adt_fx FX Outlook 2015 – General (Weekly) Update – 2 May 2015
Forecasts & Trades Waiting on US data releases to catch up with weather – thinking spring in Central Park. Looking at GBP Shorts – UK Election ($GBPUSD, $EURGBP). $GBPUSD weakened late last week from 1.549 hi & $EURGBP short was prominent. Also looking $AUD Short beyond RBA Tuesday. $AUDCAD is interesting depending commodities views. $NZD may be oversold at least on crosses – RBNZ “jaw-boning?”
Week Wash-up Futures positions to 28 April showed continued moderated Unwind of extreme $USD Longs. In all reality the Unwind has been quite controlled given the extremes, and cognisant perhaps of likely US economic improvement. There are some early signs in US job claim numbers (15 yr low) and perhaps PMI. Fed was effectively neutral. I think I see why, as the US economy could improve quite quickly & dramatically. Personally, I’m not ruling out any date for an eventual rate rise. Matching $USD Unwind was the Unwind of ECB-QE bond rate gap effect inside and outside EU. German 10Yr up to 0.36% (≈Japan) from low of 0.07%. Permanent effect or ECB–QE taking a rest? I suspect the latter. Although there was some Unwind also at the end of the week of deflation fears. Still, US rate gaps v most Majors widened.
BOJ maintained steady QE and rates. The Sales tax effect (April-2014) is about to drop out of the inflation numbers. Japan economy is a bit soggy. Making Japan policy settings must be a really tough gig. I can’t help but expect the same seasonal pattern as 2014 to unfold for $USDJPY.
$NZD and $CHF again saw ↑net Longs v $USD, $GBP & $MXN ↑net short v $USD. I understand demand for $CHF on crosses but to me the economic trends USvSwiss are extremely divergent.
Commodity FX – Oil prices made further gains along with Gas, Copper and Base Metals generally, but Fe pulled back a bit. CRB +1.5% for the week but Baltic Dry -1.5%. Vale, in addition to BHP are now suggesting curtailing / deferring production expansion slightly. To me this doesn’t really alter the underling Fe Supply-Demand imbalance. I can’t see any real gains in Bulk (Aus) commodities. Aus also has RBA Tuesday and Aus Federal Budget the following Tuesday. Aus Manufacturing PMI for April (48) was extremely weak. All seven sub-indices <50. I expect Services PSI also due Tuesday to be flat-ish. I say slightly tongue-in-cheek, the only real Aus Services growth is in Social (Welfare) Services! I rate Aus Domestic Demand as genuinely weak.
$CAD held its week gains slightly better than $AUD. $NZD had RBNZ confirm a more neutral stance on rates. I’m a ittle mixed now on NZ – Dairy watch highlighted last week, as well as RBNZ. But I feel RBNZ is taking the opportunity amidst global rate discounting to “jaw-bone” $NZD down a little. NZ must have some capacity to grow Dairy market, at least following EU product diversification.
Aus Focus Interestingly, the Australian Government seems very encouraging of Foreign Investment which in 2014 comprised 44% Real Estate out of $167B. At the same time like one or two other Central Banks, the RBA bemoans Real Estate investment inhibiting easier monetary policy – which in turn is warranted by general domestic economic conditions, and sights a focus on macro prudential lending controls, which unfortunately don’t get a great amount of policy follow through anyway. It all seems a bit conflicted, ineffectual and ends up inappropriate for Australia’s real economic structure and domestic conditions. I guess authorities can just shuffle along, wait for (if) the Fe price to go up, watch AUD revalue if that were to be the case, and Watch the whole vicious circle flow around again to further diminution of domestic non-mining industry.
At the same time I expect a relatively tight Federal Budget on Tuesday night. Focus on reigning in the deficit and debt is giving way a little to account for weak domestic conditions, now including difficulties in the mining sector and mining States (WA Government forfeiting mining royalties). Target dates for a balanced Federal Budget are being pushed out, but not without some focus on spending cuts, potentially including pensions and other welfare payments. Historically there would appear to have been a complete lack of strategic focus on revenue through industry and jobs, including an attitude – if it moves tax it – and now having to focus on spending cuts. Maybe a three year political cycle is too short but then again there are probably traps to a longer term; Not that I can really find fault from a distance in recent trends and results in the US or UK.
The tight Aus Fiscal position could normally be expected to give way to more emphasis on easy monetary policy (Australian interest rates are high by comparable international standards). This however is not or will not necessarily be the case. Tough times ahead? With only really housing construction and house prices bringing joy to the public and Australian house-owners. All that said, I can’t help but think that most of the jobs growth in Australia has been in Social Services (Welfare and Health).
Technical $USD off its lows by end of week – slight shift back in economic momentum to the US and UK election concerns. $EURUSD broke through 1.10 on the seventh try, but finished the week a little under 1.12, down from its 1.129 high. Opinion varies or is uncertain as to near-term $EURUSD direction. There is some suggestion of seasonal weakness in May for $EURUSD. Also some suggestion based on Elliot Wave that the $EUR bounce, or maybe more appropriately described, the $USD dump, may have finished and the next step down say for $EURUSD maybe 1.092. This may fit given the initial emergence of better US economic momentum along with ongoing ECB-QE. Either way I favour the view of re-emergence of $USD strength beginning May-July - gradually expanding across a full range of currencies in this time, then extending through H2 2015.
Equities As expected EU Equities reflected $EUR. Obviously can’t have both up or both down. DAX 11,404 down nearly 10% from April hi. Dow held 18K close but Nikkei225 couldn’t hold 20K. FTSE was softer. Shanghai finally a flat week amidst any amount of regulatory and rate changes. Aus sagged. Still looking $EUR Short / $DAX Long. In 2015 pre/post QE, $DAX was ↑30% ($EURUSD ↓13%). Both are/were due a break.
Big Tech earnings, which I like to keep an eye on, appeared a little weak generally for Q1 2015, and specifically with regards Revenue. Even Apple unit sales only really expanded for the iphone. Twitter provided a major disappointment, I think from a Revenue perspective, share price being hit by around 25%. It’s unlikely this situation will persist for too long.
Coming Up 5 May Aus–RBA MPM, 5 May US Trade, 7 May Aus Labour, 7 May German Factory Orders, 7 May UK Election, 8 May China Trade, 8 May US NFP, 12 May Aus Federal Budget.
