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[Andora Andrei]

USD/JPY Continues To Consolidate

USD/JPY Continues To Consolidate

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'The topside remains capped by the 55 day ma at 114.96. We view the recent low at 111.59 as an interim low. Between these two limits the market is sidelined.' – Commerzbank (based on FXStreet)
Pair's Outlook
The FOMC Minutes barely affected the markets yesterday, as no clear clue concerning a future interest rate hike was provided. As a result, the US Dollar closed with a 33-pip loss against the Japanese Yen, retaining its position above 113.00. Technical indicators keep giving mixed signals in the daily timeframe, but the weekly ones now are giving distinctly bullish, implying the USD/JPY pair could soon break out from its consolidation trend. However, in order to fully achieve this goal the Greenback is required to stabilise above the 115.00 major level, meaning the tough resistance, formed by the weekly R1, the monthly PP, the Bollinger band and the 55-day SMA, needs to be overcome.
Traders' Sentiment
Today 53% of all open positions are long (previously 52%). The share of purchase orders also edged higher, namely from 63 to 65%.

 

[Andora Andrei]

EUR/USD Back Above 1.0550 Level

EUR/USD Back Above 1.0550 Level

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'The dollar fell while Treasuries advanced after minutes from the Federal Reserve's latest meeting showed officials confident they can raise rates gradually amid little threat that near-term inflation will accelerate.' - Jeremy Herron, Bloomberg
Pair's Outlook
The common European currency surged against the US Dollar on Thursday morning, as the currency exchange rate continued the late Wednesday's surge. The surge was initiated by the dovish FOMC meeting minutes, which caused the Greenback to fall all across the board. However, this occurred almost perfectly in the borders of a descending medium term channel, and the previous forecast of a decline of the currency pair is still in force. In fact, it is most likely that the pair will retreat once more to the weekly S1 at 1.0529 by the end of the day.
Traders' Sentiment
Traders have not changed the proportions of their open positions, as 54% of SWFX traders remain bullish on the Euro. Meanwhile, 58% of trader set up orders are to buy the Buck.

 

[Andora Andrei]

US Dollar May Rebound as FOMC Minutes Fade From View

US Dollar May Rebound as FOMC Minutes Fade From View

Talking Points:

Cautious February FOMC minutes boosts the appeal of the NZ Dollar
US Dollar may rebound as fresh Fed-speak keeps March hike in play
Crude oil bounce boosts Canadian Dollar, Aussie falls on capex data

The New Zealand Dollar outperformed in overnight trade, with gains tracing the inverse path of the benchmark 10-year US Treasury bond yield. This hints that the Kiwi as able to capitalize on its relatively rosy monetary policy outlook as Fed tightening bets eased following the release of minutes from February’s FOMC meeting. The RBNZ is the only G10 central bank expected to raise rates over the coming 12 month besides the US monetary authority.

Not surprisingly, the same dynamic put the US Dollar under pressure. The Minutes document painted Fed officials as more cautious than the fiercely hawkish rhetoric on offer recently. This seemed to pour a bit of cold water on the likelihood that a hike will materialize in March, although the priced-in probability of one didn’t budge from the 34 percent reflected in Fed Funds futures ahead of the release.
The Canadian Dollar rose alongside crude oil prices. The WTI benchmark rose after API reported that inventories fell by 884k barrels, snapping a six-week streak of back-to-back gains. The Australian Dollar swooned following disappointing capex data. Firms spent 2.1 percent less in the fourth quarter than they did in the third, disappointing bets on a smaller 0.5 percent retreat.

A tame European data docket will probably yield the spotlight to Fed policy speculation yet again. Comments from Dennis Lockhart and Robert Kaplan, Presidents of the Atlanta and Dallas Fed branches, are on tap. If they echo the more confident tone of other US central bank officials in recent weeks, the greenback may rebound as markets dismiss the Minutes publication as stale compared to the FOMC’s current disposition.

Asia Session

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European Session

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[Andora Andrei]

Pivot Points on daily chart for major pairs Feb 23, 2017

Pivot Points on daily chart for major pairs Feb 23, 2017

Pivot Points are widely used by day traders to quickly determine where forex market sentiment may change between bullish and bearish.
Pivot Points are also commonly used to find likely Support and Resistance levels.
Pivot Points are calculated using the Open, High, Low, and Close prices for the previous period. So, today's Pivot Points use yesterday's Open, High, Low, and Close values.
The Trading Day begins and ends at 5pm New York Time.

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[Andora Andrei]

Fed Speeches Eyed as Minutes Offer Few Hike Clues

Fed Speeches Eyed as Minutes Offer Few Hike Clues

Markets appear to be caught in limbo on Thursday, with European equities mixed and US futures pointing to a similar open on Wall Street.
The minutes from the Federal Reserve on Wednesday, which we were hoping would provide additional clarity on its interest rate expectations, instead displayed the uncertainty the central bank has about how to proceed, largely due to the unknown effects of what Donald Trump's stimulus plans will have on the economy and inflation. In effect, the Fed is as much in limbo as investors are because markets have rallied strongly at the prospect of "phenomenal" tax cuts and major spending but as of yet, nothing has been delivered.
The way markets are continuing to grind higher, it would appear investors are unwilling to go against the rally but at the same time, there's little conviction in it either. At some point, in the absence of details on Trump's tax and stimulus plans he rally may run out of steam. Hopefully Treasury Secretary Steve Mnuchin will today offer some insight into what these plans may entail in order to give investors a taste of what's to come and justify the levels we now find ourselves at.
Beyond that I think we can expect the Fed to proceed with caution and come the March meeting, if it has no details on Trump's stimulus plans it will likely wait until May or June. However, as we've seen from recent efforts, it is keen to keep March on the table because should Trump announce substantial measures, the Fed may wish to hike in March in order to avoid falling behind the curve and needing to raise at a faster pace later this year.
We'll probably get more of the same rhetoric when we hear from Robert Kaplan and Dennis Lockhart later today. Kaplan – a voting member on the FOMC – has previously kept his cards close to his chest warning that rates should rise sooner rather than later while also driving home the need to tighten gradually. We'll also get jobless claims data today as well as oil inventory data from EIA after API reported a small build on Wednesday.

 

[Andora Andrei]

Crude Stocks May Have Snapped Six-Week Build Streak

Crude Stocks May Have Snapped Six-Week Build Streak

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Oil prices have bounced back after Wednesday's decline and are thus back higher on the week after Monday's rally. As before, I think oil prices are heading higher. The lack of a clear trend over the past several weeks has coincided with rising US crude oil inventories to new record levels. But after a six-week streak of rises, US oil stocks are likely to have fallen last week. The official Energy Information Administration data will be published later this afternoon. Last night, unofficial data from the American Petroleum Institute (API) showed US oil inventories fell by 884 thousand barrels last week, while those at the storage hub of Cushing, Oklahoma, saw a draw of 1.73 million barrels – the sixth decline in seven weeks. According to the API, stocks of crude products declined sharply, too: gasoline by 893 thousand but more importantly for this time of the year, distillates dropped by a significant 4.23 million barrels. It was a bullish report from the API and if EIA's numbers confirm these figures then we may see further gains for oil.
Meanwhile from a technical perspective, nothing has changed materially from my last report. The tight consolidation above last year's key broken resistance levels suggests oil prices have been coiling to break higher. The consolidation has also allowed momentum indicators such as the Relative Strength Index and other oscillators to unwind from "overbought" thresholds mainly through time rather than price, which is again very bullish. Consequently, I am anticipating both oil contracts to break out of their recent ranges and head higher. A potential break above $58.35 on Brent could see the London-based oil contract head towards $63.00, the last support pre-breakdown back in June 2015. The corresponding bullish target for WTI is at $60. As things stand, I will only turn bearish on oil if both contracts break back below their recent ranges i.e. at $54.00 on Brent and $50.80/90 for WTI. That is unless we see other significant bearish patterns beforehand. But for now, we remain pretty much bullish and therefore think that the path of least resistance is to the upside.
Indeed, if in the short-term WTI breaks above the $54.30 resistance level on a daily closing basis then it may start heading towards $55.20 initially – the top of the current range – ahead of $56.50/5 and then $58.00. The latter marks the convergence of a previous support level with the top of a trend line and the 161.8% Fibonacci extension level of the last significant downswing pre breakout.

 

[Andora Andrei]

3 Highlights from the February FOMC Minutes

3 Highlights from the February FOMC Minutes

Hello, forex friends! The minutes of the Fed’s February huddle got released yesterday. And if you somehow missed it, then here are the key highlights from the meeting minutes that you need to know about, as well as the Greenback’s reaction.
1. Rate hike “fairly soon”

I noted in my 3 Takeaways from the February FOMC Statement that the Fed didn’t provide any forward guidance, which was a real disappointment.
Well, the FOMC meeting minutes rectified that by revealing that “many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon.”
However, it came with some caveats. Specifically, a rate hike is only warranted if “incoming information on the labor market and inflation was in line with or stronger than their current expectations or if the risks of overshooting the Committee’s maximum-employment and inflation objectives increased.”
2. Uncertainty related to fiscal policy

Fed officials think that “near-term risks to the economic outlook appeared roughly balanced.” However, they expressed “considerable uncertainty about the prospects for changes in fiscal and other government policies.”
Even so, Fed officials “continued to view the possibility of more expansionary fiscal policy as having increased the upside risks to their economic forecasts, although some noted that several potential changes in government policies could pose downside risks.”
In simpler terms, Fed officials are uncertain on the potential effect of more fiscal stimulus under Trump, with Fed officials split between those who think that it would be good and those that think that it would be bad. But for the February FOMC meeting, most see Trump’s planned fiscal stimulus as a good thing (for now).
Interestingly enough, a “couple of participants argued that such uncertainty should not deter the Committee from taking further steps in the near term to remove monetary policy accommodation, because fiscal and other policies were only some of the many factors that were likely to influence progress toward the Committee’s dual-mandate objectives and thus the appropriate course of monetary policy.”
However, “other” Fed officials were inclined to have a wait-and-see approach and “cautioned against adjusting monetary policy in anticipation of policy proposals that might not be enacted or that, if enacted, might turn out to have different consequences for economic activity and inflation than currently anticipated.”
3. Stronger dollar poses “downside risks”

Fed officials (“several” of them anyway) were “concerned about the downside risks to economic activity associated with the possibility of additional appreciation of the foreign exchange value of the dollar.”
Fed officials didn’t explain why, but that likely has something to do with exports, since a stronger Greenback would make U.S. exports relatively more expensive and less competitive. This is especially important because Trump intends to bring manufacturing jobs back into the U.S. And a stronger Greenback would make it tougher for U.S. manufacturers to compete when it come to exports. Also, weaker economic growth = no need to hike rates to stop the economy from overheating.
Aside from posing a downside risk to economic activity, “several” Fed officials were also concerned that a further appreciation in the dollar would result in “downside risks to the inflation outlook.” The reasoning for this is rather simple. A stronger Greenback would make imports of non-energy commodities relatively cheaper. Cheaper imports would then mean less inflationary pressure from the tradables inflation component. And weaker inflation = less urgency to control inflation by hiking rates at a faster pace.
Final Thoughts

The meeting minutes, particularly the part about a rate hike “fairly soon,” actually improved rate hike odds, according to the CME Group’s Fedwatch Tool.
Odds for a March rate hike, for example, climbed from 17.7% to 22.1%. By the way, for the newbies out there who have no idea how to read the CME Group’s FedWatch Tool, or have no idea what’s it all about, you can check out my quick primer about it here.

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March FOMC Expectations (As of February 22)

Meanwhile, odds for a May rate hike improved from 45.9% to 52.1%.

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May FOMC Expectations (As of February 22)


Despite the higher rate hike expectations, the Greenback tumbled when the meeting minutes got released.

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The Greenback’s bearish reaction was very likely because of the Fed’s concerns that a further appreciation in the dollar’s exchange rate would pose “downside risks” to both inflation and economic activity. Another likely reason for the bearish reaction is the Fed’s cautious tone with regard to fiscal policy, since that hints that most Fed officials may be unwilling to hike further until and unless The Donald finally fleshes out his fiscal stimulus plans. Although some market analysts also say that the Fed’s message in the FOMC meeting minutes was just not hawkish enough for some market players. But then again, rate hike odds did improve, so I’m not too sure about that.

 

[Andora Andrei]

What drives the Australian dollar?

What drives the Australian dollar?

This is the question that bugs the Reserve Bank of Australia every day in terms of forecasting inflation, understanding the consequences of changes of its cash rate and making decision about foreign exchange market intervention. This question bothers me and you when decide trading AUD/USD currency pair. The question is probably more tangible and vital for the Australians whose purchasing power is heavily dependent on the value of Aussie. We won’t lay bare the secret if we tell you that the exchange rate of AUD/USD engrosses the brightest economic minds for decades.

In this article, we explore the traditional and sophisticated fundamental determinants of the AUD/USD exchange rate, with the focus on the latter ones.

Among the traditional fundamentals determining the exchange rate of the Australian dollar, the following should be mentioned:

Monetary policy measures of the RBA (the change in interest rates, e.g)

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Here we must admit that the RBA’s officials are quite conservative and moderate fellas; they are not used to repetitive interventions in the currency market, neither they are famous for frequent changes in their monetary policy stance.

Interest rate differentials

It is one of the biggest factors affecting AUD/USD. Traders or investors chase for a return on investment. An interest rate is a return on money held in deposit. So long as Australia’s official cash rate (currently 1.5%) stays materially higher than the US Fed’s rate, Australian deposit will be more attractive for investors, and they will buy Australian dollars in order to take advantage of the existent yield differential. And a higher bid for currency pushes its price higher.

Small digression from the topic for your info: trading to collect positive interest rate differentials is called carry trading. Carry traders sell a certain currency with a relatively low interest rate and uses the funds to purchase another currency yielding a higher interest rate. For example, in case of AUD/USD, if you place a buy order, you will be paid on the interest rate differential daily (you will receive an interest rate difference – 0.75%) for as long as you are holding the pair. In contrast, if you place a sell order on AUD/USD, your broker will charge you this rate difference daily until you close your selling position.

Fiscal policy measures, undertaken by the Australian government

Government announcements of the planning fiscal cuts, additional spending.

An introduction of broader tax reforms and other expansionary fiscal policy measures initially leads to the depreciation of the currency. But if the central bank expresses its immediate readiness to raise rate in response to the heightened inflation rates, the announcements of the loosening fiscal policy changes coupled with the bank’s commitment to offset the negative effects of such policies on the inflation and exchange rate of the nation’s currency foster the nominal exchange rate of the given currency.

Current account paucity

The current account includes detail of trade transactions of Australia with its trading partners and reflects the payments made to and from abroad. Deficit balance in the account indicates that Australia spends more than it earns on foreign trade, and it is negative for the exchange rate of AUD. Accordingly, a surplus balance in the account leads to the appreciation of Aussie.

As a rule of thumb, an appreciation of the Aussie means a deterioration of the current account (imports become cheaper, this puts exporters at a disadvantage).

Commodity prices, palmy days in the economic activities of China, India

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A rise in export commodity prices implies higher expected returns for Australian exporters. Commodity prices constitute a great share of Australian export. Higher US dollar-denominated receipts for the exported commodities mean greater demand for AUD pushing the currency upwards. So, to unravel the future path of Aussie you should keep an eye on the iron ore, steel prices, grains. Along this line, the strength of AUD is tied to its exposure to Asian countries and their commodity cycles. A higher demand for commodities in China, India, the busts of their industrial activities push the Aussie higher.

Bond spreads

Government bond yields is an excellent indicator of the overall direction of the country’s interest rates. For example, in case of the US, a rising yield on the 10-year Treasury note is dollar bullish. The same can be said in relation to the Australian government bonds.

The spread of both bond yields can be used to gauge currencies. The general rule is that when the yield spread is widening in favor of a certain currency, this currency appreciates against its counterpart. In simple terms, the currency with the higher bond yield appreciates against the currency of the country with the lower bond yield.

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The Australian dollar is especially strong in times of the high net immigration. It is OK to ask why because sometimes economic logic is really twisted, needs an explanation. A high rate of net immigration tends to fuel domestic demand. And significant upticks in domestic demand make Australian assets more attractive to foreigners. This, in turn, is captured in the interest rate differentials. It’s a very complex logical path as you may notice. And there is another factor – heightened rates of immigration are usually associated with large capital inflows as migrants take capital with them to settle, to purchase a house.

Now, we suggest you turning to more subtle correlations of the range of macroeconomic fundamentals with AUD/USD exchange rate which are often not covered by even topnotch FX market analysts.

The interaction between stock prices and exchange rates

Canadian researchers with the help of the tools of econometric analysis found a positive cointegration relation between the AUD exchange rate and stock prices. In their paper, they sought to test the degree of interaction between stock prices and exchange rate fluctuations in Australia in the period of 2003 – 2006. In this period, the exchange rate of Aussie appreciated by as much as 32%, pretty much the same can be said about the Australian stock prices that rose by two-thirds. With the help of Granger-causality test, researchers proved that there is a positive long-term correlation between the AUD exchange rate and Australian stock market. To reassure ourselves in the existence of this correlation we looked at the following chart and found it!

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XAU/USD and AUD/USD

Researchers from the Western Australian School of Mines and Curtin U investigated long-run relationships between the XAU/USD and AUD/USD exchange rates and found out that there is the intercorrelation, bi-directional causality between these two variables. This means that AUD/USD and XAU/USD tend to mean in the same direction. So, to unravel the future path of Aussie you can glance at the direction of the gold prices.

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[Andora Andrei]

Dutch general election: is there a ‘Nexit’?

Dutch general election: is there a ‘Nexit’?

Needless to remind that 2016 was the year when the anti-establishment phenomena came out of the blue. Investors, traders were reeling in shock after the Brexit referendum, unexpected victory of Donald Trump and the rejection of Italian prime minister Matteo Renzi’s constitutional reform referendum.

The last year turmoil was transmitted to 2017. The next voter thunderbolt might be Geert Wilders – a leader of the far-right Dutch party advocating for the separation with the EU (‘Nexit”), barring the immigrants from Muslim countries and chanting other populist slogans (de-Islamization of the Netherlands, closing all mosques and banning the Koran). The recent opinion polls indicate that right-wing Dutch Freedom Party is topping the charts. Does it mean that the Dutch are on pace away from the real Nexit. We don’t think so. Here is why.

1. Winning the greatest number of seats doesn’t automatically put Mr. Wilders in the prime minister’s seat. No populist PM – no suggestion on the departure from the EU.

Even if the Wilders’s party will obtain the largest number of votes, its path to power could be blocked, since many other parties participating in the election (there 28 of them) have already refused to join a coalition involving PVV (the Dutch Freedom Party). And without their support, Mr. Wilders won’t be able to come to power. According to the constitutional law of the Netherlands, the lower house of Parliament has 150 seats. No party ever won a majority. Therefore, coalition making is an inevitable process. A coalition needs at least 76 seats in the Parliament to pass a bill, to get its policy proposals through. There is no way that Mr. Wilders manages to gather support of his political counterparts.

2. The majority of Dutch people doesn’t support the Nexit, according to the polls. They don’t want to leave the EU.

The first stage of leaving the EU – to hold a consultative referendum. As the majority of Dutch is opposed to Nexit. The referendum is poised to fail.

3. The composition of the Dutch Parliament is too complex to reach consensus on the Nexit issue.

Even if Dutch citizens vote in favor of leaving the EU, the Nexit can be ruled out. As the second stage of the Nexit process is getting parliamentary approval. But it seems, that parliament would unlikely give its approval of such bill because of its composition (too many parties having different views on the issue at stake). In addition, according to the country’s law, the result of the referendum is not binding on the ruling bodies. So, the members of the parliament are not officially obliged to fulfill the wish of their citizens expressed through the referendum.

 

[Andora Andrei]

Trade Review: GBP/NZD Falling Trendline Retest

Trade Review: GBP/NZD Falling Trendline Retest

Since putting on my short position a couple of weeks ago, my fundamental bias & the technical picture has changed enough to close out. Here’s a quick forex trade review.

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Fundamentally, the United Kingdom has mostly been firing on all cylinders with recent positive economic reads, including expansionary business conditions sentiment, a three year trend lower in unemployment claims, and an accelerated rise in year-over-year inflation reads. Of course, not all is perfect, but if it not were for the Brexit situation, an argument could be made for an interest rate hike from the Bank of England. In this situation, I don’t want to short the British pound, even against a strong Kiwi with a lot of positive sentiment coming from New Zealand.

Technically, the pair hasn’t really gone anywhere in the last two weeks, trading in between 1.7200 to just below 1.7500, but the picture has changed in that the falling trendline I drew before is now invalidated and we can see a rising triangle forming. Support seems to be strong around 1.7250 lately, and we could see another attempt at 1.7500.

With both the fundies and technicals changing, I’ve decided to close out the trade manually at 1.7354, fortunately for a tiny gain:

Total: +23 pips / +0.03% on 0.50% risk

With the fundies doing well in the U.K. at the moment, and the likelihood of a Brexit being fully priced in, I think I’ll turn on my radar for potential Sterling long plays. But with the dark cloud of Brexit looming, I’ll keep any British pound trades in my short-term trading portfolio. Stay tuned!

 

[Andora Andrei]

Kiwi Dollar Forecast Remains Intact Despite Some Volatility

Kiwi Dollar Forecast Remains Intact Despite Some Volatility

Key Points:

Long-term forecast remains intact.
Gains should continue next week before reversing sharply.
0.73 handle likely to be a near term maximum.

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We return to the Kiwi Dollar to take a look at how the pair’s medium to long-term forecast is holding up given the rather torrid week that has been. Luckily, the NZD seems to be behaving itself despite running into another zone of resistance which could threaten the overall forecast.
Specifically, whilst the pair is ranging between the two trend lines and forming the Gartley pattern, it seems to have run into opposition around the 0.7247 mark. This isn’t too much of a surprise given that this has proven to be a sticking point before which has capped bullish momentum and even encouraged reversals. Moreover, it rests approximately in line with the 23.6% Fibonacci level.
Fortunately, it looks as though we are going to see the push to point ‘C’ take place anyway as a number of other technical readings are hinting that bullish momentum remains in place. Firstly, we can see that the 12 and 20 day moving averages are moving to perform a crossover which would typically indicate further bullishness is on the way.
In addition to this, the Parabolic SAR is on the verge of having an inversion which could indicate that the uptrend is going to complete in the near-term. This would seem to be supported by the MACD oscillator which should have a signal line crossover in the near-term, compounding bullish sentiment. Moreover, the presence of a double bottom will be getting the bulls riled up as we speak.
However, despite these apparent upsides, we shouldn’t get carried away as the descending trend line will be keeping things in check. Furthermore, the stochastics are moving out of oversold territory which will be severely limiting the likelihood of a breakout from the pennant structure. As a result, we still expect to see the Gartley pattern retrace which should enter its final leg within a week or two.
Ultimately, the long-term forecast we discussed last week largely hinges on point ‘C’ being reached which makes this current resistance level fairly important. However, as discussed, there doesn’t seem to be much in the way of technical opposition to the push higher and it’s going to be a fairly quiet day on the news front which should prevent any upsets. This being said, keep an eye on the news feed as weaker US results could actually see the move back to the trend line occur faster than currently forecasted.

 

[Andora Andrei]

Gold Surges To Major $1250 Resistance As Uncertainty Prevails

Gold Surges To Major $1250 Resistance As Uncertainty Prevails

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Gold surged Thursday on a breakout of its previous consolidation to hit and slightly exceed major technical resistance at $1250, a level not seen since early November.
Wednesday's release of minutes from the last FOMC meeting on January 31 – February 1 struck a slightly more hawkish tone as Fed members discussed the appropriateness of another rate hike 'fairly soon.' At the same time, however, concerns over the risks and uncertainties surrounding the Trump Administration's fiscal stimulus plans as well as a strengthening US dollar tempered that hawkish stance. In the end, markets were once again left with continued ambiguity regarding the pace of monetary policy tightening in the coming months. Indeed, the Fed Fund futures market still saw a low percentage probability of a March rate hike – in the high-teens to low-20's – a day after release of the FOMC minutes. This sustained policy uncertainty helped weigh on the dollar while boosting the price of gold further.
Despite the virtually unrelenting rally in US and global equity markets, geopolitical risks continue to abound, particularly in Europe. Article 50, which officially begins the process of separation between the UK and European Union ('Brexit'), is slated to be triggered no later than in March. A former European Commission official has recently stated that the triggering of Article 50 could lead to a 'complete breakdown' of UK/EU relations.
Additionally, France's far-right, anti-EU presidential candidate, Marine Le Pen, is leading in polls for the first round of the upcoming French elections. Although she is not currently favored to win against frontrunner Emmanuel Macron, any surprise victory by the populist/nationalist Le Pen will undoubtedly lead to serious questions about the future of the EU.
Amid these uncertainties in Europe as well as those in the US under the Trump Administration's still-hazy policy trajectory and the Fed's murky monetary policy, gold has continued to extend its sharp uptrend that began after price bottomed out around the $1125 support area in late December.
Having hit the $1250 level on Thursday, the price of gold has reached a critical technical juncture. This level also represents the 50% retracement of last year's July-December downtrend. A strong breakout above this resistance on increasing global uncertainty could open the way towards a medium-term target around the key $1300 resistance area. However, any clear turn-down from around the current levels would highlight the strength of the current resistance, potentially leading to a short-term pullback to the $1220 support level.

 

[Andora Andrei]

Forex - USD/CAD drops on U.S. data, climbing oil prices

Forex - USD/CAD drops on U.S. data, climbing oil prices

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The U.S. dollar dropped against its Canadian counterpart on Thursday, after the release of disappointing U.S. jobless claims data and as rising oil prices lent support to the commodity-related Canadian currency.

USD/CAD hit 1.3102 during early U.S. trade, the pair’s lowest since Tuesday; the pair subsequently consolidated at 1.3102, retreating 0.49%.

The pair was likely to find support at 1.3072, the low of February 20 and resistance at 1.3211, Wednesday’s high.

The U.S. Department of Labor said initial jobless claims increased by 6,000 to 244,000 in the week ending February 18 from the previous week’s revised total of 238,000. Analysts had expected jobless claims to rise by 2,000 to 241,000 last week.

Late Wednesday, the minutes of the Fed’s January policy meeting showed that policymakers thought it may be appropriate to raise interest rates again "fairly soon."

However, the minutes also revealed the central bank’s uncertainty over the lack of clarity of the Trump administration's economic program, which limited the greenback’s gains.

The minutes came after Fed Chair Janet Yellen said last week that a rate increase would be appropriate at one of the Fed’s forthcoming meetings.

Meanwhile, the Canadian dollar was boosted by a surge in oil prices to seven-week highs on Thursday, after data overnight showed a surprise drop in U.S. crude supplies

The loonie was higher against the euro, with EUR/CAD shedding 0.32% to 1.3853.

 

[Andora Andrei]

Forex - Dollar almost unchanged after Fed minutes, data ahead

Forex - Dollar almost unchanged after Fed minutes, data ahead

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The dollar was almost unchanged other major currencies on Thursday, as the minutes of the Federal Reserve’s most recent policy meeting failed to deliver a clear message on the pace of future rate hikes.

EUR/USD eased 0.09% to 1.0547, off the previous session’s six-week low of 1.0492.

Late Wednesday, the minutes of the Fed’s January policy meeting showed that policymakers thought it may be appropriate to raise interest rates again "fairly soon."

However, the minutes also revealed the central bank’s uncertainty over the lack of clarity of the Trump administration's economic program, which limited the greenback’s gains.

The minutes came after Fed Chair Janet Yellen said last week that a rate increase would be appropriate at one of the Fed’s forthcoming meetings.

Elsewhere, GBP/USD edged up 0.10% to 1.2470.

USD/JPY slipped 0.11% to 113.18, while USD/CHF held steady at 1.0107.

The Australian dollar was weaker, with AUD/USD down 0.17% at 0.7692, while NZD/USD rose 0.21% to 0.7204.

The Australian Bureau of Statistics earlier reported that private capital expenditure fell 2.1% in the fourth quarter, compared to expectations for a 0.5% slip. Private capital expenditure declined 3.3% in the third quarter of 2016, whose figure was revised from a previously estimated 4.0% drop.

Meanwhile, USD/CAD edged down 0.17% to trade at 1.3143, off Wednesday’s two-week high of 1.3211.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was little changed 101.35, off the previous session’s one-week high of 101.72.

 

[Andora Andrei]

Forex - Dollar little changed after slightly dovish Fed minutes

Forex - Dollar little changed after slightly dovish Fed minutes

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The dollar was little changed against a basket of the other major currencies on Thursday in the wake of relatively dovish Federal Reserve minutes and remarks by U.S. Treasury Secretary Steven Mnuchin.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 101.32 at 09.04 GMT.

The index moved in a range of a one-week high of 101.72 and a low of 101.16 on Wednesday.

The dollar initially rose after Wednesday’s minutes of the Fed’s February meeting said it may be appropriate to raise rates again "fairly soon" if jobs and inflation data continues in line with current expectations.

But the minutes also noted uncertainty over a lack of clarity on President Donald Trump's economic policies and pointed to the risks to the growth outlook from the stronger dollar.

Expectations for a March rate hike had mounted after Fed Chair Janet Yellen said last week that a rate increase would be appropriate at one of the forthcoming meetings.

The dollar received an additional boost overnight after U.S. Treasury Secretary Mnuchin praised the currency's strength as a reflection of confidence in the economy and a "good thing" in the long run.

The dollar dipped against the yen, with USD/JPY easing 0.13% to 113.16, off an overnight high of 113.45.

The euro was steady, with EUR/USD at 1.0554, off the six-week lows of 1.0492 set on Wednesday.

The euro found some support on Wednesday as fears over the outcome of France’s presidential election eased after French centrist politician Francois Bayrou said he would not run and instead pledged to support independent candidate Emmanuel Macron.

If Bayrou had run he would likely have taken some support from Macron and increased the chances of anti-European Union Marine Le Pen winning the presidency.

Investors’ fears that a victory for far-right Le Pen, who is the front runner to win the first round vote, could potentially trigger the country’s exit from the euro area.

Sterling was almost unchanged against the dollar, with GBP/USD at 1.2461.

Meanwhile, the Australian dollar was slightly weaker, with AUD/USD slipping 0.12% to 0.7692 after domestic data pointing to a faster than expected slowdown in capital spending in the fourth quarter.

 

[Andora Andrei]

Forex - Aussie edges lower, kiwi gains ground vs. greenback

Forex - Aussie edges lower, kiwi gains ground vs. greenback

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The Australian dollar edged lower against its U.S. counterpart on Thursday, after the release of downbeat Australian data, while the New Zealand dollar moved higher after the minuntes of the Federal Reserve’s latest policy meeting.

AUD/USD eased 0.09% to 0.7694.

The Australian Bureau of Statistics earlier reported that private capital expenditure fell 2.1% in the fourth quarter, compared to expectations for a 0.5% slip. Private capital expenditure declined 3.3% in the third quarter of 2016, whose figure was revised from a previously estimated 4.0% drop.

NZD/USD added 0.19% to trade at 0.7204, the highest since February 20.

Late Wednesday, the minutes of the Fed’s January policy meeting showed that policymakers thought it may be appropriate to raise interest rates again "fairly soon."

However, the minutes also revealed the central bank’s uncertainty over the lack of clarity of the Trump administration's economic program, which limited the greenback’s gains.

The minutes came after Fed Chair Janet Yellen said last week that a rate increase would be appropriate at one of the Fed’s forthcoming meetings.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was steady at 101.38, off the previous session’s one-week high of 101.72.

 

[Andora Andrei]

Forex - Euro off day’s lows as French election fears ease

Forex - Euro off day’s lows as French election fears ease

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The euro backed away from six-week lows against the dollar on Wednesday as fears over the outcome of France’s presidential election eased after French centrist politician Francois Bayrou said he would not run.

EUR/USD was at 1.0530 at 10.55 ET after falling to lows of 1.0494 earlier, the weakest level since January 11.

Bayrou said in a press conference that he would not run for election and instead pledged to support independent candidate Emmanuel Macron.

If Bayrou had run he would likely have reduced support for Macron and increased the chances of anti-European Union Marine Le Pen winning the presidency.

Investors’ fears that a victory for far-right Le Pen, who is the front runner to win the first round vote, could potentially trigger the country’s exit from the euro area.

The euro also pared back losses against the yen and the pound, with EUR/JPY last at 119.43, off earlier lows of 118.63, the weakest level since November 29.

EUR/GBP was up 0.12% to 0.8459 after falling to a low of 0.8403 earlier, the lowest level since December 21.

Demand for the dollar continued to be underpinned as investors awaited the minutes of this month’s Federal Reserve policy meeting, due to be published later Wednesday, for fresh signals on the expected pace of rate hikes.

The Fed last raised interest rates in December and has indicated that it could hike rates three times this year.

According to Investing.com's Fed Rate Monitor Tool around 22% of traders expect the Fed to raise interest rates at its next meeting in March. The chance of a May increase was seen at around 50%, while June odds were at 73%.

Meanwhile, U.S. data on Wednesday showed that existing home sales jumped to a 10-year high in January.

The National Association of Realtors said home resales climbed 3.3% to a seasonally adjusted annual rate of 5.69 million units last month. That was the highest level since February 2007.

 

[Andora Andrei]

RBS Plans to Cut $2.5 Billion of Costs After Ninth Straight Loss

RBS Plans to Cut $2.5 Billion of Costs After Ninth Straight Loss

Royal Bank of Scotland Group Plc, Britain’s largest taxpayer-owned bank, laid out a plan to cut costs by 2 billion pounds ($2.5 billion) over the next four years as it posted its ninth straight annual loss.

The net loss widened to 6.96 billion pounds in 2016 from 1.98 billion pounds a year earlier, the Edinburgh-based lender said in a statement on Friday. Excluding conduct charges and restructuring costs, operating profit was 3.67 billion pounds, topping the 3.1 billion-pound average estimate of seven analysts compiled by Bloomberg News.
Chief Executive Officer Ross McEwan remains mired in past scandals almost a decade after RBS required a 45.5 billion-pound bailout from U.K. taxpayers, as he battles to draw a line under surging charges tied to regulatory probes and the aborted sale of the bank’s Williams & Glyn consumer unit. RBS has now accumulated more than 58 billion pounds of losses since 2009.

“The bottom line loss we have reported today is, of course, disappointing,” McEwan said in an e-mailed statement. “These costs are a stark reminder of what happens to a bank when things go wrong and you lose focus on the customer, as this bank did before the financial crisis.”

It was a foregone conclusion that RBS would post its third-largest loss in the past decade, after it set aside 3.8 billion pounds in recent weeks for a U.S. investigation into the sale of mortgage-backed securities, while pledging to pay to boost competitors in the U.K. commercial banking market to meet European Union demands tied to its bailout.

Fore more on RBS’s plans to scrap the sale of Williams & Glyn, click here

McEwan is pushing to eliminate operating expenses as he shrinks RBS, a one-time global titan, to a domestic retail and commercial lender. He’s redoubling his efforts after his plan to lower the bank’s cost-to-income ratio, a key measure of profitability, to below 50 percent by 2020 was blown off-course after the Bank of England cut interest rates last year.

The firm’s core Tier 1 capital ratio, a measure of financial strength, fell to 13.4 percent from 15 percent at the end of September. While McEwan has previously pledged to return capital to investors through dividends or share buybacks above 13 percent, he’s also said he needs to return the lender to profitability, pass stress tests from the Bank of England, close its U.S. mortgage securities probes and reach a deal with the EU over Williams & Glyn.

 

[Andora Andrei]

China's New Banking Regulator Chief Faces Daunting Challenges

China's New Banking Regulator Chief Faces Daunting Challenges

Rise in shadow banking and bad loans are among risks
Guo Shuqing said to head China Banking Regulatory Commission
China has appointed Guo Shuqing as the new head of the banking regulator, according to people familiar with the matter. Having spent much of his life working on transforming the nation’s financial system, Guo, 60, faces daunting tasks ahead as he takes on oversight of the world’s largest banking industry by assets. Below are five charts highlighting some of the biggest issues.
1. Shadow Banking
Shadow banking is now in every segment of China’s financial system, prompting authorities to work together to address growing risks. The central bank and the securities, banking and insurance regulators are drafting new rules for asset-management products that have swollen to almost $9 trillion as of June 30. So-called wealth-management products issued by banks surged 30 percent last year, making them the largest component of the banking system that exists largely outside of lenders’ balance sheets.

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2. Bad Loans

China’s economy is growing at the slowest pace in a quarter century, adding urgency to the banks to clean up bad loans. Official figures on soured debts are widely believed to understate the true scale of the problem, with CLSA Ltd. estimating the non-performing loan ratio at 15 percent to 19 percent for 2015 -- about 10 times higher than the official 1.67 percent.

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[Andora Andrei]

May's Tories Score Historic U.K. Election Win Over Labour

May's Tories Score Historic U.K. Election Win Over Labour

First governing-party gain in special election for 35 years
Victorious Conservative lays defeat at Labour leader’s door

U.K. Prime Minister Theresa May demonstrated her dominance of Britain’s political landscape in a special election that saw her Conservative Party make a historic gain, taking a seat from the opposition Labour Party.

The Tories won Copeland, in northwest England, with 44 percent of the vote. May’s Conservatives won the district for the first time since its creation in 1983 -- an achievement all the more remarkable because it’s exceptionally rare for British governing parties to gain seats in such special elections.

The last prime minister to make a special election gain was Margaret Thatcher in 1982. But that Tory win in South London followed a Labour split and the defection of the sitting lawmaker. Matt Singh, of the NumberCruncherPolitics blog, said historians had to go back to 1878 to find a comparable upset.

While May will be happy to take credit for the success, the winning candidate, Trudy Harrison, attributed it to Labour leader Jeremy Corbyn. Still, Corbyn will take comfort from the result of another election in Stoke-on-Trent Central yesterday, where his party saw off a challenge from the pro-Brexit U.K. Independence Party to hold the seat.
‘Truly Historic’

“What has happened here tonight is a truly historic event,” Harrison said in her victory speech. “It’s been very clear talking to people throughout this campaign that Jeremy Corbyn doesn’t represent them. They want a party which is on the side of ordinary working people.”

Labour had fought the campaign arguing that it was best placed to protect a local hospital. The Tories argued that Corbyn was hostile to nuclear power, a large source of local jobs.

“The Copeland vote had two very important local issues -- nuclear power and National Health Service reorganization -- the first of which worked against a Corbyn-led Labour and the other in favor,” said Colin Talbot, professor of politics at Manchester University. “The former proved more important.”
Holding Stoke

Labour earlier in the night held the district of Stoke-on-Trent Central, beating UKIP’s new leader, Paul Nuttall. UKIP had hoped to do well in a seat that voted strongly to leave the European Union, and to exploit Corbyn’s weakness to show that it was a serious threat to Labour in its working class heartlands.

In that election Labour’s Gareth Snell won with 37 percent of the vote, down slightly from the 2015 general election. Nuttall was second, with 25 percent of the vote, barely ahead of the Conservatives’ 24 percent.

That the special elections were called at all was a blow to Corbyn. Both were the result of the sitting member of parliament deciding to take up a job outside politics, not something that often happens in parties seen as headed for power.

But despite the disastrous result for Corbyn, and a campaign in which Nuttall struggled to cope with the spotlight, both party leaders may be likely to hang on. UKIP is already on its third leader in six months, and unless the former incumbent Nigel Farage can be persuaded to give up his broadcasting career and return, there is no obvious successor.

Corbyn won the Labour leadership with a landslide in 2015, and then easily fought off a leadership challenge last year. His lawmakers passed a vote of no confidence in him, but they may be reluctant to challenge him again unless they’re sure that the minds of ordinary party members have changed.

“They say half a loaf may be better than none but in Labour’s case, I’m not so sure,” said Tim Bale, professor of politics at Queen Mary, University of London. “Only losing one seat rather than two makes it less likely that the party will fully get the message that, unless it somehow contrives to get shot of Corbyn, then it’s heading for disaster at the next general election.”

 

[Andora Andrei]

Junk Bond Manager Beating 98% of Peers Bets on Stressed Debt

Junk Bond Manager Beating 98% of Peers Bets on Stressed Debt

Value Partners high-yield China fund returned 4.9% this year
Premium on global junk notes has fallen to a three-year low

One of the world’s best-performing junk bond funds is dealing with the surging costs of debt globally by digging deeper in the bargain bin.

As the world’s riskiest notes soar to their most expensive levels in three years, Hong Kong-based Value Partners Group Ltd. is looking for value in securities others have avoided. Gordon Ip, who manages the $2.4 billion Value Partners Greater China High-Yield Income Fund, has overseen returns of 4.9 percent this year, beating 98 percent of peers targeting junk debt globally.

“Garbage also has value if you can price it right,” said Ip, head of fixed income at the firm. “If you can buy something for 5 cents and you think it’s worth 15 cents, then you’ve gotten it for one third of its value.”

U.S. President Donald Trump’s surprise election victory spurred a rally in risk assets from stocks to commodities, fueled by hopes that global growth will pick up. The average premium on high-yield securities globally has slid 349 basis points in the last year to a three-year low of 385, according to a Bloomberg Barclays index.

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Ip said that the firm is looking at starting an alternative credit strategy fund to generate better risk-adjusted returns. The market rally has also prompted him to buy riskier, less well-covered names:

Ip’s fund’s second-largest holding was Development Bank of Mongolia LLC’s 5.75 percent bonds due 2017, as of Jan. 27. Ip said the fund bought the government-owned bank’s notes when they were trading in the low 90s; they were last at 101.9 cents.
“Although Development Bank of Mongolia’s credit has been in a dire situation, it has long been our belief that the issuer will be able to repay,” he said. “For a name like Development Bank of Mongolia, we are constantly having daily conversations with the multiple parties involved, sometimes a few times a day.”
The fund’s third-largest holding is Mongolian Mining Corp.’s 8.875 percent notes due 2017, which are in default. The securities have rallied to 61.7 cents from 17.5 cents a year ago.
Ip said he accumulated the notes “on the way down” and his cost is “way below” the current market price.
Treading into distressed territory brings risks. “When you’re in that territory, default is always a possibility,” said Ip.

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At the end of January, 62 percent of his fund was invested in single B rated credits and below, compared with 55 percent and 50 percent in January 2015 and 2014 respectively. In his philosophy, there are no bad bonds, just bad prices.

“We just feel that you have to do something your competitor is not doing, in order to generate alpha,” said Ip, who has over two decades of experience in fixed income. “You’re doing things that fewer people do, take the road less traveled, and then take your punt.”

Ip has cut holdings of China property bonds from more than 50 percent to 46 percent, but is still “constructive” on the sector.
Expects the fund to post mid-to-high single digit returns this year.
Doesn’t like bonds issued by local government financing vehicles in China and said the yields offered by such securities mean it’s not worth the time to do the analysis

 

[Andora Andrei]

Australia Competition Watchdog Seeks Bigger Fines for Breaches

Australia Competition Watchdog Seeks Bigger Fines for Breaches

Small penalties contribute to anti-competitive behavior: Sims
Australian courts showing encouraging signs to lift penalties

Australia’s competition regulator is seeking higher fines to deter corporate wrongdoing, amid concern companies see low penalties as just a cost of doing business and don’t understand the seriousness of their breaches.

Australia’s courts have shown encouraging signs in lifting fines, following decisions against Australia & New Zealand Banking Group Ltd., Macquarie Group Ltd. and Reckitt Benckiser Group Plc., Rod Sims, the chairman of the Australian Competition & Consumer Commission said in a speech in Sydney Friday.

Reckitt Benckiser’s fine for making misleading representations about its Nurofen Specific Pain products was in December lifted to A$6 million ($4.6 million) after the ACCC appealed the original A$1.7 million penalty.

In a separate case, the Federal Court said it would have ordered higher penalties than an
agreed settlement with ANZ Bank and Macquarie.

“The ACCC welcomes the message from these Federal Court judges that we must work to ensure that penalties are sufficiently high to deter large companies from contravening the law,” Sims told a Committee for Economic Development of Australia lunch, according to a transcript of his speech on the regulator’s website.

The regulator will continue to advocate for higher legislated penalties during the Australian Consumer Law review, while making concerted efforts to ensure penalties sought in the courts make businesses and their workers consider their legal obligations, Sims said.

The push has potential ramifications in cases against Kimberly-Clark Corp. and Pental Ltd., Volkswagen AG, Kraft Heinz Co. and Medibank Private Ltd. that are currently before the courts.

 

[Andora Andrei]

South Koreans Cut Spending as Household Income Growth Slows

South Koreans Cut Spending as Household Income Growth Slows

South Korean household income grew at the slowest pace on record last year and spending fell for the first time, underscoring the challenge facing policy makers as they try to ignite a sluggish economy.

Households’ average monthly income increased 0.6 percent in 2016 from the previous year to 4.4 million won ($3,884), the smallest gain since the statistics office began compiling the data in 2003. Consumption expenditure dropped 0.5 percent, with larger drops seen in transportation and clothing expenses, data from the statistics office showed on Friday.
The weakness in household income reflects slowing growth amid a political scandal that has led to the impeachment of President Park Geun-hye. The situation worsened in the fourth quarter, when the scandal erupted, with income growth slipping to 0.2 percent from a year earlier and spending falling 3.2 percent. Korea’s economy expanded 0.4 percent in the fourth quarter from the previous quarter, the slowest pace in more than a year.

While exports are faring better than expected as the global economy strengthens, consumption is falling short of forecasts and sentiment remains poor, the Bank of Korea said on Thursday. The central bank sees the economy growing 2.5 percent this year, the slowest pace since 2012.

Read more: Bank of Korea Holds Key Rate as Exports, Inflation Improve

The tepid income growth last year was due to “job growth slowing on a delay in the economic recovery and corporate restructuring,” the finance ministry said in a separate statement on Friday.

Household spending as a percentage of disposable income, excluding items like taxes and pensions, fell to 71.1 percent, also the lowest on record going back to 2003.

“Spending is typically large for households with children, and the low birth rate and aging are factors we see as decreasing consumption,” Kim Bo-kyoung, an official at the statistics office, said in a briefing in Sejong.

 

[Andora Andrei]

China Rapid Finance Said to Target U.S. IPO as Soon as 2017

China Rapid Finance Said to Target U.S. IPO as Soon as 2017

China Rapid Finance, a Shanghai-based peer-to-peer lender, is planning to raise at least $100 million in an initial public offering in the U.S., people familiar with the matter said.

The company, which raised $20 million at a pre-money valuation of $1 billion in November, could hold the IPO as soon as this year, the people said, asking not to be identified because the information is private. The money will be used to fund expansion in China, one of the people said. The company declined to comment in an e-mailed statement.

China Rapid Finance is one of the largest players in a domestic online lending industry that’s exploded in recent years, as a growing middle class seeks a better return on investments beyond what state banks offer. Despite seeing a shakeout last year, transactions in the sector are expected to reach 3.7 trillion yuan ($539 billion) by 2019, according to Shanghai-based consultancy iResearch.

Founded by Zane Wang in 2001, China Rapid Finance competes with Lufax, formally known as Shanghai Lujiazui International Financial Asset Exchange Co., a company that’s also marching toward a a potential IPO. China Rapid Finance serviced 1 million borrowers and handled 8.8 million loans as of the end of October, it said in an e-mailed statement in November.

The company’s November raising included an investment from China United SME Guarantee Corp.

China’s peer-to-peer lending industry brokered 982 billion yuan of loans in 2015, almost quadruple the amount in 2014 and an approximately 10-fold increase from 2013, according to consultancy Yingcan. The proliferation of online lenders has however attracted scrutiny from regulators concerned about defaults and possible fraud.

In 2015, the country’s biggest Ponzi scheme was exposed after Internet lender Ezubo allegedly defrauded more than 900,000 people out of the equivalent of $7.6 billion. The government has since imposed limits on lending by peer-to-peer platforms to individuals and companies in an effort to curb risks.