EUR/USD extends gains on dovish Fed policy meeting minutes
The dollar slid against the euro on Thursday after minutes from the
Federal Reserve's March policy meeting revealed monetary authorities
unanimously voted to scrap a threshold that would trigger rate hikes.
A better-than-expected report on weekly jobless claims in the U.S. cushioned losses but only slightly.
In U.S. trading, EUR/USD was up 0.25% at 1.3890, up from a session low of 1.3836 and off a high of 1.3899.
The pair was likely to find support at 1.3673, last Friday's low, and resistance at 1.3948, the high from March 17.
Federal Reserve Board of Governors unanimously voted to scrap a
threshold that would hike interest rates once the unemployment rate hits
6.5%, according to the minutes of the Fed's March policy meeting
In the past, the Fed had indicated rates were
set to rise when the unemployment rate hits or approaches 6.5% provided
that figure accompanied a 2.5% inflation rate.
Today, the headline
unemployment rate stands at 6.7%, not far from the previous threshold,
labor markets remain slack and inflation remains well below 2.5%.
Federal Reserve decision to do away with its rate-hike target left
markets convinced that interest rates will remain low for some time to
come, even after the U.S. central bank winds down monetary stimulus
Elsewhere, the Labor Department reported that the number
of individuals filing for initial jobless benefits in the week ending
April 4 fell by 30,000 to 300,000, the lowest since May of 2007, from
the previous week's upwardly revised total of 332,000.
Analysts had expected jobless claims to decline to 320,000, though the numbers did little to boost the dollar against the euro.
the euro zone, Greece made a successful return to the financial markets
on Thursday, raising €3 billion in its first bond auction since 2010,
when Athens sought its first bailout.
The euro was up against the pound, with EUR/GBP up 0.32% to 0.8276, and down against the yen, with EUR/JPY down 0.31% at 140.86.
The Bank of England left the benchmark interest rate unchanged at 0.50% earlier Thursday, in a widely anticipated move.
Friday, the U.S. is to round up the week with data on producer price
inflation and the preliminary report on the University of Michigan's
consumer sentiment index.
AUD/USD holds above 0.9400
Even though the AUD/USD has seen intraday volatility, the pair continues to trade above 0.9400, close to multi-month highs during the New York session.The Aussie climbed to a fresh 5-month high of 0.9460 Thursday, underpinned by much better than expected Australian employment figures
which offset falling stocks weigh. With dips contained by the 0.9400
mark, the AUD/USD has managed to hold onto gains and it is presently at
0.9420, up 0.3% on the day.AUD/USD technical levelsIn
terms of technical levels, next resistances are seen at 0.9460 (Apr 10
high), 0.9480 (Nov 8 high) and 0.9500 (psychological level). On the flip
side, supports are seen at 0.9400 (intraday level), 0.9370 (Apr 10 low)
and 0.9334 (Apr 9 low).
Dollar Plunges as Market Weighs on Federal Reserve’s Minutes (the source)
The dollar plunged to its lowest in three weeks versus the Swiss franc
and the yen on Thursday. The decline was fuelled by a report of the
minutes of the Federal Reserve’s policy meeting on March that indicated
that a hike in interest rates won’t happen anytime soon.
The dollar was trading 0.5 percent lower against the yen at 101.41,
after earlier touching 101.34, its lowest level since March 19. The U.S.
currency also fell against the Swiss franc to 0.8753, a three-week low
as the Treasury’s two year bonds plunged steeply. The dollar was last
trading 0.4 percent lower at 0.8760 franc.
The dollar index also plunged to its 79.330, its lowest level in three
weeks, which is slightly below 80.599, its strongest level in seven
weeks which it hit on April 4. It fell 0.1 to 79.378 by the time the
article was published.
The dollar has recorded weak performance against the yen in four out of
the past five trading sessions. The currency also plunged against the
Swiss franc for the fourth consecutive trading day on Thursday.
A report by U.S. Labor Department that showed that new jobless claims
fell to nearly a seven-year low failed to prop the dollar. New
unemployment claims declined to 300,000, well below economists’ estimate
"The events of the past week have tempered expectations for an early
rate rise and that has undermined the dollar," Joe Manimbo, a
Washington-based senior market analyst at Western Union Business
Solutions told Reuters.
"Prior to the Fed minutes, the market was expecting a rate increase in
early 2015. Now it has been pushed back to the middle or even the
second half of next year," he said.
2014-04-10 22:45 GMT (or 00:45 MQ MT5 time) | [NZD - Food Price Index (FPI)]
if actual > forecast/actual = good for currency (for NZD in our case)
New Zealand March Food Prices Dip 0.3%
Food prices in New Zealand eased 0.3 percent on month in March, Statistics New Zealand said on Friday.
That follows the 1.0 percent decline in February and the 1.2 percent gain in January.
On a yearly basis, food prices climbed 1.2 percent after adding 0.2 percent in February and 0.9 percent in January.
The 1.6 percent fall for grocery food was influenced by price falls across most of the subgroups.
NZD/USD Forecast April 11, 2014, Technical Analysis
The NZD/USD pair
fell after initially trying to rally during the session, showing that
perhaps we are going to pull back slightly. The area between here and
the 0.85 level should offer plenty of support, and as a result we are
willing to buy a supportive candle between the two levels. We believe
that a supportive daily candle would be reason enough to serve buying as
is market would be going higher eventually as the upward momentum is
ready to continue. We ultimately believe that the 0.90 level is the
target, and that the New Zealand dollar will eventually head to that
fell to trade at 0.8642 on more lackluster Chinese economic data. Data
this morning showed that Chinese inflation eased to 2.4% and the
producer’s price index also printed lower than expected. Last month the
Reserve Bank embarked on a tightening cycle, lifting interest rates 25
basis points to 2.75 percent as it tries to stem inflationary pressure
in the economy. Food prices make up almost 19 percent of the consumer
price index, the inflation measure used by the central bank.
First-quarter CPI is due for release next week.
REINZ, the most up
to date source of real estate data in New Zealand, announced today that
there were 7,315 dwelling sales in the month of March, down 10.0% on
March last year, but up 19.4% compared to February. The national median
price reached a new record high of $440,000, which was an increase of
$44,000 compared to March 2013, and an increase of $25,000 from
February. Auckland and Canterbury/Westland both recorded new high median
prices of $637,000 and $401,000, respectively.
The food price
index fell 0.3 percent in March following a 1 percent fall in February,
according to Statistics New Zealand. Food prices rose 1.2 percent on an
annual basis, the first time all five components of the index increased
since September 2011.
2014-04-11 01:30 GMT (or 03:30 MQ MT5 time) | [CNY - CPI]
if actual > forecast/actual = good for currency (for CNY in our case)
China Inflation Rises 2.4% On Year In March
Inflation in China was up 2.4 percent on year in March, the government said on Friday.
That was in line with expectations and up from 2.0 percent in February.
Among the individual components, food prices jumped 4.1 percent on year, while non-food prices added 1.5 percent.
The data also showed that producer prices remained stuck in deflation,
contracting 2.3 percent on year. That missed forecasts for -2.2 percent
following the 2.0 percent decline in the previous month.
Why Is This Event Important:
Indeed, positive developments coming out of the world’s largest economy
may put increased pressure on the Federal Open Market Committee (FOMC)
to normalize monetary policy sooner rather than later, but it seems as
though Fed Chair Janet Yellen remains reluctant to move away from the
zero-interest rate policy as the central bank head continues to
highlight the ongoing slack in the real economy.
The resilience in private sector consumption along with the pickup in
consumer credit may generate a meaningful rebound in household
sentiment, and an upbeat print may generate a bullish reaction in the
USD as it limits the Fed’s scope to retain its highly accommodative
policy stance for an extended period of time.
However, subdued wage growth paired with the persistent slack in the
real economy may spark a further downturn in consumer confidence, and a
dismal development may heighten the bearish sentiment surrounding the
greenback as the FOMC retains a rather cautious outlook for the region.
How To Trade This Event Risk
Bullish USD Trade: Household Sentiment Rises to 81.0 or Higher
March 2014 U. of Michigan Confidence Survey
AUDUSD M5 : 26 pips price movement by USD - Michigan Consumer Sentiment news event :
GBPUSD M5 : 38 pips price movement by USD - Michigan Consumer Sentiment news event :
NZDUSD M5 : 26 pips price movement by USD - Michigan Consumer Sentiment news event :
The University of Michigan Confidence survey missed estimates last month
to come in at 79.0 vs. 82.0 as surveyed by economists. The figure has
been on the general decline since hitting a high over summer not seen
since 2007. February’s reading led to a slight uptick in the EUR/USD,
but small move did not hold into the close.
Forex: Greenback Bulls On The Run
Dollar bulls expecting to score on the back of diverging rates
between a hawkish Federal Reserve and dovish European Central Bank (ECB)
are now in full retreat.
With the release of the dovish Federal Open Market Committee’s March
meeting minutes, and Fed Chair Janet Yellen’s recent remarks
highlighting “considerable slack” in the economy, many long-dollar
positions are being squeezed as the market drastically prices out an
early rate hike by the Fed.
Economically, the U.S. is sound and much further ahead of Japan and
Europe. According to the International Monetary Fund, the U.K. is the
European Union’s outlier on the growth front, while China, with its
questionable economic data, (this week it was weaker Chinese export
data) is everyone’s problem. These are the ingredients that have U.S.
Treasurys looking like the better bid. U.S. 10′s touched a four-week low
yesterday (+2.65%), as traders dampened their enthusiasm and bets for
U.S. policymakers to move aggressively toward a hike in interest rates.
Chinese Economy in a Lull
Weaker Chinese data will always boost the safer-haven demand of a
number of other assets like bonds (specifically Bunds, Treasurys, and
Japanese Government Bonds) and currencies like the yen. Traders’ wagers
on the futures exchange yesterday put the likelihood that the Fed will
start raising rates in July 2015 at +63%, for June the percentage
actually fell to +41% compared with +54% projected last week. The
fixed-income market is basically re-pricing the curve, pushing out the
“lower for longer” theme.
Yesterday’s and this morning’s asset moves have only served to
confuse. Equities are falling and the Treasury market is rallying — this
is technically the norm, as investors shift cash flows from equities
into a safer-haven asset class like bonds. But, the dollar also has come
under pressure, printing a number of new quarter lows versus its Group
of Seven counterparties. The recent sharp selloff in equities provided a
supportive climate for safe-haven securities but did not include the
USD this time around. Dealers noted that currencies were currently
diverging from traditional risk barometers.
Why? Forex volatility is at a historically low level courtesy of
extremely “easy” monetary policies from the developed economies. The
combination of low volatility, Fed quantitative easing, and a weaker
“net savings” position has the USD underperforming (a distinct long-term
competitive disadvantage to other G-7 members). This has led to other
central banks like the Reserve Bank of Australia, Bank of Canada, Norges
Bank and now the ECB to change policy guidance to counter a tightening
of their monetary conditions from stronger currencies versus the USD.
All central bankers can hope for is that the U.S. economy will recover
enough for Fed guidance to be challenged, and that the front-end U.S.
Treasury yield curve to finally break higher, giving G-7 central banks
some relief. Otherwise, investors and dealers will be trading in the new
“norm” of low forex volatility and contained intraday ranges.
Treasurys Gain on Fed Forecasts
The U.S. Treasury curve has priced in +100bp of rate hikes for the
next three years, with the first hike in 2015. According to the Fed and
fixed-income watchers, historical examples of Fed rate ‘normalization’
suggest the process can be significantly more aggressive. In the forex
market, volatility remains subdued, handcuffed mostly by central bank
actions. Currently, forex volumes are pricing sharply lower the cost of
more rapid Fed tightening. When there is a need to re-price anything
differently, the short-term forex volumes should be capable of rising
from their current ultra-low levels, moving both spot forex and cross
positions for a brief period.
Any shocks from a re-pricing of the Fed’s reaction are expected to be
fleeting in the current environment, leaving longer dated maturities
well anchored as policymakers focus on the short end. It’s up at the
“front” where Yellen and company will be busy guiding and smoothing
expectations and helping to form forex trends. These trends will again
smooth out volatility as investors buy on dips using forex to overshoot
Fed-tightening expectations. Now, all this market requires is a break in
the lower for longer cycle. For any hardcore reaction, the forex and
fixed-income market need a tightening Fed, otherwise it’s back to
watching paint dry. Today’s low levels of forex and equity volumes are
“historically a sign of extreme leverage and poor capital allocation.” A
Fed on the move will break this – the more the Fed’s policy drains
cheap USD liquidity, the stronger the USD becomes. For now, the lower
for longer argument is hurting the greenback at least until investors
become fixated on something else.
China’s March Producer Prices Beat Market Estimates
China’s consumer price index surged 2.4 percent in March from a year
ago, up from an increase of 2 percent in February, reported the National
Bureau of Statistics today. This exceeded the median estimate of a
growth of 2 percent in a Reuters poll of economists.
The surge in prices was mainly attributed to fresh food prices, as
vegetable prices rose 12.9 percent and fruit prices were up 17.3
percent. However, economists said that food prices are showing signs of
cooling down. Prices of pork meat plunged 6.7 percent from a year
Producer prices plunged on year-to-year basis for the 25th consecutive month, falling 2.3 percent, which was more than estimated.
"Overall, we expect inflation pressures to remain benign amid tepid domestic demand," said economists at Barclays in a report.
The results add to the list of weak data that the Chinese economy has
posted this year. So far, Beijing has said it won’t roll out any major
stimulus to bolster the economy, although it has crafted smaller
measures such as lowering taxes for small businesses.
"The current environment in some ways serves as a litmus test for the
government's commitment to allowing a more "decisive" role for market
forces in the economy - market forces would drive up the cost of scarce
resources, raising CPI inflation," Bill Adams, a senior international
economist for PNC Financial Services told Reuters in an e-mail.
Consumer price index jumped 2.3 percent in the three months ending
March from the same quarter a year ago, which was less than the
government’s target of less than 3.5 percent for this year. While
Chinese consumer prices have gradually increased, producer prices
recently plunged by their steepest margin in March, mostly due to a
fall in metal and mining prices.
Technical Analysis for Majors (based on dailyfx article)
- EURUSD was never able to drop under 1.3642, finding low after NFP at
1.3672. Momentum wise, I am looking for a top. RSI at each top since
December has been below 70. This weak momentum profile is not suggestive
of a strong bull.
- 1.3909 is possible resistance before the high. If the rate does trade
to a new high, then a drop back into the range would be required in
order to create a tradable high. It’s worth mentioning that important
tops have formed in April/May in recent years.
USDCNH Fundamentals (based on dailyfx article)