New York Forex Report: Sterling Shines On Brighter Brexit Stories
New York Forex Report: After last week’s employment numbers, markets will turn their attention this week to US inflation and retail sales readings ahead of next week’s FOMC meeting. So far, there has been little to derail the markets expectations of a 25bp hike. On the back of Friday’s data (strong employment growth, but a slip in wage growth), the US equity markets have strengthened, with the NASDAQ trading to new all-time highs, while the broader USD softened and US yields pushed higher within their ranges.
Today’s auction in the US of $21bln 10-year and $13bln 30-year bonds may cause some volatility in this space, which may leak through into the USD. While “risk-on” currencies like AUD, NZD and NOK are benefiting, EUR and GBP remain trapped in well-defined ranges. Elsewhere, government officials from the 27 other European countries (ex-UK) will meet to discuss the union’s Brexit position and the future relationship with the UK. In its draft negotiating position published last week, the bloc dismissed the UK’s proposal, liking the UK’s approach to ‘cherry-picking’, however, this morning wires report a deal is close, yet again!
NORTH AMERICA In the US, focus was on the labour market on Friday as nonfarm payroll employment increased by 313k in Feb’18, the largest recorded gain since Jul-16 which has surpassed a median estimate of 205k in a survey of economists. Job gains came primarily from constructions, retail trade and professional and business services. Unemployment rate remained unchanged at 4.1% in Feb’18 for the 5th consecutive month, well below the Fed median estimates of the longer run normal rate of unemployment of 4.6%, while participation rate improved to 63.0% in February (Jan: 62.7%). Pleasant surprises in job gains, steady unemployment rate and higher participation rate will continue to drive growth. Contrary to last month’s quicker wage gain, wages rose at a slower pace of 0.1% MoM and 2.6% YoY in February (Jan: +0.3% MoM and +2.8% YoY), reviving expectations that the central bank will adhere to the planned gradual pace of rate hikes.
EUROPE In the UK, the industrial sector rebounded but at a slower than expected pace of 1.3% MoM in January (Feb: -1.3% MoM). Mining and quarrying activities made the largest upward contribution of 23.5% mainly due to the reopening of the Forties oil pipeline which was shut down in Dec’17. This coincides with the NIESR GDP estimate of 0.3% growth in Feb’18 which highlighted that activities have eased due to extreme weather condition and is likely to slow further in Mar’18. Manufacturing and services sectors continue to drive economic growth but construction output still lags. On the other hand, visible trade deficit narrowed albeit less than expected to -£12.31b in Jan’18 as import of physical goods surpassed that of export (+3.5% vs +3.1% MoM).
ASIA The Bank of Japan (BOJ) kept its monetary policy unchanged on Friday as widely expected. Its overnight interest rates were hold steady at – 0.10% and yields on its 10-year Japanese government bonds (JGBs) at 0%. Aside from purchasing 10-year JGBs at its current pace, the central bank announced that it will continue to purchase ETFs, J-REITs and corporate bonds as part of its monetary policy.
Overall the BOJ remained upbeat on the economic outlook, reiterating that the Japanese economy is “expanding moderately” against a backdrop of improved employment and business sentiment as well as an accommodative financial condition. It did mention however that US economic policies and their impact on global financial markets among others could be risk to the outlook. BOJ’s assessment on outlook was evident in Japanese consumption as the newly released overall household spending shows that Japanese spending rebounded to increase by 2.0% YoY. The manufacturing sector is normalising with the BSI Large Manufacturing Conditions Index recorded at 2.9 in Q1 (Q4 2017: 9.7). The index measures business sentiment in the manufacturing sector and has been positive generally.
EUR/USD
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish
Technical: 1-3 Day View – The daily close below 1.2310 concerns near term bullish bias opening a move to 1.2090. Near term resistance is sited at 1.2350
1-3 Week View – As 1.2130 now acts as support expect a test of 1.2635 as the next upside objective. Weekly close below 1.19 neutralises bullish objectives opening a test of 1.14
Retail Sentiment: Neutral
Trading Take-away: Neutral
GBP/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Technical: 1-3 Day View – 1.3925 is the near term pivot, as this area caps look for 1.3570 as the next downside objective, a daily close over 1.3925 opens 1.4046
1-3 Week View – As 1.3650 supports 1.45 becomes the next upside objective, only a close back below 1.34 would jeopardise the bullish advance.
Retail Sentiment: Neutral
Trading Take-away: Neutral
USD/JPY
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish
Technical: 1-3 Day View – As 108.44 acts as resistance 103.22 is the next downside objective, return to trend confirmed on a daily close below 106.50, near term resistance is sited at 107, with near term support sited at 106.04
1-3 Week View – The close below 108 negates the broader bullish theme and opens the psychological 100 magnet as the next downside objective, only a close above 108.50 stabilises the pair, opening 112.50
Retail Sentiment: Bullish
Trading Take-away: Short
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Technical: 1-3 Day View – Breach of 131 sets a top to target 128.50 as 132 caps corrections. A close over 133 stabilises the pair opening a retest of 135
1-3 Week View – The closing breach of 131 concerns the bullish consolidation bias opening a test of 128.50 while this area supports there is a window to retest and breach cycle highs above 137
Retail Sentiment: Neutral
Trading Take-away: Neutral
