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Dagelijkse Markt Analyse 11 Januari 2019
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• S&P 500 turn lower has big support in focus
• Dow may have cemented major 2nd lower-high
• Nasdaq 100 closing in on neckline of head-and-shoulders
Last week when we discussed U.S. indices, the S&P 500 showed signs of wanting to trade higher in the very short-term, but we also noted: “Looking at the broader picture, though, the upside is still at considerable risk with the potential for a top to form still very much alive.”
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• Euro may fall as the ECB casts doubt on near-term QE tapering
• Aussie, NZ Dollars may rise as dovish Draghi lifts risk appetite
• US Dollar correcting from six week high in Asia Pacific session
All eyes are on the ECB monetary policy announcement in European trading hours. No formal changes to the central bank’s posture are expected but traders will probably put considerable weight on the tone of remarks made by President Mario Draghi at the subsequent press conference. A dovish lean might weigh on the Euro but could offer a lift to broad-based risk appetite.
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- The UK economy grew by just 0.1% quarter/quarter in the first three months of 2018, well below the 0.3% predicted. Year/year it expanded by a miserly 1.2% rather than the 1.4% forecast.
- That has made a Bank of England rate increase in May far less likely, GBP has dropped in response and could well weaken further.
UK GDP expanded by only 0.1% in the first quarter of 2018, below both the 0.3% expected and the 0.4% recorded in the fourth quarter of 2017. Year/year data painted a similar picture, with growth of 1.2% well below the 1.4% predicted.
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• German CPI data may amplify selling pressure battering the Euro
• US Dollar may solidify advance on upbeat PCE inflation figures
• Australian, NZ Dollars back on the defensive after brief rebound
German CPI data headlines the economic calendar in European trading hours. The headline on-year inflation rate is expected to tick down to 1.5 percent, an outcome broadly in line with the average for 2018 thus far. A disappointing outcome echoing recent underperformance relative to forecasts in regional data flow might reinforce an emerging dovish shift in ECB policy bets, hurting the Euro.
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• UK Manufacturing PMI falls to a 17-month low.
• GBPUSD breaks below 1.3700 for the first time since January.
UK Manufacturing PMI fell to a 17-month low in April at 53.9, dropping below expectations of 54.8, while the previous month had been revised lower to 54.9. In reaction to this underwhelming report, GBPUSD fell through the 1.3700 handle, reaching a low of 1.3682.
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• Commodity prices fell in pre-positioning for the FOMC rate decision
• Crude oil price range holds but gold seems to have broken downward
• Markets may be primed for a more hawkish Fed tone than is realistic
Worries about an accelerated pace of Fed interest rate hikes seemed to define price action benchmark commodities. Crude oil and gold prices tracked lower alongside bellwether S&P 500 futures while the US Dollar rallied and the priced-in 2018 rate hike path implied in Fed Funds futures steepened.
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• Gold price pop after FOMC meeting unable to sustain momentum
• Crude oil prices torn between conflicted supply trend speculation
• Service-sector ISM data might pressure commodity prices lower
Gold prices attempted a short-lived recovery but failed to sustain momentum yesterday. The metal probed higher as a reserved tone from the Fed cooled hawkish exuberance, as expected. A reversal wasn’t far behind however as traders digested language signaling greater scope for tightening beyond 2018. That steepened the yield curve and sent the US Dollar higher, tarnishing the appeal of anti-fiat alternatives.
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• U.S. Non-Farm Payrolls (NFP) to Increase 193K in April, Average Hourly Earnings to Hold Steady at Annualized 2.7%.
• EUR/USD Struggles to Extend Bearish Sequence Following Federal Open Market Committee (FOMC) Meeting.
Updates to the U.S. Non-Farm Payrolls (NFP) report may boost the appeal of the greenback as the economy is anticipated to add 193K jobs in April.
A further improvement in labor market dynamics may heighten the appeal of the U.S. dollar as it puts pressure on the Federal Open Market Committee (FOMC) to act at the next quarterly meeting in June, and Chairman Jerome Powell and Co. may show a greater willingness to deliver four rate-hikes in 2018 as the U.S. economy approaches full-employment.
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• EURUSD bearish trend remains intact after posting fresh YTD lows.
• US inflation data provides biggest risk for the Euro.
EURUSD made a firm breach below the psychological 1.2000 support area, subsequently setting the pair for a bearish trend to post fresh YTD lows of 1.1909. However, given the recent selling in EUR, investors will begin to ponder whether the bearish trend is set to continue.
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- A lack of any data over the next couple of days leaves EURUSD at risk of moving lower.
- Recent sentiment data highlights retail remains long of the pair.
A lack of any Euro-Zone hard data over the next two days leaves EURUSD liable to move back to lows seen at the end of last year as the downtrend seen in the last three weeks continues to hold. Recent data points show the Euro-Zone economy slowing down while inflation stubbornly refuses to move towards the central bank’s target.
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• Yen falls as Fed boosts global rates, hurting the go-to funding currency
• Aussie Dollar down on bets US Dollar yield advantage to widen further
• A speech from the Fed’s Bostic, US PPI data unlikely to bring fireworks
The Yen underperformed in Asia Pacific trade, falling alongside gold prices while front-end US Treasury yields rose. Realized and expected Fed interest rate hikes have bid up borrowing costs globally since close to 80 percent of all monetary transactions are settled in USD. Bets on more of the same after a hawkish speech form Chair Powell are thus understandably negative for the low-yielding Japanese unit as the emerging environment encourages build-up of JPY-funded carry trades.
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- The Bank of England’s monetary policy committee will almost certainly leave all its settings, including UK interest rates, unchanged today.
- That means GBP traders need to listen carefully to the central bank’s Governor Mark Carney when he comments on the decision.
- The Bank’s economic forecasts will also be important as GBPUSD stabilizes after its recent sharp falls.
The Bank of England’s monetary policy committee will almost certainly announce no change in UK interest rates and no change in its asset-purchase program today but traders in GBP will need to listen carefully when Bank Governor Mark Carney explains the decision and take a close look at the Bank’s quarterly Inflation Report.
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• Gold prices bounce from key support amid US Dollar pullback
• Crude oil price rise restrained on Saudi oil minister comments
• Commodities may consolidate amid lull in top-tier news flow
Gold prices traded higher as the US Dollar pulled back from a four-month high against its major counterparts, boosting the relative appeal of anti-fiat and non-interest-bearing assets epitomized by the yellow metal. April’s slightly disappointing US CPI data offered the move acceleration. It put the core inflation rate at 2.1 percent, short of analysts’ expectations.
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• US Dollar pullback continues, but may struggle for follow-through
• Comments from ECB officials may cool speculation on QE cutback
• Clarida, Bowman confirmation hearings to inform Fed policy bets
The US Dollar edged cautiously lower against its major counterparts, extending two days of corrective weakness after the benchmark currency hit a four-month high last week. The pullback appears to reflect digestion after an upshift in the expected Fed rate hike path drove an aggressive rally from mid-April lows.
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• EURUSD unfazed by Eurozone growth slowdown
• Rising trade and geopolitical tension weighs on economic sentiment
Slowdown in Eurozone Growth Confirmed
The Euro and DAX saw a largely muted reaction after a raft of Eurozone and German data points. Eurostat confirmed that Eurozone GDP for the first quarter of 2018 had slowed to 0.4% and 2.5%, which also follows the weaker than expected German growth figures reported earlier. Industrial production underperformed economic forecasts at 0.5% for March (Exp. 0.7%) and 3% for the year (Exp. 3.7%).
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- So far, Euro traders have paid little attention to Italian politics. However, looking ahead, a modest risk premium will likely have to be priced in.
- Italian government bonds and Italian stocks will also likely suffer.
A leaked draft of the program being discussed by the anti-establishment Five Star Movement (M5S) and the far-right League, which are trying to form a new Italian government after indecisive elections on March 4, contains several proposals that could affect the Euro, Italian government bonds (BTPs) and Italian stocks.
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• Gold breakdown has 2016 trend-line in focus
• Break below trend-line has attention towards 1230s
• Silver price and trend-line support at risk of breaking soon
The brutal trading range in gold was finally snapped on Tuesday, in a powerful way. It’s an outcome we discussed as likely in Tuesday’s webinar, and should lead to lower prices. But, first, there is one line of support which could keep gold propped up, even if only for a short-while.
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• Euro edges up from five-month low as Italy-linked worries cool
• NZ Dollar gains, Yen falls as risk appetite firms in APAC trade
• Canadian Dollar falls as Lighthizer deflates NAFTA deal hopes
The Euro managed to recover a bit of lost ground in Asia Pacific trade after sinking to a five-month low against an average of its major counterparts yesterday. The spread between German and Italian 10-year Treasury bond yields narrowed a bit yesterday, hinting at ebbing worries about the likely politics of an emerging anti-establishment coalition government in Rome.
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• Yen higher as markets digest US/China trade war de-escalation
• US Dollar may rebound as the spotlight turns to FOMC minutes
• British Pound looks to testimony from BOE officials for direction
The Yen edged up in otherwise quiet Asia Pacific trade, with the G10 FX space settling into digestion mode following yesterday’s fireworks. Commodity-bloc currencies notched up impressive gains as risk appetite firmed after China and the US opted against an all-out trade war, at least for now. Not surprisingly the chipper mood weighed on the anti-risk Japanese unit. Today’s upswing seems corrective in that context.
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• UK CPI downtick may cool BOE policy outlook, hurt British Pound
• Euro may decline as soft PMI data compounds Italy-linked pressure
• Hawkish tone in FOMC minutes may put US Dollar on the offensive
UK CPI data tops the economic calendar in European trading hours. The headline inflation rate is expected to hold steady at 2.5 percent but the core reading excluding volatile items like energy prices is forecast to tick down to 2.2 percent, the lowest in 13 months. Leading activity surveys bolster the case for disinflation, with a downside surprise likely to push back BOE rate hike bets and hurt the British Pound.
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