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By HaleStewart November 19, 2017 7:55 am
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International Economic Week in Review: The Synchronous Expansion Continues

            Global economic news from the OECD big seven continues showing a world economy with link synchronous growth.  The EU is entering its second year of above-trend growth.  There’s no reason to believe this trend will not continue for the next 3 to 6 months.  Japan is also enjoying strong growth, largely as a result of a cheap yen stimulating exports.  Australia has emerged from a recent spate of moderate economic weakness caused by a shift from natural resource lead growth two broader sources of expansion.  While news from the UK continues pointing ports modest growth, it’s possible were beginning to see the initial signs of weakness caused by the country’s ill-informed decision to leave the EU.

Economic news from the European Union was mostly positive.  GDP rose 2.5% Y/Y, which marks another acceleration in the region’s growth rate: GDP rose 1.9% in the 4Q16, 2% in 1Q17, and 2.3% in the second quarter.  The four largest economies all grew at strong rates: Germany +2.8%, Spain +3%, Italy +1.8%, and France +2.2%.  The region’s industrial production decreased 0.6% M/M but rose 3.3% Y/Y.  Of the four largest economies in the region, only France’s IP expanded (it increased 0.6%).  This weakness was in marked contrast to the recent strength in the Markit PMI. Trade continues to be positive for the region: exports rose 5.6% Y/Y.  Imports also rose; they advance 5.1% Y/Y.  However, like other regions, the EU has an inflation problem.  Total inflation dropped 0.1%, falling to 1.4% Y/Y.  Core was up 0.9%, one of his weakest readings in the last six months.

            Japanese News was positive.  GDP increased 1.4% Y/Y.  Exports – which rose 1.5% -were the primary driver.  Both private consumption and residential investment fell.  Industrial production was off 1% M/M but rose 2.6% Y/Y.  This continues a trend of positive industrial developments largely caused by the weak yen.

            The only news from Australia was a 0.1% drop in the unemployment rate, which fell to 5.4%.  Approximately 2/3 of the gain came from fulltime employment.  While the participation rate dropped 0.1%, the employment to population ratio rose 0.1%.  Hours worked rose 0.2%.

            Despite ongoing problems with negotiating its Brexit exit, news from the UK continues in a mostly positive vein.  Unemployment is at historically low levels: the unemployment rate is 4.3% and the employment to population ratio is 75%.  Retail sales rose 0.3% for the previous month and were up 0.9% on a rolling three-month basis.  Inflation, however, is potentially problematic.  It rose 2.8% Y/Y, which continues a trend of slightly elevated price readings:

 

The bank of England argues that the post – Brexit drop in the sterling was the primary cause of these elevated price readings.  I believe this analysis is mostly correct.

In 2009, F. Hale Stewart, JD. LL.M. graduated magna cum laude from Thomas Jefferson School of Law’s LLM Program.  He is the author of three books: U.S. Captive Insurance LawCaptive Insurance in Plain English and The Lifetime Income Security Solution.  He also provides commentary to the Tax Analysts News Service, as well as economic analysis to TLRAnalytics and the Bonddad Blog.  He is also an investment adviser with Thompson Creek Wealth Advisors. 

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By HaleStewart November 19, 2017 7:51 am
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US Economic Week in Review: The Economy Is Humming Along Nicely

            The good news for the U.S. is that its economy continues to expand at a strong rate.  This week, two coincident indicators – retail sales and industrial production – were released.  Both grew strongly.  After hurricane caused spikes, initial unemployment claims have returned to previously low levels.  While the financial markets were mixed, they remain at high levels, indicating investors have confidence in the next 3-6 months of economic growth.

            The Census Bureau released the latest retail sales numbers on Wednesday.  The data showed some lagging hurricane effects but an overall trend of continued increases:

The top two charts show five years of total retail sales (on the upper left) and the Y/Y percentage change in this number (on upper right).  The total number is rising consistently while its Y/Y percentage change is between 2% and 5%.  The bottom two charts show the ex-auto sales number (left) and its Y/Y percentage change (right).  As with the total number, the ex-auto number has continually risen for the last 5 years (lower left) while its Y/Y percentage change has been reported in a wider range – between 1% and 5%.  August contained a pronounced hurricane effect in the auto sales number; they rose 4.6% in August but slowed to 1.7% in October.  Building materials were up 1.2% in the latest report, which is also probably a result of people rebuilding their houses and businesses after the storms. 

            Industrial production was the second coincident indicator released this week.  It increased strong .9%.  This continued this data series’ strong performance throughout 2017:

The Fed breaks this data into two groups.  All the major market groups advanced: final products rose .7%, non-industrial supplies were up .5% and materials were 1.3% higher.  Two of the major industry groups expanded: manufacturing rose a strong 1.3% while utilities advanced 2%.  Mining, however, contracted 1.3%.  But this was most likely the result of Hurricane Harvey, which sidelined most gulf production.

            Initial Claims – which are a good leading indicator of the labor market – rose 10,000 to 249,000.  But the 4-week moving average as returned to very low levels.  Most importantly, Texas and Florida initial claims have both returned to pre-hurricane levels:

 

Next week is a holiday-shortened week with a very light flow of data.

In 2009, F. Hale Stewart, JD. LL.M. graduated magna cum laude from Thomas Jefferson School of Law’s LLM Program.  He is the author of three books: U.S. Captive Insurance LawCaptive Insurance in Plain English and The Lifetime Income Security Solution.  He also provides commentary to the Tax Analysts News Service, as well as economic analysis to TLRAnalytics and the Bonddad Blog.  He is also an investment adviser with Thompson Creek Wealth Advisors. 

 

 

 

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By HaleStewart November 19, 2017 7:39 am
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US Bond Market Week in Review: The Fed's Inflation Problem With Illustrations

            The Federal Reserve has an inflation problem.  No, inflation is not too hot.  In fact, it’s too cold.  More importantly, the Fed continues to rgue inflation will eventually hit and maintain 2%.  But the underlying trend says otherwise. 

            First, the PCE implicit price deflator is the Fed’s preferred inflation measure (This document from the BEA explains the differences between this and CPI).  Let’s begin by looking at the 3, 6 and 12 month moving average of the overall PCE price index.

The 3-month average (in blue) briefly hit 2% at the beginning of this year but has since been moving lower.  The 6-month moving average (orange) has been declining since the 2Q17.  The 12-month moving average (silver) is rising, but its rate of increase is declining.  With the 3 and 6 month moving average moving lower, it’s unlikely it will attain 2%.

            The core PCE index is far more deflationary:

This index briefly hit 2% in 2011.  Since its highest level has been below the Fed’s 2% target.  Most importantly, all three moving averages are now moving lower.

            Core CPI closely resembles core CPE prices:

The number are slightly higher: core CPI’s moving averages peaked around the 2.5% level last year.  But all three have since declined and continue to move lower.

            Only overall CPI – a measure the Fed ironically doesn’t use – shows any possibility of hitting 2%:

The 3-month moving average (in blue) is now slightly above 2% as is the 12-month average (in sliver).  The 6-month number (in orange) is below 2%, but the 3-month average will start to pull that number higher over the next few months.

In 2009, F. Hale Stewart, JD. LL.M. graduated magna cum laude from Thomas Jefferson School of Law’s LLM Program.  He is the author of three books: U.S. Captive Insurance LawCaptive Insurance in Plain English and The Lifetime Income Security Solution.  He also provides commentary to the Tax Analysts News Service, as well as economic analysis to TLRAnalytics and the Bonddad Blog.  He is also an investment adviser with Thompson Creek Wealth Advisors. 

            

XE Currency Blog

Topics4781 Posts4826
By New_Deal_democrat November 18, 2017 9:47 am
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Weekly Indicators: yield curve flatter but still positive edition
October data was almost all positive, including significant increases in housing permits and starts, a big jump in industrial production and capacity utilization, and increase in both nominal and real retail sales, and subdued consumer inflation. Producer prices did jump more than expected.
 
My usual note: I look at the high frequency weekly indicators because while they can be very noisy, they provide a good Now-cast of the economy, and will telegraph the maintenance or change in the economy well before monthly or quarterly data is available.  They are also an excellent way to "mark your beliefs to market."
 
In general I go in order of long leading indicators, then short leading indicators, then coincident indicators. 

 

Interest rates and credit spreads

  • BAA corporate bond index 4.29% up +0.03% w/w (12 mo. high/low 4.90% vs. 4.23%)
  • 10 year treasury bonds 2.34% down -0.06% w/w 
  • Credit spread 1.95% up +0.09% w/w
Yield curve, 10 year minus 2 year:
  • 0.65%, down -0.02% w/w (expansion low)
30 year conventional mortgage rate
  • 3.97%, down -0.04% w/w (1 year high was 4.39%, 1 year low 3.37%)

I have changed corporate bonds to a mild positive from neutral, because they are close to their 12 month low. Should they fall below 4.15%, which was the low for this entire expansion, that will be a major positive. Mortgage rates fell back from negative to neutral.

 

Yields on treasuries and mortgage rates made new 12 month highs in December and revisited that high earlier this year, but the trend for most of this year has been a decline to improving neutrals. The yield curve is at its most narrow for this expansion, but remains positive in the longer term context. The spread between corporate bonds and treasuries retreated further from  its recent10 year low.

 

Housing

 

Mortgage applications 

 

  • purchase applications up +0.4% w/w 
  • purchase applications up +17% YoY
  • refinance applications up +6% w/w
 
Real Estate loans
  • Unchanged w/w 
  • Up +3.7% YoY

Purchase mortgage applications have turned even more positive, while refi applications  remain near 15 year lows.  Meanwhile, the growth rate of real estate loans declined sufficiently this year to become a neutral.

 

Money supply

M1

  • -0.4% w/w
  • -0.2% m/m 
  • +6.2% YoY Real M1
M2
  • +0.1% w/w  
  • Unchanged m/m
  • +2.9% YoY Real M2

Since 2010, both real M1 and real M2 were resolutely positive.  Both have recently decelerated substantially.  Real M1 is still very positive. Real M2, however, has declined to a neutral.

 

Credit conditions (from the Chicago Fed) 

 

  • Financial Conditions Index down -0.02 to -0.93
  • Adjusted Index (removing background economic conditions) down -0.01 to -0.75
  • Leverage subindex unchanged at -0.67
The Chicago Fed updated and changed the Adjusted Index recently, so that its break-even point appears to be -0.25.  In the leverage index, a negative number is good, a positive poor. The historical breakeven point has been -0.5 for the unadjusted Index. All three metrics presently show looseness and so are positives for the economy.
 

Trade weighted US$

  • Down -0.11 to 120.91 w/w, -1.8% YoY (one week ago) (Broad) 
  • Down -0.71 to 93.68 w/w, -7.6% YoY (yesterday) (major currencies) 

 

The US$ appreciated about 20% between mid-2014 and mid-2015.  It went mainly sideways afterward until briefly spiking higher after the US presidential election. It has been positive since this summer.

 

Commodity prices

JoC ECRI 

  • Down -0.81 to 107.32 w/w
  • Up +11.87 YoY
BBG Industrial metals ETF 
  • 129.40 down -4.14 w/w, up +18.26% YoY
Commodity prices bottomed near the end of 2015. After briefly turning negative, metals also surged higher after the election.  Earlier this year ECRI briefly turned down enough to be downgraded to neutral, but both are positive now.

 

Stock prices S&P 500

 

  • Down -0.1% w/w to 2578.85
Stock prices are positive, having made a string of new all-time highs beginning over one year ago.
 

Regional Fed New Orders Indexes

(*indicates report this week)

  • *Empire State up +2.7 to +20.7
  • *Philly up +1.8 to +21.4
  • Richmond down -3 to +17
  • *Kansas City down -5 to +22
  • Dallas up +4.3 to +18.6
  • Month over month rolling average: unchanged at +20
The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction. These turned more positive in the previous two months, foreshadowing the very positive ISM manufacturing reports.

 

Employment metrics

 Initial jobless claims

  • 249,000 up +10,000
  • 4 week average 237,750 up +6,500

 

Initial claims remain well within the range of a normal economic expansion.

 

The American Staffing Association Index

 

  • Unchanged at 100 w/w
  • Up +1.42 YoY

This index was generally neutral from May 2016 until the end of last year, and has been positive with a few exceptions this year.

 

Tax Withholding 

  • $114.3 B for the first 12 days of November 2017 vs. $110.4 B one year ago, up +$3.9 B or +3.5%
  • $176.5 B for the last 20 reporting days vs. $170.9 B one year ago, up +$5.6 B or +3.3%

After being positive through most of 2014, these decelerated and even occasionally were  negative, in late 2015 through the first part of 2016.  With the exception of August, 2017 has shown marked improvement.

 

Oil prices and usage

  • Oil down -$0.20 to $56.68 w/w,  up +13.6% YoY
  • Gas prices up +$0.03 to $2.59 w/w, up +$0.41 YoY
  • Usage 4 week average up +1.6% YoY 

 

The price of gas bottomed about 21 months ago at $1.69.  With the exception of July, prices generally went sideways with a slight increasing trend for the last year.  Usage turned negative in the first half of this year, but subsequently improved, and for most of the last two months turned positive again.

 

 Bank lending rates

 

Both TED and LIBOR rose since the beginning of last year to the point where both were usually negatives, although there were some wild fluctuations.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions.  The TED spread has turned very positive for the last several months. Meanwhile LIBOR has generally turned more and more negative.

 

Consumer spending

  • Johnson Redbook up +2.3% YoY
  • Goldman Sachs down -0.6% w/w, up +2.6% YoY

 

Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat in 2016, and more markedly so in the last several months.  Both were positive again this week.

 

Transport

Railroad transport

  • Carloads down -3.3% YoY
  • loads ex-coal down -1.4% YoY 
  • Intermodal units up +5.6% YoY
  • Total loads up +1.2% YoY

Shipping transport

Rail turned negative in 2015 and fell even more sharply in spring 2016. Since summer 2016, rail improved to neutral and then generally positive since November 2016. Over the last several months, it has been more mixed.

Harpex recently declined to repeated multi-year lows, then came back all the way to positive, declined again, but in the last several months has come all the way back to positive again. BDI also surged back to being a positive, declined back to neutral earlier this year, but recently turned up again. I am wary of reading too much into price indexes like this, since they are heavily influenced by supply (as in, a huge overbuilding of ships in the last decade) as well as demand.

Steel production

 

  • Up +1.4% w/w
  • Up +9.3% YoY

Steel production had generally been in a decelerating uptrend through early 2014, then gradually worsened through the end of 2015. It improved from negative to "less bad" to positive in 2016 and has generally remained positive this year, although during early summer, it alternated between positive and negative.  It has been more positive in the last several months.

 
 

SUMMARY: 

 

Although it is flatter than before, the yield curve remains positive, as do corporate bonds, M1 money supply, purchase mortgage applications, and the two more leading Chicago Fed Financial Conditions Indexes. Treasury yields, real M2, mortgage rates, and growth in real estate loans remain neutral.  Refinance mortgage applications are the only negative.

 

All of the short leading indicators, including stock prices, industrial metals, the regional Fed new orders indexes, spreads, financial conditions, staffing, the US$, initial jobless claims,and  oil and gas prices and usage, remain positive.

 

Among the coincident indicators, positives included consumer spending, steel, the TED spread, tax withholding, the Baltic Dry Index and Harpex. Only LIBOR remains negative. Rail was again mixed this week.

 

The near term forecast remains very strong, and the nowcast is also quite positive.  There has been generally gradual deterioration this year among long leading indicators. On net, my 12 month plus forecast remains neutral.

 

Have a nice weekend!

 

XE Currency Blog

Topics4781 Posts4826
By XE Market Analysis November 17, 2017 2:57 pm
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    XE Market Analysis: Asia - Nov 17, 2017

    The dollar attempted a modest rally after better U.S. housing starts data, though given the backdrop of White House Subpoenas and doubts over the ability of the GOP to pass tax reform, ultimately faded to near rlows of the week. Wall Street lost ground as gold rallied, leaving the risk backdrop very soggy to end the week. USD-JPY fell to one-month lows of 111.95, as EUR-USD again topped over the 1.1800 mark. USD-CAD rallied early on cooler Canada CPI, though oil prices firmed up through the session, tkaing the pairing back into 1.2760. Cable traded on either side of 1.3200 in very familiar ranges.

    [EUR, USD]
    EUR-USD printed N.Y. session highs of 1.1806 after the London close, after putting in a a1.1738 low in the aftermath of the stronger U.S. housing data. Dollar malaise has continued into the weekend, leaving the DXY near its lows of the week, as markets remain wary of D.C. investigations, and the potential for tax reform failure. EUR-USD looks set to close out the week under its 50-day moving average at 1.1776.

    [USD, JPY]
    USD-JPY touched a 111.96 low, a level last seen on October 16. The pairing traded through its 50-day moving average of 112.66 during Asian hours overnight, and is within sight of the 200-day moving average, currently at 111.77. Risk-off conditions have weighed, with sentiment soured by subpoenas for Trump campaign documents, and concerns the Senate will not pass tax reform.

    [GBP, USD]
    Cable fell back under 1.3170 early in N.Y. trade after more than reversing gains to 1.3260, continuing a choppy sideways trend that's been in play for six weeks now. The 1.3200 level approximately marks the midway point of this range. A series of daily lows that were seen in October between 1.3027 and 1.3039, mark a key support zone.

    [USD, CHF]
    EUR-CHF clocked a 34-month high at 1.1723, subsequently settling back under 1.1700. With the Eurozone gathering growth momentum, and seeming to have conquered existential political threats, we continue to anticipate an eventual return to 1.2000, which is the former trading floor of the SNB.

    [USD, CAD]
    USD-CAD rallied to 11-session highs of 1.2823 following the slightly cooler Canada CPI figures, taking the pairing up a full 100 points from overnight lows. The partial recovery of oil prices capped upside through the remainder of the session, with the pairing falling back into 1.2760 as WTI crude topped over $56.50.

    XE Currency Blog

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    By xemarketanalysis November 17, 2017 1:49 pm
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      XE Market Analysis: US Dollar Ends on a Weak Note

      OVERVIEW

      • US Dollar slips on a report that the Special Counsel subpoenaed Trump's election campaign for documents.
      • Canadian inflation drops to 1.4% and weakens the Loonie.
      • US Dollar slips as investors watch for progress on tax reform bill.
      • Bitcoin hits an all-time high on software upgrade rumors. 

      HIGHLIGHT

      The Dollar index is set to close the week below the technically important 94 level, reflecting concerns over a report by the Wall Street Journal that Special Counsel Robert Mueller's investigators had subpoenaed Trump's election campaign for documents.

      US DOLLAR

      The US Dollar is weaker against a trade-weighted basket of currencies as investors and traders watch for progress on the tax bill going through currently. The focus for the Dollar now shifts to the meeting minutes from the FED's last meeting which are due to be released on Wednesday next week. 

      BRITISH POUND

      The Pound continues to see large daily swings, but are contained within well-established ranges against its major counterparts. After a meeting between PM May and EU Chairman Donald Tusk, he said there is no deadlock in Brexit talks and there is still a chance to move on to next phase of Brexit talks in December.

      EURO

      The Euro is better supported and has managed to hold on to some of its gains this week, but will need to clear the 1.1850 level versus the Dollar to break out of its range. 

      CANADIAN DOLLAR

      The Loonie is weaker today after the release of lower than expected inflation numbers for September. The domestic inflation rate dropped to 1.4% from 1.6% in the previous month. This should put the brakes on any planned interest rate hikes from the Canadian central bank. 

      AUSTRALIAN DOLLAR

      The Aussie Dollar is weaker today and looks set to end the week significantly lower than this time last week. The Aussie has been aggressively sold this week because of the narrowing in yield differential, leading to a lack of demand for the currency as a carry trade. 

      FEATURED CURRENCY

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      Topics4781 Posts4826
      By XE Market Analysis November 17, 2017 7:27 am
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        XE Market Analysis: North America - Nov 17, 2017

        The dollar is lower on reports about the Trump administration having last month been served a subpoena from the special council Mueller requesting documents relating to Russia, according to the WSJ. Separately, the House Judiciary Committee sent a letter to the attorney of Jared Kushner, Trump's son-in-law and senior advisor, asking for more information about a "Russian backdoor overture and dinner invite." The narrow trade-weighted USD index (DXY) is presently showing a 0.3% loss, earlier logging a two-session low at 93.52. The buck has lost most ground to the yen, the forex market's safe haven unit of choice now that the Swiss franc's status as haven has largely been deconstructed. USD-JPY hit a one-month low of 112.39 during the Tokyo session, since settling around 112.50, which still leaves it with a net decline of 0.4%.

        [EUR, USD]
        .EUR-USD turned lower after a brief foray back above the 1.1800 level, meeting good selling interest above here for a second consecutive day. Overall, there is a lack of strong directional leads. Focus turns to the passage of the Senate tax reform bill after the House passed its version. The data calendars are quiet today on both sides of the Atlantic. EUR-USD has near-term support 1.1755-60.

        [USD, JPY]
        USD-JPY has declined for a fourth consecutive day, this time driven by a bout of general dollar selling during the Tokyo session in an interbank market running for stop loss levels. The pair logged a one-month low at 112.39. The price action affirms an evolving correction following a two-month rally phase from the early September low at 107.31, which capped out at 114.73 in early November. We anticipate further declines. Resistance is at 112.75, which was a former support level, and trend support now comes in at 112.16-17.

        [GBP, USD]
        Sterling has been trading mixed in recent sessions. Forecast-beating retail sales data out of the UK yesterday gave the pound a leg higher earlier, along with affirmation from BoE governor Carney that more rate hikes will be seen if the economy develops along expected lines. though Brexit-related noise seems to have deterred follow-through buying. The Dutch parliament warned its government to start making serious contingency plans for a "no deal" Brexit, which is the latest sign of rising concerns about a lose-lose trade situation in a messy Brexit scenario. Goldman Sachs chief executive Blankfein also tweeted that "many" British CEOs wish for a confirming vote on the decision to leave the EU, to "make sure" that the consensus is still there -- remarks that will doubtlessly prompt a stern rebuttal from Brexiteers as being from a "globalist" interest. Cable has settled around 1.3200 after lifting from levels around 1.3140-50 during the London AM session. The 1.3200-50, approximately the half way mark of a range that's being in play for six weeks now. A series of daily lows that were seen in October between 1.3027 and 1.3039, mark a key support zone.

        [USD, CHF]
        EUR-CHF clocked a 34-month high at 1.1723, subsequently settling back under 1.1700. With the Eurozone gathering growth momentum, and seeming to have conquered existential political threats, we continue to anticipate an eventual return to 1.2000, which is the former trading floor of the SNB.

        [USD, CAD]
        USD-CAD has settled in the mid 1.2700s after logging a three-week low at 1.2665 last week, which reaffirmed an emergent downward trend. The pair's two-month rally phase from sub-1.2100 levels looks to have stalled over the last week or so. BoC Governor Poloz last week reaffirmed guidance given last month by saying that "the economy is likely to require less monetary stimulus over time, we will be cautious in making future adjustments to our policy rate." We project the next BoC rate hike to be in March, and expect USD-CAD to remain in a downward path for now. Resistance is at 1.2700-05, and support is at 1.2600-02.

        XE Currency Blog

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        By XE Market Analysis November 17, 2017 3:26 am
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          XE Market Analysis: Europe - Nov 17, 2017

          The dollar has been trading mixed so far today, losing ground to the yen, euro and sterling, while gaining versus the Australian dollar, other dollar bloc currencies, and most emerging market units. USD-JPY was the biggest mover, logging a one-month low at 112.39. The mixed performance of the dollar follows a mixed set of data releases yesterday, which on net, along with Fedspeak, still left the Fed on track to hike rates at the upcoming FOMC meeting in December, and beyond. The House passed its version of the tax reform bill, which now goes before the Senate then potentially comes back for reconciliation between the two bodies. The calendars in Europe and the U.S. are relatively quiet, while Canada has the release of October CPI, which we expect will cool to a 1.4% m/m rate (median 1.5%) after 1.6% in the month prior.

          [EUR, USD]
          EUR-USD turned lower after a brief foray back above the 1.1800 level, meeting good selling interest above here for a second consecutive day. Overall, there is a lack of strong directional leads. Focus turns to the passage of the Senate tax reform bill after the House passed its version. The data calendars are quiet today on both sides of the Atlantic. EUR-USD has near-term support 1.1755-60.

          [USD, JPY]
          USD-JPY has traded firmer today, rising concomitantly with stock markets in Europe and Asia. U.S. equity index futures are also up after the S&P 500 posted its biggest daily loss yesterday in two months. The yen has been correlating inversely with global stock markets this week, as it is apt to do during phases of pronounced swings in investor risk appetite. The weakness in the currency today has in turn injected extra buoyancy into Japanese stock markets, with the Topix index outperforming most of its regional peers with a gain of just over 1%. News that two U.S. senators (Ron Johnson and Susan Collins) have publically criticised the tax reform bill may limit the rebound potential of stock markets, at least on Wall Street, so we advise some caution with regard to USD-JPY. The pair has resistance at 113.27-30, and support at 112.75, ahead of 112.48-50.

          [GBP, USD]
          Sterling has been trading mixed in recent sessions. Forecast-beating retail sales data out of the UK yesterday gave the pound a leg higher earlier, though Brexit-related noise seems to have deterred follow-through buying. The Dutch parliament warned its government to start making serious contingency plans for a "no deal" Brexit, which is the latest sign of rising concerns about a lose-lose trade situation in a messy Brexit scenario. Goldman Sachs chief executive Blankfein also tweeted that "many" British CEOs wish for a confirming vote on the decision to leave the EU, to "make sure" that the consensus is still there -- remarks that will doubtlessly prompt a stern rebuttal from Brexiteers as being from a "globalist" interest. Cable has settled around 1.3200 after lifting from levels around 1.3140-50 during the London AM session. The 1.3200-50, approximately the half way mark of a range that's being in play for six weeks now. A series of daily lows that were seen in October between 1.3027 and 1.3039, mark a key support zone.

          [USD, CHF]
          EUR-CHF clocked a 34-month high at 1.1723, subsequently settling back under 1.1700. With the Eurozone gathering growth momentum, and seeming to have conquered existential political threats, we continue to anticipate an eventual return to 1.2000, which is the former trading floor of the SNB.

          [USD, CAD]
          USD-CAD has settled in the mid 1.2700s after logging a three-week low at 1.2665 last week, which reaffirmed an emergent downward trend. The pair's two-month rally phase from sub-1.2100 levels looks to have stalled over the last week or so. BoC Governor Poloz last week reaffirmed guidance given last month by saying that "the economy is likely to require less monetary stimulus over time, we will be cautious in making future adjustments to our policy rate." We project the next BoC rate hike to be in March, and expect USD-CAD to remain in a downward path for now. Resistance is at 1.2700-05, and support is at 1.2600-02.

          XE Currency Blog

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          By XE Market Analysis November 16, 2017 3:26 pm
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            XE Market Analysis: Asia - Nov 16, 2017

            Generally soft incoming U.S. data weighed on the dollar early in the N.Y. session on Thursday, as import prices were soft, jobless claims higher than forecast, and the Philly Fed index falling more than expected. Stronger industrial production later supported the greenback, though it was later in the session that saw the unit move to session highs. The dollar began moving broadly higher during the House tax vote, and took another step higher on its passage. EUR-USD faded from near 1.1775 to match earlier 1.1760 lows, as USD-JPY made its way from 112.80 to 113.05 highs. USD-CAD was weighed down early by better Canada manufacturing data, and later settled near 1.2740. Cable was steady on either side of 1.3200.

            [EUR, USD]
            EUR-USD edged down to match earlier N.Y. session lows of 1.1760 following the House passage of the tax reform bill. The pairing had traded as high as 1.1785 in the aftermath of squishy early U.S. data. There was little reaction to comments from Eurozone officials hinting that there may not be another follow up QE program (Mersch) and indicating that there shouldn't be too much focus on net purchases (Villeroy).

            [USD, JPY]
            USD-JPY is not feeling the love of sharply higher stocks, and firmer Treasury yields today, remaining under the 113.00 level, after printing a 112.74 low. Dollar weakness remains a factor ahead of the U.S. House vote on the proposed tax package, which even if passed, will not be the end of the fight. The Senate bill differs greatly, and it remains to be seen if the two houses can cobble together an agreement. House passage today gave the pairing a bit of a boost, lifting the dollar just over 113.00.

            [GBP, USD]
            Cable was near net unchanged in N.Y. on Thursday. Forecast-beating retail sales data out of the UK gave the pound a leg higher early, though Brexit-related noise seemed to have deterred follow-through buying. The Dutch parliament warned its government to start making serious contingency plans for a "no deal" Brexit, which is the latest sign of rising concerns about a lose-lose trade situation in a messy Brexit scenario. Goldman Sachs chief executive Blankfein also tweeted that "many" British CEOs wish for a confirming vote on the decision to leave the EU, to "make sure" that the consensus is still there. Cable settled around 1.3200 after lifting from levels around 1.3140-50 during the London AM session.

            [USD, CHF]
            EUR-CHF has traded to just shy of 1.17, following EUR-USD's upward path and a run of encouraging economic data out of the Eurozone. The 33-month peak seen in late October at 1.1712 has crept back on the radar screen. With the Eurozone gathering growth momentum, and seeming to have conquered existential political threats, we continue to anticipate an eventual return to 1.2000, which is the former trading floor of the SNB.

            [USD, CAD]
            USD-CAD steadied just under 1.2750 after falling from 1.2778 highs into the 8:30 EST mix of U.S. and Canadian data. The 20-day moving average, currently at 1.2755, continues to act as a magnet. With oil prices remaining soft, and signs of a general USD recovery through the session, downside was contained.

            XE Currency Blog

            Topics4781 Posts4826
            By xemarketanalysis November 16, 2017 1:57 pm
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              xemarketanalysis Posts: 358
              XE Market Analysis: Euro Slips as Risk Appetite Returns

              OVERVIEW

              • US Dollar data continues to show that the economy is growing at a robust pace.
              • The Euro is under pressure as wide and negative rate differentials back in focus. 
              • Retail sales for the Pound fall for the first time in 4 years, with the Brexit tone upbeat.
              • Canadian Dollar is lifted by manufacturing sales data.
              • Stocks are back in a positive territory, oil remains soft on high US supply.

              HIGHLIGHT

              The Euro hit its highest level versus the Dollar since late October yesterday and was up almost 2% on the week, but has slipped one cent as a more positive market tone drives investors towards the higher yielding US Dollar. 

              US DOLLAR

              The US Dollar has stabilized and is marginally higher against some of its major counterparts after industrial output rose more than expected in October as industries affected by a string of recent hurricanes resumed normal operations. The first vote on the Republican tax bill is expected to happen in the first major test of its ability to enact sweeping tax cuts.

              BRITISH POUND

              The Pound barely reacted to retail sales data that showed the first year-on-year decline since 2013 as inflation bears down on consumers spending power, though the comparison reflected a very strong performance by retailers in October 2016 and rose 0.3% from September. The EU announced that President Donald Tusk will meet with British Prime Minister Theresa May tomorrow to discuss how she will meet EU conditions before a mid-December summit for opening post-Brexit trade talks. 

              EURO

              The Euro has reversed almost half of its gains this week as the focus shifts from solid growth to the relative monetary policies of global central banks (see highlight).

              CANADIAN DOLLAR

              The Loonie is up 0.2% versus its US counterpart after manufacturing sales unexpectedly rose 0.5% in September, boosted by sales of petroleum and coal products. Limiting the Canadian Dollar’s rise caused a softening in oil prices along with looming NAFTA negotiations that are expected to see Canadian exports targeted.

              AUSTRALIAN DOLLAR

              The Aussie Dollar managed a brief rally after labor market data showed unemployment fell to 5.4%, its lowest level since 2013, and 3,700 net new jobs were added last month. That was short of forecasts of a 17,500 rise, but September was revised up to a solid increase of 26,600 jobs from the first estimate of a gain of 19,800. Yesterday's disappointing wage data and its implications for interest rates continue to weigh on the Oz Dollar and it remains close to a 4-month low.

              FEATURED CURRENCY

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