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BoE FPC report: Existing crypto-assets did not currently pose a material risk to UK financial stability

    By
    ActionForex.com
    -

    BoE just released the record of the Financial Policy Committee (FPC) meeting on March 12.

    Here are some points to note:

    Regarding the risks of disruption to UK financial services arising from Brexit:

    The FPC

    • Reviewed progress on the checklist that it published in November, of actions that would mitigate risks of disruption associated with Brexit to important financial services used by households and businesses. It judged that since November, in the United Kingdom, progress had been made. Nonetheless, material risks remained, particularly in areas where actions would be needed by both the UK and EU authorities. The FPC re-emphasised the importance that preparations continue to be made and actions taken by relevant authorities to tackle these risks.

    Regarding Crypto-assets:

    The FPC

    • Reviewed the financial stability risks from crypto-assets. It recognised the potential benefits of the technologies underlying crypto-assets and of their potential to create a more distributed and diverse payments system. It judged that existing crypto-assets did not currently pose a material risk to UK financial stability. The FPC made clear that it would act to ensure the core of the UK financial system remained resilient if linkages between crypto-assets and systemically important financial institutions or markets were to grow significantly.

    Full report can be found here

    EUR/GBP rally drags down GBP/JPY and GBP/USD

      By
      ActionForex.com
      -

      EUR/GBP spikes higher in early European session, after clearing 0.8750. A major reason is believed to be Bundesbank’s monthly purchase for UK’s contribution to EU membership. Today’s move could be exaggerated by thinner holiday liquidity. Also EUR/GBP bearish could be finally giving up after the cross failed to sustain below 0.8686 last week. But it’s worth a watch to see if the rebound is turning into something sustainable. For now, based on current momentum, it could be heading back to 61.8% retracement of 0.8967 to 0.8666 at 0.8852 with a short term based formed.

      The move in EUR/GBP is also affecting other pairs. GBP/JPY dip notably lower after hitting 150.48.

      GBP/USD also dips after hitting 1.4243.

      On other hand, EUR/USD is staying firm after edging higher to 1.2475.

      DOW surged in late hour, Nikkei and HSI follow, JPY paring recent gains

        By
        ActionForex.com
        -

        Risk aversions receded much as markets, in the end, responded rather positively to news of trade talks between the US and China. For now, it seems both countries will hold fire first, and come back to the table.

        After struggling below 24000 handle for most of the session, DOW finally made up its mind in the last two hours and surged sharply. DOW ended the day up 669.40 pts or 2.84% at 2420.60. S&P 500 gained 70.29 pts or 2.72% to close at 2658.55. NASDAQ also rose 227.87 pts, or 3.26% to 7220.54.

        Still, for now, DOW is limited below 24453.14 minor resistance and thus, there is no change in the near term direction yet. It’s still more likely to revisit 23360.29 support then not.

        Asian markets follow with Nikkei trading up over 1.6% at the time of writing. Hong Kong HSI is up 0.9%.

        From D heatmap, JPY is extending this week’s fall in Asian session while Canadian Dollar is picking up some steam.

        The W heatmap shows JPY as the weakest one, consistent with the daily developments. But holding above last week’s low against all but GBP only. Euro and GBP are the strongest ones for the week so far.

        Also, note that EUR/JPY is held well below 132.40 resistance. GBP/JPY also stays below 150.92 resistance. Current rebound in JPY is more seen as a corrective move. The picture suggests that intraday or swings traders could ride on improved sentiments to sell JPY for quick profits. But for position traders, it could be an opportunity to buy JPY once the rebound loses steam.

        Goldman Sachs bullish on gold price, and our technical view on XAU/USD

          By
          ActionForex.com
          -

          Goldman Sachs published a note that’s bullish on gold price yesterday and expected it to outperform over the coming months. It’s forecasting four Fed hikes this year, which is one more than FOMC’s own projection. And the bank admitted that its upbeat view on gold is “counter-intuitive”.

          However, the report pointed to empirical data for the past six tightening cycles of Fed, and found gold has “outperformed post rate hikes four times”. And according to their analysts, “the dislocation between the gold prices and US rates is here to stay”.

          It added that the bullish view was also driven by higher inflation, rising EM wealth and increased risk of equity correction. Also, it’s a likely a function of investors “waiting on the sidelines” and the becoming interested in Gold again once the tightening “catalyst” has passed.

          Our technical view

          From our technical view, gold’s recent jump from 1307.32 suggests that consolidation pattern from 1366.05 has completed. And, rise from 1236.66, and the larger choppy up trend, is ready to resume. Based on the near term pattern, Gold will likely target 100% projection of 1236.66 to 1266.05 from 1307.32 at 1436.07.

          However, bear in mind that gold is now close to an important long term fibonacci level. That is, 38.2% retracement of 1920.94 to 1046.54 at 1380.56. Gold failed this fibonacci resistance once back in 2016. And felt heavy approaching it twice since then. Add that to the fact that rise from 1122.81 is clearly not impulsive looking. For now, we’d be skeptical on gold bullish momentum ahead. And 61.8% projection of 1236.66 to 1266.05 from 1307.32 at 1386.88 is the hurdle to overcome.

          Fed Mester supports gradual rate hike, against a steep path

            By
            ActionForex.com
            -

            Cleveland Fed President Loretta Mester she supports gradual rate hike “this year and next year”. At the same time, she’s “against a steep path” in tightening because “we want to give inflation time to move back to goal”. She sounds optimistic saying that “this year is shaping up to be another good year for the economy.” And for monetary policymakers, the task is to “calibrate policy to this healthy economy so that the expansion is sustained.”

            The government’s tax cut poses “some upside risk” to the forecast, and Mester expects a better read on household spending “over the next several months”. Globally, she noted that “for the first time in many years, economic activity around the world is picking up and forecasts for global growth are being revised up.” And, “this should have a positive feedback effect on the U.S. economy via exports.”

            Meanwhile, she warned that trade developments are a “risk to the forecasts”. And the uncertainty “may not be resolved quickly”. But it didn’t change her outlook for the over economy yet.

            DOW feels heavy around 24000, Euro gains upside momentum

              By
              ActionForex.com
              -

              DOW opened notably higher today and breached 24000 handle to 24044.39. But it quickly lost momentum. For the moment, it’s feeling heavy from 24000. Current fall from 25449.15 is seen as resuming the decline from 26616.71 to 23360.29. Ideally, if our view is current, any interim recovery should be brief and there should be near them downside acceleration through 23360.29 support. And, break of 24453.14 resistance is needed to indicate bottoming. Otherwise, DOW will more likely have a take on 23360.29 than not.

              In the currency markets, after some strong momentum in early US session, Euro is now trading as the strongest one for today, overtaking NZD.

              In particular, EUR/USD’s breach of 1.2445 resistance is now setting up the pair for a test on 1.2555 high.

              EUR/AUD has met upside target of 61.8% projection of 1.5130 to 1.5976 from 1.5621 at 1.6130 first. With current solid momentum, it should be on track to 100% projection at 1.6444.

              Moody’s updates view on Brexit: Uncertainty prevails before conclusive final agreement

                By
                ActionForex.com
                -

                Moody’s, the credit rating agency, acknowledge the positive impact of the Brexit transition deal announced last week. However, it remained cautious that risks will prevail until a final agreement is made.

                Here are some highlights of the report:

                • The agreement reinforces Moody’s view that the impact of Brexit will be manageable for rated UK corporate issuers, despite increased bureaucracy costs under an FTA.
                • For UK banks the agreement is mildly positive to the extent that it reduces downside risks to growth and revenues.
                • As far as the risk of a disorderly withdrawal is somewhat mitigated, the agreement reinforces Moody’s central scenario of gradually moderating growth in the UK.
                • Uncertainty concerning the terms of UK’s future long-term relationship with the EU will prevail until a conclusive final agreement is reached.

                EUR and GBP builds upside momentum, Yen retreats on stablizing market sentiments

                  By
                  ActionForex.com
                  -

                  Yen clearly weakens broadly today with stabilizing market sentiments. Fear of trade war seems to fade mildly on report that the US and China are now in dialogue. At the time of writing, FTSE is trading up 0.3%, DAX up 0.5% and CAC up 0.3%. US futures also point to triple digit gain at open, as markets digest Friday’s steep loss.

                  Euro and Sterling both showing extra strength entering into US session. Both EUR/USD and GBP/USD surges through last week’s high.

                  Meanwhile, for now, both NZD/JPY and GBP/JPY are having more than 1% gain for today.

                  Bundesbank Weidmann: It’s important to start to end QE soon

                    By
                    ActionForex.com
                    -

                    Bundesbank President, Jens Weidmann, a known ECB hawk, called for ending stimulus again today.

                    He painted an upbeat picture of Eurozone economic outlook and hailed that “the upswing is now everywhere on broad feet; the growth rates of the Member States are now scattering noticeably less. The unemployment rate has fallen to 8.6 percent, its lowest level since the end of 2008. The sentiment indicators continue to move at very high levels. This indicates that the favorable economic development continues for the time being.

                    ECB economists projected 2.4% GDP growth in 2018, 1.9% in 2019 and 1.7% in 2020. Also, They forecast inflation to be at 1.4% in 2018 and 2019, and then rise to 1.7% in 2020. And to Weidmann, that is “a level that is broadly consistent with our medium-term definition of price stability.” With this background, “it is not surprising that the financial markets have been expecting net bond purchases to end in 2018.” He also emphasized that “the end of net purchases is only the beginning of a multi-year process of monetary normalization. That’s why it’s so important to actually start soon.”

                    Regarding interest rates, Weidmann said that “the markets see a first rate hike around the middle of the year 2019, which is probably not entirely unrealistic.”

                    China’s WTO embassador Zhang Xiangchen: “Lock this beast back into the cage”

                      By
                      ActionForex.com
                      -

                      Zhang Xiangchen, China’s Deputy International Trade Representative and WTO embassador urged the organization complained about US unilateral tariffs at a WTO meeting today. He criticized that “US is setting a very bad precedent by bluntly breaching its commitment made to the world” as it has agreed not to apply such tariffs without TWO approval. And he urged WTO members to jointly “lock this beast back into the cage of the WTO rules”.

                      He added that “unilateralism is fundamentally incompatible with the WTO, like fire and water. In the open sea, if the boat capsizes, no one is safe from drowning.” And, “we shouldn’t stay put watching someone wrecking the boat. The WTO is under siege and all of us should lock arms to defend it.”

                      Intensive talks of Irish Border in Brexit negotiation starts

                        By
                        ActionForex.com
                        -

                        The UK and EU start intensive talks on the most troublesome topic in Brexit negotiation today, the Irish Border. Both sides agreed, back in December, on the principle of avoiding a hard border between Ireland and Northern Ireland. However, there are key differences on the way to fulfil this principle. And there seems to be no agreeable solution yet. The negotiation team will try to address areas like customs, food safety, animal health and regulations of goods and come up with something for next EU summit in June.

                        Last month, EU proposed a backstop option if there will be no solution on Irish border. And that is, Northern Ireland will remain in the customs union. But that was bluntly objected by UK Prime Minister Theresa May.

                        Brexit Secretary David Davis reiterated that position on Sunday. Davis said that while UK agreed to a “backstop”, it will not be the one as proposed by the EU. He remained optimistic and said it’s “overwhelmingly likely” to solve the problem in the context of a trade and customs agreement. And he added, “there are ways of dealing with this. You can’t just say ‘we haven’t done it anywhere else’ – we haven’t attempted to do it anywhere else.”

                        IMF Lagarde proposes “rainy-day fund” to Eurozone as “temporary cushion”

                          By
                          ActionForex.com
                          -

                          In a speech titled, “A Compass to Prosperity: The Next Steps of Euro Area Economic Integration”, IMF managing director Christine Lagarde outlined her recommendations. She focused on three of the reform areas for Eurozone officials to consider in the review in the coming months. The ares include a modernized capital markets union, an improved banking union, and a move toward greater fiscal integration, starting with the creation of a central fiscal capacity.

                          In particular, she mentioned IMF’s proposal of a “rainy-day fund” for building up assets in good times. During a downturn, countries could receive funding to help offset budget shortfalls. And, in extreme cases, ” the fund would be allowed to borrow, however any borrowing would be repaid by members’ future contributions.” Though, she emphasized that ” it will be a temporary cushion  and not a permanent pillow.”

                          The full speech is available here.

                          Mnuchin in “very productive conversations” with China on trade agreement to avert Section 301 tariffs

                            By
                            ActionForex.com
                            -

                            US Treasury Secretary Steven Mnuchin said in a Fox News Sunday interview that the US is having “very productive conversations” with China. And he’s “cautiously hopeful we can reach an agreement” to avert the tariffs on USD 50-60b announced last week. Mnuchin noted that both countries agreed on reducing the US trade deficit to China. And, they were trying “to see if we can reach an agreement as to what fair trade is for them to open up their markets, reduce their tariffs, stop forced technology transfer.”

                            But Mnuchin emphasized that the US is still on track to impose the Section 301 tariffs unless there is an “acceptable agreement” for Trump to sign off on. He also noted that “we’re not afraid of a trade war, but that’s not our objective.” And, “in a negotiation you have to be prepared to take action.”

                            Separately, the WSJ reported that Mnuchin and US Trade Representative Robert Lighthizer sent a letter to Chinese Vice Premier Liu He last week, detailing the list of specific request for China. And the list is reported to include reduction of Chinese tariffs on US vehicles, purchases of semiconductor products and larger access to China’s financial markets.

                            South Korea the first that got indefinite exemption on US steel tariffs

                              By
                              ActionForex.com
                              -

                              The South Korea’s Ministry of Trade said today that is’ exempted from the US steel and aluminum tariffs. However, South Korea now received a quota of around 2.68m tonnes of steel exports. And that is 70% of the annual average of Korean steel exports to the US between 2015-2017. South Korean contributed to 9.7% of US steel imports in 2017.

                              In the mean time, Both countries also agreed on 20-year extension of Korean pickup trucks, until 2041. US automakers could also bring in 50000 vehicles to South Korean annually, doubling from prior amount of 25000.

                              That is the first of many US allies to receive an indefinite exemption on the steel and aluminum tariffs. Other six, Argentina, Australia, Brazil, Canada, Mexico and EU are just having the tariffs temporarily suspended.

                              At this point, there is no news regarding the expemption on Japan and Taiwan, two other major US allies in Asia, yet.

                              RBNZ added employment to its mandate. But won’t change Governor Orr’s policy bias

                                By
                                ActionForex.com
                                -

                                RBNZ jointly announced the policy target agreements with Ministry of Finance today. Employment is now formally added to its mandate. The statement retained price stability as a target. RBNZ should target to keep annual CPI inflation between 1-3% over medium term. And focus is to keep inflation near to the 2% mid-point. Additionally, the with stable general price level maintained, the monetary would “contribute to supporting maximum sustainable employment within the economy.”

                                Overall, the announce is widely expected as a result of the new government’s RBNZ review. And, there wouldn’t be any change to the neutral to slightly dovish bias of RBNZ as Adrian Orr just take over as the governor.

                                Here is the full announcement:

                                Policy Targets Agreement 2018

                                The Government’s economic objective is to improve the wellbeing and living standards of New Zealanders through a sustainable, productive and inclusive economy. Our priority is to move towards a low carbon economy, with a strong diversified export base, that delivers decent jobs with higher wages and reduces inequality and poverty.

                                Monetary policy plays an important role in supporting the Government’s economic objective. The Government expects monetary policy to be directed at achieving and maintaining stability in the general level of prices over the medium term and supporting maximum sustainable employment.

                                This agreement between the Minister of Finance and the Governor of the Reserve Bank of New Zealand (the Bank) is made under section 9 of the Reserve Bank of New Zealand Act 1989 (the Act). The Minister and the Governor agree as follows:

                                1. Monetary policy objective

                                a) Under Section 8 of the Act the Reserve Bank is required to conduct monetary policy with the goal of maintaining a stable general level of prices.

                                b) The conduct of monetary policy will maintain a stable general level of prices, and contribute to supporting maximum sustainable employment within the economy.

                                2. Policy target

                                a) The price stability target will be defined in terms of the All Groups Consumers Price Index (CPI), as published by Statistics New Zealand.

                                b) For the purpose of this agreement, the policy target shall be to keep future annual CPI inflation between 1 and 3 percent over the medium-term, with a focus on keeping future inflation near the 2 percent mid-point.

                                c) The Bank will implement a flexible inflation targeting regime. In particular the Bank shall, in pursuing the policy target:

                                1. have regard to the efficiency and soundness of the financial system;
                                2. seek to avoid unnecessary instability in output, employment, interest rates, and the exchange rate; and
                                3. respond to events whose impact on inflation is expected to be temporary in a manner consistent with meeting the medium-term target.

                                3. Transparency and accountability

                                a) The Bank shall implement monetary policy in a transparent manner. In addition to the requirements of section 15 of the Act the Bank shall in its Monetary Policy Statement (MPS):

                                1. explain what measures it has taken into account in respect of meeting the requirements of section 2(c) and explain how these matters have been taken into account in its implementation of monetary policy; and
                                2. when inflation outcomes, and/or expected inflation outcomes, are outside of the target range explain the reasons for this; and
                                3. explain how current monetary policy decisions contribute to supporting maximum levels of sustainable employment within the economy.

                                b) The Bank shall be fully accountable for its judgements and actions in implementing monetary policy.

                                Hon Grant Robertson
                                Minister of Finance

                                Adrian Orr
                                Governor Designate
                                Reserve Bank of New Zealand

                                New Zealand trade surplus at NZD 217m in Feb, import hits Feb record high, NZD broadly higher

                                  By
                                  ActionForex.com
                                  -

                                  NZD trades generally higher in Asian session after trade balance data.

                                  Accord to Stats NZ Tatauranga Aotearoa, for February 2018 compared with February 2017:

                                  • Goods exports rose NZD 446 million (11%) to NZD 4.5 billion.
                                  • Goods imports rose NZD 187 million (4.6%) to NZD 4.2 billion, a new high for total imports in a February month. The previous high was NZD 4.1 billion, in February 2017.
                                  • The monthly trade balance was a surplus of NZD 217 million (4.9% of exports).

                                  NZD is trading higher together with commodity currencies in general, as seen in daily heatmap.

                                  Against Dollar, NZD/USD extends the rebound from 0.7152 and reaches as high as 0.7276 so far. Further rise is now mildly in favor to 0.7354 resistance.

                                  From the daily chart, NZD/USD has been in consolidation since hitting 0.7436. Firm break of 0.7354 will now be a strong signal of resumption of medium term rise from 0.6779.

                                  Fed Bostic: Fed at or near objectives, supports further rate hikes

                                    By
                                    ActionForex.com
                                    -

                                    Atlanta Fed President Raphael Bostic sounds upbeat in his prepared speech for Knoxville Economic Forum.

                                    With six month core inflation at 2%, and unemployment rate at 4.1%, he considered Fed is “at or near the sustainable employment and inflation objectives.”

                                    Regarding interest rate, he said that “if the economy evolves roughly as I suspect, I will likely support further increases over the course of the year.”

                                    And, “with the economy operating near its potential and inflation finally approaching the long-run target, it is appropriate, in my opinion, for monetary policy to be moving toward a more neutral stance.”

                                    USD/CAD to revisit yesterday’s low as Canada CPI accelerated notably in Feb

                                      By
                                      ActionForex.com
                                      -

                                      USD/CAD dives sharply in early US session after data release.

                                      From US, durable goods orders rose 3.1% in February, above expectation of 1.7%.

                                      Ex-transport orders rose 1.2% versus expectation of 0.5%.

                                      However, markets response to Canada inflation data seems to be much stronger.

                                      From Canada, CPI rose 0.6% mom, 2.2% yoy in February, beat expectation of 0.5% mom, 2.0% yoy. Annual rate also accelerated from prior month’s 1.7% yoy.

                                      CPI core common accelerated to 1.9% yoy, up from 1.8% yoy. CPI core media rose to 2.1% yoy, up from 1.9% yoy. CPI core trimmed rose to 2.1% yoy, up from 1.8% yoy.

                                      Canada retail sales rose 0.3% versus expectation of 1.2% mom in January. Ex-transport order, though, met expectation and rose 0.9% mom.

                                      USD/CAD drops sharply and is set to test on yesterday’s low at 1.2828. Rejection from 55 H EMA certainly carries near term bearish implication. However, there is a key support zone ahead at 1.2802 cluster support zone (38.2% retracement of 1.2246 to 1.3124 at 1.2789). For the moment, we’d still expect strong support from there to bring rebound.

                                      EU adopted Brexit negotiation guidelines

                                        By
                                        ActionForex.com
                                        -

                                        EU leaders formally approved the guidelines for the negotiation of future relations with the UK after Brexit in the EU summit today. Only a few minutes were taken for the approval. While symbolic, the approval now clears the way to move one to the next phase of Brexit negotiation. And the process will likely gain momentum from now on. Brexit negotiator Michel Barnier will now talk directly to the US about future relationship. The target is to reach a broad political agreement by October.

                                        The 7-page document can be found here.

                                        UK Prime Minister Theresa May said that “I believe we are approaching this with a spirit of cooperation, a spirit of opportunity for the future as well, and we will now be sitting down and determining those workable solutions for Northern Ireland, but also for our future security partnership and economic partnership.” And, she added that “the best interest of both the UK and the EU that we get a deal that actually is in the interests of both.”

                                        Stiglitz to China: Don’t appease to bully Trump

                                          By
                                          ActionForex.com
                                          -

                                          Nobel prize-winning economist Joseph Stiglitz commented on the intensification of trade war between US an China. He pointed out that China is “sitting on $3 trillion of reserves that it can use to help those adversely affected. On the other hand, in the US, “we don’t have an economic framework that is able to respond to the particular places that will be affected by a trade war. Also, he pointed out that “the fiscal resources of the United States are strained.”

                                          In addition, Stiglitz also said that “when you have a bully like Trump, it would not be good to respond in a weak way.” He added that “we know about appeasement from Munich. It’s a different kind of a war but in a trade war appeasement could lead to more and more demands.”

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