Fed will likely support more rate hikes during the year; Canada has seen a rise in the CPI and retails sales up 0.3 % in January; today we have a light calendar ahead
Forex today was mainly driven by risk flows, with a major turnaround in the risk condition experienced amid ebbing fears over the US-China trade war. The WSJ reported that the US and China are quietly seeking trade solutions after last week’s war of words. Subsequently, the demand for the safe-havens such as the Yen, gold etc., took a hit, as the Antipodeans, the GBP cheered the return of risk-trades. We have an absolutely quiet start to the EUR calendar this week, with no show from the Euroland while the UK sees the second-liner high street lending data, followed by the European Central Bank (ECB) policymaker and Bundesbank (Buba) Chairman Weidmann’s speech. Weidmann is due to deliver a speech titled “New Momentum for Europe” at the central bank of Austria, in Vienna.
The NA session also is data-dry, with the Fedspeaks to offer fresh incentives on the USD moves. The FOMC members Dudley, Quarles and Mester are likely to deliver their respective speeches in the American afternoon.
With a retrospective on Friday’s events, according to Atlanta’s’ Fed President, Raphael Bostic, speech further gradual rate hikes over the next few years is seen as appropriate. If the economy develops as he expects, it will most likely support more rate hikes this year. In addition he sees potential for inflation to run somewhat above Fed’s 2% target.
In addition, US durable goods orders have increased and surpassed the forecasted 1.6%, coming at 3.1%. This suggests that business activity continues to expand at a healthy pace. The ISM new orders index remained high in February despite a slight decline to 64.2, from 65.4. Other business surveys point to continued expansion in activity reflecting firm demand.
We have also seen a bunch of macroeconomic news coming from Canada last Friday, where the retail sales have increased by 0.3% in January to $49.9 billion. Sales were up in 7 of 11 subsectors, representing 63% of retail trade. Excluding sales at motor vehicle and parts dealers, retail sales increased 0.9% and after removing the effects of price changes, retail sales in volume terms rose 0.1% in January. Furthermore, the Consumer Price Index (CPI) rose 2.2% on a year-over-year basis in February, following a 1.7% increase in January, where all 8 major components increased year over year in February. On a seasonally adjusted monthly basis, the CPI rose 0.2% in February, following a 0.5% increase in January. The positive news has affected the USD/CAD pair where it has struggled to move beyond 1.2940-50 supply zone and retreated sharply following the release of hotter-than-expected Canadian consumer inflation figures for the month of February. Stronger headline CPI print was now seen adding pressure on BoC to keep hiking borrowing costs to more normal levels and provided a lift to the Canadian Dollar. From the US, stronger-than-expected durable goods orders, which followed hawkish comments by Atlanta Fed President Raphael Bostic extended some support to the US Dollar and helped limit further losses, at least for the time being. -FXStreet
The EUR/USD is trading close to last week’s high of 1.2388, currently testing the water around 1.2370 heading into the new week’s first European session. In the daily chart, the pair continued moving back and forth around a directionless 20 DMA, while technical indicators also lack directional strength, reflecting the ongoing market’s uncertainty. -FXStreet
GBP/USD jumped to 1.4218 last week – the highest level since Feb. 2 on the back of a brexit transitional agreement and strong UK data. However, cable’s jets were cooled by fears of US-China trade war and the resulting risk aversion in the stock markets. -FXStreet
The USD/JPY pair fell below 105.00 on Friday, but the move has not boosted the demand for JPY calls (buy yen), the risk reversals indicate. The one-month 25 delta risk reversals are unchanged at -1.525 (being paid at 1.525 JPY calls) for the fourth straight session. The daily chart shows that the bearish potential remains firm in place, as technical indicators continue heading sharply lower within negative territory, while the pair is developing some 600 pips below its 100 and 200 DMAs, both bearish and with the shortest accelerating below the largest, all of which maintains the risk toward the downside, without dismissing a possible upward correction in the way. -FXStreet
Gold is trading at around 1346 up 1.36% on the day so far as trade wars between the US and China intensify. -FXStreet
KEY ECONOMIC CALENDAR EVENTS FOR March 26th
GBP High Street Lending
USD Chicago Fed National Activity Index (Feb)
USD Fed’s William Dudley speech
FOMC Member Master speech
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