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Displaying results for week of Jul 08, 2018الى اين سقوط الين؟
نظرة على أسباب سقوط الين و المستويات الفنية البارزة. (الفيديو الكامل)
Powell’s Puzzle
The US dollar loses grip on the main currencies, while the yen descends in prolonged selling as gold falls below key support levels. Fed chair Powell reiterated it will only be a matter of time until inflation picks up but the data highlighted that it may take some time. GBP recovers from the day's lows even as Trump said there would be no trade deal with the UK if a soft Brexit was pursued. Yen extends losses despite yields' decline and CADJPY was stopped out.
Thursday's US CPI report stalled the US dollar's advance. Prices rose 0.1% m/m compared to 0.2% expected leading to a 30 pip dip across the board in the dollar. In year-over-year terms, prices rose 2.9% to match expectations.
Notably, yearly rise may be the high-water mark for the months ahead because some one-off items are now rolling off. In the bigger picture, the Fed's Powell talked about the puzzle of inflation. He said the Fed doesn't understand why it's failed to pick up despite a tight labor market. But consider this, year-over-year inflation has rarely risen above 4% in the past 25 years and every instance was largely because of a jump in energy prices. Core inflation hasn't touched above 3% since 1996.
The early 1990s were when globalization truly took hold. Since then, no developed market has experienced runaway inflation. Perhaps Powell is right that wage inflation is about to pick up but one must consider if that doesn't happen because the global marketplace allows companies to offshore high wage jobs and import goods at deflated prices. If so, that would imply a lower terminal rate for all the central banks and argue for keeping rates near the floor while making the case for equities and risk assets even stronger.
More clues on inflation will be obtained next week when Powell delivers the semi-annual Monetary Policy Report to Congress on July 17-18.
التركيز على المستويات وليس الأسباب
لماذا ارتفع الدولار الأمريكي يوم الأربعاء على الرغم من هجوم جديد من البيت الأبيض بأنه سيفرض 200 مليار دولار إضافية من الواردات من الصين؟ (التحليل الكامل)
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US Dollar Jumps Ahead of CPI
The US dollar weathered the storm of tariff threats and then crushed the doubters on Wednesday. The US dollar was the top performer while the Australian dollar lagged. US CPI is due on Thursday. The Premium USDJPY short was stopped out.
حول الإسترليني و الكندي (فيديو للمشتركين)
The US dollar climbed around a full cent across the board on Wednesday in a move that seemingly materialized from nowhere but a closer look points to a few culprits. The first was central bank talk. Comments from the Fed's Evans – a noted dove – shifted to a more-hawkish stance. He said he was comfortable with 1-2 more hikes this year.
Economic data was also dollar-positive. Wholesale sales jumped 2.5% in May compared to 0.5% expected and PPI rose 0.3% m/m versus the 0.2% consensus. Those aren't tier-one indicators but they're part of a recent trend towards economic data.
Perhaps the nudge for the dollar wasn't good news but bad news. The latest China tariff talk is undoubtedly negative but after a brief dip, the US dollar withstood the storm. The first signs of strength were against USD/JPY where the dollar has been flirting with a breakout. As it cracked 111.40, that set of a flurry of buying that continued to 112.00.
The other broad theme was commodity weakness, especially in oil. Crude was down 5% with WTI erasing nearly half of the gains since mid-June. Here as well, the news didn't fit the narrative. There was a massive 12.6 million barrel draw in US crude but oil barely climbed and that was a signal for the bulls to head to the exits.
In central banking news, the Bank of Canada hiked rates as expected. As we warned, no dovish hike materialized and the kneejerk was higher in the Canadian dollar but hours later the loonie was swamped by the drop in crude.
Looking ahead, the US dollar will stay in focus with CPI due Thursday. The consensus is for a 0.2% m/m rise and 2.9% y/y. If the later number hits 3.0% it could cause some headline shock and another round of USD buying.
The BOC Doesn’t Guide
Global indices are lower across the board after last night's White House announcement that it started the process of imposing tariffs on an additional $200bn of imports from China. This will not only trigger further action from China at the expense of further declines in CNY and gold. The DAX short was stopped out yesterday 12580. A new Premium index trad ehas been posted & sent. All eyes shift to the Bank of Canada decision at 15:00 BST/London Time.
In the past decade the market has been conditioned toward central bank signals but the BOC decision on Wednesday will have a different set of rules. Sterling was the top performer on the day while the yen lagged until China tariff headlines hit. CFTC positioning shows specs betting on a dovish Bank of Canada.
BOC Governor Poloz has a problem with forward guidance. He doesn't believe in signaling to markets about what's coming next. Instead, he touts data dependence and says each BOC statement is a blank canvas. So when today's statement is released, it will almost-certainly include a rate hike (the OIS probability is up to 96%) but the accompanying commentary shouldn't be taken as any kind of strong guidance.
At the moment, much of the talk doing the rounds is suggesting the BOC will deliver a dovish hike; they will raise rates but signal a move to the sidelines. That would be a complete departure from Poloz's preference against forward guidance.
Instead, the statement is likely to have references to better hiring, sales and high capacity pressures that were outlined in the Business Outlook Survey. The talk of gradual hikes is also likely to be repeated along with the usual nod to trade risks. On net, this is more likely to read as a hawkish statement and hurt USD/CAD.
In the bigger picture, trade fears are ramping back up on reports that the US could soon release a list of tariffs on $200 billion in imports. The broader risk in the day ahead is that the short-lived trade optimism on trade could come crashing down.
CFTC Commitments of Traders
Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.EUR +37K vs +34K prior GBP -29K vs -22K prior JPY -39K vs -34K prior CAD -49K vs -33K prior CHF -40K vs -38K prior AUD -39K vs -41K prior NZD -26K vs -18K prior
The CFTC numbers were released late Monday after the US holiday and are a bit dated but the rise in CAD shorts (they were -14K two weeks ago), show the loonie risks could be tilted to the upside – ie. lower in USD/CAD
If Theresay May Can Survive This…
It was the worst news day for the UK government since last year's elections as two cabinet ministers quit and yet cable finished just a quarter-cent lower. UK Foreign Secretary Boris Johnson quits his post, hours after Brexit Secretary David Davis announced his resignation. The Australian dollar was the top performer on the day while the yen lagged. Chinese CPI is due up next. The video on existing and future traders is made available for Premium subscribers.
On Friday, Boris Johnson delivered an impassioned speech in favor of May's Brexit white paper but after the resignation of David Davis he had a change of heart, perhaps not wanting to lose his reputation as a Brexit hawk, and quit cabinet.
For a time, that looked like it could be the beginning of the end for Theresa May as the difficulty of moving forward with two more rivals blocking her way came into focus. Yet reports say she received a standing ovation after a party meeting.
We have long argued that PM May us safe in her job because no one else wants the impossible job of navigating a Brexit that's sure to please no one. Instead, Davis, Johnson and others are likely angling to replace her after the deal is done. If that's correct, then this might be as bad as it gets for May.
If anything, the pound's resilience is impressive. Had PM May suffered these resignations at a different point, the losses for sterling would have surely been much deeper than the drop to 1.3200 from 1.3350. The bounce to 1.3260 late also demonstrated that buyers are lurking.
We are eager to see how the day ahead unfolds but if the bad news is out of the way, the focus may shift back to the economy and the Bank of England, which are both shifting to be modest tailwinds for the pound.
At the same time, broad sentiment improved Monday as trade tensions ebbed, at least for the moment. Chinese shares finally bounced in a 2.5% climb and that stoked a better tone elsewhere, including a rise in USD/JPY to 110.80 from 110.40.
In the hours ahead, risks will remain elevated with China June PPI and CPI due at 0130 GMT. Inflation is forecast to rise 1.9% y/y.
Hard Brexit not Coming Home
Sterling is the 2nd best performing currency since the start of Asia Monday trade following the overnight resignation of UK Brexit negotiator David Davis on market expectations that PM is on track of securing a soft Brexit. Prominent Brexit supporter Dominic Raab has been appointed to replace Davis as Bexit secretary.
PM May celebrated a victory on Friday as she twisted arms within cabinet to reach a compromise and an agreed position on EU negotiations that included a UK-EU free-trade zone with a common rule book. Essentially it would mean UK rules would be harmonized to the EU with London managing its own bureaucracy.
It was a monumental effort from May to find common ground between hard and soft-Brexit factions but it was a pyrrhic victory as Germany almost immediately gave it the thumbs down. Just hours later (around midnight London time), that was dashed by the surprise resignation of UK Brexit negotiator David Davis along with another cabinet minister.
Sterling impact
Sterling fell immediately following the news of Davis resignation but the currency returned to its session highs later in Asian trade upon further realisation that Davis had wanted a cleaner separation from EU rules, which would also mean a hard Brexit. Any prospects of PM May keeping close economic ties with the EU -- such as maintaining EU Customs Union would be supportive for GBP.What next? May is surely demoralized and her rivals may seize the opportunity to launch a coup but at the same time, Boris Johnson and others realize that taking her spot would put them in the same impossible position.
Elsewhere, Friday's US non-farm payrolls report underscored the paradigm of jobs growth but not wage growth. Unemployment rose to 4.0% from 3.8% as more people entered the workforce in a sign there may be more slack. Still 213K jobs compared to 195K will keep the Fed on a gradual hiking pace.
The central bank that will be in tight focus this week is the Bank of Canada. Friday's jobs report was stronger than expected but wages were also softer and unemployment ticked higher. It was enough to solidify a hike but it could be a dovish hike.