EURUSD breaks 1.2154 as Euro gives up

    It looks like Euro bulls are finally giving up. We’re unsure of the reason yet. But the selling has a lot of intensity.

    EUR/USD powers through 1.2154 key support level. That’s an important indicate of medium term trend reversal. For the near term, 161.8% projection of 1.2475 to 1.2214 from 1.1991 in the next target.

    EUR/GBP’s break of 0.8688 also indicates that rebound from 0.8620 has completed. And deeper fall should be seen back to this support level.

    EUR/CAD’s rebound from 1.5461 should also be completed at 1.5712, ahead of 38.2% retracement of 1.6151 to 1.5461. Deeper fall would be seen back to retest 1.5461 first.

    Euro trying to recover as ECB Draghi downplays data. Confident on solid and broad-based growth

      Euro initial dipped but recovered after ECB President Mario Draghi’s comments (in the introducatory statement) on the economy. The point that triggered the reaction is that while data since March “points towards some moderation” in growth, the data were still “remaining consistent with a solid and broad-based expansion of the euro area economy”. And, he added that “the underlying strength of the euro area economy continues to support our confidence that inflation will converge towards our inflation aim of below, but close to, 2% over the medium term.”

      The comments are rather upbeat comparing to the usual standard cautious tone of Draghi.

      However, strength in the Euro is limited after the “normal” cautious Draghi comes back saying that it’s important to determine if softer data temporary or permanent.

      EUR/USD’s breach of 1.2154 key support is brief so far. And the recovery could turn focus back to 1.2244 minor resistance. But it will take more time for traders to make up their mind. For now, more downside is still expected as long as 1.2244 holds and a break of 1.2154 is still more likely than not.

      On other hand, EUR/GBP is still pressured despite the recovery attempt. Focus is back on 0.8688 minor support. Break will indicate completion of rebound from 0.8620. That could trigger EUR selling elsewhere.

      ECB President Mario Draghi’s press conference statement

         

        ECB President Mario Draghi’s full press conference statment below:

        Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council.

        Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.

        Regarding non-standard monetary policy measures, we confirm that our net asset purchases, at the current monthly pace of €30 billion, are intended to run until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The Eurosystem will continue to reinvest the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.

        Following several quarters of higher than expected growth, incoming information since our meeting in early March points towards some moderation, while remaining consistent with a solid and broad-based expansion of the euro area economy. The underlying strength of the euro area economy continues to support our confidence that inflation will converge towards our inflation aim of below, but close to, 2% over the medium term. At the same time, measures of underlying inflation remain subdued and have yet to show convincing signs of a sustained upward trend. In this context, the Governing Council will continue to monitor developments in the exchange rate and other financial conditions with regard to their possible implications for the inflation outlook. Overall, an ample degree of monetary stimulus remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term. This continued monetary support is provided by the net asset purchases, by the sizeable stock of acquired assets and the ongoing and forthcoming reinvestments, and by our forward guidance on interest rates.

        Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP increased by 0.7%, quarter on quarter, in the fourth quarter of 2017, following similar growth in the previous quarter. This resulted in an average annual growth rate of 2.4% in 2017 – the highest since 2007. The latest economic indicators suggest some moderation in the pace of growth since the start of the year. This moderation may in part reflect a pull-back from the high pace of growth observed at the end of last year, while temporary factors may also be at work. Overall, however, growth is expected to remain solid and broad-based. Our monetary policy measures, which have facilitated the deleveraging process, should continue to underpin domestic demand. Private consumption is supported by ongoing employment gains, which, in turn, partly reflect past labour market reforms, and by growing household wealth. Business investment continues to strengthen on the back of very favourable financing conditions, rising corporate profitability and solid demand. Housing investment continues to improve. In addition, the broad-based global expansion is providing impetus to euro area exports.

        The risks surrounding the euro area growth outlook remain broadly balanced. However, risks related to global factors, including the threat of increased protectionism, have become more prominent.

        Euro area annual HICP inflation increased to 1.3% in March 2018, from 1.1% in February. This reflected mainly higher food price inflation. On the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around 1.5% for the remainder of the year. Measures of underlying inflation remain subdued overall. Looking ahead, they are expected to rise gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth.

        Turning to the monetary analysis, broad money (M3) continues to expand at a robust pace, with an annual growth rate of 4.2% in February 2018, slightly below the narrow range observed since mid-2015. M3 growth continues to reflect the impact of the ECB’s monetary policy measures and the low opportunity cost of holding the most liquid deposits. Accordingly, the narrow monetary aggregate M1 remained the main contributor to broad money growth, continuing to expand at a solid annual rate.

        The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations stood at 3.1% in February 2018, after 3.4% in January and 3.1% in December 2017, while the annual growth rate of loans to households remained unchanged at 2.9%. The euro area bank lending survey for the first quarter of 2018 indicates that loan growth continues to be supported by increasing demand across all loan categories and a further easing in overall bank lending conditions for loans to enterprises and loans for house purchase.

        The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing ‒ notably for small and medium-sized enterprises ‒ and credit flows across the euro area.

        To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for an ample degree of monetary accommodation to secure a sustained return of inflation rates towards levels that are below, but close to, 2% over the medium term.

        In order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively to raising the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Against the background of overall limited implementation of the 2017 country-specific recommendations, greater reform effort is necessary in euro area countries. Regarding fiscal policies, the ongoing broad-based expansion calls for rebuilding fiscal buffers. This is particularly important in countries where government debt remains high. All countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalance procedure over time and across countries remains essential to increase the resilience of the euro area economy. Improving the functioning of Economic and Monetary Union remains a priority. The Governing Council urges specific and decisive steps to complete the banking union and the capital markets union.

        We are now at your disposal for questions.

         

        US jobless claims dropped to lowest since 1969, trade deficit narrowed sharply

          Dollar shows little reaction to a mixed batch of data from the US.

          Initial jobless claims dropped 24k to 209k in the weekended April 21, below expectation of 230k. That’s also the lowest level since 1969. Four week moving averaged dropped to 229.25k, down fro 231.50k. Continuing claims dropped 29k to 1.84m in the week ended April 14.

          Trade deficit narrowed sharply by -10.3% to USD 68B in March, way lower than expectation of USD -74.8B. Headline durable goods orders jumped 2.6%, much higher than expectation of 1.4%. But that’s mainly due to a big increase in contracts for Boeing. Ex-transport orders was flat, below expectation of 0.40%.

          ECB kept main refinancing rate unchagned at 0.00% as widely expected

            ECB left main refinancing rate unchagned at 0.00% as widely expected. Deposit facility rate is held at -0.40% and marginal lending facility rate at 0.25%. Below is the statement. ECB’s press conference could be watched here if you’re interested.

            Monetary policy decisions

            At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.

            Regarding non-standard monetary policy measures, the Governing Council confirms that the net asset purchases, at the current monthly pace of €30 billion, are intended to run until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The Eurosystem will reinvest the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary. This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance.

            The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.

            ECB previews and levels to watch: EURUSD 1.2154, EURCAD 1.5608, EURCHF 1.2, EURAUD 1.6189

              Euro recovers broadly as traders are awaiting ECB rate decision and press conference. No change in monetary policy is expected today. Main refinancing rate should stay at 0.00%, deposit facility rate at -0.40% and marginal lending facility rate at 0.25%. The EUR 30B per month asset purchase program will continue to run until end of September as planned.

              ECB’s press conference could be watched here if you’re interested.

              Here are some ECB preview reports:

              EUR’s recovery is actually quite weak considering that it’s limited below yesterday’s highs, which are not far away.

              EUR’s  own outlook is mixed too. EUR/USD, is near term bearish. But EUR/CHF, EUR/AUD and EUR/NZD are bullish. EUR/JPY and EUR/CAD and EUR/GBP are mixed from action bias table.

              We’d prefer not to anticipate whether Euro traders will react positively, or negatively to ECB press conference. However, if the response is positive, 1.2 in EUR/CHF is the first one to look at, and 1.6189 the second.

              If the response is negative, 1.2154 in EUR/USD is the first level to watch. And the second will be 1.5608 in EUR/CAD, yesterday’s low.

              SNB Q1 USD holding unchanged at 35%, EUR holding dropped 1%

                SNB reported CHF 6.8B loss in Q1 of 2018.That includes CHF 7.0B loss on currency positions and CHF 0.2B loss on gold holdings. The losses were partly offset by CHF 0.5B gain in Swiss Franc positions, mainly from negative interest rates.

                Current allocations in the foreign exchange reserves were largely unchanged.

                • USD holdings unchanged at 35%
                • EUR holdings dropped to 39% vs 40% prior
                • GBP holdings unchanged at 7%
                • JPY holdings unchanged at 8%
                • CAD holdings unchanged at 3%

                German Gfk consumer climate dropped 0.1 to 10.8. Increasingly insecure state of geopolitics influencing consumer mood

                  German Gfk consumer climate dropped to 10.8 in May, down 0.1 from 10.9, met expectations.

                  Quote from the release:

                  “The increasingly insecure state of geopolitics now also seems to be influencing the mood of consumers. There is a tangible drop in economic expectations in April, while income expectations fell only slightly by comparison. In contrast, propensity to buy is still at a very high level.”

                  “The escalation of the Syrian crisis and the protectionist trade policies of the United States are worrying consumers and could now also affect Germany’s previously excellent economic prospects.”

                  “Further escalation of these conflicts would also have a long-term adverse effect on the consumer climate. Above all, increasing protectionism in international trade would hit Germany, as an export nation, resulting in employees fearing they may lose their jobs and again being more reluctant to buy. In this case, the consumer forecast would certainly be untenable.

                  Full relesae here.

                  South Korean Moon and North Korean Kim to plant the tree of “peace and prosperity” on Friday

                    South Korean President Moon Jae-in will meet with North Korean leader Kim Jong-un in a historical encounter tomorrow on Friday. That’s the first highest level summit between the two countries for in more than a decade.

                    According South Korean chief of staff, the meeting will start at 10:30 a.m. (0130 GMT) at the Peace House in Panmunjom, a village just north of the de facto border between North and South Korea. Kim will then cross the border at 9:30 a.m. (0030 GMT). Moon and Kim will then have lunch separately before holding a tree-planting ceremony in the afternoon.

                    In the ceremony, a pine tree will be planted on the demarcation line, as a symbol of “peace and prosperity”. Soil from Mount Paektu in North Korea and Mount Halla in South Korea will be used. Also, the tree with be watered with water brought from the Taedong River in the North and the Han River in the South.

                    A second round of talk will then be held after a walk in Panmunjom. A pact will then be signed by Kim and Moon, with an announcement. And the encounter will conclude with dinner on the South’s side and watch a video clip themed ‘Spring of One’.

                    Fitch affirms Japan’s ‘A’ IDR rating with stable outlook. Trade protectionism poses a downside risk

                      Fitch Ratings affirmed Japan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A’ with a Stable Outlook. Fitch noted Japan’s “balance the strengths of an advanced and wealthy economy, with high governance standards and strong public institutions, against weak medium-term growth prospects and high public debt.” And, “strong external finances marked by a persistent current account surplus and large net external credit and international investment positions relative to peers.”

                      Fitch expected Japan GDP growth to slow to 1.3% in 2018 and 0.7% in 2019. However, “trade protectionism poses a downside risk to the outlook, exemplified by the imposition of a 25% tariff on US imports of steel and aluminium, including from Japan.” Also, “spillovers from trade tensions between the US and China are also a risk, as are tensions on the Korean peninsula.” Regarding inflation, Fitch projected headline inflation to reach only 1.2% at the end of 2018, and rise temporarily to 2.8% at the end of 2019 due to sales tax hike.

                      The monetary settings under BoJ’s yield curve control framework will “remain broadly unchanged for the foreseeable future”. Fitch noted recent slowdown in asset purchase has been sufficient to sustain the share of outstanding JGBs held by the central bank at around 40%-45%. And, “this level of BoJ ownership is within levels that would prevent the emergence of problems for JGB market liquidity, which the BoJ continues to monitor closely.”

                      Full release here

                      Moody’s affirms US Aaa rating, stable outlook. Economic strength couter balance lower fiscal strength

                        Moody’s Investor Service affirmed US Aaa rating. Outlook was also maintained as stable. Moody’s noted that “exceptional economic strength” of the US, very high strength of its institution, very low exposure to credit related-shocks. And that “counter balance” the lower fiscal strength.

                        The rating agency also noted that “diversity, dynamism, and competitiveness” of the US economy, Dollar’s status as the “pre-eminent international reserve currency” and the “very large size and depth” of the treasury market. These advantages will “offset rising fiscal pressures” from “ageing-related entitlement spending, higher debt service payments”, and recent policy actions that will likely lower revenues and increase expenditures.

                        Full release here

                        For now, Moody’s expected US and China to reach a trade deal eventually. However, Moody’s Senior Credit Officer William Foster said that “if things ultimately progress in a way that is outside of the base case, that would be negative for both countries and for the global market place, but our expectation is this will be negotiated back from the headlines you’re reading.”

                        Canada Freeland: “Good” and “constructive” progress made in NAFTA talks

                          Canadian Foreign Minister Chrystia Freeland, Mexican Economy Minister Ildefonso Guajardo and US Trade Representative Robert Lighthizer are still carrying on with NAFTA renegotiation in Washington.

                          Freeland hailed yesterday that “there is a very strong, very committed, good-faith effort for all three parties to work 24/7 on this and to try and reach an agreement.” And, some “good” and “constructive” progress was made. They are working on “a set of “proposals based on the creative ideas the U.S. came up with in March”.

                          But there are still some major differences. For example, Canada is firm on it’s stance that object the including of a “sunset clause” what would allow one of the three members to quit after five years. Freeland said that the withdrawal mechanism is “absolutely unnecessary”.

                          Also Freeland reiterated Canada’s opposition to US steel and aluminum tariffs, which is currently exempted until May 1. She said “Canada’s position has been clear from the outset and that is that Canada expects to have a full and permanent exemption from any quotas or tariffs.”

                          CHF and CAD showing some strength while USD dominates

                            USD is without a doubt the strongest one today as helped by another day of rally in yields. 10 year yield hit as high as 3.032, just shy of 2013 high, key resistance level, of 3.036. Up till now, it looks like TNX could close above 3.000 handle. But let’s see.

                            D heatmap shows that GBP is so far very resilient today, staying above yesterday’s low against USD and is trading as the second strongest. However, it’s the strength of CHF and CAD in the current 4H bar that catches our attention.

                            On the one hand, CHF is helped as EUR/CHF is rejected by 1.2 again.

                            Meanwhile, CAD is helped by some cross buying. It’s a bit early to say. But EUR/CAD could be starting to end (?) the corrective rebound from 1.5461, ahead of 38.2% retracement of 1.6151 to 1.5461 at 1.5724.

                            EUR/CAD’s action bias chart is not giving any indication of that yet. We’ll keep monitoring it too see if there will be red action bias bars in H and 6H chart ahead.

                            USD jumps ahead of US session, EUR/USD breaks yesterday’s low

                              Dollar rally picks up momentum again in enter into US session. In particular EUR/USD has now taken out yesterday’s low at 1.2181 to resume recent fall to 1.2154 support.

                              As seen in the D heat map, only GBP/USD’s is holding above yesterday’s low for now. NZD, AUD, CHF and CAD are trading as the weakest ones.

                              Action bias table also shows overwhelming momentum.

                              Let’s see how far USD can go in a day with no important economic data featured.

                              German Economic Ministry revised growth forecast down to 2.3% in 2018

                                The German Economy Ministry lowered growth forecast for this year today. For 2018, GDP is now projected to grow 2.3%, downgraded from January forecast of 2.4%. For 2019, growth is projected to be at 2.1%.

                                Economy Minister Peter Altmaier said that the German economy s in a “robust state”, “remains buoyant and the upturn is continuing.” Also, while recent economic data have been disappointing, Altmaier said they “”are in no way pointing to a downturn.” He added that “any growth in the region of 2 percent or above is exceptionally good growth, if you compare it with the history of the last 10-15 years in Germany.”

                                ECB Mersch noted increasing confidence, Vasiliauskas said it’s time to transit from asset purchase

                                  Articles by ECB Executive Board member Yves Mersch and Governing Council member Vitas Vasiliauskas were published Wednesday by Eurofi today. While Mersch’s article was submitted back on March 21 and Vasiliauskas on March 15, there’re worth a quick read.

                                  Mersch’s article was on the topic of “Monetary policy in the euro area: solid expansion with timid price pressure”. He noted that:

                                  • “Confidence has recently risen and convergence is being confirmed — partly because the temporary decline in the inflation rate has been weaker than our internal calculations had predicted,”
                                  • “More resilience will follow eventually. Still, patience and persistence with respect to our monetary policy is required.”

                                  Vasiliauskas article was on the topic of “The time is approaching to seriously consider a smooth transition from the APP”. He noted:

                                  • “We have witnessed the strengthening of broad-based growth and steadily declining unemployment, providing conditions for inflation convergence to our objective.”
                                  • “This has increased my confidence that it is time to transition from the asset purchase program. However, the closure of the program should not be abrupt.”

                                  Here are the articles.

                                  NZDUSD decline accelerating to 0.7 handle

                                    NZD is clearly the weakest one for the week. In particular, selloff in NZD/USD accelerated and continues today, in even in a rather quiet session. NZD/USD is a top 10 mover across all time frame.

                                    Judging from the fact that 100% projection 100% projection of 0.7436 to 0.7152 from 0.7394 is firmly taken out. And there is no sign of bottoming yet. Fall from 0.7436 shouldn’t be a correction to rise from 0.6779. It should be a leg in the larger pattern. For now, near term outlook will remain bearish for 61.8% retracement of 0.6779 to 0.7436 at 0.7030 and below.

                                    However, it should be noted that NZD/USD is now in a medium term triangle like pattern. Such a pattern could be consolidating the rebound from 2015 low at 0.6102. With that in mind, we’d not expect a break of 0.6779 low. And strong support should be seen between 0.6779 /7030 to bring another near term reversal.

                                    DOW heading back to 23344.52 support after failing to stand above 55 day EMA

                                      DOW closed sharply lower overnight by -424.56 pts or -1.74%, at 24023.13. The rebound from 23344.52 is confirmed to be complete at 24585.97, after failing to sustain above 55 day EMA. While the strength of the rebound was disappointing, the overall development is in line with our view. That is, price actions from 26616.71 high are developing into a medium term correction that’s not completed yet

                                      Further fall would be seen back to 23344.52 ahead, as long as 24585.97 holds. While there could be some support at that level, and eventual break is expected to 38.2% retracement of 15450.56 to 26616.71 at 23351.24. That was our original target. Judging from the descending triangle shape of the pattern from 23360.29, we’re now slightly leaning to the case of deeper fall to 50% retracement at 21033.63 before completing the correction.

                                      US 10 year yield yet to own 3% level

                                        US 10 year yield edged higher to 3.003 overnight and breached 3% handle briefly. Then, it failed to sustain above 3% and closed at 2.983, up only 0.010. Comparing to Monday, it’s slightly better as it closed above open of regular trading hours. But from hourly chart point of view, TNX is losing some momentum. Hourly MACD dipped below signal line while RSI also dipped from overbought region. That’s what we usually see when a bullish move is taking, or about to take, a breath.

                                        And bear in mind again that 3% is an important psychological level for many investors. And there is a key resistance of 3.036, 2013 high. These could both limit the strength of TNX for the very near term. And, judge from the reactions in forex markets too. Dollar only managed to extend gains against Yen and Swiss Franc yesterday when TNX breached 3%. We might see some sluggish trading today. But of course, ECB, UK and US GDP are still expected to trigger more volatility before the week ends.

                                        US stocks in deep selling mode, USD/JPY follows DOW lower

                                          US stocks suffer steep selloff as led by 3M, Caterpillar and Google. At the time of writing, DOW is trading down nearly -1.5%. The development, with rejection from 55 H EMA, suggests that rebound from 23344.52 has completed at 24858.97. Focus is now on 24000 handle. Firm break there could bring retest of 23344.52 low.

                                          And, due to the selloff in stocks while 10 year yield is still struggling to stay above 3% handle, USD/JPY is having a relatively deep pull back. Focus is back on 108.54 minor support. Touching there will already mean temporary topping . That is, recent rise from 104.62 is taking a breath. And, some consolidations would be seen before another rise.