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ECB To Turn On The Dollar



By Dean Popplewell

Monday July 17: Five things the markets are talking about

The markets focus this week shift away from Yellen’s testimony and disappointing US data to the ECB meeting (Thursday, July 21), which is expected to result in a further modest adjustment in its risk assessment.

Last week, the Fed chief seemed to hint that she was starting to second-guess whether the recent softness in inflation was just due to ‘transitory’ factors.

Friday’s disappointing US CPI and retail sales prints again provides the Fed a mixed picture that is likely to leave the Fed cautious, and it is little wonder markets have lowered the odds of further rate hikes this year (40% for a Dec. hike). Will it delay the start of the Fed’s balance sheet normalization as well?

The market will be looking for signs that the ECB (July 20, 07:45 am EDT) will follow the Fed and begin to curtail its stimulus. No change is expected from the Bank of Japan either early Thursday (July 19).

Elsewhere this week, in Canada, traders will be looking for strength from the consumer in May retail sales data Friday. Australia’s RBA on Tuesday will release minutes of its July 4 gathering and labor market data is due Thursday. In the UK, round two of Brexit talks get underway in Brussels today.

1. Stocks mixed results

Fed Chair Yellen’s remarks were interpreted as evidence of continued accommodative monetary policy, and from there, global stocks have record multi-month highs.

Note: Japan was closed for a National holiday.

In Hong Kong, stocks rallied for the sixth consecutive session, closing at fresh two-year highs, with sentiment aided by robust China economic growth data (see below) and signs Chinese money inflows are accelerating. The Hang Seng index rose +0.3%, while the China Enterprises Index gained +0.5%.

In China, the Shanghai Composite Index was down -1.4% amid concerns over the implications of a weekend meeting where President Xi Jinping indicated that the PBoC would play a greater role in defending against risks.

Note: At one point the intraday losses were greater than -5%, but he loses were later reversed when Q2 GDP, June industrial production and retail sales came in strong.

Elsewhere, South Korea’s Kospi rallied +0.4%, while Australia’s S&P/ASX was down -0.2%.

In Europe, most indices have reversed earlier gains trading largely lower across the board with the exception of the FTSE 100. Earnings have been the dominant theme this morning and will be in the US all week.

US stocks are set to open in the red (-0.1%).

Indices: Stoxx50 flat at 3,527, FTSE -0.3% at 7,388, DAX -0.1% at 12,637, CAC-40 -0.1% at 5,240, IBEX-35 +0.2% at 10,677, FTSE MIB flat at 21.531, SMI %+0.2 at 9.026, S&P futures -0.1%

2. Oil higher on US drilling slowdown, gold little changed

Ahead of the US open, oil is better bid as a slowdown in the growth of US rigs drilling have eased concern that surging shale supplies will undermine OPEC-led cuts.

Note: Friday’s Baker Hughes report showed that US drillers added two oilrigs in the week to July 14, bringing the total to 765 – rig additions over the past month averaged five, the lowest total in nine-months.

Brent crude is up +19c at +$49.10 a barrel, while US crude (WTI) is trading at +$46.71, up +17c.

Note: Oil prices continue to trade at half their mid-2014 level because of a persistent glut even after the OPEC, plus Russia started a supply-cutting pact seven months ago.

Also providing support is US crude oil inventories in the week to July 7 dropped the most in ten-months – is market rebalancing under way?

Gold prices (+0.2% to +$1,230.43 per ounce) inches up as prospects for slower US rate hikes weigh on the dollar.

3. Yields wait on Central Banks

What to expect from the European Central Bank (ECB) and Bank of Japan (BoJ)?

The market consensus does not believe that the ECB will provide any hints of policy tightening on Thursday.

Many believe that the ECB is still worried about the “mini taper tantrum” following ECB President Draghi’s speech in late June which resulted in a sharp move in yields (bund 10-years went from -0.25% to +0.58%) and a rapid appreciation of the EUR (€1.1186-€1.1442).

Forward guidance of its exit strategy is expected at the September policy meeting.

The Bank of Japan (BoJ) is expected to stand pat, proceeding with yield control policy.

4. Dollar nurses losses

The ‘mighty’ dollar continues to flounder atop of its 10-month lows vs. G10 currency pairs as investors cheer upbeat Chinese data (see below) by piling into leveraged positions such as the AUD (A$0.7817), CAD (C$1.2662) and other high-yielding currencies.

UK’s Brexit Minister Davis is in Brussels for the first full round of Brexit talks. GBP/USD is holding below the psychological £1.31 level, down -0.3% at £1.3066. The pound had been firmer in recent sessions as U.K government was seen as being more seen flexible on immigration aspects in talks.

The EUR/USD is a tad lower ahead of the US open at €1.1450 as eurozone inflation data this morning (see below) keeps the argument for a steady ECB policy this week.

5. China data robust, Euro reports as expected

Data overnight saw China’s Q2 GDP topping forecasts with a rise of +6.9% on the year (vs. +6.5% 2017 target), while retail sale (+11% vs. +10.6%) and industrial output (+7.6% vs. +6.5%) were both strong.

Also China’s President Xi indicated that the PBoC would play a stronger role in defending against risks. Prudent monetary policy should be firmly implemented and the PBOC should take a stronger macro-prudential policy role.

In Europe, June’s Final CPI (+1.3%, y/y) was unrevised and below the target for the third consecutive month ahead of Thursday’s ECB meeting.

Forex heatmap

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.


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USD/CAD flirting with lows, around mid-1.2700s



   •  Extends overnight retracement on renewed USD weakness.
   •  Surging crude oil prices aggravating selling pressure.
   •  US durable goods/FOMC minutes eyed for fresh impetus.

The USD/CAD pair extended overnight retracement from 2-1/2 week tops and is currently placed at the lower end of its weekly trading range, around mid-1.2700s.

On Tuesday, the pair touched an intraday high level of 1.2837 but failed to build on the up-move amid some renewed US Dollar selling pressure. Traders even shrugged off an unexpected decline in the Canadian wholesale sales and better-than-expected existing home sales data from the US, with sliding US Treasury bond yields prompting some fresh US selling.

With the greenback holding weaker, a strong rally in crude oil prices underpinned the commodity-linked currency – Loonie and continued weighing on the major for the second consecutive session on Wednesday. Oil prices rose sharply on Canadian pipeline disruption to the United States, which added to the positive news of a fall in the US crude oil inventories and prolonged OPEC-led production cut. 

Later during the NA session, the US economic docket, featuring the release of durable goods orders and weekly crude oil inventories, would now be looked upon for some immediate respite for the USD bulls. The focus, however, would be on the FOMC meeting minutes, which would drive the buck in the near-term and provide some fresh directional impetus. 

Technical levels to watch

A follow-through weakness below mid-1.2700s is likely to get extended towards the 1.2700 handle before the pair eventually drops to test 1.2670-60 strong horizontal support.

On the upside, 1.2770-75 area now seems to act as an immediate resistance, above which the pair is likely to move past the 1.2800 handle and retest 1.2835 supply zone. 

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iFOREX Daily Analysis : November 01,2017



iFOREX Daily Analysis : November 01,2017

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