WTI oil resumes recent up trend after brief consolidation and hits as high as 62.70 so far in Asian session. It’s believed that restoration of US oil production after the deep freeze in Texas could take longer than expected. With possible pipeline freeze and work on examination oil infrastructure, resumption in output could take more than just days.
Near term outlook in WTI will now stay bullish as long as 58.57 support holds. Next target is 65.43 key long term structure resistance.
ECB President Christine Lagarde said in a conference today, “we have to return inflation to 2% in the medium term, and we will do what we have to do, which is to continue hiking interest rates in the next several meetings.”
“Our primary goal is not to create a recession. Our primary objective is price stability and we have to deliver on that. If we were not delivering, it would hurt the economy far more,” she said, adding that the “first destination” of rate hikes will be to reach neutral rate.
Separately, Governing Council member Peter Kazimir indicated that ECB may need to hike again by 75bps next month as inflation remains unacceptably high.
Australian Dollar appears to be outperforming other major currencies in this week’s risk-on rally. In particular, AUD/CAD’s strong rebound from affirms near term bullishness Immediate focus is now on 0.9853 minor resistance. Firm break there should confirm that the correction from 0.9898 has completed at 0.9713. Further rally should be seen to retest 0.9898 next.
Decisive break of 0.9898 will resume larger up trend form 0.8058. Next near term target is 61.8% projection of 0.9247 to 0.9898 from 0.9713 at 1.0115.
In the summary of opinions of BoJ’s April 27 meeting, it’s warned that a “rapid economic contraction not seen since the Great Depression in the 1930s may occur in the short run”. And, policy authorities “must act decisively to avoid a second Great Depression”. Close cooperation between fiscal and monetary policies is “essential at the time of a significant economic crisis”.
It’s also noted the assumptions that the pandemic will subside soon and “economic structure before and after that happens will not change”. However, due to “extremely high uncertainties”, it’s necessary for BoJ to factoring in the “such assumptions might not be realized”.
By loading the video, you agree to YouTube’s privacy policy.
Learn more
US initial jobless claims dropped -14k to 269k in the week ending October 30, better than expectation of 277k. That’s the lowest level since March 14, 2020. Four-week moving average of initial claims dropped -15k to 285k, lowest since March 14, 2020 too.
Continuing claims dropped -134k to 2105k in the week ending October 23, lowest since March 14, 2020. Four-week moving average of continuing claims dropped -156k to 2357k, lowest since March 21, 2020.
ECB Chief Economist Philip lane said in an interview, Q2 GDP came in “well ahead of out June projections”, reflecting an “earlier opening up”, “strength of the world economy” and “progress in vaccinations”. It’s “still early days” regarding H2, and there could be “counterbalance” like bottlenecks, moderation in world economy, and the Delta variant. Overall, he said, “we’re broadly not too far away from what we expected in June for the full year.”
The Delta variant is now “part of the mix in the US and global economies”, while Europe “may not be among the regions hardest-hit thanks to high vaccination rates and prior lockdown measures. Also, the infrastructure and system for vaccination has “eliminated uncertainty about Europe’s ability to carry out vaccinations.”
On PEPP, Lane said “we’ll have to assess at the September meeting the appropriate calibration for the final quarter of the year”. He emphasized that “single philosophy” of maintaining favorable financing conditions regarding PEPP. “If favourable financing conditions require more purchases, we’ll conduct more purchases,” he said.
In seasonally adjusted terms, Australia employment contracted by -19k to 12.9m in October, way below expectation of 16.2k growth. That’s also the largest monthly drop in three years since late 2016. Full-time jobs dropped -10.3k while part time jobs dropped -8.7k. Unemployment rate rose 0.1% to 5.3%, above expectation of 5.2%. At the same time, participation rate dropped -0.1% to 66.0.
Looking at some details, unemployment rate increased by 0.3 pts in New South Wales (4.8%), and by 0.1 pts in Victoria (4.8%). The seasonally adjusted unemployment rate decreased by 0.2 pts in Tasmania (5.9%), and by 0.1 pts in Queensland (6.5%), with Western Australia and South Australia recording no change.
The set of data suggests that Australia remains a long way from RBA’s full employment estimation, i.e., unemployment rate at around 4.5%. More monetary and fiscal stimulus is still needed to support the job and wage markets, and drive up inflation. RBA is still on track for more rate cuts or even QE next year.
Today’s sharp fall in AUD/JPY firstly suggests short term topping at 75.67. More importantly, the break of 55 day EMA argues that corrective rise from 69.95 could have completed with three waves up to 75.67, just ahead of 76.16 structural resistance. Further fall is now in favor back to 71.73 support. Break there will reaffirm medium term bearishness for a new low below 69.95 ahead.
Atlanta Fed President Raphael Bostic said in an FT interview that “every option is on the table” for every FOMC meeting. “If the data say that things have evolved in a way that a 50 basis point move is required or be appropriate, then I’m going to lean into that . . . If moving in successive meetings makes sense, I’ll be comfortable with that,” he said.
“The reduction of accommodation should translate into tighter financial markets,” Bostic said. “The developments that we’ve seen on that front are comforting in the sense that markets are still functioning the way they’re supposed to, and they are responding to conditions in ways that are rational and appropriate.” He also supports starting the runoff of the USD 9T balance sheet “as quickly as” possible without impairing market functioning.
“Our policy path is not a constriction path. It’s a less accommodative path,” he said. “If we do the three [rate hikes] that I have in mind, that’ll still leave our policy in a very accommodative space. “I don’t think there’s going to be a lot of constraint on growth as we remove these emergency actions.”
Japan GDP grew 5.0% qoq in Q3, above expectation of 4.4% qoq, a turn around from Q2’s -7.9% qoq contraction. In annualized term, GDP grew 21.4%, above expectation of 18.9%, the first increase in four quarters. It’s also the largest rise since comparable data become available in 1980, following the -28.8% annualized contraction in Q2. The data, while strong, was just seen as a rebound from an extraordinary pandemic contraction only.
Economy Minister Yasutoshi Nishimura also sounded cautious as he reminded people of the JPY 30T spare capacity. “We can’t make up for all of the output gap just with public works spending. We also need to spur private investment. But the size (of the output gap) is something we’ll look at” in compiling the new spending package, he said.
Australian Dollar continues to trade as the worst performer for the week, suffering triple blow including risk aversion, free fall in copper price and RBA speculations. Copper’s selloff accelerated this week and broke to new low in 2023 today. There are increasing doubts on whether RBA will raise interest rate next week or opt for the second pause in a row after yesterday’s CPI data.
AUD/JPY is currently the second biggest mover for the week, just next to EUR/AUD. Current development indicates that corrective recovery from 86.04 has concluded with three waves up to 80.76, after being rejected by channel resistance. This implies that the larger downtrend from 99.32 (2022 high) is ongoing and may be ready to resume.
Immediate focus is now on 87.57 support. Firm break there will confirm this bearish case, and target 38.2% retracement of 59.85 to 99.32 at 84.24. Firm break there could prompt downside acceleration to 100% projection of 99.32 to 87.00 from 92.99 at 80.67. But of course, the whole development would also depend on any surprise from BoJ on Friday.
As for Copper, with breach of 3.8229 support, whole decline from 4.3556 is likely resuming. There is risk of more downside acceleration if it cannot recovery back above 3.9197 support turned resistance soon. Next target would be 100% projection of 4.3555 to 3.8229 from 4.1743 at 3.6416, which is close to 61.8% retracement of 3.1314 to 4.3556 at 3.5990, that is, around 3.6 handle. If this extended selloff in copper materializes, it could put additional pressure on Aussie.
Eurozone Economic Sentiment Indicator rose strongly to 114.5 in May, up from 110.5, above expectation of 112.1. The index scored markedly above its long-term average and pre-pandemic level. It was close to December 2017 peak. Employment Expectations Indicator rose 2.9 pts to 110.1.
Eurozone industry confidence rose from 10.9 to 11.5. Services confidence rose from 2.2 to 11.3. Consumer confidence rose from -8.1 to -5.1. Retail trade confidence rose from -3.0 to 0.4. Construction confidence rose from 3.0 to 4.9.
EU ESI rose 4 pts to 113.9. The ESI is well above its long-term average, and rose markedly in all of the six largest EU economies, mostly so in Italy (+11.0), followed by Poland (+5.1), France (+5.0), the Netherlands (+3.2), Germany (+2.8) and Spain (+2.3).
Germany’s Council of Economic Experts (GCEE) lowered 2021 GDP forecasts to 3.1%, as Germany remained “firmly in the grip of the coronavirus pandemic”. GDP is expected to contract -2% in Q1 as a result of the renewed rise in infection rates in Autumn 2020, and the restrictions currently in place. GDP is expected to grow 4.1% in 2022. Economic output is likely to return to its pre-crisis level at the turn of the year 2021/2022. Eurozone GDP is forecast to grow 4.1% in 2021 and 4.2% in 2022.
“The greatest risk to the German economy is posed by a potential third wave of infections, especially if it were to lead to restrictions or even plant closures in industry,” says council member Volker Wieland.
“For Germany to reach the EU target of vaccinating 70% of the population by the end of September 2021, the current number of daily vaccinations in vaccination centers must be increased by 50%. In addition, this would require general practitioners and specialists to be involved in the vaccination,” states council member Veronika Grimm.
Boston Fed President Eric Rosengren said yesterday that “I do expect unfortunately that the economy is going to remain weaker than many had hoped through the summer and fall”. He added the Fed’s Main Street Lending program could grow over time and the program will be “an important way to make sure that firms don’t close.”
Richmond Fed President Thomas Barkin said “businesses like construction had pretty good pipelines and kept going”. But “new orders are not coming on line in the same way. We have fiscal payments … that are coming to an end and it is not clear what is going to replace them.”
St. Louis Fed President James Bullard said he’s “still pretty optimistic in my base case about the recovery”. “Masks will become ubiquitous throughout the economy and… fatalities will go way down.” He expected unemployment rate to drop to “maybe even 7%” by year end.
Minutes of ECB’s April 9-10 meeting showed that policy makers were getting less confident on Eurozone recovery. The minutes noted “it was acknowledged that some recent data had turned out even weaker than expected”. And, “there was now somewhat less confidence in the baseline scenario and that the range of other possible outcomes had widened.”
Also, “the global outlook remained subject to the continued risk of an escalation of trade conflicts and the uncertainty surrounding the withdrawal of the United Kingdom from the EU.”
Regarding the new TLTROs, “some arguments were put forward in favor of pricing the new operations so they would primarily serve as a backstop, providing insurance in times of elevated uncertainty.” Also, “other arguments supported the view that the TLTRO-III operations should be seen as a potential tool for adjusting the monetary policy stance.”
Gold’s breach of 1755.29 resistance today argues that it could be completing a double bottom reversal pattern (1676.65, 1677.69). Sustained trading above 55 day EMA (now at 1765.07) should confirm short term bottoming at 1676.65. That should also be the first sign that correction from 2075.18 has completed with three waves down.
In this bullish case, Gold should rise further to 38.2% retracement of 2075.18 to 1676.65 at 1828.88 first. Break there will target channel resistance at 1887.56. However, failure to sustain above 1755.29 will retain bearishness, for extending the correction from 2075.18 through 1676.65 at a later stage.
China’s Caixin PMI Manufacturing dropped to 40.5 in February, down form 51.1, missed expectation of 45.7. That’s a record low since survey began in April 2004. Markit noted record falls in output, new orders and employment. Travel restrictions led to sharp deterioration in supply chains. But business confidence rose on hopes of output recovering.
Zhengsheng Zhong, Chairman and Chief Economist at CEBM Group said: “The sharp decline was due to stagnant economic activity across the country disrupted by the pneumonia epidemic caused by a novel coronavirus. The supply and demand sides of the manufacturing sector were both weak.”
Released over the weekend, official NBS PMI Manufacturing dropped to 35.7 in February, down from 50.0, worst on record. PMI Non-Manufacturing dropped to 29.6, down from 54.1, lowest since November 2011.
Atlanta Fed President Raphael Bostic said in a speech yesterday that the economy is “doing well and standing on its own”. He supported monetary to move towards a neutral stance. And that means “a gradual increase in nominal interest rates over the next handful of quarters.” However, later he clarified that there is still “some uncertainty” to whether US is “really at full employment”. If there is “not a risk of overheating then we have the possibility to be more patient.”
Bostic is taking a “wait and see” approach to the fourth hike in 2018 in December. That is, to several rate hikes in the coming quarters doesn’t mean rate hikes in every quarter. While it may sounds a bit confusing, his comments have been consistent. Bostic is one of those who are more cautiously on the outlook. In particular, just a few weeks ago, he vowed not to vote for anything that knowingly inverts yield curve.
On trade tensions, Bostic said “an uncertain outlook can cause firms to delay investments while they wait to see how the situation unfolds. Such a development could grow to have macroeconomic ramifications the longer the uncertainty remains.” But he also noted that a recent survey shows trade war fears have had “only a small negative effect on US business investment so far.”
BoE maintained the Bank Rate at 5.25% as widely expected. The decision was made by an 8-1 vote, with Swati Dhingra singularly advocating for a reduction again. Notably, previous hawks Jonathan Haskel and Catherine Mann adjusted their positions, refraining from advocating for hikes this round.
BoE noted that February’s CPI inflation rate of 3.4% was marginally lower than forecasted in the the latest Monetary Policy Report. Despite a decline in services consumer price inflation, it remains significantly high. Nevertheless, most measures of short-term inflation expectations are on a downtrend.
With the government’s decision to freeze fuel duty, CPI is projected to dip slightly below 2% mark in the second quarter. However, a slight uptick is anticipated in the latter half of the year.
ActionForex.com was set up back in 2004 with the aim to provide insightful analysis to forex traders, serving the trading community for over a decade. Empowering the individual traders was, is, and will always be our motto going forward.
Contact us: contact@actionforex.com
© ActionForex.com © 2024 All rights reserved.
US ISM manufacturing dropped to 54.2, employment dropped to 52.3
US ISM manufacturing index dropped to 54.2 in February, down from 56.6, missed expectation of 56.0. Looking at the details, new orders dropped -2.8 to 55.5. Production dropped -5.7 to 54.8. Employment dropped -3.2 to 52.3. Prices dropped -0.2 to 49.4.
ISM noted that:
Full release here.