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FX Markets Look to US Retail Sales, UK & Japanese CPI, BOC, & More

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Talking Points:

– The first half of the week features March US Retail Sales, Q1’18 Chinese GDP, March UK CPI, and the Bank of Canada rate decision.

– Thursday and Friday will see Q1’18 New Zealand CPI, the March Australian labor market report, March Japanese CPI, and March Canadian CPI.

Retail trader positioning has little consistency in bias across USD-pairs.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

04/16 Monday | 12:30 GMT | USD Advance Retail Sales (MAR)

Consumption is the most important part of the US economy, generating nearly 70% of the headline GDP figure. The best monthly insight we have into consumption trends in the US might arguably be the Advance Retail Sales report. In March, according to a Bloomberg News survey, consumption rebounded with the headline Advance Retail Sales due in at +0.4% from -0.1% (m/m). The Retail Sales Control Group, the input used to calculate GDP, is due in at +0.3% from +0.1% (m/m).

FX Markets Look to US Retail Sales, UK & Japanese CPI, BOC, & More

Based on the data received thus far about Q1’18, the Atlanta Fed GDPNow forecast is looking for growth at +2%. The next update to the Q1’18 forecast will be released after Monday’s US economic data.

Pairs to Watch: EUR/USD, USD/JPY, DXY Index, Gold

Note: the headline retail sales print beat expectations at +0.6% vs +0.4% expected, but the core reading missed at +0.3% vs +0.4% expected (m/m). The Atlanta Fed GDPNow estimate was revised lower to +1.9% annualized growth for Q1’18 following the data.

04/18 Wednesday | 08:30 GMT | GBP Consumer Price Index (MAR)

Consensus forecasts, according to Bloomberg News, are calling to see inflation having increased by +0.3% from +0.4% (m/m) and at +2.5% unch (y/y). Likewise, Core CPI is expected to have increased to +2.5% from +2.4% (y/y). Given that inflation will remain at high levels as real disposable income remains under pressure, the Tuesday report should give plenty of room for the BOE to maintain its willingness to raises rates again soon; overnight index swaps are currently pricing in greater than an 85% chance of a 25-bps hike by May. The British Pound should remain supported assuming inflation rates remain elevated..

Pairs to Watch: EUR/GBP, GBP/JPY, GBP/USD

04/18 Wednesday | 14:00 GMT | CAD Bank of Canada Rate Decision

The Bank of Canada will leave its main interest rate on hold at 1.50% when it meets this Wednesday, according to economists surveyed by Bloomberg News. While Canadian economic data has been steady – notably inflation and labor market reports that would point to a more hawkish BOC – the overhand of the NAFTA negotiations has unleashed uncertainty over the near-term horizon. Despite seeing odds near 80% at the beginning of February for another 25-bps rate hike in the first half of 2018, rates markets are now pricing in less than a 30% chance of a rate move by the BOC’s May meeting. The BOC will likely wait until the NAFTA negotiations have concluded before moving on rates again.

Pairs to Watch: CAD/JPY, USD/CAD, Crude Oil

04/19 Thursday | 01:30 GMT | AUD Employment Change & Unemployment Rate (MAR)

Australian employment increased by +17.5K in February, and despite labor market data proving stronger in recent months, focus remains elsewhere for traders. With the unemployment rate due to decline 5.5% from 5.6%, the Reserve Bank of Australia is probably looking for nothing more than signs of stable growth rather than another blowout print to keep their optimism about the labor market intact. Current forecasts call for +20K jobs to have been added last month, in what should amount to another strong labor report overall.

But despite the steadily improving state of the labor market, uneven economic data appears to be a wrinkle in the outlook for the RBA, which continues to note that real wage growth trends aren’t strong enough to provoke a rate hike any time soon. Interest rate expectations (per overnight index swaps) show that no rate move is expected in 2018.

Pairs to Watch: AUD/JPY, AUD/NZD, AUD/USD

04/19 Wednesday | 23:30 GMT | JPY National Consumer Price Index (MAR)

Japanese inflation figures are expected to fall back after several months of pushing higher, due in at +1.1% in March from +1.5% in February (y/y). The previous reading was the fastest rate of price pressures since April 2015 – when Shinzo Abe government enacted the (unpopular) sales tax reform. Accordingly, a retracement in inflation should cool market participants’ speculation over an early termination to the BOJ’s easing policies; the BOJ has recently signaled that the end of the extraordinary easing measures will come around the start of FY2019 – next April.

Pairs to Watch: AUD/JPY, EUR/JPY, GBP/JPY, USD/JPY

Read more: No Range Break in Sight Yet for EUR/USD

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com.

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX.

To receive this analyst’s reports, sign up for his distribution list.



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Forex

AUD/USD May Fall With Asia Stocks After Wall Street Volatility

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Asia Pacific Market Open Talking Points

  • British Pound and New Zealand Dollars climbed. Former enjoyed Brexit news, latter rallied on CPI
  • S&P 500 recovered after risk-aversion dominated US markets on shutdown news. USD depreciated
  • AUD/USD may fall as market mood sours in Asia, jobs data misses expectations. Eyes chart support

See our study on the history of trade wars to learn how it might influence financial markets!

The British Pound and New Zealand Dollar were some of the best performing majors on Wednesday. Sterling continued rallying amid ebbing ‘No-Deal’ Brexit bets despite UK Prime Minister Theresa May leaving the door open to one. Meanwhile, the Kiwi Dollar enjoyed fading expectations of an RBNZ rate cut this year after a better-than-expected local inflation report.

For pro-risk currencies such as the Australian Dollar, the US trading session offered little fuel to extend their gains. White House Economic Adviser Kevin Hassett spoke and warned the continuation of the government shutdown could result in near-zero growth. After gapping higher, the S&P 500 traded lower as domestic government bonds rallied. After a slight rally later, the index closed +0.22%.

This signaled a flight-to-safety as risk capital flowed into haven assets. The US Dollar, which tends to benefit in this scenario, failed to capitalize on gains and ended the day cautiously lower. Falling yields alongside a fading Fed rate hike bets may have been a more prominent influence. Meanwhile the anti-risk Japanese Yen still ended the day lower, perhaps due to the Bank of Japan lowering inflation expectations.

Earlier in the day, US President Donald Trump warned China that tariffs could increase should a trade deal not be reached. As the markets then transitioned into Thursday’s session, the White House requested data on if the shutdown prolongs into March. This showed that it may continue for the time being. As such, these developments may adversely impact Asia Pacific benchmark stock indexes as markets turn risk-averse.

This could boost the Japanese Yen at the expense of the sentiment-linked Australian and New Zealand Dollars. Australia’s December jobs report will also cross the wires. Data out of the country has been tending to underperform relative to economists’ expectations as of late. Such an outcome could increase expectations of an RBA rate cut as AUD/USD falls. Overnight index swaps are pricing in a 34% chance of a cut later this year.

AUD/USD Technical Analysis

The continuation pattern outlined in my weekly Australian Dollar forecast appears to have been broken on the AUD/USD chart below. Typically, a “Pennant” is a continuation pattern. The descent under it may open the door to losses instead. Near-term support is at 0.70211 with resistance around 0.71645.

Each week I conduct a poll to see which Aussie crosses to cover in the technical forecast. You can participate in the poll by following me on twitter @ddubrovskyFX as well as to see timely updates on the Aussie Dollar.

AUD/USD Daily Chart

Chart of AUD/USD

Chart created in TradingView

US Trading Session

Chart of US Trading Session

Asia Pacific Trading Session

Chart of Asia Pacific Trading Session

** All times listed in GMT. See the full economic calendar here

FX Trading Resources

— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter



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Traders Net-Long Increases from Last Week

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EURUSD

65.7% OF TRADERS ARE NET-LONG

EURUSD: Retail trader data shows 65.7% of traders are net-long with the ratio of traders long to short at 1.91 to 1. In fact, traders have remained net-long since Jan 10 when EURUSD traded near 1.1554; price has moved 1.6% lower since then. The percentage of traders net-long is now its highest since Dec 31 when EURUSD traded near 1.1464. The number of traders net-long is 2.0% higher than yesterday and 27.2% higher from last week, while the number of traders net-short is 8.2% lower than yesterday and 4.3% higher from last week.

To gain more insight to how we use sentiment to power our trading, join us for our weekly Trading Sentiment webinar.

EURUSD SENTIMENT CONTINUES TO SUGGEST A BEARISH BIAS

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EURUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EURUSD-bearish contrarian trading bias.

Having trouble developing your strategy? Here’s the #1 mistake that traders make.

— Written by Nancy Pakbaz, CFA, DailyFX Research



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Oil Risks Larger Recovery as Inverse Head-and-Shoulders Takes Shape

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Oil Talking Points

Oil prices remain bid even as the International Monetary Fund (IMF) reduces its global growth forecast for 2019 and 2020, and the ongoing efforts by the Organization of the Petroleum Exporting Countries (OPEC) to stabilize the energy market may spur a larger recovery in crude as an inverse head-and-shoulders formation takes shape.

Image of daily change for major financial markets

Oil Risks Larger Recovery as Inverse Head-and-Shoulders Takes Shape

Image of daily change for crude oil prices

Fresh comments from OPEC Secretary-General Mohammad Barkindo suggest the group will continue to cut production over the coming months as the official insists that the ‘the market has started to respond positively’ at the World Economic Forum in Davos, Switzerland, and the current environment raises the risk for higher crude prices as Mr. Barkindo goes onto say that ‘we are beginning to see very sharp reductions in supply.’

Image of EIA U.S. field production of crude oil

In fact, OPEC and its allies may curb production throughout 2019 as updates from the U.S. Energy Information Administration (EIA) show field production climbing to 11,900K in the week ending January 11 after holding steady at 11,700K for three consecutive weeks, and the group may continue to combat the stickiness in Non-OPEC supply especially as Russia Minister of Energy, Alexander Novak¸ endorses a price range of $55-65bbl.

With that said, the advance from the December-low ($42.36) may gather pace as oil prices break out of the downward trend carried over from late-2018, with developments in the Relative Strength Index (RSI) fostering a constructive outlook for crude as the oscillator bounces back from oversold territory and carves a bullish formation. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Oil Daily Chart

Image of crude oil daily chart

  • Crude stages a near-term rebound following the failed attempts to test the June 2017-low ($42.05), and oil prices may continue to track higher as an inverse head-and-shoulders formation takes shape.
  • In turn, a break/close above the $55.10 (61.8% expansion) to $55.60 (61.8% retracement) region raises the risk for a larger reversal, with the next area of interest coming in around $57.40 (61.8% retracement) followed by the Fibonacci overlap around $59.00 (61.8% retracement) to $59.70 (50% retracement).

For more in-depth analysis, check out the 1Q 2019 Forecast for Oil

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other markets the DailyFX team is watching? Download and review the Top Trading Opportunities for 2019.

— Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.



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