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By XE Market Analysis January 23, 2018 3:16 pm
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    XE Market Analysis Posts: 3356
    XE Market Analysis: Asia - Jan 23, 2018

    The dollar came under renewed pressure in N.Y. on Tuesday, with the DXY hitting a three-plus year low of 90.07. EUR-USD topped at 1.2306 after opening near 1.2235, while USD-JPY touched 110.26, after peaking at 111.17 post-BoJ meeting. USD-CAD traded a narrow range in the mid-1.24s, while cable printed new post-Brexit vote highs of 1.4027.

    [EUR, USD]
    EUR-USD topped at 1.2306, climbing to a one-week high as dollar woes continue. A much stronger than anticipated German ZEW survey, which will add to the arguments of the hawks at Thursday's council meeting, got the euro ball rolling earlier. The pairing will now likely consolidate into Thursday's ECB meeting, where eyes will be on Draghi for signs of a guidance shift.

    [USD, JPY]
    USD-JPY printed one-week lows of 110.26, losing its post-BoJ bid, even as Kuroda sounded a dovish tone on policy. The dollar is weaker across the board going into the London close, taking the DXY to three-plus year lows of 90.07, and keeping pressure on USD-JPY. Support comes in at 110.20, last week's bottom.

    [GBP, USD]
    Cable printed fresh post-Brexit vote highs of 1.4027 into the London close, with the move higher largely driven by dollar weakness. The DXY hit three-plus year lows in N.Y. trade. Wednesday brings November U.K. employment data.

    [USD, CHF]
    EUR-CHF settled in the upper 1.17s, below the 37-month high that was seen last Monday at 1.1833. The pullback follows remarks from some ECB policymakers expressing concerns about the pace of recent euro gains, which could have implications for monetary policy. This has put in a pause on the broad rally the cross has been seeing since mid last year, seen concomitantly with economic recovery in the Eurozone, alongside the apparent passing of the worst of the existential political threats to the Euro area. The SNB's punitive -0.75% deposit rate has also been in the mix of directional drivers. EUR-CHF would need to reach 1.2000 to fully reverse the losses that were seen after the SNB abandoned the franc cap in January 2015.

    [USD, CAD]
    USD-CAD rallied to 1.2491 highs in London, finding support above 1.2460 into late morning. The pairing later slipped to 1.2431 as oil prices rallied. News that the U.S. would impose tariffs on imported washing machines and solar panels (primarily impacting China and South Korea) has indirectly provided some support to the pairing, bringing home the potential for U.S./Canada trade difficulties, as NAFTA talks continue in Montreal this week. USD-CAD has been in consolidative mode since the BoC rate hike last week. Resistance comes at the 20-day moving average which stands at 1.2498, with support seen at Monday's low of 1.2436.

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    By XE Market Analysis January 23, 2018 7:15 am
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      XE Market Analysis: North America - Jan 23, 2018

      The dollar trading mostly firmer in the wake of the U.S. funding deal that ended three day's of government shutdown, although the impact was muted. The USD index (DXY) lifted out of a three-day low at 90.29 to a 90.53 high before settling just under 93.50. EUR-USD posted an intraday low at 1.2223, before recouping to around 1.2250, a level that the pair has been oscillating around for over a week now. The U.S. news has been having a greater impact on global stock markets, which scaled fresh highs, and this coursing risk-on sentiment has been serving as a negative lead for the U.S. currency as capital searches for higher beta, higher yield assets. USD-JPY has been trading heavily, with the pairing meeting decent selling into the gains that were generated in Tokyo after dovish signalling by BoJ governor, Kuroda, at his post-meeting press conference, which followed an expected unchanged policy announcement. The pair ebbed from the intraday high at 111.17, seen after Kuroda's press conference, to a low at 110.38. EUR-JPY and other yen crosses have seen a similar price action, so it's not a dollar story.

      [EUR, USD]
      EUR-USD has continued to narrowly orbit the 1.2250 level, as it has been for over a week now. The pair lifted out of the intraday low at 1.2223, which was seen during early trading in London. The Senate vote on the stopgap funding bill has only had limited positive impact on the dollar, with a burgeoning risk-on sentiment in global markets serving as a negative lead for the U.S. currency as capital searches for higher beta, higher yield assets. EUR-USD has support at 1.2182-84, while last Tuesday's 37-month high is at 1.2323 remains in the scopes.

      [USD, JPY]
      USD-JPY has been trading heavily in London dealings so far, with the pairing meeting decent selling into the gains that were generated in Tokyo after dovish signalling by BoJ governor, Kuroda. The pair ebbed from the intraday high at 111.17, seen after Kuroda's press conference, to a low at 110.58, which is 4 pips above the low seen in Tokyo ahead of the BoJ announcement. EUR-JPY and other yen crosses have seen a similar price action, so it's not a dollar story. The dollar has in fact been trading firmer against most currencies, buoyed by the Senate's stopgap vote. The yen's firmness also can't been explained by the level of risk appetite in global markets, which is red-lining in the risk-on side of the dial, which historically has been a marker for yen underperformance. One possible yen positive is news that TPP II is on course to be signed on March 9, according to Japan's economy minister, Motegi (eleven nations have been discussing this in Tokyo). USD-JPY has support is at 110.58-60, presently being tested, and resistance is at 111.48-50. A daily close below recent range lows at 110.49-54 would be a strong bearish signal.

      [GBP, USD]
      Cable logged a new post-Brexit vote high of 1.4003 before settling in the mid 1.39s after the dollar picked up on the U.S. Senate's vote on the stopgap funding bill, which ends three days of government shutdown. Cable has been starting to look ripe for a correction. The 14-day relative strength momentum indicator is flashing bearish divergence, with the indicator turning lower despite new highs in in spot prices over the last week. Mean reversion would bring the 20-day moving average, presently at 1.3695, into play.

      [USD, CHF]
      EUR-CHF has settled in the mid 1.17s, below the 37-month high that was seen last Monday at 1.1833. The pullback follows remarks from some ECB policymakers expressing concerns about the pace of recent euro gains, which could have implications for monetary policy. This has put in a pause on the broad rally the cross has been seeing since mid last year, seen concomitantly with economic recovery in the Eurozone, alongside the apparent passing of the worst of the existential political threats to the Euro area. The SNB's punitive -0.75% deposit rate has also been in the mix of directional drivers. EUR-CHF would need to reach 1.2000 to fully reverse the losses that were seen after the SNB abandoned the franc cap in January 2015.

      [USD, CAD]
      USD-CAD has maintained a consolidation in the mid 1.24s over the last several sessions. The BoC's 25 bp rate hike last week met expectations, but was accompanied with cautious guidance. The central bank's gradual normalization reflects ongoing uncertainties, notably the NAFTA renegotiation. We expect two more 25 bp rate hikes this year, in July and October. Focus will remain on the NAFTA front, with uncertainty about this having curtailed the Canadian dollar rallying amid the surge in oil prices.

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      By XE Market Analysis January 23, 2018 3:15 am
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        XE Market Analysis: Europe - Jan 23, 2018

        The dollar gained on the Senate vote that ended the three-day government shutdown in the U.S. Gains have been moderate. The USD index (DXY) lifted out of a three-day low at 90.29 to 90.53, while EUR-USD tumbled by about 30 pips in making a low at 1.2238, subsequently settling around 1.2250, a level that the pair has been oscillating around for a week now. USD-JPY lifted to a 111.17 peak from levels near 110.50. The BoJ left policy unchanged at its meeting today, as had been widely anticipated, while BoJ's Kuroda sounded dovish at his post-meeting press conference, saying that the central bank will remain strongly committed to monetary easing, including QQE, until the 2% inflation target has been reached, which remains "far" from the case. Stock markets rallied on the U.S. news, which sent the MSCI Asia-Pacific index to fresh record highs.

        [EUR, USD]
        EUR-USD tumbled by about 30 pips in making a low at 1.2238, subsequently settling around 1.2250, a level that the pair has been oscillating around for a week now. The dip was driven by dollar gains on news that the U.S. Senate ended the three-day government shutdown in the U.S. EUR-USD has support at 1.2182-84, while last Tuesday's 37-month high is at 1.2323 remains in the scopes.

        [USD, JPY]
        USD-JPY lifted to a 111.17 peak from levels near 110.50. The BoJ left policy unchanged at its meeting today, as had been widely anticipated, while BoJ's Kuroda sounded dovish at his post-meeting press conference, saying that the central bank will remain strongly committed to monetary easing, including QQE, until the 2% inflation target has been reached, which remains "far" from the case. Stock markets rallied on the U.S. news, which sent the MSCI Asia-Pacific index to fresh record highs. We anticipate more gains in USD-JPY. Support is at 110.60, and resistance is at 111.48-50.

        [GBP, USD]
        Cable logged a new post-Brexit vote high of 1.4003 before settling in the mid 1.39s after the dollar picked up on the U.S. Senate's vote on the stopgap funding bill, which ends three days of government shutdown. Cable is starting to look ripe for a correction. The 14-day relative strength momentum indicator is flashing bearish divergence, with the indicator turning lower despite new highs in in spot prices over the last week. Mean reversion would bring the 20-day moving average, presently at 1.3695, into play.

        [USD, CHF]
        EUR-CHF has settled in the mid 1.17s, below the 37-month high that was seen last Monday at 1.1833. The pullback follows remarks from some ECB policymakers expressing concerns about the pace of recent euro gains, which could have implications for monetary policy. This has put in a pause on the broad rally the cross has been seeing since mid last year, seen concomitantly with economic recovery in the Eurozone, alongside the apparent passing of the worst of the existential political threats to the Euro area. The SNB's punitive -0.75% deposit rate has also been in the mix of directional drivers. EUR-CHF would need to reach 1.2000 to fully reverse the losses that were seen after the SNB abandoned the franc cap in January 2015.

        [USD, CAD]
        USD-CAD has maintained a consolidation in the mid 1.24s over the last several sessions. The BoC's 25 bp rate hike last week met expectations, but was accompanied with cautious guidance. The central bank's gradual normalization reflects ongoing uncertainties, notably the NAFTA renegotiation. We expect two more 25 bp rate hikes this year, in July and October. Focus will remain on the NAFTA front, with uncertainty about this having curtailed the Canadian dollar rallying amid the surge in oil prices.

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        By XE Market Analysis January 22, 2018 2:14 pm
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          XE Market Analysis: Asia - Jan 22, 2018

          The dollar was steady in N.Y. morning trade on Monday, as dealers largely sat on their hands ahead of the Senate funding vote. Once it became clear the measure would pass, the greenback rallied modestly across the board. EUR-USD fell from session highs of 1.2260 to 1.2225 before bouncing some, while USD-JPY topped at 111.22 from lows of 110.69 after the open. USD-CAD was steady inside of 1.2435-80, while cable pulled back from trend highs of 1.3970 to 1.3930.

          [EUR, USD]
          EUR-USD was largely been on hold through the morning, with the market awaiting the noon Senate vote in an attempt to re-open the government. The pairing opened at lows of 1.2234, and managed highs of 1.2260. Later, EUR-USD bottomed at 1.2225 as news reports indicated there were enough Senate votes to pass spending legislation, ending the government shutdown. The pair then bounced to 1.2245 highs, with intra day short covering seen behind the modest move higher.

          [USD, JPY]
          USD-JPY printed N.Y. highs of 110.87 in morning trade, up from lows of 110.67, though under Asian session highs of 110.91. The pairing later rallied to intra day highs of 111.22 as the Senate vote vote to refund the government passed. Focus will shift to tomorrow's BoJ policy announcement, where no changes are expected. The markets may have gotten ahead of the BoJ's timeline in terms of discussing normalization, and chief Kuroda is likely to underscore gradualism, which would be consistent with other central banks reassuring that gradual is the watchword this year.

          [GBP, USD]
          Cable logged a peak of 1.3970, a new post-Brexit vote high. The pound had been gaining versus the dollar on concerns about the U.S. government shutdown. News of the Senate vote to refund the government saw profit taking step in, taking cable to 1.3930 lows.

          [USD, CHF]
          EUR-CHF settled in the upper 1.17s, below the 37-month high that was seen last Monday at 1.1833. The pullback follows remarks from some ECB policymakers expressing concerns about the pace of recent euro gains, which could have implications for monetary policy. This has put in a pause on the broad rally the cross has been seeing since mid last year, seen concomitantly with economic recovery in the Eurozone, alongside the apparent passing of the worst of the existential political threats to the Euro area. The SNB's punitive -0.75% deposit rate has also been in the mix of directional drivers. EUR-CHF would need to reach 1.2000 to fully reverse the losses that were seen after the SNB abandoned the franc cap in January 2015.

          [USD, CAD]
          USD-CAD bottomed at 1.2435, coming from North American highs of 1.2478. The move to the lows came as WTI crude briefly rallied over $64.00 folowing news the U.S. Senate voted to end the givernment shutdown. The pairing later rallied back to 1.2471, as oil pulled back. Following the as-expected BoC rate hike last week, we continue to see USD-CAD consolidate on either side of 1.2500.

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          By xemarketanalysis January 22, 2018 1:50 pm
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            xemarketanalysis Posts: 385
            XE Market Analysis: US Dollar Soft as Government Shutdown Continues

            OVERVIEW

            • US Dollar weak amid Washington divisions.
            • IMF revises up global growth forecasts for 2018 and 2019.
            • Canadian wholesale trade rises for a second straight month.
            • Investors appear unfazed by US politics with equity markets up slightly. 

            HIGHLIGHT

            The International Monetary Fund (IMF) announced its global growth forecasts for 2018 and 2019 that have been revised upward by 0.2% to 3.9%. The revision reflects increased global growth momentum and the expected impact of the recently approved U.S. tax policy changes. The changes are expected to stimulate activity with the short-term impact in the United States mostly driven by the investment response to the corporate income tax cuts. It also revised up its growth for the Euro area, "reflecting the stronger momentum in domestic demand and higher external demand."  

            US DOLLAR

            The Dollar is drifting lower as we enter the third day of the US government shutdown. Despite the Republican Senate leader extending the Democrats olive branch on Sunday, there is still pledging to bring immigration legislation up for debate after February 8th on the condition that the government remains open. As well as monitoring efforts to agree on government funding, we have fourth quarter US GDP growth data on Friday. The Dollar weakness trend remains firmly intact.

            BRITISH POUND

            The Pound is rising back towards its post-Brexit highs, with the lack of Brexit news appearing to be a positive for the currency as domestic data continues to point to underwhelming economic growth. This week we have employment data, with earnings in focus as well as fourth-quarter GDP growth that is forecast to be soft at 0.4% from Q3.   

            EURO

            The Euro is weak, down against all G10 counterparts except for the weaker US Dollar. Martin Schultz's SPD party voted in favor of entering new Grand Coalition negotiations with Merkel's CDU party, potentially allowing a government to be formed by late March. The ECB meet this week and are expected to keep monetary policy on hold, but we could see some volatility in the single currency as the market is looking for them to signal that they will end their QE program due to rising economic activity. 

            CANADIAN DOLLAR

            The Canadian Dollar has recovered the ground it lost versus its US counterpart on Friday in a broad environment of Dollar weakness. Wholesale trade rose 0.7% in November, slightly below expectations but continuing to point to the wider expansion. This week's key highlights will be on retail sales and inflation, as well as the sixth and penultimate round of talks on renegotiating NAFTA.

            AUSTRALIAN DOLLAR

            The Australian Dollar is higher on the day and above the 80 cents level, but below its 4-month high of 0.8023 reached last week. With no domestic data scheduled for release this week, the Aussie will likely be driven by external factors. The failure so far to close a session above the 80 cents level could signal an interim peak for the Aussie. 

            FEATURED CURRENCY

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            Topics4968 Posts5013
            By XE Market Analysis January 22, 2018 7:43 am
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              XE Market Analysis: North America - Jan 22, 2018

              The dollar dipped at the open of Asia-Pacific dealings on concerns about the government shutdown in the U.S, but subsequently recovered losses. EUR-USD popped about 50 pips high, logged a peak at 1.2274 before ebbing back to near net unchanged levels around 1.2225. USD-JPY'S low was 110.52 before the pair lifted to an intraday peak at 110.91. The U.S. Senate will vote on government funding at noon in Washington DC today after negotiations by a bipartisan group of senators failed to produce a breakthrough on Sunday. News that Germany is on course to have a new grand coalition has also been in the mix, though gains the euro saw in early trade have unwound, providing fresh signs that sentiment toward the common currency has soured somewhat with the strength of the euro starting to be seen as having a potential impact on ECB policy.

              [EUR, USD]
              EUR-USD has remained buoyant during into the European afternoon session. The pair has re-established itself above 1.2250, though has remained below the high that was seen in opening dealings in Asia-Pacific, which is at 1.2274. The Bundesbank's monthly report said that the German economy has continued to expand at high speed while advocating that price pressures will build this year. News that Germany is on course to have a new grand coalition has also been in the mix is a euro positive, though directional ambition is being crimped ahead of the U.S. Senate vote on government funding, which will take place a noon in Washington DC (17:00 GMT), as the impact on the outcome will likely be a binary buy dollars or sell dollars. EUR-USD has support at 1.2182-84. Last Tuesday's 37-month high is at 1.2323 remains in the scopes.

              [USD, JPY]
              USD-JPY ebbed back toward 110.70 after earlier capping out a 110.91, which is the intraday high seen after an early-Tokyo rally from 110.52. Yen market participants are focusing in on tomorrow's BoJ policy meeting. We expect no change in rates or the policy stance, despite the minor tweak to bond purchases made on January 9 when the Bank trimmed its purchases of longer dated JGBs. That was a technical operation and part of its yield curve management strategy. The markets may have gotten ahead of the BoJ's timeline in terms of discussing normalization. Kuroda is likely to underscore gradualism, which would be consistent with other central banks reassuring that gradual is the watchword this year. Japanese inflation data December is up on Frida, where the national CPI should show the overall index rising to a 1.0% y/y pace from 0.6% previously, with the core reading at 1.0% y/y, from 0.9%. USD-JPY has support at 110.48-50.

              [GBP, USD]
              Cable has come off the boil since logging a new post-Brexit vote high of 1.3945 on Friday. Hefty sell-stops were reportedly triggered in GBP-JPY through 153.70. UK retail sales disappointed in official December data, released Friday, dropping 1.5% m/m, more than the 0.6% m/m decline anticipated by the median forecast. The y/y figure came in with 1.4% growth, well off the median forecast for 2.6% growth. The UK calendar this week brings monthly government borrowing data (Tuesday), the January CBI surveys on industrial trends and distributive sales (due Tuesday and Friday, respectively), the monthly labour market report (Wednesday), and the second estimate for Q4 GDP (Friday). Focus will also fall on negotiations between the EU and UK on a transitory Brexit period. The BoE MPC next meets on February 7th-8th. Cable has support at 1.3845-48, and resistance at 1.3945.

              [USD, CHF]
              EUR-CHF has settled in the mid 1.17s, below the 37-month high that was seen last Monday at 1.1833. The pullback follows remarks from some ECB policymakers expressing concerns about the pace of recent euro gains, which could have implications for monetary policy. This has put in a pause on the broad rally the cross has been seeing since mid last year, seen concomitantly with economic recovery in the Eurozone, alongside the apparent passing of the worst of the existential political threats to the Euro area. The SNB's punitive -0.75% deposit rate has also been in the mix of directional drivers. EUR-CHF would need to reach 1.2000 to fully reverse the losses that were seen after the SNB abandoned the franc cap in January 2015.

              [USD, CAD]
              USD-CAD has maintained a consolidation in the mid 1.24s over the last several sessions. The BoC's 25 bp rate hike last week met expectations, but was accompanied with cautious guidance. The central bank's gradual normalization reflects ongoing uncertainties, notably the NAFTA renegotiation. We expect two more 25 bp rate hikes this year, in July and October. Focus will remain on the NAFTA front, with uncertainty about this having curtailed the Canadian dollar rallying amid the surge in oil prices.

              XE Currency Blog

              Topics4968 Posts5013
              By XE Market Analysis January 22, 2018 3:43 am
                XE Market Analysis's picture
                XE Market Analysis Posts: 3356
                XE Market Analysis: Europe - Jan 22, 2018

                The dollar dipped at the open of Asia-Pacific dealings on concerns about the government shutdown in the U.S, but subsequently recovered losses. EUR-USD popped about 50 pips high, logged a peak at 1.2274 before ebbing back to near net unchanged levels around 1.2225. USD-JPY'S low was 110.52 before the pair lifted to an intraday peak at 110.91. The U.S. Senate will vote on government funding at noon in Washington DC today after negotiations by a bipartisan group of senators failed to produce a breakthrough on Sunday. News that Germany is on course to have a new grand coalition has also been in the mix, though gains the euro saw in early trade have unwound, providing fresh signs that sentiment toward the common currency has soured somewhat with the strength of the euro starting to be seen as having a potential impact on ECB policy.

                [EUR, USD]
                EUR-USD popped about 50 pips high, logged a peak at 1.2274 before ebbing back to near net unchanged levels around 1.2225. The U.S. Senate will vote on government funding at noon in Washington DC today after negotiations by a bipartisan group of senators failed to produce a breakthrough on Sunday. News that Germany is on course to have a new grand coalition has also been in the mix, though gains the euro saw in early trade subsequently unwound, providing fresh signs that sentiment toward the common currency has soured somewhat with the strength of the euro starting to be seen as having a potential impact on ECB policy. EUR-USD has support at 1.2182-84. Last Tuesday's 37-month high is at 1.2323 has remained unchallenged.

                [USD, JPY]
                USD-JPY fell to a 110.52 low before the pair lifted to an intraday peak at 110.91. The U.S. Senate will vote on government funding at noon in Washington DC today after negotiations by a bipartisan group of senators failed to produce a breakthrough on Sunday. The BoJ meets on policy tomorrow.. We expect no change in rates or the policy stance, despite the minor tweak to bond purchases made on January 9 when the Bank trimmed its purchases of longer dated JGBs. That was a technical operation and part of its yield curve management strategy. The markets may have gotten ahead of the BoJ's timeline in terms of discussing normalization. Kuroda is likely to underscore gradualism, which would be consistent with other central banks reassuring that gradual is the watchword this year. Japanese inflation data December is up on Frida, where the national CPI should show the overall index rising to a 1.0% y/y pace from 0.6% previously, with the core reading at 1.0% y/y, from 0.9%. USD-JPY has support at 110.48-50.

                [GBP, USD]
                Cable has come off the boil since logging a new post-Brexit vote high of 1.3945 on Friday. Hefty sell-stops were reportedly triggered in GBP-JPY through 153.70. UK retail sales disappointed in official December data, released Friday, dropping 1.5% m/m, more than the 0.6% m/m decline anticipated by the median forecast. The y/y figure came in with 1.4% growth, well off the median forecast for 2.6% growth. The UK calendar this week brings monthly government borrowing data (Tuesday), the January CBI surveys on industrial trends and distributive sales (due Tuesday and Friday, respectively), the monthly labour market report (Wednesday), and the second estimate for Q4 GDP (Friday). Focus will also fall on negotiations between the EU and UK on a transitory Brexit period. The BoE MPC next meets on February 7th-8th. Cable has support at 1.3845-48, and resistance at 1.3945.

                [USD, CHF]
                EUR-CHF has settled in the mid 1.17s, below the 37-month high that was seen last Monday at 1.1833. The pullback follows remarks from some ECB policymakers expressing concerns about the pace of recent euro gains, which could have implications for monetary policy. This has put in a pause on the broad rally the cross has been seeing since mid last year, seen concomitantly with economic recovery in the Eurozone, alongside the apparent passing of the worst of the existential political threats to the Euro area. The SNB's punitive -0.75% deposit rate has also been in the mix of directional drivers. EUR-CHF would need to reach 1.2000 to fully reverse the losses that were seen after the SNB abandoned the franc cap in January 2015.

                [USD, CAD]
                USD-CAD has maintained a consolidation in the mid 1.24s over the last several sessions. The BoC's 25 bp rate hike last week met expectations, but was accompanied with cautious guidance. The central bank's gradual normalization reflects ongoing uncertainties, notably the NAFTA renegotiation. We expect two more 25 bp rate hikes this year, in July and October. Focus will remain on the NAFTA front, with uncertainty about this having curtailed the Canadian dollar rallying amid the surge in oil prices.

                XE Currency Blog

                Topics4968 Posts5013
                By HaleStewart January 21, 2018 7:04 am
                • XE Contributor
                HaleStewart's picture
                HaleStewart Posts: 742
                International Economic Week in Review: The Good News Continues

                            The overall tenor of international news is still positive.  While UK retail sales are slowing, they are still up modestly Y/Y.  Although EU news was slightly weaker than we’ve been used to over the last few months, this week’s data has been weak for most of this expansion.  Australis growth is ticking modestly higher, Japanese news points to an increasingly robust industrial environment, and the Bank of Canada’s latest Monetary Policy Report painted a rosy picture heading into 2018.

                            Retail sales were the only release of import for the UK.  According to the ONS, sales were down 1.5% M/M but up 1.4% on a Y/Y basis.  The ONS also releases the data in a rolling, 3-month format, which was +.4% this year and 1.1% on a Y/Y basis.  The report also contained these two charts:

                The weekly index (in yellow) is volatile, which explains why the ONS also releases a 3-month moving average (in blue).  While the average is still rising, the pace of the increase is currently slowing.

                 

                The pace of annual retail sales growth is near its lowest since 2013.  Retail sales are a coincident indicator.  This chart points towards slower growth in 2018.

                            News from the EU was a bit weaker than we’ve come to expect.  On the bad side, inflation is still weak.  Total inflation was up 1.4% Y/Y.  Eurostat has reported this number between 1.4%-1.5% since August.  And core was .9% for the third consecutive month.  While production in construction was up .5%, this number has been weak for the duration of this expansion:

                However, it’s reasonable to assume this sector of the economy will start to grow more robustly: recent business sentiment indicators have printed their highest levels for the expansion and the EU is maintaining a loose monetary regime.  Finally, the ECB reported that the EU current account was 32.5 billion euros.  Portfolio investment made-up for the decrease in investment.

                            Australian news was positive.  A seasonal adjustment caused the .1% increase in the unemployment rate; the number of employed people increased and the actual number of unemployed people was up marginally.  Here’s a look at the charts from the ABS:

                 

                Auto sales were off 2% and construction spending increased at a shockingly high 30%.  The ABS didn’t provide an explanation, but there was an incredibly large engineering order, which is undoubtedly a 1-time event. 

                            Japanese news continues to impress.  Industrial production rose 3.6% Y/Y.  While this pace is slower than the ~5% average of April-August period, it’s still an impressive level that indicates that growth appears to be accelerating:

                 

                Non-volatile machinery orders rose 5.7%.  Most impressive, however, are the large increases for August, October, and November in the following table from the latest report:

                 

                Businesses don’t commit to expensive purchases unless increased demand is clearly visible or capacity utilization is strained.  Both reasons are bullish for the next few months.

                            The Bank of Canada released their latest Monetary Policy Report, which contained very good news for the economy.  This table shows the detail:

                Consumer spending – supported by a sharp drop in the unemployment rate – was strong last year.  The bank is projective a modest decline in 2018.  But thanks to a high capacity utilization, business is expected to increase investment – conditions that will also support additional hiring.  Finally, improving commodity prices will boost exports. 

                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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                Topics4968 Posts5013
                By HaleStewart January 21, 2018 6:51 am
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                HaleStewart Posts: 742
                US Bond Market Week in Review: Don't Expect Rates to Increase That Much

                            Starting in the early 1980s, the bond market has had one of the longest bull markets in the history of markets.  This is largely due to Paul Volcker having the courage to raise interest rates to oppressive levels in the early 1980s, eventually wringing most inflationary pressure out of the U.S. economy.  Several analysts and fund managers have recently argued the bond bull market is over.  Each has presented fundamental or technical reasons supporting their respective positions.  But underlying these arguments is that the bond market is now headed for a rout of sorts, which is most certainly not the case.  While the bond market rally may be over, there is little fundamental reason to see a massive sell-off.  Instead, expect rates to meander slightly higher to still “loose” levels.

                            Here’s a graph that places longer-term interest rate movements into perspective:

                The 10-year CMT yield has consistently moved lower since the early 1980s.  Recently, when some people argued that the bond bull market was over, they were referring to the break in the downward sloping trendline that has recently occurred (see the red circle in the lower righthand corner of the chart). 

                            Let’s suppose this is an end of the long-term interest rate decline.  How much higher will rates go?  We need several different pieces of data to answer that question, starting with r*, the natural rate of interest.  This is largely a theoretical construct that is based on observable macroeconomic data.  According to a technique developed by San Francisco President John Williams, r* is also very weak:

                This shouldn’t be surprising.  Other data which effects interest rates point to a very low level of interest.  Let’s start with inflation expectations:

                The above chart shows the 5 and 10-year breakeven inflation rate, which is derived by subtracting the 5 and 10-year TIPs yield from its corresponding treasury.  These numbers were noticeably higher 5 years ago.  They hit their 5-year nadir in early 2016 and have since moved higher.  But their respective levels are still very low, trending around 2%.

                            A big reason for low inflation expectations is the low rate of inflation:

                The top two charts show the Y/Y percentage change in overall and core inflation.  Total CPI is slightly above 2% while core is just under 2% -- hardly concerning levels.  The lower chart shows the two PCE price deflators, which is the Fed’s preferred inflation measure.  Both are below 2%.  The following chart converts the daily treasury yield into a monthly average and compares it to the monthly Y/Y CPI number:

                Here's a scatterplot of the above data:

                The above data has a correlation of .66, which is pretty high.

                            Finally, the global savings glut will also exert downward pressure on wages.  This idea was originally proposed by Ben Bernanke.  In it, he combines several different economic trends, beginning with the globalization of financial asset demand; the population in country A now has access to assets from across the globe.  Second, as the investing population ages (the primary trend in Japan, the U.S., and the EU), people will increasingly demand safer, interest-bearing assets.  When you combine these trends, the get a downward push on interest rates that is global in nature.

                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

                Topics4968 Posts5013
                By HaleStewart January 21, 2018 6:45 am
                • XE Contributor
                HaleStewart's picture
                HaleStewart Posts: 742
                US Economic Week in Review: 1-unit Building Permits and Industrial Production Start off Strongly

                            The US economy is starting 2018 on strong footing.  The Federal Reserve’s Beige Book observed that the economy ended 2017 strongly.  1-Unit housing permits – a key leading indicator – rose.  And industrial production – a coincident indicator that has languished for much of this expansion – increased at a solid clip

                            On Wednesday, the Federal Reserve released the first Beige Book for 2018.  It contained the following assessment of the macro-economy:

                Reports from the 12 Federal Reserve Districts indicated that the economy continued to expand from late November through the end of the year, with 11 Districts reporting modest to moderate gains and Dallas recording a robust increase. The outlook for 2018 remains optimistic for a majority of contacts across the country. Most Districts reported that non-auto retail sales expanded since the last report and that auto sales were mixed. Some retailers highlighted that holiday sales were higher than expected. Residential real estate activity remained constrained across the country. Most Districts reported little growth in home sales due to limited housing inventory. Nonresidential activity continued to experience slight growth. Most manufacturers reported modest growth in overall business conditions. Reports indicated that some manufacturers increased capital expenditures over the reporting period. Most reporting Districts noted continued growth in transportation activity. Loan volumes in many Districts were steady. Among reporting Districts, agricultural conditions were mixed and energy contacts described a slight uptick in activity.

                            The following chart converts the five primary coincident indicators to a base 100 with 100 the end of the last recession.  All five are moving higher, confirming the Fed’s analysis:

                 

                         Housing permits decreased .1%.  But, as with all economic reports, the devil is in the details.  1-unit structures – which comprise 68% of all permits -- were up 1.8% while 5+ units (multi-family structures) decreased 4.3%.  The pace of 1-unit permits increases has been on a steady upward climb since 2Q17:

                 

                Approximately 26% of 1-unit permits are issued in the West, a region that has grown strongly since July 2017:

                          Industrial production – which has been the weakest performing coincident indicator during this expansion – increased a very healthy .8%.  IP is now at its highest level in the post-recession period: 

                The Fed presents this data using two different classifications.  Final products is a key subdivision of the “major market groups;” this was up .8%. 

                This, in turn, is divided into two subdivisions: consumer goods and business equipment.  The former increased 1%.  More importantly, it looks like this sector could be breaking out of its recession malaise:

                Business equipment increased a more modest .2%.

                Recently, this group has increased strongly on several occasions, yet hasn’t been able to keep its momentum.  Maybe this time will be different.

                     Next week's big news is the first estimate of 4Q GDP.  Both the NY and Atlanta Fed are projecting strong levels of growth, which is confirmed by the ancillary economic data we're currently seeing.

                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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