Negative USD view persists amid the Trump administration’s more aggressive protectionist policy agenda

Mar 16 • Morning Roll Call • 1141 Views • Comments Off on Negative USD view persists amid the Trump administration’s more aggressive protectionist policy agenda

The negative view persists and a probable lack of overtly hawkish Fed signals in the US. FOMC is to hike +25bp next week and retain an optimistic outlook but risks of a strong hawkish signal have eased following benign Feb earnings and CPI, weaker Q1 tracking estimates (Atlanta Fed now cast trimmed to 1.9% from 2.5%) and evolving tariff/trade war risks. FOMC dots should trend higher; six were below the median 3 hikes for 2018 as of Dec 2017 and surely easy financial conditions and fiscal risks see some of these move higher. In addition, aggressive protectionist stance from the Admin is unlikely to ease anytime soon and if anything could escalate into Nov midterms, risks heightened by the departure of more moderate voices.
Yesterday we saw the US unemployment claims coming out better than forecasted, with initial claims declining by 4,000 to 226,000 from the previous week’s revised level. The previous week’s level was revised down by 1,000 from 231,000 to 230,000. The 4-week moving average was 221,500, a decrease of 750 from the previous week’s revised average. The previous week’s average was revised down by 250 from 222,500 to 222,250.
In addition, results from the Manufacturing Business Outlook Survey, conducted by the Federal Reserve Bank of Philadelphia, suggest continued growth for the region’s manufacturing sector.
Reflecting on the news that come from the EU yesterday, Swiss National Bank left its interest rate unchanged, as expected. However, the economy is expected to rebound in 2018, which could lead to somewhat higher inflation and allow for some very gradual monetary tightening in late 2019. In this context, it is expected that the CHF will stay on a depreciation track. Moreover, the SNB President Thomas Jordan reiterated during the press conference that the SNB “will remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration”.
The SNB still thinks that “the franc remains highly valued” and it acknowledges that since December “the Swiss franc has appreciated slightly overall on the back of the weaker US dollar”. The SNB also believes that “the situation in the foreign exchange market is still fragile and monetary conditions may change rapidly”, justifying the status quo in its interventionist stance. Concerning inflation, after five years of negative or zero inflation, it reached 0.5% in 2017 and increased to 0.6% YoY in February. Given the “somewhat stronger franc”, the SNB revises downward its inflation forecast for 2018 (0.6% from 0.7% in December) and 2019 (0.9% vs 1.1% before), while it expects inflation to reach 2% by the third quarter in 2020. This shows that the SNB remains very cautious about declaring victory on deflation, but it is still eager to show that getting back to the 2% target in the medium-term is still possible. There is a possibility that a weaker exchange rate next month will lead to better growth and higher inflation, above 1% in 2019. All in all, the current policy mix equilibrium still looks very stable for the SNB. This should allow the CHF to depreciate a bit in 2018. -FXStreet
EUR/USD

The EUR/USD remains trapped in 1.2250-1.2450 range even though the top European Central Bank (ECB) officials stressed this week that stimulus will end only after inflation starts moving towards the 2 percent target. -FXStreet
GBP/USD

The GBP/USD is on the low side for Friday’s Asia session, trading near Thursday’s lows and testing the 1.3930 region. The pair is still holding on the upper half of the daily ascendant channel coming from early March, but with strong selling interest aligned around 1.4000, seems unlikely the pair could break higher, moreover ahead of fresh Brexit headlines expected for the upcoming week. -FXStreet
USD/JPY

The Yen picked up a bid and pushed the USD/JPY to a session low of 105.93 after the Washington Post reported Trump is set to fire H.R. McMaster as his national security adviser. The pair remains at risk of extending its decline, despite the intraday bounce, as in the 4 hours chart, is still developing below its 100 and 200 SMAs, with both gaining downward traction, while technical indicators have pared losses and aim marginally higher, but remain well into negative territory. -FXStreet
Gold

Gold one-month 25 delta risk reversals are being paid at 0.25 XAU puts vs. 0.20 XAU puts yesterday and 0.23 XAU calls on March 7. The rise in the implied volatility premium of XAU puts indicates rising demand for bearish bets. -FXStreet

 

KEY ECONOMIC CALENDAR EVENTS FOR March 16th

AUD RBA Assist. Gov. Debelle speaks
JPY Foreign Direct Investment (ytd/y)
EUR Final CPI (y/y)
EUR Final Core CPI (y/y)
CAD Foreign Securities Purchases
CAD Manufacturing Sales (m/m)
USD Building Permits
USD Housing Starts
USD Prelim. UoM Consumer Sentiment

 

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