Home > XE Community Forums > RSS Feed

AD

XE Currency Blog

Topics5245 Posts5290
By XE Market Analysis April 23, 2018 3:39 pm
    XE Market Analysis's picture
    XE Market Analysis Posts: 3517
    XE Market Analysis: Asia - Apr 23, 2018

    The DXY peaked at 90.92 on N.Y. on Monday, with broad dollar strength seen on the eback of higher Treasury yields, decent incoming U.S. data, and the easing of trade and geopolitical tensions. The dollar index advanced to its best level since March 2. EUR-USD bottomed at 1.2208, a near two-month low, while USD-JPY topped at 108.72, a better than two-month high. USD-CAD printed a three week high of 1.2850, while cable touched one-month lows of 1.3929.

    [EUR, USD]
    EUR-USD traded to a low of 1.2208, resulting in levels last seen on March 1. The dollar overall fared well through the N.Y. session on Monday, with the broad move higher attributed to firming U.S. treasury yields, the easing of trade and geopolitical tensions, and generally supportive incoming data today.

    [USD, JPY]
    USD-JPY traded to a two-month high of 108.71, with the pairing on the upswing through the session and indeed, since last week, as trade and geopolitical concerns abate, and as the ramping up of U.S. yields versus near zero in Japan favors dollar buying. BoJ's Kuroda said on Saturday that strong accommodative stimulus will be needed for some time, also underpinning.

    [GBP, USD]
    Cable printed a one-month low at 1.3929 after the London close on Monday. A close below 1.4010-12 registers as the fifth consecutive down session, after making a 21-month high last Tuesday at 1.4376. The move today has been driven by dollar strength, which on from last week's pound underperformance after a run of sub-forecast data and after BoE Governor Carney last week threw cold water on what had been a near universal expectation for the central bank to deliver a 25 bp hike in the repo rate on May 10th.

    [USD, CHF]
    EUR-CHF pulled back from the key 1.2000 level on again on Monday, bottoming at 1.1926 as profit taking continued following the first time the cross has traded above the SNB's former trading floor (or franc cap), which it abandoned in January 2015 in the face of broad and unstoppable euro depreciation caused by ECB monetary stimulus. This is the fourth consecutive week, and the sixth out of the last eight weeks EUR-CHF has rallied, and the cross is now over 12.5% higher from the levels of mid last year. USD-CHF has concurrently ascended into three-month high terrain. The franc has been driven lower by the -0.75% Swiss deposit rate along with the widespread expectation for the SNB to remain strongly committed to negative interest rates until after the ECB starts tightening. The central bank's chairman, Jordan, said in an interview with the La Liberte newspaper this week that "it is not yet time to change monetary policy," adding that "we do not want to provoke an appreciation of the Swiss franc."

    [USD, CAD]
    USD-CAD printed two-week highs of 1.2850, trading above its 50-day moving average at 1.2782. The pairing bounced from 1.2775 following the weaker Canada wholesale trade outcome, and continued to find support following last week's "gradual" BoC statement, cooler CPI seen on Friday and the generally bid tone of the USD today.

    XE Currency Blog

    Topics5245 Posts5290
    By xemarketanalysis April 23, 2018 11:51 am
      xemarketanalysis's picture
      xemarketanalysis Posts: 435
      XE Market Analysis: US 10-Year Bond Yields Approach 3% as the US Dollar Bounces

      OVERVIEW

      • FX market this week awaits the much anticipated Q1 GDP data from both the US and the UK.
      • GBP remains under pressure but with weakness in the currency, this has made the interest rate decision for the BoE even harder.
      • USD is enjoying a bounce helped by the rise of the 10-year yield.

      HIGHLIGHT

      The yield from the 10-year Treasury bond is notching at the psychological 3% mark.

      US DOLLAR

      The US Dollar continues to rise, and the highlight of this week will be on the Q1 GDP data.

      BRITISH POUND

      The Pound continues to trade under pressure as GBP/USD drops below the psychological 1.40 level, and with the outlook for an interest rate hike at 50/50, this volatility is set to continue.

      EURO

      The Euro composite PMI held steady in April at the 14-month low seen in March at 55.2, which was marginally better than expectations.

      CANADIAN DOLLAR

      The Canadian Dollar remains on the back foot helped by comments by the Bank of Canada chief that he was comfortable with inflation remaining above 2% throughout 2018.

      AUSTRALIAN DOLLAR

      The Australian Dollar dropped 1.3% last week, its biggest weekly fall since mid-March as the market awaits the Australian CPI.

      FEATURED CURRENCY

      XE Currency Blog

      Topics5245 Posts5290
      By XE Market Analysis April 23, 2018 6:39 am
        XE Market Analysis's picture
        XE Market Analysis Posts: 3517
        XE Market Analysis: North America - Apr 23, 2018

        The dollar rallied during the London morning session, was showing a 0.4% gain on the euro, a 0.3% advance versus the yen and Swiss franc, and 0.4% gains versus both the Australian and New Zealand dollars, as of the late AM. The greenback has firmed versus the sterling and Canadian dollar, albeit by a relatively more modest extents. EUR-USD has clocked a fresh 17-day low at 1.2233, with markets ignoring above-forecast PMI data out of the Eurozone in flash April estimates. USD-JPY, meanwhile, has traded above 108.00 for the fist time since February 13th. The gains in the dollar are concomitant with the U.S. T-note yield nearing the 3.0% level, which has been generating headlines. The yield is presently up 2.8 bp, at 2.988%, although the Bund yield was up over 4 bp. Markets also ignored above-forecast PMI data out of the Eurozone in flash April estimates. Japan's preliminary estimate for the April manufacturing PMI came in at 53.3 after 53.1 in the month prior.

        [EUR, USD]
        EUR-USD has clocked a fresh 17-day low at 1.2233, with markets ignoring both a narrowing in the U.S. yield advantage relative to core Eurozone yields and above-forecast PMI data out of the Eurozone in flash April estimates. The gains in the dollar are concomitant with the U.S. T-note yield nearing the 3.0% level, which has been generating headlines. The yield is presently up 2.8 bp, at 2.988%, although the Bund yield has rose over 4 bp. In the bigger picture, EUR-USD still remains near the midway levels of a broad consolidation range that's been seen for some two months now, which has followed a 14-month rally phase from sub-1.0500 levels. More of the same seems likely, with the odds for a big-picture breakout seeming low at the present time. Near-term risks remain skewed to the downside. Initial support is at 1.2220.

        [USD, JPY]
        USD-JPY has traded above 108.00 for the fist time since February 13th. The gains in the dollar are concomitant with the U.S. T-note yield nearing the 3.0% level, which has been generating headlines. The yield was up 2.8 bp, at 2.988%, as of the late London AM session, which comes with the BoJ continuing to peg JGB 10-year yields near 0.0%. Demand for foreign assets by Japanese life insurers has been a factor propping USD-JPY up, according to market narratives, along with an abatement in concerns about trade tensions and cooling relations on the Korean peninsular. The Nikkei 225 closed 0.33% lower after posting a relatively narrow trading range. In data, Japan's preliminary estimate for the April manufacturing PMI came in at 53.3 after 53.1 in the month prior. We advise following the trend in USD-JPY for now. Support comes in at 107.50-51.

        [GBP, USD]
        Cable has fallen four a fifth consecutive session, this time logging a one-month low at 1.3958. This extended the correction from the 21-month high that was seen on Tuesday at 1.4376. The move today has been driven by dollar strength, which follows a spell of sterling underperformance after BoE Governor Carney last week threw a cat among the hawks, damping what had been a near universal expectation for the central bank to deliver a 25 bp hike in the repo rate on May 10th. He said that while there will be "a few interest rate rises over the next few years," he didn't want "to get too focused on timing." In contrast to Carney, Saunders, one of the Monetary Policy Committee's two dissenters in favour of hiking rates at the March policy meeting, stuck to his relatively hawkish guns in remarks on Friday. With second-round inflationary pressures proving more muted than expected, and in light of currency gains over the last several months (slackening the pressure on UK import prices), we expect the BoE to at least trim its inflation projections while toning down hawkish guidance at its MPC meeting on May 9th-10th, even if it still chooses to hike. Cable has been trending higher for a year, and is now in the throws of a corrective wave, with trend supports having been breached any momentum indicators turning lower. Resistance is at 1.4060.

        [USD, CHF]
        EUR-CHF has ebbed a little lower after clocking a fresh 39-month high at 1.2005 on Friday, since settling in the upper 1.1900s. The Swiss franc's return to the 1.2000 level is a symbolic "normalisation" that's been afoot in global markets, being the first time the currency has traded below the SNB's former trading cap, which it abandoned in January 2015 in the face of broad and unstoppable euro depreciation caused by ECB monetary stimulus. This is the fourth consecutive week, and the sixth out of the last eight weeks, EUR-CHF has rallied, and the cross is now over 12% higher from the levels of mid last year. USD-CHF has concurrently ascended into three-month high terrain. The franc has been driven lower by the -0.75% Swiss deposit rate along with the widespread expectation for the SNB to remain strongly committed to negative interest rates until after the ECB starts tightening. The central bank's chairman, Jordan, said in Bloomberg interview last Thursday that the franc's declines are in the "right direction" and that the SNB remains "convinced that current monetary policy is still necessary." He had said earlier in the week that "we do not want to provoke an appreciation of the Swiss franc"

        [USD, CAD]
        USD-CAD clocked in a fresh two-week high at 1.2771 during the early Asian session today, extending a rebound from a two-month low at 1.2527, which was seen last Wednesday. A correction in oil prices, which have descended to back near $68.0 in the WTI benchmark market after making a 40-month high at $69.56, along with a generally firmer bias in the U.S. dollar, have driven the rebound in USD-CAD. The Canadian dollar had already been coming off the boil in the wake of last Wednesday's BoC policy meeting, as the statement indicated that the central bank would maintain its cautious stance on future policy changes, which remain data dependent. The latest price action in USD-CAD has negated the downside trend that had been in play over the prior three weeks, from levels near 1.3100.

        XE Currency Blog

        Topics5245 Posts5290
        By XE Market Analysis April 23, 2018 3:39 am
          XE Market Analysis's picture
          XE Market Analysis Posts: 3517
          XE Market Analysis: Europe - Apr 23, 2018

          The dollar has maintained a steady-to-firmer bias in early-week trading, making fresh highs versus the yen, although holding below respective Friday highs against the euro and other currencies. EUR-USD drifted moderately lower from Friday's closing levels, making a 1.2265 low before steadying, leaving Friday's 17-day low at 1.2229 unchallenged. USD-JPY edged out a fresh two-month high of 107.88, which is the culmination of a five consecutive day run higher, and a rally that's been developing since late March, from levels around 104.60-70. Demand for foreign assets by Japanese life insurers has been a factor propping USD-JPY up, along with an abatement in concerns about trade tensions and cooling relations on the Korean peninsular. A USD-JPY supportive yield differential theme is also in the mix, with U.S. Treasury yields near four-year highs as the BoJ continues to peg JGB 10-year yields near 0.0%. The Nikkei 225 closed 0.33% lower after posting a relatively narrow trading range. In data, Japan's preliminary estimate for the April manufacturing PMI came in at 53.3 after 53.1 in the month prior.

          [EUR, USD]
          EUR-USD drifted moderately lower from Friday's closing levels, making a 1.2265 low before steadying, leaving Friday's 17-day low at 1.2229 unchallenged. Softer Eurozone inflation and ZEW survey data last week helped develop the Eurozone economic-slowing theme. EUR-USD remains near the midway levels of a broad consolidation range that's been seen for some two months now, which has followed a 14-month rally phase from sub-1.0500 levels. More of the same seems likely, with the odds for a big-picture breakout seeming low at the present time. Near-term risks look to be skewed to the downside. Initial support is at 1.2325-26.

          [USD, JPY]
          USD-JPY edged out a fresh two-month high of 107.88, which is the culmination of a five consecutive day run higher, and also a rally that's been developing since late March, from levels around 104.60-70. Demand for foreign assets by Japanese life insurers has been a factor propping USD-JPY up, along with an abatement in concerns about trade tensions and cooling relations on the Korean peninsular. A USD-JPY supportive yield differential theme is also in the mix, with U.S. Treasury yields near four-year highs as the BoJ continues to peg JGB 10-year yields near 0.0%. The Nikkei 225 closed 0.33% lower after posting a relatively narrow trading range. In data, Japan's preliminary estimate for the April manufacturing PMI came in at 53.3 after 53.1 in the month prior. We counsel following the trend in USD-JPY for now. Support comes in at 107.50-51.

          [GBP, USD]
          The pound on Friday posted its fourth consecutive down day, printing a 17-day low at 1.3992 before finding a footing. That extended the correction from the 21-month high that was seen on Tuesday at 1.4376. BoE Governor Carney threw a cat among the hawks, damping what had been a near universal expectation for the central bank to deliver a 25 bp hike in the repo rate on May 10th. He said that while there will be "a few interest rate rises over the next few years," he didn't want "to get too focused on timing." In contrast to Carney, Saunders, one of the Monetary Policy Committee's two dissenters in favour of hiking rates at the March policy meeting, stuck to his relatively hawkish guns in remarks on Friday. With second-round inflationary pressures proving more muted than expected, and in light of currency gains over the last several months (slackening the pressure on UK import prices), we expect the BoE to at least trim its inflation projections while toning down hawkish guidance at its MPC meeting on May 9th-10th, even if still chooses to hike. Cable has been trending higher for a year, and is now in the throws of a corrective wave, with trend supports having been breached and momentum indicators turning lower. Resistance is at 1.4090-91.

          [USD, CHF]
          EUR-CHF has ebbed a little lower after clocking a fresh 39-month high at 1.2005 on Friday, since settling in the upper 1.1900s. The Swiss franc's return to the 1.2000 level is a symbolic "normalisation" that's been afoot in global markets, being the first time the currency has traded below the SNB's former trading cap, which it abandoned in January 2015 in the face of broad and unstoppable euro depreciation caused by ECB monetary stimulus. This is the fourth consecutive week, and the sixth out of the last eight weeks, EUR-CHF has rallied, and the cross is now over 12% higher from the levels of mid last year. USD-CHF has concurrently ascended into three-month high terrain. The franc has been driven lower by the -0.75% Swiss deposit rate along with the widespread expectation for the SNB to remain strongly committed to negative interest rates until after the ECB starts tightening. The central bank's chairman, Jordan, said in Bloomberg interview last Thursday that the franc's declines are in the "right direction" and that the SNB remains "convinced that current monetary policy is still necessary." He had said earlier in the week that "we do not want to provoke an appreciation of the Swiss franc."

          [USD, CAD]
          USD-CAD clocked in a fresh two-week high at 1.2771 during the early Asian session today, extending a rebound from a two-month low at 1.2527, which was seen last Wednesday. A correction in oil prices, which have descended to back near $68.0 in the WTI benchmark market after making a 40-month high at $69.56, along with a generally firmer bias in the U.S. dollar, have driven the rebound in USD-CAD. The Canadian dollar had already been coming off the boil in the wake of last Wednesday's BoC policy meeting, as the statement indicated that the central bank would maintain its cautious stance on future policy changes, which remain data dependent. The latest price action in USD-CAD has negated the downside trend that had been in play over the prior three weeks, from levels near 1.3100.

          XE Currency Blog

          Topics5245 Posts5290
          By HaleStewart April 22, 2018 8:00 am
          • XE Contributor
          HaleStewart's picture
          HaleStewart Posts: 782
          Key Currency Pairs: the Pound/Dollar and the Canadian Dollar/Dollar

                     Due to high inflationary pressures, currency traders had assumed that the Bank of England would be raising rates this year.  BOE governor Carney threw cold water on that assumption during an interview with the BBC:

          The governor of the Bank of England has said that an interest rate rise is "likely" this year, but any increases will be gradual.

          Mark Carney said major decisions had to be taken on Brexit, including on the detail of the implementation period and the shape of a final deal.

          There would also be a parliamentary vote on the future relationship between Britain and rest of the EU.

          All those events would weigh on how fast interest rates rises would occur.

          Two other releases added downward pressure to the Sterling.  The ONS reported the latest inflation number, with a headline 2.3% Y/Y rate.  While UK inflation was on an upward trajectory, it now appears to be moving lower:

          The blue line, which is the harmonized consumer price index, rose above 2% at the beginning of 2017 where it remained for most of year.  But the last few readings have been moving lower, indicating that inflationary pressures may be subsiding.  This is probably due to the waning impact of imported inflation caused by a weak sterling.  Adding to the downward pressure was the weak retail sales number: they were down .5% Q/Q and 1.2% M/M.  The statisticians observed that weak weather depressed some purchases.  But this data series has been trending lower for the last year:

          The 5-minute chart of the pound/dollar shows the negative impact of this week’s news:

          The sharp drop on the 18th occurred right after the inflation number came out while the decline on the 19th happened after Carney’s BBC interview.

          Here’s the 1-year chart:

          Prices fell to the 50-day EMA and broke a short-term trend line.  However, the overall upward trend remains intact.

                      This week, Canada maintained their current interest rate policy (please see the accompanying story here).  The opening statement from President Poloz contained the following dovish analysis:

          That said, interest rates remain very low relative to historical experience. This is because the economy is not yet able to remain at full capacity on its own. Furthermore, the sustainability of this level of activity is not assured; although we expected the economy to moderate in the second half of 2017, that moderation has extended into early 2018 and has been more pronounced than expected. Governing Council considered recent economic data very carefully and concluded that the softness early this year was due mainly to two temporary factors.

          ….

          Accordingly, we expect a strong rebound in the second quarter after a lacklustre first quarter, with an average growth rate of about 2 per cent in the first half of the year and a return to near-potential growth thereafter. Fiscal stimulus, both provincial and federal, is playing a role in this forecast. We will be monitoring the data for the second quarter very closely in the weeks ahead. 

          The market understandably interpreted this as an indication the bank would keep rates at current levels.  This week’s releases supported and contradicted the bank’s analysis. Retail sales were up .4% but were flat ex-auto.  However, inflation rose to 2.3%, the highest reading in since 10/14.  7/8 categories were higher, with energy prices adding the most upward pressure.

          The weekly 5-minute chart of the Canadian dollar relative to the US dollar shows a loss for the week and several modestly strong sell-offs:

          Prices dropped from .796 to .79 on Wednesday when the bank announced its latest rate policy.  Prices fell on Thursday from .794-.79 while they dropped from .791-.785 on Friday with the release of the latest retail sales and inflation numbers.

          This week’s price action did some technical damage to the daily chart:

          Prices had been in an uptrend since March 19.  But this week’s price action broke that upward trend.

          But in the longer scheme, the Canadian dollar is still weak relative to the US dollar:

          The Canadian dollar is about 14% above its lows verses the US dollar.        

          XE Currency Blog

          Topics5245 Posts5290
          By HaleStewart April 22, 2018 7:43 am
          • XE Contributor
          HaleStewart's picture
          HaleStewart Posts: 782
          Moderate Mixed Messages on the International Data Front

               This week, we had the standard economic “on one hand, on the other hand” situation.  The IMF released their latest World Economic Outlook which contained bullish data.  However, we’re seeing some weakness in the OECDs leading numbers along with the Nowcasts released by the Financial Times.

               First, let’s look at the positive numbers from the IMF:

          Let’s begin with the lower left-hand corner, which shows the rise in various PMIs over the last few years.  These numbers started to rise in late 2016 and continued increasing during 2017.  This led to increased orders which began to register in industrial production numbers in mid-2017 (top chart, blue line).  Global trade took off at the end of last year (top chart, red line).  Finally, consumer confidence started to increase in early-mid 2016, depending on the region.  This was probably due as much to the lack of bad news as to any positive development. 

               Let’s take a deeper look at the increase in trade, starting with advanced economies:

          There’s a slight uptick in Germany and Japan.  But the real growth is in other advanced economies. 

               Turning to the emerging economies, we get the following data:

           

          China (above in red) is the prime mover; their exports greatly expanded last year.

          Overall the IMF projects solid growth numbers for the next few years:

          Global growth is projected to strengthen from 3.8 percent in 2017 to 3.9 percent in 2018 and 2019, driven by a projected pickup in growth in emerging market and developing economies and resilient growth in advanced economies (Table 1.1). The forecast for 2018 and 2019 is stronger than in the October 2017 WEO by 0.2 percentage point for each year, with positive revisions compared with the October 2017 WEO for emerging market and developing economies and especially for advanced economies. The global effects of US fiscal policy changes account for almost half of the global growth upgrade for 2018–19 compared with October. Beyond 2019, global growth is projected to gradually decline to 3.7 percent by the end of the forecast horizon. The slowdown is entirely because of advanced economies, where growth is projected to moderate in line with their modest potential growth; growth across emerging market and developing economies is expected to stabilize close to the current level.

                          The OECD has released its latest round of leading indicators, which point towards continued growth, but with a hint of weakness in a few data points.  Here’s a table from the latest report:

          The OECD region’s numbers have moved modestly lower over the last two months, but this is after nearly a year of increases.  The modest decline is probably due to increased talk of protectionism.  When we add in the major six non-OECD countries, the LEIs top-off; they’ve been in the 100.2-100.3 area for the last eight months.  Europe is down for the last four months, as is the reading for the euro area and the four largest EU economies (Germany, France, Italy, and Spain).  Several other indicators (the Markit PMIs and the ZEW reading from Germany) have also picked-up this Euro area weakness.  The NAFTA countries are in an uptrend, which is due to increases in Canadian and US figures; Mexico’s LEIs are moving lower.  Finally, there’s modest weakness throughout Asia.

               The FT’s economic Nowcasts have also picked-up some of this weakness:

          There’s been a drop in EU, US, Japanese, and Chinese nowcast numbers, which explains most of the movement lower in advanced economies.  Thanks to increases in raw material prices, emerging economies are doing well.

                      Why the dip in the numbers?  There are probably a few reasons.  At the top of the list is rising talk of protectionism and tariffs.  It should come as no surprise that we’ve seen large dips in German confidence over the last few months.  But emerging economies have reasons to be concerned as well.  We also still have some weakness attributable to negative Brexit news.  There has also been an uptick in global stress: there was the Russian assassination attempt in the UK followed by the expulsion of a number of diplomats.  Brazil’s election is very rocky; the leading candidate was arrested on corruption charges while another candidate was charged with hate speech.  The Middle East is, as always, a difficult environment, currently exacerbated by the Syria situation.  Finally, North Korea remains an ever-present wild card.  The combination of all these events undoubtedly hit sentiment in a negative way.  

           

              

                       

           

           

          XE Currency Blog

          Topics5245 Posts5290
          By HaleStewart April 22, 2018 7:23 am
          • XE Contributor
          HaleStewart's picture
          HaleStewart Posts: 782
          Canada Appears Poised For Further Growth

                    The Canadian economy was hit by the oil price declile in 2014 and experienced a mild recession.  But over the last two years, it was bounced back.  Now the Bank of Canada is faced with the possibility of higher growth and the accompanying inflation.  This week, the Bank of Canada maintained their current rate level.  They also released their latest economic analysis and projections for the Canadian economy:

          Canada’s economic growth has moderated, and the economy is operating close to capacity. While a moderation was anticipated, temporary factors—notably, volatility in trade shipments, amplified by transport bottlenecks, and the dynamic response of housing markets to regulatory changes—are resulting in sizable short-term fluctuations in growth.

          Looking through these fluctuations, economic growth is projected to average slightly above that of potential output over the next three years. Real GDP growth is now projected to be about 2 per cent in both 2018 and 2019 and to ease to 1.8 per cent in 2020, the estimated growth rate of potential. This profile reflects a slight downward revision in 2018 and a more notable upward revision in 2019 relative to the January projection (Table 2). The higher profile for economic activity incorporates additional fiscal stimulus and upward revisions to the estimated profiles of potential output (see Appendix, page 25) and national income.

          To a large extent, the bank is overstating the degree of the economic slowdown and understating the extent of potential growth.  Let’s start with top-line GDP growth for the last eight quarters:

          GDP at market prices (in blue) has been increasing since the 1Q16.  While it declined over the last two quarter, the latest two readings of 3% and 2.9% are still very strong, especially for a developed economy.  And, the 2Q17 number could be seen as an outlier.  The average of the last three quarters is 3.2% while the average for the last four quarters is 3%.  And the growth of final domestic demand recently rose 4% Y/Y after a series of continually higher readings – hardly a slowdown.    

          There is little reason to believe that consumer spending will slow meaningfully.  Employment continues to grow ...

           

          and the unemployment rate continues to drop:

          Consumer spending was strong last year:

          Durable goods purchases (in blue) increased on average at a 6.45% Y/Y rate.  The pace of semi-durable goods (in red) spending increased as the year went on; non-durable and service spending was consistent.  And while retail sales have slowed, they’re still in an obvious uptrend:

          The bank is projecting an increase in business investment.  However, the data indicates the growth rate could be stronger than the bank thinks:

          Commercial real estate (in blue) and equipment investment (in red) contracted during 2016.  But both are clearly accelerating.  And due to the dearth of activity in 2016, it’s reasonable to expect a continued faster pace in 2018-2019. 

                      Canada’s export situation has been remarkably weak over the last two years:

          However, the bank believes they will pick-up in the next 12-18 months:

          Exports declined in the first quarter, in part reflecting transportation issues that interrupted the shipment of some commodities. These disruptions are anticipated to be temporary, and export growth is expected to rebound in the second quarter, led by a large increase in exports of crude oil as  production growth continues. Non-energy commodity exports, such as lumber and agricultural products, will begin growing again as the backlog of shipments caused by poor weather and capacity issues in rail transportation are addressed.

          Finally, the bank acknowledged the possibility of an adverse outcome from the NAFTA situation:

          Trade policy is an increasingly prominent risk to the global economic expansion. US tariff announcements and proposed retaliatory actions by China raise the risk of a more pronounced shift away from a multilateral, rules-based system. A wide range of outcomes are still possible for the  renegotiation of the North American Free Trade Agreement (NAFTA). Even without changes in trade arrangements, increased concerns about trade policies could lead to a sharper-than-expected tightening of financial conditions, lower confidence and a more pronounced slowing of growth. The Bank’s base-case scenario, while predicated on the assumption that existing agreements will remain in place, continues to incorporate adverse effects from uncertainty on global investment and NAFTA-related judgment  specific to Canada and Mexico. By convention, the direct impacts of tariffs announced by the United States and China will be added to the Bank’s forecast if, and when, they are implemented.

                      As for prices, remember that 2% is not a ceiling, but instead a target.  Currently, inflation is 2.3%:

           

          However, the weakness of the Canadian dollar relative to the USD probably means Canada has been importing a bit of inflation:

          And the Bank projects inflation to remain slightly elevated for the near-term before returning to 2%:

          CPI inflation is anticipated to remain modestly above 2 per cent until the end of 2018. Temporary factors, namely elevated gasoline prices and the impact of minimum wage increases, are expected to more than offset the fading effects of electricity price rebates and low food price inflation. In 2019, inflation is expected to return to about 2 per cent.

          The above data indicates that Canada is in stronger shape their central bank thinks.  The employment situation is improving, which will contribute to further increases in consumer spending.  Business investment -- which was weak for several years -- will have to make up for lost time.  And exports are bound to bounce back.  It's likely the Back of Canada will have to raise rates in the near future.

           

           

           

                

           

           

           

           

          XE Currency Blog

          Topics5245 Posts5290
          By New_Deal_democrat April 21, 2018 9:00 am
          • XE Contributor
          New_Deal_democrat's picture
          New_Deal_democrat Posts: 530
          Weekly Indicators: manufacturing growth decelerates, mortgage applications accelerate addition
          March data was all positive, including the Index of Leading Indicators, buoyed particularly by the interest rate spread and ISM new orders, and also included building permits and starts, retail sales, industrial production and capacity utilization.
           
          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.
           
          NOTE that I include 12 month highs and lows in the data in parentheses to the right.

           

          Interest rates and credit spreads

          • BAA corporate bond index 4.69% up +.07% w/w (1 yr range: 4.15 - 4.69)
          • 10 year treasury bonds 2.96% up +.14% w/w  (2.05 - 2.96) 
          • Credit spread 1.73% down -.10% w/w (1.56 - 2.30)
          Yield curve, 10 year minus 2 year:
          • 0.50%, up +0.04% w/w (.46 - 1.30) (new expansion low)
          30 year conventional mortgage rate
          • 4.58%, up +0.08% w/w (3.84 -  4.58) 

          BAA Corporate bonds rose back above 4.65%, and so are neutral again.  Mortgage rates and treasury bonds are still both negatives. The trend for these for most of 2017 was neutral. The yield curve remains positive if more weakly so, and the spread between corporate bonds and treasuries also remains positive.

           

          Housing

           

          Mortgage applications  

          • Purchase apps up +6% w/w
          • Purchase apps up +10% YoY (close to expansion high) ***SEE BELOW
          • Refi up +4% w/w
           
          Real Estate loans
          • Up +0.2% w/w 
          • Up +4.6% YoY( 3.3 - 6.5) (re-benchmarked, adding roughly +0.5% to prior comparisons)

          Refi has been dead for some time. Purchase applications were strong almost all last year, but began to falter in late December, frequently turning neutral (under 3%). They were negative one week ago before rebounding strongly this week. ***NOTE: The four week moving average of the absolute reading of purchase mortgage applications is at its highest for the entire expansion.

           

          With the re-benchmarking of the last year, the growth rate of real estate loans has changed from neutral to positive.

           

          Money supply

          M1

          • +0.3% w/w 
          • -1.0% m/m 
          • +3.9% YoY Real M1 (1.9 - 6.9) 
          M2
          • -0.1% w/w  
          • +0.2% m/m 
          • +1.4% YoY Real M2 (1.4 - 4.1)

          Since 2010, both real M1 and real M2 were resolutely positive.  Both decelerated substantially in 2017. Real M2 growth has fallen below 2.5% and is thus a negative.  If real M1 YoY growth falls  below 3.5%, and also turns negative on a 6 month basis, I will downgrade it to neutral, It's not there yet, but it is now a weak positive.

           

          Credit conditions (from the Chicago Fed) 

           

          • Financial Conditions Index down -0.02 to -0.75
          • Adjusted Index (removing background economic conditions) unchanged at -0.47
          • Leverage subindex up +.01 to -0.52
          The Chicago Fed's Adjusted Index's real break-even point is roughly -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 -0.45 to 117.44 w/w -5.2% YoY (last week) (broad) (116.74 -128.62) 
          • Up +0.52 to 90.30 w/w, -9.7% 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 a positive since last summer.

           

          Commodity prices

          JoC ECRI 

          • Up +1.48 to 111.84 w/w
          • Up +5.64 YoY 
          BBG Industrial metals ETF 
          • 141.28 up +6.45 w/w, up +26.30% YoY (108.00 - 149.10)
          Commodity prices bottomed near the end of 2015. After briefly turning negative, metals also surged higher after the 2016 presidential election.  ECRI has decelerated enough to become neutral.  On the other hand, industrial metals have been strongly positive and recently made a new high.

           

          Stock prices S&P 500

          • Up +0.5% w/w to 2670.14 
          Despite coming close in recent selloffs, stock prices did not make a new 3 month low and so remain positive, If there is no new 3 month high by the end of April, this will change. They made a string of new all-time highs beginning in summer 2016.
           

          Regional Fed New Orders Indexes

          (*indicates report this week)

          • *Empire State down -7.8 to +9.0
          • *Philly down -17.3 to +18.4
          • Richmond down -10 to +17
          • Kansas City down -17 to -1
          • Dallas down -17 to +8.3
          • Month over month rolling average: down -6 to +10
          The regional average has been more volatile than the ISM manufacturing index, but has accurately forecast its month over month direction, and remains positive. All five of the surveys have declined steeply in their last readings, enough so that I am downgrading manufacturing to a weak positive.

           

          Employment metrics

           Initial jobless claims

          • 232,000 down -1,000 
          • 4 week average 231,250 up +1,250 

          Initial claims have recently made several 40+ year lows and so are very positive. The YoY% change in these metrics had been decelerating but is now back on its multi-year pace. 

           

          The American Staffing Association Index

          • Up +1 to 95 w/w
          • Up +1.4% YoY

          This index was generally neutral from May through December 2016, and then positive with a few exceptions all during 2017. It was negative for over a month at the beginning of this year, but has returned to a positive.

           

          Tax Withholding 

          • $186.2 B for the last 20 reporting days vs. $190.3 B one year ago, down -$4.1 B or -2.2%
          • 20 day rolling average adjusted for tax cut [+$4 B]: down -$0.1 B or -0.1%

          With the exception of the month of August and late November, this was positive for almost all of 2017. Except for the last three weeks, it has generally been negative since the effects of the recent tax cuts started in February.

           

          I have discontinued the intramonth metric for the remainder of this year, since the kludge to guesstimate the impact of the recent tax cuts makes it too noisy to be of real use.

          I have been adjusting based on Treasury Dept. estimates of a decline of roughly $4 Billion over a 20 day period. Matt Trivisonno of the Daily Jobs Update: http://www.dailyjobsupdate.com/public/tax-cut-adjustments has calculated that the recent tax law most likely took about a 7.4% bite out of tax collections. This week the Treasury Dept. also changed the way it accounts for corporate tax repatriations. In any event, until we have YoY comparisons, we have to take this measure with a big grain of salt.

           

          Oil prices and usage 

          • Oil up +$0.73 to $68.10 w/w,  up +26.7% YoY 
          • Gas prices up +$0.05 to $2.74 w/w, up $0.31 YoY 
          • Usage 4 week average up +0.7% YoY 

           The price of gas bottomed over 2 years ago at $1.69.  With the exception of July, prices generally went sideways with a slight increasing trend in 2017.  Usage turned negative in the first half of 2017, but has almost always been positive since then. I will not score oil prices negative unless they rise more than 40% YoY.

           

           Bank lending rates

           Both TED and LIBOR rose in 2016 to the point where both were usually negatives, with lots of fluctuation.  Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions.  The TED spread was generally increasingly positive in 2017, while LIBOR was increasingly negative. The TED spread has now also turned negative.

           

          Consumer spending

          • Johnson Redbook up +3.0 YoY
          • Goldman Sachs Retail Economist +0.3% w/w, +3.8% YoY

           Both the Goldman Sachs and Johnson Redbook Indexes generally improved from weak to moderate or strong positives during 2017 and have remained positive this year.

           

          Transport

          Railroad transport

          • Carloads up +1.6% YoY
          • Intermodal units up +6.9% YoY
          • Total loads up +4.3% YoY

          Shipping transport

          • Harpex unchanged at 646 (440 - 646) (tied for new 3 year high)
          • Baltic Dry Index up +145 to 1124 (~700 - 1700)

          Rail was generally positive since November 2016 and remained so during all of 2017 with the exception of a period during autumn when it was mixed. This year in January and February, carloads were usually negative, while intermodal (mainly imports) were positive. This resolved to positive.

          Harpex made multi-year lows in early 2017, then improved, declined again, and then improved  yet again to recent highs. BDI traced a similar trajectory, and made 3 year highs near the end of 2017, although it has since declined 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 -1.2% w/w
          • Up +3.7% YoY

          Steel production improved from negative to "less bad" to positive in 2016 and with the exception of early summer, remained generally positive in 2017. It turned negative in January and early February, but has been positive since then.

           
           

          SUMMARY: 

           

          Among the long leading indicators, corporate bond yields have fluctuated at the edge of being weakly positive vs. neutral, as they were this week. The yield curve became (slightly) more weakly positive this week, as did Real M1. Purchase mortgage applications rebounded sharply to a new four week average high for the expansion. The more leading Chicago Fed Financial Conditions Indexes and real estate loans all remain positives. Treasuries, mortgage rates, refinance applications, and real M2 are all negative.

           

          Among the short leading indicators, industrial metals, the regional Fed new orders indexes, spreads, financial leverage, the US$, jobless claims, stocks, staffing, and gas prices and usage all remain positive, although the Fed indexes have slowed to weak positives. Oil prices and the ECRI commodity index remain neutral.

           

          Among the coincident indicators, positives include consumer spending, Harpex, rail and steel. LIBOR and the TED spread remain negative, joined this week again by tax withholding. The Baltic Dry Index has turned neutral.

           

          The nowcast remains positive. The slowdown in the Fed indexes argues that the short term forecast is decelerating from a strong positive.  The long term forecast keeps tiptoeing towards neutrality, but as of now remains weakly positive, with housing (exemplified by the new high in purchase mortgage applications) being the chief reason for continued positivity. 

           

          Have a nice weekend!

          XE Currency Blog

          Topics5245 Posts5290
          By XE Market Analysis April 20, 2018 2:06 pm
            XE Market Analysis's picture
            XE Market Analysis Posts: 3517
            XE Market Analysis: Asia - Apr 20, 2018

            The DXY posted two-week highs in N.Y. on Friday, taking its cue from firmer Treasury yields. EUR-USD fell to 1.2250 lows, down more than 100 points from overnight highs. USD-JPY topped at 107.86, a two-month top. USD-CAD printed two-week highs of 1.2749 following cooler Canada CPI and retail sales. Cable remained under pressure following BoE's Carney comments on Thursday, where he walked back the prospects for a May rate hike. Sterling bottomed at 1.4007.

            [EUR, USD]
            EUR-USD printed two-week lows of 1.2250, down from overnight highs of 1.2353. Pre-weekend London short covering has seen the pairing since bounce to 1.2300 highs. The euro had been capped over the 1.2400 level through the week, and remains in sell the rally mode. European economic activity has sputtered some of late, raising the potential for an easier ECB for longer, a definite euro-negative.

            [USD, JPY]
            USD-JPY topped at 107.86, a two-month high. Softer Japan CPI data weighed on the yen overnight, with follow-through gains seen in N.Y. morning trade. Since then, the pairing has stumbled to lows of 107.51 on the back of a soured risk backdrop.

            [GBP, USD]
            Cable posted its fourth consecutive down day, printing fresh two-week lows under 1.4007, extending the correction from the 21-month high that was seen on Tuesday at 1.4376. BoE Governor Carney on Thursday walkws back prospects for a May rate hike. He said that while there will be "a few interest rate rises over the next few years," he didn't want "to get too focused on timing." Cable has been trending higher for a year, and is now in the throws of a corrective wave, with trend supports having been breached and momentum indicators turning lower.

            [USD, CHF]
            EUR-CHF pulled back from the key 1.2000 level on Friday, profit taking set in following the first time the cross has traded above the SNB's former trading floor (or franc cap), which it abandoned in January 2015 in the face of broad and unstoppable euro depreciation caused by ECB monetary stimulus. This is the fourth consecutive week, and the sixth out of the last eight weeks EUR-CHF has rallied, and the cross is now over 12.5% higher from the levels of mid last year. USD-CHF has concurrently ascended into three-month high terrain. The franc has been driven lower by the -0.75% Swiss deposit rate along with the widespread expectation for the SNB to remain strongly committed to negative interest rates until after the ECB starts tightening. The central bank's chairman, Jordan, said in an interview with the La Liberte newspaper this week that "it is not yet time to change monetary policy," adding that "we do not want to provoke an appreciation of the Swiss franc."

            [USD, CAD]
            USD-CAD soared to two-week highs of 1.2749 highs from 1.2645 following the cooler inflation and softer retail sales data. Trump's verbal intervention in the oil market earlier didn't help the CAD either, as he earlier tweeted "Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!". That saw WTI prices slide $1/bbl to $67.58 lows.

            XE Currency Blog

            Topics5245 Posts5290
            By XE Market Analysis April 20, 2018 7:06 am
              XE Market Analysis's picture
              XE Market Analysis Posts: 3517
              XE Market Analysis: North America - Apr 20, 2018

              The dollar is finishing the week on a firmer footing, posting gains versus the euro and yen, and being aided higher against the pound after BoE Governor Carney walked back hawkish guidance. EUR-USD dropped through recent range lows at 1.2299-1.2307 on route to posting an 11-day low at 1.2293. There didn't appear to have been any specific catalyst, though there is a backdrop fundamental justification in market narratives, with softer Eurozone inflation and ZEW survey data this week having developed the Eurozone economic-slowing theme. USD-JPY nudged out a one-week high at 107.73 during the Tokyo session, coming within 5 pips of last Friday's two-month peak. Japanese March CPI came in at the expected 1.1% y/y in the headline reading, while the BoJ-watched core reading ebbed to a 0.9% y/y rate from 1.0% y/y. Cable dropped for a fourth consecutive day in posting a two-week low at 1.4036 before finding a toehold. BoE Governor Carney suggested a May hike is not a done deal, describing recent data out of the UK as being "mixed" and repeating the central bank's caveat on Brexit risks. The dollar also posted gains versus the Australian and New Zealand dollars.

              [EUR, USD]
              EUR-USD broke lower today, dropping through recent range lows at 1.2299-1.2307 on route to posting an 11-day low at 1.2293. The aforementioned former range lows now revert as resistance levels. Fresh declines in Cable following relatively dovish remarks by BoE Governor Carney, along with broader dollar firmness, drove the downside move in EUR-USD. There is also backdrop fundamental justification, with softer Eurozone inflation and ZEW survey data having been seen this week by further developing a Eurozone economic-slowing theme. In the bigger view, EUR-USD still remains near the midway levels of a broad consolidation range that's been seen for some two months now, which has followed a 14-month rally phase from sub-1.0500 levels. More of the same seems likely, with the odds for a big-picture breakout seeming low at the present time. Near-term risks look to be skewed to the downside. Key support is at 1.2214-15.

              [USD, JPY]
              USD-JPY nudged out a one-week high at 107.73 during the Tokyo session, coming within 5 pips of last Friday's two-month peak. The move reflected dollar firmness as EUR-JPY and other yen crosses traded flat or modestly lower. In data today, Japanese March CPI came in at the expected 1.1% y/y in the headline reading, while the BoJ-watched core reading ebbed to a 0.9% y/y rate from 1.0% y/y, which underscores the recent, and ongoing, concerns about chronically below-target inflation of Japanese policymakers. The April Tankan survey of business confidence saw the index for large manufacturers decline to a reading of +21 from +28 in March, which is the third consecutive month of deterioration and the lowest reading for this measure since February 2017. The rise in trade tensions got the blame for the worsening in confidence. The non-manufacturers index came in at +36 from +35. USD-JPY has been in a rally phase for some three weeks now. Support is at 107.30-32. We look for a breach of last week's two-month high at 107.78 to reaffirm the developing trend.

              [GBP, USD]
              Sterling dropped for a four consecutive day, this time at the prompt of remarks by BoE Governor Carney, who suggested a May hike is not a done deal during an interview with the BBC, even though he said several rate hikes remain "likely" over the next several years. He described recent data out of the UK as being "mixed," acknowledging softer business surveys and retail sales figures. Carney also replayed the BoE's boilerplate caveat about Brexit risks, saying that the biggest set of economic decisions over the course of the next few years are going to be taken in the Brexit negotiations and whatever deal we end up with." Hid remarks followed softer than expected inflation, wage and retail sales data this week. With second-round inflationary pressures proving more muted than expected, and in light of currency gains over the last several months, which has been slackening the pressure on UK import prices, we expect the BoE to walk back the hawkish guidance it gave in February at its May MPC meeting, even if still chooses to hike the repo rate by 25 bp to 0.75%. Cable has been trending higher for a year, and is now in the throws of a corrective wave, with trend supports having been breached and momentum indicators turning lower. Resistance is at 1.4145.

              [USD, CHF]
              EUR-CHF has symbolically posted a high above 1.2000 -- symbolic as this is the first time the cross has traded above the SNB's former trading floor (or franc cap), which it abandoned in January 2015 in the face of broad and unstoppable euro depreciation caused by ECB monetary stimulus. This is the fourth consecutive week, and the sixth out of the last eight weeks, EUR-CHF has rallied, and the cross is now over 12.5% higher from the levels of mid last year. USD-CHF has concurrently ascended into three-month high terrain. The franc has been driven lower by the -0.75% Swiss deposit rate along with the widespread expectation for the SNB to remain strongly committed to negative interest rates until after the ECB starts tightening. The central bank's chairman, Jordan, said in Bloomberg interview last night that the franc's declines are in the "right direction" and that the SNB remains "convinced that current monetary policy is still necessary." He had said earlier in the week that "we do not want to provoke an appreciation of the Swiss franc."

              [USD, CAD]
              USD-CAD rebounded to a 10-day high of 1.2676, building on a recovery from Wednesday's two-month low at 1.2527. A correction in oil prices, which have descended to back near the $68.0 in the WTI benchmark market after making a 40-month high at $69.56, along with a generally firmer bias in the U.S. dollar, have driven the rebound in USD-CAD. The Canadian dollar had already been coming off the boil in the wake of the BoC's mid-week policy meeting, where the statement indicated that the central bank would maintain its cautious stance on future policy changes, which remain data dependent. The latest price action in USD-CAD suggests a weakening in the downside trend that's been developing over the last three weeks, from levels near 1.3100. Resistance is at 1.2700.

              Pages

              Subscribe to RSS Feed
              Paste link in email or IM