. 
Subsequently, press reports lent credence to our
suspicions. Fed Chair Powell met with some congressional representatives after
the CPI. A congressman was quoted indicating that Powell said the report was
"consistent with what they had anticipated."  Powell also noted
that the PCE deflator later this month would provide "more intel".
Indeed, the wedge between the CPI and the PCE deflator looks set to widen
further, i.e., the PCE deflator may not show the same impact of shelter and
medical services.

After stronger than expected job growth in
January and the largest monthly increase in average hourly earnings, there is
risk that January retail sales is firmer than expected. 
The headline rate may have been dragged
down by the decline in auto sales (15.0 mln SAAR from 15.8 mln last December).
We also already know that the average price of retail gasoline in the US
slipped by a little more than 1% in January, the fourth consecutive monthly
decline. Excluding autos and gasoline, the median forecast in Bloomberg's
survey calls for a 0.2% increase. The US also reports January industrial
production. A small gain is likely, but it probably comes from utilities and
mining/drilling, rather than manufacturing, Still, with the manufacturing
employment rising 23k in January, there could be a modest upside surprise to
the median forecast of a flat report. The US also sees the February Empire
State and Philadelphia Fed surveys. Recall that the Empire State survey
collapses in January to -43.7 from -14.5 in December. The Philly Fed survey did
not confirm the dramatic weakness of the Empire State survey. Economists look
for the Empire State survey to recover January's spill in full, while the Philadelphia
Fed survey may improve marginally.

It seems there is a steady drum beat
blaming China for all that ails America, in what often seems to be typical
externalization. 
An
old issue is being revisited. China is said to be exporting deflation. We are
skeptical. First, China's producer prices are falling but that is because of
the price of commodities, which have fallen as supply chains re-opened, amid
demand worries. Of course, with the Middle East conflict, new disruptions are
possible. The correlation between changes in China's producer prices and US
import prices is less than 0.2 over the past 36 months and slightly more than
that over the past 60 months. Second, the deflation in Chinese consumer prices
is largely a function of food prices. In fact, over the past two months,
China's CPI has risen by about 2.4% at an annualized rate. Third, even if
China's surplus capacity makes for cheaper goods exports, the eventual cost to
the American consumer is considerably higher, given storage, shipment,
marketing, and insurance costs that are incurred onshore, not to mention
profit-margins. Fourth, American consumers spend more on services than goods
typically and key elements of the CPI/PCE basket like shelter, medical costs,
food, and energy are driven by domestic considerations. Of the forces impacting
US inflation, we would not put China's deflation very high on that list. 



































The US dollar saw its
session low yesterday against the Canadian dollar in the European morning, near
CAD1.3530.
 It set a
high in North America around CAD1.3560. Given the recent run-up, the pullback
from Tuesday's high (~CAD1.3585) is shallow. The (38.2%) retracement of the
last leg up is around CAD1.3520, and the US dollar is approaching it in
European turnover. Nearby support is in the CAD1.3480-CAD1.3500 area, but the
CAD1.3450 area is more important. Meanwhile, the US dollar gave back
most of the CPI-inspired gains yesterday. 
Tuesday's low was slightly
below MXN17.0650. Yesterday, the dollar recorded its low late in the session
below MXN17.09, and today, reached about MXN17.0455. The dollar has not traded
below MXN17.00 since mid-January. Options for about $580 mln expire there today
another batch for around $545 mln expire there next Tuesday. 


Disclaimer


Source: Divergence Highlighted by Back-to-Back Quarterly Contractions in Japan and the UK but Little FX Reaction
17
Forex / Japanese Officials Weigh-In an...
Last post by PocketOption - Feb 25, 2024, 06:29 am
Japanese Officials Weigh-In and Help Yen Stabilize, while Euro and Sterling Extend Losses

Overview: The market's reaction to the firmer than expected
January CPI seems exaggerated. We do not think it was the game-changer for the
Federal Reserve that the market seemed to think. The dollar was driven higher,
and it is stabilizing today, though the euro and sterling extended their
losses, most of the other G10 currencies did not. After the yen's six-week
slide did not elicit a response from Japanese officials, yesterday's drop did,
and this may have helped steady the exchange rate today. However, the dollar's
advance against the yen does not seem over. Emerging market currencies are
mostly heavier. The Mexican peso, which was the worst performer yesterday is
the best today with a minor gain of about 0.20%. 

After the sharp US
equity losses yesterday, Asia Pacific markets followed suit. However, Europe's
Stoxx 600 is up almost 0.5% to recover about half of yesterday's losses, while
US index futures are also firmer. Asia Pacific yields were dragged higher by
the surge in US rates, but European yields are off 3-4 bp except for UK Gilts,
where the softer headline inflation reading has seen the 10-year yield tumble
almost 10 bp. The 10-year US Treasury yield is off around three basis points to
near 4.28%. The strong dollar and higher interest rates sent gold to a new low
for the year yesterday near $1990. Follow-through selling was limited to around
$4 today and the yellow metal has recovered back into yesterday's range. April
WTI reached about $78.10 yesterday and is consolidating with a firm bias today
despite the large rise in inventories according to API.

Asia Pacific

Japan reports
Q4 23 GDP first thing tomorrow. 
It
is likely to have returned growth after contracting at an annualized rate of
2.9% in Q3. Consumption and business investment fell in Q2 and Q3 and are
expected to have risen in Q4. Exports also appear to have been stronger, but
they need to be put into a larger context. On Japan's GDP-chain-weighted real
net exports (four-quarter moving average) was a drag in 2022 by an average of
0.1% and has been between -0.1% and 0.1% for the previous five years. For the
same reason that US companies embraced a direct investment strategy to address
foreign demand, namely protectionism and an over-valued currency, led Japanese
companies to embark on a similar strategy. Consider the auto sector. In 2022,
Japan exported about 1.3 mln vehicles to the US and built another 2.8 mln in
the US. In 1984, amid "voluntary export restrictions," Japan exported
almost 1.7 mln vehicles to the US and built about 2.2 mln in the US (figures
from Statista). 

The Reserve
Bank of Australia is seen as a laggard in the monetary easing cycle within the
G10 that is expected to start later this year. 
It did not raise rates as aggressively as most and
underlying inflation has been sticky. The market does not have the first cut
fully discounted until September, though there is roughly an 80% chance of a
cut in August. The futures market anticipates about 45 bp in cut this year. It
had reached almost 70 bp late last year. Australia reports its January
employment data tomorrow. Another weak report (December saw a loss of a heady
106.6k full-time jobs with the unemployment rate holding steady at 3.9%) could see
the market boost the chances of an earlier hike. Australia unemployment rate
had been at 3.5 as recently as the middle of last year.

The jump in US
rates lifted the greenback to nearly JPY150.90, its highest level since the
middle of last November.
 Stop-loss
and option-related buying may have been triggered on the push above JPY150.
Between yesterday, today's and Friday's expirations, there were more than $5
bln of options struck there. Comments by Japanese officials may have helped
deter additional dollar buying so far today. Both Finance Minister Suzuki and
Vice Finance Minister Kanda cautioned the market and warned although the move
is partly fundamentally based, there was an undesirable speculative element. A
minor pullback saw the greenback slip to JPY150.35, just below the upper
Bollinger Band (~JPY150.50). The JPY151.40 area may offer mild resistance, but
the big target is last year's high near JPY152. The dollar had a six-week
advance coming into this week. The Australian dollar was bowed by the
greenback's surge and slipped through $0.6450 and set a new low for the year.
It
has stabilized today, holding above yesterday's low. It and recovered to about
$0.6480 but appears to have run out of steam. The lower Bollinger Band is found
near $0.6455 today. Recall that on Monday, it reached a six-day high near
$0.6545. The broad strength of the dollar, especially against the Japanese
yen saw it trade higher against the offshore yuan. 
As we have noted,
the offshore market more often than not respects the onshore band. The top of
that band would be about CNH7.2455. It reached roughly CNH7.2335 yesterday and
slightly higher today. The low has been a little below CNH7.2260 and is near CNH7.2275
in the European morning. 

Europe

The eurozone
gave us another look at Q4 23 GDP today. 
It confirmed a stagnant quarter, leaving the economy
0.1% larger than in 2022. The odds of a March cut steadily fell in recent
weeks. An April cut had been fully discount in the swaps market at the end of
January but has been downgraded to about 55%.

The UK reported
a 0.6% decline in headline inflation, twice the decline expected by the median
forecast in Bloomberg's survey.
This
saw the year-over-year rate stay at 4.0% because January 2023's 0.6% decline
dropped out of the 12-month comparison. Services are particularly sticky.
It ticked up to 6.5% from 6.4% above year ago levels, which was less than
expected. The cyclical high was set at 7.4% last May and July. It was 6% in
January 2023. We anticipate a sharp drop in UK inflation in the coming months.
In February 2023, headline CPI rose by 1.1%, 0.8% in March, 1.2% in April and
0.7% in May. These will be replaced by much lower numbers and will generate a
sharp drop in headline CPI. With some conservative estimates (0.3% a month), UK
headline CPI around 2%. Separately, producer prices showed continued deflation.

The euro has
been pushed below $1.07 after it held albeit barely yesterday.
There were about 1.6 bln euros in options that expired
there yesterday, 1.7 bln euros expire there today, and another batch for 2.1
bln euros expires at $1.07 on Friday. The euro has been capped in the
$1.0720-25 area. The break of $1.07 give the next target of $1.0650, while the
measuring objective of the head and shoulders pattern projects toward $1.06. We
had looked for a low near $1.0725 and thought the $1.06 was less likely, but
the price action must be respected. Still, the intraday momentum indicators are
stretched, and short-term operators may be reluctant to sell the euro in the hole
before a bounce. Sterling had initially rallied on the resilience of
the UK labor market, but the US CPI trumped UK employment and sterling reversed
and settled below Monday's low (~$1.2605).
It recorded a bearish outside
down day, falling to about $1.2575. Follow-through selling after the UK CPI
report sent sterling to around $1.2535. Some of the selling may have been
spurred by the option for GBP642 mln at $1.2550 that expires today. Sterling
has pierced the lower Bollinger Band (~$1.2540). Last week's low was near
$1.2520. The intraday momentum indicators are stretched, suggesting limited
immediate downside before a bounce. 

America

The market had
a dramatic reaction to news that US headline CPI slipped to 3.1% year-over-year
from 3.4% in December. 
The core
rate was steady at 3.9%. The data was slightly firmer than expected and
appeared driven by shelter costs. In particular, owner-equivalent rent rose by
0.6% and lodging costs jumped 2.4%. Other services prices were also firm.
Medical service prices rose by 0.7% and transportation prices rose by 1%. The
US two-year yield rose by 16 bp at its most before settling up about 13 bp
(4.60%). The 10-year yield rose for the fifth consecutive session and seven of
the last eight. It reached its highest level in three-months a little above
4.30%. The futures market reduced the odds of a May cut to about 40% from 69%
on Monday and 73% at the end of last week. It also scaled back the extent of
this year's cuts to about 107 bp from 112 bp on Monday and 168 bp on January
12. Next month's FOMC meeting will update the Summary of Economic Projections.
In December, the median forecast was for three cuts this year. Still,
on balance, we suspect that economists forecasts are not so significant for
the Federal Reserve, and that the January inflation report is consistent with
the good data that Fed Chair Powell had said the central bank wanted to see.
 Moreover,
the shelter prices have less weight in the PCE deflator, which the Fed targets.
Medical services in the PCE are derived from a different time series than used
for CPI calculations.

This is the
lightest day of the week for US high-frequency economic reports--caught between
the yesterday's CPI and tomorrow's retail sales, industrial production,
Philadelphia Fed, business inventories, and jobless claims. 
Chicago Fed President Goolsbee (non-voter) and Fed
Governor Barr speak today (first time this month), followed by Governor Waller
(also first time this month) and Atlanta Fed President Bostic tomorrow. At
least 13 Fed officials have spoken this month, and none seem to be flagging a
March cut. Two regional Fed presidents (Richmond's Barkin, voter this year, and
Boston's Collins, non-voter) said they wanted to see not only a decline in
inflation, but also a broadening of disinflation forces outside of goods. However,
as much as some want to see more dissent/drama, we are not convinced this is
really a new benchmark. Rather, it seems to provide more detail on what it will
take to keep inflation trending lower.

The US dollar
pushed through the triple top against the Canadian dollar near CAD1.3540 and
reached almost CAD1.3590. 
The
Canadian economy is nearly stagnant and the divergence with the US is stark.
The sharp sell-off in US equities added the weigh on the Loonie, which, after
everything was said and done, fared better than the other dollar-bloc
currencies and the Scandis. Still, the US dollar's nearly 1.0% gain was the
most in nearly a year. It is in a narrow range today (~CAD1.3535-70) below
yesterday's high. However, the greenback's drift lower is stretched the
intraday momentum indicators, warning of the risk of another thrust higher. The
US dollar reached a six-day high near MXN17.2285 and settled strongly.
 It
is consolidating between about MXN17.16 and MXN17.2060. Last week's high was
near MXN17.2810 and the 200-day moving average is closer to MXN17.38. The
Mexican peso was the worst performer in Latam yesterday and we suspect this
reflects market positioning and the use of the peso as a proxy for less
accessible emerging market currencies. Given the Brazilian holiday yesterday, Brazil may have such catch-up to do today. 





























 

Disclaimer


Source: Japanese Officials Weigh-In and Help Yen Stabilize, while Euro and Sterling Extend Losses
18
Forex / Sterling Buoyed by Labor Marke...
Last post by PocketOption - Feb 25, 2024, 06:29 am
Sterling Buoyed by Labor Market Report Ahead of US CPI

Overview: The US dollar is enjoying a mostly firmer bias ahead
of today's CPI report. Sterling is the strongest among the G10 currencies after
a more resilient than expected labor market report. The dollar extended its
gains against the Japanese yen to a new high since last November, but the
market seems cautious as it approaches JPY150, where large options expire today.
On the other hand, emerging market currencies are mostly faring better. The
Mexican peso and Polish zloty of notable exceptions and are nursing minor
losses.

The Nikkei set new 30-year+ highs and at one point rose 3% today, the most
since November 2022 before settling up nearly 2.9%. It is about 2.5% away from a record
high. Most markets in the Asia Pacific region rose today, though Australia and
New Zealand were exceptions. Europe's Stoxx 600 is giving
back around half of yesterday's 0.55% gain. US equity index futures are trading
lower after the S&P 500 and Nasdaq failed hold earlier gains yesterday.
European benchmark yields are a little lower, but that better-than-expected UK
jobs report is weighing on Gilts, where the 10-year yield is about two basis
points higher. Gold is steadying after reaching a 12-day low yesterday near
$2012. It is near $2026 European turnover. Lastly, April WTI is extending
yesterday's recovery and has pushed above $77 a barrel for the first time this
month. The year's high was set in late January slightly above $79.0. 

Asia
Pacific

Japanese
markets re-opened from the long weekend holiday.
It reported that producer
prices did not decline on year-over-year basis for the first time since the end of 2022. Japanese
producer price inflation peak in December 2022 at 10.6%, and after slowing
every month last year stood at a revised 0.2% in December 2023 and was steady
at 0.2% in January. Separately, Japan reported January tool orders were off
14.1% in January year-over-year after falling 9.7% in January 2023. It looks
like a poor start of the year for capex. The highlight of the week is the Q4 23
GDP due early Thursday. The world's third-largest economy is expected to have
grown by about 0.2% after contracting by 0.7% in Q3.

Australia's
January employment report is due early Thursday.
 After losing 65k jobs
in December, economy expect Australia to have grown 25k jobs in January. Watch
full-tine jobs, which collapsed by more than 106k in December. The
participation rate may have ticked up to 66.9% after falling from a record high
of 67.3% last November to 66.8% in December. The unemployment rate may have
risen to 4%, which would match the highest since January 2022.

Even
without the help of rising US interest rates, the dollar rose to almost
JPY149.50 in the overlap between Europe and North American session.
It
edged up to almost JPY149.70 today, a new three-month high. It has not traded
above JPY150 since November 17. There are options for $1.4 bln struck at JPY150
that expire 90 minutes after the market-sensitive US CPI today. The dollar's
six-week rally against the yen matches the longest streak since Aug-Oct 2022. Until
Japanese officials protest, the market pushes onward. The market has been
fairly orderly, though it is knocking on the upper Bollinger Band (~JPY149.75).
The Australian dollar made a new marginal high yesterday, a few hundredths
of a cent above last week's high. 
It traded briefly trade above the
(50%) retracement of the losses from the high seen before the US jobs report on
February 2. There has been no follow-through buying today, and the Aussie has
mostly traded between $0.6510 and $0.6530 today, showing little inclination to
break out of the week-and-a-half long congestion. While the mainland markets
are closed, we expect the dollar to trade inside the onshore band, which keeps
it roughly between CNH6.9615 and CNH7.2455. 
Unlike its performance
against the yen, the dollar did briefly trade above last week's high, reaching
nearly CNH7.2255 yesterday. The high for the year was set on January 17
slightly above CNH7.2320. Today's range has been roughly
CNH7.2140-CNH7.2230. 

Europe

The
eurozone has a light economic calendar this week.
The German ZEW survey was
reported today. The expectations component continues to improve. February was
the seventh consecutive monthly improvement. It stands at 19.9, up from 15.2 in
January and 12.8 at the end of last year. However, remember the ZEW
expectations rose for five months through last February before falling again. Perhaps,
what has weighed on expectations is the continued poor current assessment. It
fell to -81.7 from -77.3. It took out last October' at -79.9. It had firmed
slightly in November and December before falling in January.

The
UK's labor market is slowing gradually, but today's report was stronger than
expected.
The loss of payrolled employees in January was revised to a gain
of 31k (from-24k) and the January gain of 48k was well above the -18k median
forecast in Bloomberg's survey. Those claiming unemployment benefits in January
rose to 14.1k, but the 11.7k increase in December was halved to 5.5k. More
importantly from a policy point of view, wage growth did not moderate as much
as expected. Average weekly earnings three-months year over-year through
December slowed to 5.8% (not 5.6%, as expected) from a revised 6.7% pace
(initially 6.5%). In response, the market has downgraded the chances of a May
cut to less than 60%, the least since late November and taken sterling to a new
seven-day high near $1.2670.

The
euro traded on both sides of last Friday's range (~$1.0760-$1.0795) yesterday.
In
fact, the euro traded above $1.08 for the first time since the US jobs report
on February 2. To boost the near-term outlook, the euro needs to push above the
$1.0830 area, which houses the 20- and 200-day moving average and the (61.8%)
retracement of the losses since February 2. Instead, the single currency is
mired in a narrow range in the lower end of yesterday's range. It looks to be
going nowhere fast. With the help of the resilience of the UK's labor
market, sterling recorded a higher high for the third day running.
Unlike
the euro, it is above its 200-day moving average (~$1.2565). It overcame the
(50%) retracement of the losses since February 2 to reach the 20-day moving
average (~$1.2670) and approach the next retracement (61.8%) near $1.2675. Nearby
resistance is seen around $1.2700.

America

US
headline January CPI is expected to rise by 0.2% for the third consecutive
month.
Given that last January's 0.5% increase drops out of the 12-month
measure, it should be around 3.0%-3.1%. The year-over-year rate bottomed at 3%
last June and was at 3.4% in December. Recall that in Q1 23, US CPI rose at an
annualized rate of 4% and in Q4 23 rose at a 2% annualized rate. Similarly, the
core rate is expected to have risen by 0.3% for the third consecutive month. It
rose by 0.4% in January 2023, so the year-over-year rate may have ticked down
to 3.7%-3.8%.

Fed
Chair Powell said two things that seem particularly relevant the post-FOMC
press conference in this context.
First, he said that the Fed was not
necessarily looking for better data but simply good data, continuing the recent
trend. A 0.2%/0.3% headline/core CPI meets that bar. Second, Powell, opined
that officials would unlikely be sufficiently confident that inflation is on
course to reach the 2% inflation target on a sustained basis by the March FOMC
meeting (March 19-20). Before that meeting, there is another jobs report and
CPI.

The
US dollar traded inside last Friday's range against the Canadian dollar in
quiet dealings.
The five-and 20-day and 200-day moving averages converge in
the CAD1.3465-CAD1.3475 area. Initial support near CAD1.3400 held before the
weekend and in the second half January and then again last week. The greenback
was capped around CAD1.3540. The greenback is trading quietly in a narrow
20-tick range above CAD1.3445 today. The US dollar peaked last Monday a
little above MXN17.28.
 Support was found in mid-week near MXN17.00. The
dollar has drifted lower seven of out the past nine weeks. However, that said,
the dollar has been confined to the range set on January 16-17:
~MXN16.88-MXN17.38. It is trading between roughly MXN17.0640 and MXN17.0955 so
far today. Trendline resistance is seen near the 200-day moving average
MXN17.30. The dollar has frayed BRL5.0 resistance but has not closed to the end
of October. Yesterday, the greenback found support near BRL4.95, the midpoint
of the month-long range.

































 

Disclaimer


Source: Sterling Buoyed by Labor Market Report Ahead of US CPI
19
Forex / The Greenback is in Narrow Ran...
Last post by PocketOption - Feb 25, 2024, 06:29 am
The Greenback is in Narrow Ranges to Start the Week

Overview: The foreign exchange market is quiet. The
Lunar New Year holiday shut most Asian markets. That, coupled with the light
news in Europe, have served to keep the dollar in narrow ranges against the G10
currencies. The Swedish krona, Norwegian krone, and Japanese yen are posting
minor gains against the greenback. The New Zealand dollar, which was strongest
major currency last week (1.4%) is off by almost 0.5% today, making it the
weakest today. RBNZ Governor Orr underscored the recent message that inflation
is still too high (~4.7%). Emerging market currencies are narrowly mixed
(+/-0.2%). Of note, India reports December industrial production and January
CPI shortly.

The few equity markets in the
Asia Pacific region that were not on holiday today, including Australia, India,
and New Zealand slipped. Political uncertainty in Pakistan saw its stock market
tagged for 3%. On the other hand, Europe's Stoxx 600 is trying to snap a
three-day fall (less than 0.4%). Of note, real estate is the strongest sector
today, rising by more than 1%. US index futures are trading firmly after new
record-highs before the weekend. Benchmark 10-year bond yields are 3-6 bp lower
in Europe. The 10-year US Treasury yield is off a basis point to around 4.16%.
Gold is trading with a softer bias near $2020. Last week's low was around $2015.
April WTI set this month's high before the weekend near $77.15. It is
approaching the pre-weekend lows slightly below $76. Support is seen closer to
$75. 

Asia Pacific

The top two BOJ officials
played down speculation that the central bank's from negative interest rates
will signal the start of a tightening cycle, and for good reason.
First, inflation is already well off its
peak and could easily fall below the 2% target before the April BOJ meeting
that is widely expected to adjust policy. Second, despite a shortage of
workers, (Japan's working age population peaked nearly 30 years ago) and the
gradual opening to foreign workers, wage growth continues to lag inflation. Third,
and related, domestic demand is soft. Toward the end of the week, Japan will
publish its initial estimate of Q4 GDP. Consumption is likely to have recovered
weakly from the contraction in Q2 and Q3 23. In the five years (20 quarters)
before the pandemic, Japan's private consumption component in its GDP contracted by
an average of 0.2% a quarter. Also, note that although the BOJ set the
overnight target rate at minus 0.10%, the effective rate at
the end of last week was 0.005%. Governor Ueda is determined to exit the
negative interest rate policy for technical and strategic reasons. Arguably,
there was windows of opportunity previously, where the macroeconomic setting
was conducive to exiting the negative policy rate. 

Most Asian markets were
closed today, and China's mainland markets are closed all week for the Lunar
New Year holiday.
We
expect that after the holiday, more efforts to support the economy and fight
deflation will be forthcoming. Despite the stimulus in H2 23, the economy does
not seem responsive. The assumption that the state-owned banks are just arms of
the government is challenged by the same banks not fully passing on the PBOC's
lower rates. The one- and five-year loan prime rates will be set on Feb 20. The
same state-owned banks have also been reluctant to lend to the property market
and enact the support measures Beijing unveiled in 2022. Lastly, consider the
offshore yuan. It does not have to but with few exceptions respects the onshore
band (2% for the dollar around the reference rate). Why? While the PBOC could
intervene there, but when it does it is fairly clear. The last reference rate
creates a band of ~CNH6.9640-CNH7.2485. Is it too much to suggest that the same
mechanism that keeps the offshore yuan within the onshore band explains a great
deal of how the PBOC manages the exchange rate? To paraphrase an old Chinese
saying, "kill an occasional chicken to scare the
monkeys."  

The dollar edged a little
closer to the JPY150 level ahead of the weekend (~JPY149.60) before settling
virtually unchanged near JPY149.30.
There are around $1.4 bln in options at JPY150 that expire
tomorrow. During the six-week decline in the yen, speculators in the futures
market have grown their net short yen position by more than 50% to 84k
contracts (~$7 bln). The greenback is a narrow range of about a third of a yen
above JPY149. The price action looks like a bullish pennant or flag, The
Australian dollar's range last week, roughly $0.6470-$0.6540, is the key to the
near-term direction. 
We favor an upside break and watching the
possible bullish divergence with some of the momentum indicators but recognize
the $0.6555-75 area to be an important hurdle. The Aussie eked out a small gain
last week (~0.20%), the first of the year. Speculators in the futures markets
added to their net short Australian dollar position for the fourth week in a
row. It now stands at about 71.8k contracts (~$7.2 bln), up from 32.3k before
the streak began. The Aussie is trading in about a fifth of a cent range above
$0.6510.

Europe

The European economic
calendar is light this week, and what there is, may be a sad reminder of the
Europe's sad state.
Eurostat
will publish the details of Q4 23 GDP. The initial estimate had the regional
economy stagnating after a 0.1% contraction in Q3. The dramatic 1.6% drop in
Germany December industrial output (-3.0% year-over-year) underscores the lack
of growth impulses to start the new year, and the weakness of what had been the
European engine. At the same time, leadership is weak. Among the large members,
Italy's Meloni, right-government seems among the strongest, and incidentally,
the economy is doing better (but still not well). In 2022, Germany grew by 1.8%.
Italy grew twice as fast. Last year, the German economy contracted by 0.3%,
while Italy expanded by 0.7%. On the other hand, Italy's budget deficit was
about 5.4% of GDP last year, while Germany's was less than 2.5%. Italy's
10-year premium over German narrowed to about 140 bp at the end of January,
almost a two-year low, after rising to a nine-month peak last October over 200
bp. It is snapping back this month is near 155 bp. Italy's two-year premium
peaked near 95 bp in the middle of last October and fell to almost 45 bp late
last month. Last year's low was below 30 bp. It has jumped to about 65 bp now,
the most since last November.

The Swiss franc was the
strongest G10 currency in Q4 23 as dollar fell across the board.
It rose 8.8% and so far, this year, the
franc has fallen by about 3.9%. The dollar approached the (50%) retracement
objective (~CHF0.8790). Above there is the 200-day moving average (~CHF0.8845)
and the (61.8%) retracement near CHF0.8900. The euro is recovering from
multiyear lows set against the franc in Q4 23 (~CHF0.9255). It traded up to
almost CHF0.9475 last month but pulled back to support near CHF0.9300 earlier
this month. There may be potential toward CHF0.9500-CHF0.9550. Switzerland
reports January CPI tomorrow. The EU harmonized measure is expected to slip to
2.0% from 2.1%. Its own measure is seen easing to 1.6% (from 1.7%) and the
core rate to 1.4% (from 1.5%).

The euro reached a six-day
high late in thin Asia Pacific turnover near $1.0805.
It was quickly sold to almost $1.0765
before finding a bid in early European turnover. It is the fourth session of
higher highs. The pre-weekend low was almost $1.0760, and a break of the
$1.0755 area would weaken the fragile technical tone. There are options for
about $755 mln euros at $1.08 that expire today. There are large (1.4-1.5 bln euros)
at $1.07 that expire tomorrow and Wednesday. Stiff resistance is seen in the
$1.0830-40 area. Sterling recovered after breaking down at the start of last
week (~$1.2520) but settled back into the $1.26-$1.28 trading range in the past
three sessions.
 The $1.2640 area had capped but, like the euro, set a
new six-day high before Europe opened and took sterling down to almost $1.2615.
Before the weekend, sterling briefly frayed the $1.26 level. It is an important
week for UK data, including the labor market report tomorrow and the January
CPI on Wednesday. Soft data may encourage bringing forward the first rate cut
to June from August. 

America

Interest rates and
expectations are a key force driving exchange rates.
The market has gradually reduced the odds
May rate cut to about 73% from 90% chance after the strong January jobs growth.
It also scaled back the magnitude of Fed cuts by about 50 bp (to ~112 bp) in
the past month. Tomorrow's CPI, more than last week's historic revisions, is a
key input into the Fed's reaction function. Fed Chair Powell recently indicated
the central bank was looking for more confirmation that inflation was on a
sustained path back to its target. The January figures will give the Fed that. Ahead
of it, the results of the NY Fed's inflation survey are of little consequence.

Canada reported a loss of
full-time jobs in January for the second consecutive month.
Wage growth slowed. The decline in the
unemployment rate to 5.7% (from 5.8%) can be explained by the decline in the
participation rate (65.3% vs. 65.4%). The takeaway is that the market boosted
the chances of a June rate cut (to ~77% vs. ~67%). Despite the risk-on mood,
which lifted the S&P 500 to a new record high, the Canadian dollar found no
traction. It fell slightly for the first time in three sessions. The US dollar
made session highs near midday in NY ahead of the weekend near CAD1.3480. The
greenback is in a narrow 20-tick range above CAD1.3450 so fat today. Nearby
resistance is seen in the CAD1.3500 area but the greenback has been turned back
from the CAD1.3540 area three times. There are options for about $630 mln at
CAD1.35 that expire tomorrow. The Mexican peso weakened after the central
bank seemed to prepare the market for a rate cut as early as next month.
However,
it recovered and returned to pre-central bank levels near MXN17.08. It has
edged low today to MXN17.0640. MXN17.00 was tested early last week. Around $580
mln of options expire there on Thursday. The US dollar reached BRL5.0175 at the
start of last week. On the pullback, it found support near BRL4.95. It settled
last week just above there. There is a band of technical support between
BRL4.91 and BRL4.93.



























 

Disclaimer


Source: The Greenback is in Narrow Ranges to Start the Week
20
Forex / Week Ahead: Will Soft US CPI a...
Last post by PocketOption - Feb 25, 2024, 06:29 am
Week Ahead: Will Soft US CPI and Retail Sales Mark the End of the Interest Rate Adjustment and Help Cap the Greenback?

The
markets are still correcting from the overshoot on rates and the dollar that
took place in late 2023. The first Fed rate cut has been pushed out of March
and odds of a May move have been pared to the lowest since last November. The
extent of this year's cuts has been chopped to about 4.5 quarter-point move
(~112 bp) from more than six a month ago. The market has reduced the extent
of ECB cuts to about 114 bp (from 160 bp at the end of January and 190 in late
2023). The Bank of England is now expected to cut rates three times this year
(75 bp), which is nearly 100 bp less than was discounted at the end of last year. The extent
of Bank of Canada rate cuts this year has been halved to less than 80 bp from
160 bp in late December 2023. We suspect that the interest rate adjustment is
nearly over. A soft US CPI and weak retail sales report next Tuesday and
Wednesday could help cap US rates and signal the end of the dollar's New Year rally. 



The UK reports CPI on February 14, and
given the base effect (-0.6% in January 2023), even a 0.3% decline in prices
last month, the year-over-year rate is likely to rise (to 4.2%-4.3%). However,
the bigger story for the UK, the eurozone, and Canada is that inflation rose
sharply in the Feb-May period last year, and as these drop out of the 12-month
comparisons, the year-over-year rates will fall dramatically. The UK and Japan will
report Q4 23 GDP. The UK economy likely contracted slightly for the second
consecutive quarter. Japan, the world's third-largest economy, likely returned
to growth after contracting at an annual rate of almost 3% in Q3. Consumer
spending and capex fell in Q2 and Q3 24. Both likely recovered. The UK and
Australia report new labor market figures. In the UK wages are moderating and
the economy likely lost full-time positions for the second consecutive month in
January. It is difficult to image a worse employment data than Australia
reported last month. It lost 106k full-time jobs, which, outside of the
pandemic, looks like the worst on record. 



United States:  The data and official guidance have
pushed out expectation of the first Fed cut and reduce the extent to this
year's cut. The market's confidence (~73%, down from 90% after the employment
data) of a May move still seems too high given the apparent momentum the
economy enjoys in early 2024, even if we do put too much emphasis on the
Atlanta Fed's GDP tracker (3.4%) this early in the quarter. The market has
about 4.5 Fed cuts discounted this year, down from more than six cuts as
recently as mid-January. The May decision is unlikely to be determined by
January data. That counts even this week's highlights of CPI, retail sales, and
industrial production.



At his post-FOMC press conference, Fed
Chair Powell called attention to "six months of good inflation." This
looks to have continued into this year. The headline CPI rate is seen rising by
0.2% (February 13), which, given the base effect (0.5% in January 2023), would
see the year-over-year rate fall to 3.0%-3.1% from 3.4%  Yet, the median
forecast from the nine economists that participated in Bloomberg's survey (by
end of last week) see it falling to 2.9%. The core rate is expected to rise by
0.3% for the third consecutive month and the fifth time in six months. That may
be more important that the softer year-over-year rate (~3.7% vs 3.9%). 

January
retail sales (Feb 15) may have been dragged down by disappointing auto sales
(15 mln SAAR, down from 15.83 mln in December). Consumption would appear be off
to a slow start after retail sales rose by an average of 0.2% in Q4 23 after a
blistering 0.7% average gain in Q3 23. The median forecast is for a 0.2%
decline in headline retail sales (+0.6% in December). On the other hand,
industrial production (Feb 15) appears to have accelerated and the 0.3%
increase the median in Bloomberg's survey is looking for would be the strongest
in six months. However, manufacturing itself may be flat. Other high frequency
data points include producer prices (year-over-year rates are below 2%),
housing starts and permits (small gains expected), and a number of early
regional Fed surveys. Of note, the Empire State Manufacturing Survey crashed in
January (-43.7 from -14.5) and a sharp snap back is expected in February. On
balance, the data is likely to be consistent with the US economy expanding
somewhat faster than what the Federal Reserve believes is the long-term
non-inflation pace (1.8%). 



The big outside day for the Dollar Index
after the US employment data on February 2 saw follow-through buying at the
start of last week. It reached 104.60, the highest level since the
middle of last November and spent the rest of the week consolidating above 103.95. A
move above the 104.80 is needed to reignite the upward momentum. Despite the
stretched momentum indicators and the proximity of the upper Bollinger Band
(~104.50), there is little technical sign of a top. That said, given the nearly
4% rally off the late December lows, this is the area where we are beginning to
look for a reversal pattern.



Eurozone:  Details for Q4 23 GDP (flat and
0.1% year-over-year) will be released with the revisions on February 14. It may
be interesting for economists, but the general thrust is sufficiently known for
businesses and market participants. The eurozone economy is stagnating or worse.
In the last five quarters through Q4 23, in aggregate, there has been no
growth. Still, the details of fourth quarter GDP saps much interest in high
frequency data from the end of last year. More importantly is the momentum at
the start of the new year and the data so far have been limited to some surveys
and a preliminary estimate of January CPI (-0.4% month-over-month and minus 3.2%
at an annualized rate in the last three months). There seems to be little
reason to expect new growth impulses, leaving this quarter to be flat to +0.1%.



The euro's low for the year was set at the
start of last week slightly below $1.0725.
The subsequent recovery stalled in the $1.0790-95 area,
meeting the (38.2%) retracement objective from the Feb 2 high set shortly
before the US January jobs report. The momentum indicators remain stretched, as
one would expect, given the five weeks of losses in the first six weeks of the
year. And if there is a more of a recovery, the $1.0810-40 area may offer stiff
resistance. The 20-day moving average, which the euro has not closed above
since January 2 is found at the upper end of that band. Note that there are
options for 2.5 bln euro at $1.0725 that expire Monday and options for 1.5 bln
euros at $1.07 expire shortly after the US CPI report on February 13.  There is another 1.4 bln euro s at $1.07 that expire Wednesday. 



Japan:  In each of the past six years, the
Japanese economy contracted in at least one quarter (in 2018 and 2022 there
were two contracting quarters). Last year, it was the third quarter, when
output fell by 0.7% (quarter-over-quarter). A stabilization in consumption and
a recovery in private investment, both of which fell in Q2 23 and Q3 23, likely
helped return the world's third largest economy to growth. Exports also
increased. The GDP deflator appears to have peaked in Q3 23 at a 5.3%
year-over-year pace. On the back of firmer US Treasury yields and comments by
BOJ officials that downplayed the likelihood of a tightening cycle even after
negative interest rate policy is jettisoned, the dollar rose to nearly
three-month highs against the yen (~JPY149.60). Although Japanese officials
have not expressed concern about the price action in the foreign exchange
market, the yen's six-week drop is the kind of one-way market that is resisted.
The November high was near JPY149.75, in front of the psychologically important
JPY150 level. There are $1.4 bln in options at JPY150 that expire shortly after
the US CPI report on February 13. A move above JPY150 brings last year's high
near JPY152 into view.



United Kingdom: It is an important week for UK data and
the jobs report and the CPI, in particular will likely impact expectations for
interest rate policy. Average weekly earnings have slowed for four consecutive
months through November and look poised to continue to slow as the labor market
cools. The key message on UK CPI is that it will fall sharply starting the
February report and running through May. In those four months in 2023, UK CPI
rose by an average of 1.0% a month. In the last four months, through January,
the UK's CPI rose by an average of 0.2% a month. Due to 0.6% decline in January
2023 UK CPI, the 0.3% decline expected for last month's CPI will translate into
a small increase in the year-over-year rate. But that is not the signal. Even
if UK's inflation averaged 0.4% in the Feb-May period this year, the headline
year-over-year rate would still slip below 2% (from 4% in December). The core
rate is firmer, but the direction is lower. It peaked at 7.1% last May and
finished the year at 5.1%. The UK also reports Q4 23 GDP. Recall that the
monthly print showed a 0.3% contraction in October followed by 0.3% growth in
November. It is seen contracting by 0.2% in December. That would likely
translate to a 0.1% contraction quarter-over-quarter for the second consecutive
quarter. Surveys suggest manufacturing remains weak while the services are
finding traction. The swaps market has about a 70% chance that the first cut is
delivered by midyear. Three cuts and about a small chance of a fourth cut is
discounted for this year. 



Sterling broke out of its $1.26-$1.28
trading range to the downside at the start of last week, largely on
follow-through selling after the US jobs report on February 2. It bottomed near
$1.2520 and recovered to settle above $1.26 for the past three sessions. Sterling's
recovery stalled near $1.2645, the (50%) retracement of the losses from
February 2 high (~$1.2770). The next retracement (61.8%) is around $1.2675,
which is also where the 20-day moving average is found.



Australia: The January employment data will be
reported early on February 15. It is difficult to imagine a worse report than
December's, even though the unemployment rate held at 3.9% (up from 3.5% at
midyear). Australia lost a stunning 106.6k full-time posts, which wiped out
half of the increase reported in the Jan-November period (~211k). Part of the
reason that the unemployment rate did not rise was that the participation rate
fell by a sharp 0.5% to 66.8%. At the same time, other hard data have been poor.
Remember December retail sales tumbled 2.7% in the face of expectations of a
0.5% gain. November gain itself was revised lower by nearly as much as
economists had forecast a December gain (1.6% vs. 2.0%). Building approvals
dropped 9.5%. Here, too, economists (median in Bloomberg's survey) forecast a
0.5% increase. November's 1.6% gain was revised to 0.3%. There may be scope for
the market to bring forward the first rate cut by Reserve Bank of Australia to
June from August. 



The Australian dollar recorded a new low
for the year last Monday near $0.6470, its lowest level since mid-November as
it extended the post-US jobs data drop. However, it stabilized and largely
traded in a range mostly between $0.6480 and about $0.6540. The upper end of
the range corresponds to the (50%) retracement of the decline from the pre-jobs
data high a little above $0.6600. The next retracement (61.8%) is near $0.6555,
and the 20-day moving average, which the Aussie has not closed above since
January 3 is a little higher (~$0.6560).



Canada:  Canada has a light economic diary in the coming
days. January existing home sales and housing starts, and Canada' portfolio
investment account (December) rarely moves the market in the best of times. In
terms of drivers, the 30- and 60-day correlations with the changes in the
exchange rate seem to be the general direction of the dollar (DXY) and
risk-appetites (S&P 500). The Canadian dollar seems less sensitive to oil
and two-year rate differentials (less than 0.2 correlation for both period).
The US dollar took out the January high marginally and rose to about CAD1.3545
early last week before consolidating at lower levels ahead of the Canadian
employment data reported before the weekend. The Canadian dollar strengthened
initially on the news, even though full-time jobs fell for the second
consecutive month. The greenback found support ahead of CAD1.3400 and recovered
back to set new session highs near CAD1.3480. The risk seems to be on the
upside. 



Mexico:  After the January CPI figures and the central bank
decision to hold policy steady, there may not be market-moving economic data
February 22 with another look at Q4 23 GDP (0.1%), first half of February CPI,
and minutes from the Banxico meeting. The central bank raised quarterly
inflation forecasts through Q3 but left the Q4 24 projection at 3.5%. The
target is 3%, +/- 1%. The dollar initially moved higher in response, but the
upticks (to ~MXN17.17) were short-lived. The greenback settled last week below
MXN17.10, to post its second consecutive weekly decline. The MXN17.00 area had
been approached before Mexico's CPI and central bank meeting. It has not traded
below there since January 16, but it could if the US CPI and retail sales data
are soft and cap US rates. 



  

Disclaimer



Source: Week Ahead: Will Soft US CPI and Retail Sales Mark the End of the Interest Rate Adjustment and Help Cap the Greenback?
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