EUR/USD daily chart
EUR/USD 4-hour chart
EUR/USD 30-minute chart
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“The New York Fed Staff Nowcast stands at 1.3% for 2019:Q1 and 1.7% for 2019:Q2,” the Federal Reserve Bank of New York reported on Friday.
“News from this week’s data releases decreased the nowcast for 2019:Q1 by 0.1 percentage point and increased the nowcast for 2019:Q2 by 0.2 percentage point.”
“A positive surprise from the Philadelphia Fed manufacturing survey drove most of the increase for 2019:Q2, while higher-than-expected inventories accounted for most of the decline for 2019:Q1.”
USD/JPY daily chart
USD/JPY 4-hour chart
USD/JPY 30-minute chart
Additional key levels
“The Turkish lira sustained heavy losses plunging more than 3% against the US dollar (at one stage it was trading 5% lower) and 2.2% versus the euro extending its year-to-date losses to 6.3% and 4.8% respectively,” Rabobank’s EM FX strategist Piotr Matys said.
“Within a few hours since the sell-off started the CBRT responded by suspending one-week repo auctions for an unspecified period due to “the developments in financial markets.” On previous occasions the central bank was relatively slow to implement measures that would slow down lira’s depreciation. This made it even more difficult to regain control when the slump accelerated.”
“The sharp squeeze in USD/TRY should be a major warning signal for the administration to make progress in implementing urgently required structural reforms without further delay after the municipal elections.”
“Comments from Treasury and Finance Minister Albayrak imply the pace of structural reforms will accelerate starting from April. That said, Turkey could be tempted to use a much easier path to shorten the period of a recession by announcing fiscal measures to stimulate growth. The central bank could be under pressure to ease the burden on the economy by lowering interest rates. A response from the administration will be critical and it could depend on the outcome of local elections as we will describe in details in our next report.”
The USD/CAD pair built on Thursday’s gains and advanced to its highest level since March 11 at 1.3427. With the trading action turning subdued in the last couple of hours, the pair started to move sideways in the upper half of its daily range and was last seen adding around 0.4% on the day at 1.3415. On a weekly basis, the pair is up nearly 100 pips.
Earlier today, the data published by Statistics Canada showed that inflation, as measured by the consumer price index (CPI), rose 1.5% on a yearly basis in February to beat the market expectation of 1.4%. Other data revealed that retail sales declined by 0.3% on a monthly basis in January to fall short of the analysts’ estimate for an increase of 0.4%.
Meanwhile, the US T-bond yield curve inversion and disappointing economic data releases from Germany elevated fears of an economic slowdown and weighed on risk-sensitive crude oil prices to put additional weight on the commodity-related loonie’s shoulders. At the moment, the barrel of West Texas Intermediate is losing 1.45% on the day at $59.
On the other hand, with the greenback taking advantage of the risk-averse atmosphere and ignoring the weak Markit PMI data from the U.S., the US Dollar Index extended its rebound and turned positive for the week near 96.70 to support the pair’s daily rally.
Technical levels to consider
Today Eurozone PMI reports triggered fears about a recession. According to analysts at Wells Fargo, the manufacturing has weakened considerably, but services (more relevant) have been more resilient. However, they find it hard to get excited about European prospects.
“Fears of a Eurozone recession are back in the headlines today after a series of disappointing PMI figures from the currency bloc. The March manufacturing PMI declined more than expected to 47.6, the lowest level since 2013.”
“The continued decline in the manufacturing PMI in the first three months of 2019 suggest the weakness in the hard data for the sector probably persisted in the first quarter. Fortunately, the Eurozone economy is primarily based on services, which account for roughly 75% of total value added in the economy, rather than manufacturing, which accounts for less than 20%. The services PMI for the overall Eurozone economy has been more resilient in recent months, recovering to 52.8 in February and edging only slightly lower in March to 52.7.”
“We find it hard to get excited about European economic prospects. Despite its relative resilience, the services PMI still remains low at just 52.7, while the composite PMI at 51.3 is consistent with GDP growth of just over 0.1% quarter-over-quarter.”
“Our lack of enthusiasm for the Eurozone economy extends to the euro, as we currently look for the euro to remain essentially flat-line over the next few months. We still look for some modest euro gains by year-end and into 2020, but that view is predicated on the Eurozone economy avoiding recession and the European Central Bank eventually normalizing interest rates.”
AUD/USD daily chart
AUD/USD 4-hour chart
Additional key levels
According to analysts from Danske Bank, the US PCE core inflation is expected to remain at 1.9% (annual), below the Federal Reserve 2% target.
“In the US, PCE core inflation numbers for January are released on Friday. Based on the CPI index, we expect PCE core rose 0.2% m/m (unchanged at 1.9% y/y) which is just below the Fed’s 2% target. Moreover, private consumption growth for Q4 is also to be released next week (Thursday).”
“The coming week also brings housing market numbers for February on Thursday. Recently, the housing market has started to show a bit weakness especially home sales numbers, which we expect is driven by higher mortgage rates. However, housing market data are quite volatile – we will continue to monitor the housing market.”
“Next week also sees speeches from several FOMC members. The speeches are going to fade into the background for some time, as the Fed has clearly signalled it is on hold for the rest of the year.”
The Justice Department official said on Friday that the special counsel had submitted a report of his findings to Attorney General William Barr.
Barr and his team will now begin the process of reviewing the report and creating a summary document that will be sent to Congress and perhaps publicly released next week?
In a one-page letter sent to congressional leaders, posted below, Barr said he may be able to advise lawmakers of Mueller’s “principal conclusions” as soon as this weekend, which DOJ expects to release to the public:
USD/CHF daily chart
USD/CHF 4-hour chart
USD/CHF 30-minute chart
Additional key levels
Sacha Tihanyi, Deputy Head of Emerging Markets Strategy at TDS, explains that the Mexican peso has been a top performer supported by carry and a compression in volatility across Emerging Markert, and warns positioning now appears to be skewed long MXN at record levels, which leaves the peso open to a squeeze from not only Mexico-specific factors, but global macro factors.
“MXN (and many Latam currencies, save for BRL) has been a top market favourite since the start of the year. If measured back to the start of December, when the market began to rapidly price out any Fed hikes for 2019, MXN is by far the best performing currency globally (EM or otherwise). Unsurprisingly the move in spot also coincided with the beginning of a substantial move into MXN longs amongst the investment community, if we take the CFTC non-commercial positioning data as a general proxy for investor behaviour. The general market features of high yield and collapsing volatility, along with a failure to see Mexican portfolio inflows maintain the substantial inflows of January, suggest that MXN buying has likely not been driven by Mexico-specific fundamental factors, but by the broad and substantial move into EM in January, on the back of financial factors.”
“Net-long speculative MXN positioning has hit its highest level since the Taper Tantrum, thanks to a collapse in gross shorts (that were only beginning to become more bold, until USDMXN collapsed towards 19.00 this week and washed them out). However, the main driver since the December rally has been the explosion in long positioning, with gross longs now standing at their highest level on record.”
“With positioning becoming so highly skewed, in the face of deteriorating fundamentals in Mexico and still well established political risk / fiscal regime uncertainty, MXN relies purely on a continuation in compressing vol and high carry. We expect the latter to be maintained for the duration of this year, but (in our view) it is not enough to offset any (currently unpredictable) politically-sourced shock, or sufficient to insulate the peso from its most skewed long positioning on record.”
“Furthermore, and this is the crucial point, should we not continue to see compression in EM vol, and divergence between broad USD direction and EM FX vol direction, MXN becomes increasingly subject (and sensitive) to external non-Mexico specific shocks. Thus less of a vol spike will be required to wreak havoc with long MXN positions.”