Don’t go barking up the wrong tree in the Year of the Dog

Don’t go barking up the wrong tree in the Year of the Dog

A predictable wave of profit taking and risk reduction, as is standard form ahead of US long weekends, dominated Friday session leading to USD gains as US  yields pulled back. And while the broader  US dollar negativity continues to seep through capital markets, some traders are suggesting of potential shifts in conviction levels while others believe  Friday to be little more than pre-weekend risk reduction. But one thing that’s clear, even the most prolific purveyors of price action are baffled regarding the breakdown of historical correlations across most asset classes.

One telling feature, however, is long-term investors continue to shun the greenback and this should continue to weigh on near-term sentiment. So no don’t  go barking up the wrong tree in this Year of the Dog, stick to the basics and follow the flow.

By way of the ordinary course of developments, the various market holiday observances might challenge liquidity conditions. Golden Week celebrations continue across Asia through Wednesday, while both the US and Canada take holidays Monday. Still, it could be an actionable week with numerous Fed speakers on tap and the FOMC minutes are sure to liven things up. Keep in mind; March rate hike is all but entirely priced-in so the markets will be keying on forwarding guidance.

As the markets pivot to Fed speak and the FOMC minutes this week, “deficit mania” is sounding a few decibels lower this morning.But none the less, ongoing concerns about swelling deficit’s and the Feds sequence of interest rate normalisation should be the markets key focus this week and the primary drivers of near-term volatility.

And while US Bond yields eased on Friday,  traders see icebergs ahead suggesting Friday’s price action was little more than a reprieve amidst a bear market.

Equity Markets

Equity markets continue climbing the wall of worry despite inflationary fears gaining momentum and Bond Yields moving higher.Eventually, something has to give, but so far investors are betting on corporate earning rather than the shifting macro narratives.

Oil markets 

Oil prices finished modestly higher on Friday to chalk up a weekly gain as prices continue to see-saw between the binary descriptions from OPEC’s ongoing efforts to blow out the worldwide glut against the indications of rising U.S. production.Although Fridays price movements were likely  position sensitive amid USD risk reduction and book squaring ahead of tomorrows Oil contract expiration

We should expect the WTI whipsaw to continue as debate rages between US shale and OPEC, but we’re starting to carve out near-term ranges as longer-term oil bulls remain in dip buying mode with shale oil hedger looking to sell upticks.
Gold Markets

Gold prices eased late Friday as the dollar tentatively lifted off the canvas, despite taking a standing eight count earlier in the session when the DXY hit a three year low. A couple of hours USD short covering is unlikely to change the broader USD negativity, but when coupled with inflationary concerns heightening and a probable follow-up correction in equities markets around the corner, golds haven demand should continue to glitter.

On the physical side of demand, China Lunar New Year has seen few gold bars change hands despite physical premiums easing as futures prices continue to grind higher.

G-10 Currency Markets

Japanese Yen

Although the reappointment of Kuroda and the reshuffle of deputy governors is slightly more dovish BoJ, it is hard to reverse USDJPY downside given that continuous USD weakness could further drag USDJPY into the abyss. With the tables turned upside down on ten year US yield to JPY correlation and the US ” deficit mania. ” likely to return, USDJPY is in a precarious position.

Predictably we heard from Japan as Currency Chief Asakawa that he’s readying the necessary action to prevent “one-sided” currency moves, but with the Buck getting pounded against all major currencies, Japans verbal intentions are falling on deaf ears.
The Euro

The pace of the EURUSD rally post-CPI last week surprised everyone but none the less if not for timely comments( seems always to happen when EUR rallies) from ECB Cœuré, we should have closed closer to the 1.2500 rather than 1.2400 handles. His remarks spooked the markets in pre-weekend risk reduction mode after he suggested policymakers are unanimous in sequence when market positioning was suggesting the Hawks were gaining the upper hand. But at some juncture, the market will ignore this verbal balderdash, and in reality, 1.3000 shouldn’t be unimaginable before long predicated on strong fundamentals, the realisation of more hawkish ECB guidance but also the mechanics of the taper could reverse bond outflows.

Asia FX

Malaysian Ringgit 

External drivers and specifically the broader USD moves will dictate the Ringgit momentum this week with the critical focus on USDJPY 106 level.But on the positive side of the equation, one of the primary headwinds that we considered to be a negative for the Ringgit was higher US yields which typically and historically have supported the USD. But the US interest rate to FX correlation broken, and despite USD bond yields pushing much higher t, the USD continues to sell off.

The markets are still feeling the hangover effect from the Chinese Lunar New Year, and risk appetite is waning and with a plethora of Fed speak along with the FOMC minutes likely to cause an uptick in volatility this week, offshore demand could remain muted. None the less, 106 level USDJPY will be a crucial US dollar sentiment gauge, and if the market pushes through again this week, we could see the Ringgit move to 3.87 and below as traders would then set sights on the critical 3.85 level.

Singapore Dollar

The US CPI fallout was somewhat unusual; triggering moves out of the dollar and into riskier currencies, so the SGD benefited as the CNH rallied hard this week.But  CNH could start to underperform. Let me qualify this next comment as no one, and I mean no one knows what the Pboc are going to do. So we can only make hay from innuendo and strategically placed criticisms from regulators in HK  press. But there seems to be a  pickup in debate onshore about the merits of further RMB appreciation which could dent SGD appeal. But in the mean times, we should enjoy the SGD strength ( not because I get paid in SGD, although that is always a welcome bonus). But there is some real value appeal that has emerged in SGD  ahead of this weeks budget, as a rosier outlook in the statement could be the precursor to monetary tightening.But also appealing to foreign investors is the government will take measures to cover the current operating fiscal deficit gap.

Dollar Regains Ground Ahead of Fed Minutes

Higher US inflation fails to spark dollar revival

The US dollar depreciated across the board versus major pairs despite consumer prices rising more than expected. Inflation anxiety had triggered a sell-off in global stock markets with the Fed expected to ramp up their interest rate hike path yet the dollar did not benefit as higher rates have already been priced in by the market. Fiscal uncertainty driven by political factors continue to confound investors with stock indices rebounding this week and the dollar hitting a 2014 low. The paradox in consumer spending and retail sales continues as Americans remain confident in the economic outlook yet core retail sales remain flat and taking into consideration auto sales they actually dropped by 0.5 percent. The dollar showed some signs of life on Friday as it gained against a basket of major pairs, but not enough to offset the losses earlier in the week.

  • Fed to release minutes of January meeting
  • Kuroda renominated as Governor of Bank of Japan (BOJ)
  • Lower trading activity with start of Chinese New Year celebrations and 3 day weekend in NA

Dollar Recovers on Friday But Still Underwater this Week



The EUR/USD gained 1.62 percent in the last five days. The single currency is trading at 1.2448 with the EUR recovering against the earlier losses versus the USD suffered earlier in the month. US inflation rose more than expected and US treasuries dropped in prices as investors sold them anticipating higher rates this year. Bond yields rose with the 10 year at four year highs (2.93 percent). The correlation between higher yields and a stronger currency is broken at the moment for the USD as the confidence in the stability of the US economy is up for debate. Fundamentals are strong and would point to a higher dollar, but political uncertainty around fiscal stimulus has made it hard to quantify the effects of actual and proposed legislation on the currency. The U.S. Federal Reserve will publish the minutes from its January Federal Open Market Committee (FOMC) meeting on Wednesday, February 21 at 2:00 pm EST. The meeting was the last presided by Chair Janet Yellen and is not expected to bring any surprises, but could prepare the market on what to expect in March when Chair Jerome Powell heads his first FOMC.

The USD went through a topsy-turvy week, with Wednesday’s release of consumer price index data providing the most volatility. The market forecasts were slightly improved with a 0.3 percent monthly gain. The employment report in February 2 was the first data point that suggested a stronger inflationary pressure. Stock markets had already suffered two difficult weeks and the dollar rose as the inflation data was released only to quickly give back all gains and end up in the red.

President’s day in the US will give some investors a much needed rest from a high octane trading week. The Lunar New Year celebrations will also affect trading volumes as Hong Kong and China markets will remain closed until Thursday. Stock markets had a positive week after stronger corporate results erased earlier losses.



The USD/JPY lost 2.38 percent during the week. The currency pair is trading at 106.19 as the JPY keeps gaining. The government issued a statement where it was clear there is no need for intervention and the market took it as a sign to keep buying the yen. The tone changed slightly on Friday as the currency kept appreciating and there were some warning that the trade is one sided. The softness of the USD and uncertainty about how the American government will deal with growing twin deficits and political drama has boosted the JPY due to some safe haven flows.

The reappointment of BOJ Governor Haruhiko Kuroda along with other nominations of economist who favour further easing did not factor into Yen pricing in the short term, but should impact the growing gap between rates in Japan and the United States. In the short term, lack of stability in politics and fiscal uncertainty are overriding higher growth and interest rate expectations in the US.



Oil prices advanced during the week. The price of West Texas Intermediate is trading at $61.21 with most of the gains in energy coming from dollar softness. Oil prices suffered losses earlier in the month as higher production in Canada, Brazil and the United States is anticipated given the high prices and producers in those nations not bound to the Organization of the Petroleum Exporting Countries (OPEC) production cut agreement. Lack of traction of the US currency is keeping prices above $60.

A small rise in oil rigs in Baker Hughes was not enough to derail energy prices specially with an underlying weak US dollar. The OPEC agreement with other major producers has stabilized oil prices after the freewill caused by overproduction. The question remains if demand for energy has recovered to the point that even after the agreement timeline runs out supply will not once again outweigh demand causing another drop in prices.

Market events to watch this week:

Monday, February 19
7:30pm AUD Monetary Policy Meeting Minutes
Wednesday, February 21
4:30am GBP Average Earnings Index 3m/y
9:15am GBP Inflation Report Hearings
2:00pm USD FOMC Meeting Minutes
Thursday, February 22
4:30am GBP Second Estimate GDP q/q
8:30am CAD Core Retail Sales m/m
11:00am USD Crude Oil Inventories
4:45pm NZD Retail Sales q/q
Friday, February 23
8:30am CAD CPI m/m

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

US Indices on Course For Full House

Futures Point to Full Week of Gains After Sharp Correction

US equity markets could end the week with a full house of gains as long as indices manage to hold onto the small gains being seen in futures ahead of the open.

This would also bring an end to two shocking weeks for equity markets that saw more than 10% quickly wiped off indices, the first time we’ve seen such a move since the start of 2016. While the prospect of higher yields and interest rates, combined with a surge in volatility, have been blamed for the decline, the rebound we’re now seeing reaffirms the belief that fundamentals are still strong which should prevent the situation deteriorating further.

There are a few economic releases that traders will likely be aware of as the week draws to a close. The UoM consumer sentiment reading is always an interesting release, given the importance of the consumer to the US economy. Building permits and housing starts will also be released ahead of the open on Friday. The bulk of companies may have already reporting numbers for the fourth quarter but there are still some more to come today, with 13 due to release earnings including Coca Cola and Kraft Heinz.

US Bond Auction TIPS the dollar

Sterling Resilient After Poor Retail Sales Figures

UK retail sales data for January was once again disappointing, providing further evidence that the post-Brexit squeeze on consumers is heaving an economic impact. While this could be partially reversed as sterling continues to rebound off its lows and wage growth picks up to offset higher living costs – assuming it does – we’re seeing few signs that the squeeze is easing and that’s being reflected in the spending figures.

The pound has actually been quite resilient to the data in the aftermath of the release. While it has since declined against the dollar, this has primarily been driven by the bounce in the greenback. The consumer squeeze and economic implications of it are already known and priced in, traders are far more concerned with wages and inflation and the impact this will have on interest rates, which makes the jobs report next Wednesday far more important.

GBPUSD Daily Chart

OANDA fxTrade Advanced Charting Platform

Bitcoin Struggling to Overcome Psychological Barrier

Bitcoin is once again threatening the psychological $10,000 barrier but as was the case on Thursday, it’s struggling to maintain its push above and once again finds itself falling slightly short. While a break above $10,000 should be no more significant than any other, it would appear to represent an end to the plunge in bitcoin that saw it fall around 70% from its mid-December highs and for this reason, it’s proving a difficult hurdle to overcome.

Bitcoin (CME) Daily Chart

Source – Thomson Reuters Eikon

Those expecting a similar response to breaking above $10,000 that we saw last time – a near 100% increase in less than three weeks – may also be disappointed. We’re not seeing the kind of euphoria that accompanied the break at the end of November when the speculative fomo trade was contributing greatly to its meteoric rise. The crash of the last couple of months has made this less of a one-way move and those that got burned may not be so keen to jump back in.

DAX Gains Ground as Dollar Under Pressure

All of this is assuming that bitcoin will break above $10,000 which is far from certain when you consider the gradual – by its own standard – bounce from its lows. This could quite easily be another corrective move and the lows may be tested once again. The absence of a constant negative news flow is helping but whether this can be sustained is debatable.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

USD/CAD – Canadian Dollar Trading Sideways, US Housing Reports Next

The Canadian dollar is showing little movement in the Friday session, continuing the trend we saw on Thursday. Currently, USD/CAD is trading at 1.2493, up 0.10% on the day. On the release front, Canada releases Manufacturing Production, which is expected to slow to 0.2% in December, after a strong 3.4% gain in November. In the US, Building Permits is expected to inch lower to 1.30 million, and Housing Starts are projected to improve to 1.23 million. As well, UoM Consumer Sentiment is expected to rise to 95.4 points.

The US dollar has been under pressure from rival currencies throughout the week, and the Canadian dollar has jumped on the bandwagon. On Wednesday, the Canadian currency posted its best one-day performance in 2018, gaining close to 1 percent against the greenback. The US dollar sagged as investors focused on poor retail sales reports in January. Retail Sales was flat at 0.0%, short of the estimate of 0.5%. Core Retail Sales declined 0.3%, well off the forecast of +0.2%. Last week’s market sell-off, which sent the US dollar higher against other currencies, was triggered by fears of higher inflation. The US has posted strong inflation numbers this week, and this has raised concerns that investors could again lose their risk appetite and send the Canadian dollar lower.

The recent volatility in the stock markets could affect US interest rate policy. Currently, the Fed has projected three hikes this year, but that could change to four or even five hikes, if inflation continues to head upwards and the robust US economy maintains its strong expansion.  The new head of the Federal Reserve, Jerome Powell, received a rude welcome from the stock markets, when he started his new position last week. Powell sought to send a reassuring message earlier this week, declaring that the Fed is on alert to any risks to financial stability. However, it is clear that the Fed’s hand is limited when it comes to stock markets moves, and the volatility which we saw last week could resume at any time.

 

USD/CAD Fundamentals

Friday (February 16)

  • 8:30 Canadian Foreign Securities Purchases. Estimate 19.18B
  • 8:30 Canadian Manufacturing Sales. Estimate 0.2%
  • 8:30 US Building Permits. Estimate 1.29M
  • 8:30 US Housing Starts. Estimate 1.23M
  • 8:30 US Import Prices. Estimate 0.6%
  • 10:00 US Preliminary UoM Consumer Sentiment. Estimate 95.4
  • 10:00 US Preliminary UoM Inflation Expectations

*All release times are GMT

*Key events are in bold

 

USD/CAD for Friday, February 16, 2018

USD/CAD, February 16 at 7:05 EST

Open: 1.2481 High: 1.2494 Low: 1.2450 Close: 1.2493

 

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.2060 1.2190 1.2351 1.2494 1.2630 1.2757

USD/CAD edged lower in the Asian session but has recovered in European trade

  • 1.2351 is providing support
  • 1.2494 is under pressure in resistance
  • Current range: 1.2351 to 1.2494

Further levels in both directions:

  • Below: 1.2351, 1.2190 and 1.2060
  • Above: 1.2494, 1.2630, 1.2757 and 1.2855

OANDA’s Open Positions Ratio

USD/CAD ratio is almost unchanged in the Friday session. Currently, long positions have a majority (54%), indicative of trader bias towards USD/CAD breaking out and moving lower.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

DAX Gains Ground as Dollar Under Pressure

The DAX index has posted considerable gains in the Friday session. Currently, the index is trading at 12,418.30, up 0.58% since the Wednesday close. On the release front, the sole release was the German Wholesale Price Index, which rebounded with a strong gain of 0.9%, crushing the estimate of 0.2%.

It’s been a dismal February for the DAX, which has shed 6.1%. However, the index has steadied, and appears headed towards its first winning week since January. The catalyst for the turnaround after the recent sell-off is strong corporate earnings in Europe. European stock markets have taken their cue from US markets, which have posted gains this week at the expense of the weaker US dollar.

The recent stock market turbulence has triggered volatility in the currency markets, and this is causing concern at the ECB. Last week, ECB President Mario Draghi said that he is more confident that eurozone inflation is moving closer to the Bank’s target of just below 2 percent, due to improving economic growth. However, Draghi listed currency market volatility as an obstacle to the inflation target, and added that the ECB would carefully monitor the euro’s exchange rates. The ECB tapered its massive stimulus program from EUR 60 billion to 30 billion/mth in January, and the markets are on the lookout for hints as to whether the ECB will normalize policy and wind up stimulus in September.

Economic Calendar

Friday (February 16)

  • 2:00 German WPI. Estimate 0.2%. Actual 0.9%

*All release times are EST

*Key events are in bold

 

DAX, Friday, February 16 at 6:10 EDT

Open: 12,408.29 High: 12,483.50 Low: 12,368.00 Close: 12,418.30

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

EUR/USD – Euro Hits 3-Year Higher as German Inflation Jumps

The euro rally is steady in the Friday session. Currently, the pair is trading at 1.2503, down 0.02% on the day. On the release front, the German Wholesale Price Index climbed 0.9% in January, rebounding from a reading of 0.3% in December. In the US, Building Permits is expected to inch lower to 1.30 million, and Housing Starts are projected to improve to 1.23 million. As well, UoM Consumer Sentiment is expected to rise to 95.4 points.

The euro continues to trade above the 1.25 level this week. Earlier on Friday, EUR/USD touched its highest level since December 2014, as the US dollar remains under broad pressure. The euro has posted winning sessions every day this week, and the currency has gained 2.1% this week. US inflation indicators pointed upwards this week, but investors chose to focus on soft retail sales reports for January – Retail Sales posted a flat reading of 0.0%, and Core Retail Sales declined 0.3%, marking its first decline in five months.

The recent volatility in the currency markets has not gone unnoticed by Mario Draghi & Co. Last week, the ECB head expressed confidence that eurozone inflation is moving closer to the Bank’s target of just below 2 percent, due to improving economic growth. However, Draghi listed currency market volatility as an obstacle to the inflation target, and added that the ECB would carefully monitor the euro’s exchange rates. The ECB tapered its massive stimulus program from EUR 60 billion to 30 billion/mth in January, and the markets are on the lookout for hints as to whether the ECB will normalize policy and wind up stimulus in September. Any hints from ECB policymakers about a change in policy could have a strong impact on the movement of the euro.

US Bond Auction TIPS the dollar

EUR/USD Fundamentals

Friday (February 16)

  • 2:00 German WPI. Estimate 0.2%. Estimate 0.9%
  • 8:30 US Building Permits. Estimate 1.29M
  • 8:30 US Housing Starts. Estimate 1.23M
  • 8:30 US Import Prices. Estimate 0.6%
  • 10:00 US Preliminary UoM Consumer Sentiment. Estimate 95.4
  • 10:00 US Preliminary UoM Inflation Expectations

*All release times are GMT

*Key events are in bold

 

EUR/USD for Friday, February 16, 2018

EUR/USD for February 16 at 5:40 EDT

Open: 1.2506 High: 1.2556 Low: 1.2497 Close: 1.2503

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.2286 1.2357 1.2481 1.2569 1.2660 1.2751

EUR/USD posted gains in the Asian session but has retracted in European trade

  • 1.2481 is providing support role
  • 1.2569 is a weak resistance line

Further levels in both directions:

  • Below: 1.2481, 1.2357, 1.2286 and 1.2200
  • Above: 1.2569, 1.2660 and 1.2751
  • Current range: 1.2481 to 1.2569

OANDA’s Open Positions Ratio

EUR/USD ratio is showing little movement in the Friday session. Currently, short positions have a majority (63%), indicative of EUR/USD reversing directions and moving to lower ground.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

US Bond Auction TIPS the dollar

US Bond Auction TIPS the dollar

A dismal US 30year TIPS auction is weighing on dollar demand as the sagging bid to cover ratio of 2.31 is signalling dwindling investor appetite as inflationary headwinds build. The dollar is lower because no one wants to own US bonds despite the higher yield, knowing the inflationary headwinds will push yields higher and bond prices lower

The market remains nonplussed by the breakdown of FX /Interest rate correlations and while the debate still rages concerning Wednesday dollar sell-off. I think its time to throw textbook economics out the window as well as the so-called interest rate pivot point. G-10 yield differentials are so tiny that traders could care less about differentials as they become increasingly focused on the future outlook of the expanding US deficits and in particular the budget deficit

Another hot inflation reading as PPI showed a substantial gain but provided no bounce to the buck. When real money is taking the dollar to the woodshed and reluctant to own greenbacks in anyway shape or form, it matters little what the Feds are doing or yields for that matter. And by all indications, we could be in the early stages of protracted dollar sell-off.
Equity Markets

Equity investors are in a happy spot as US stock markets carved out their fifth consecutive day of gains. Despite a midday swoon, markets roared back as investors view the uptick in inflation as non-threatening and remain in buy on dip mode as last weeks equity meltdown looks more and more like an illogical outlier than ever.

Oil Markets

After the decent bounce on the back weaker dollar and Khalid al-Falih suggesting no imminent demise of OPEC and non-member compliance. Not unexpected the markets are becoming a bit more position sensitive heading into the weekend. The weaker US dollar has been a significant component driving market sentiment, and with the dollar entering oversold territory at weeks end, we could see short dollar position pared which could negatively impact interday oil prices.

Frankly giving the evolving vital narratives surrounding OPEC compliance vs Shale output I expect the WTI whipsaw to be as active next week as it was this week. But given the overly bearish outlook for the greenback, we may have printed a short-term floor and dips will remain supported.

Gold Markets

There was very little follow through on the much hotter than expected US PPI print which convinced investors to book some profits after gold rallied hard the previous session. A while the weaker USD is underpinning gold prices, the short dollar speculators a bit overextend suggesting the market could pare back US short dollar risk which may temper topside expectations for Gold prices today. Medium-term bullish conviction remains intact given the higher US inflation profile and weaker USD narrative.

Crypto Markets

Bitcoin buyers were back en masse chasing the dream as the fear of missing ( FOMO)out propelled BTC above 10,000. It appears the recent wave or regulatory worries have been tempered as the massive South Korean market could roar back to life as rumours are circulating that Seoul is looking at licencing several exchanges adding a level of credibility and shoring up severely dented investor confidence.
Currency Markets

The Japanese Yen

Talking about FOMO, is there anyone who is not short USDJPY? Of course, “the crowded trade theory” did cross my mind overnight, for second or two, as USDJPY powered back to 106.80 overnight on the Wakatabe headline, before pressing the sell button again. Dovish or not the market cares little about centeral bank policy these days while looking for any and all opportunities to hammer the dollar mercilessly. With very little chance of intervention at these levels, the JPY bulls should continue to have their way near-term.But short-term speculators are a bit stretched so now is not the time to get greedy.Let’s see what fortunes next week brings.

The Euro

It looks like the grind higher is back in fashion, and the upticks have been relentless over the past 24 hours. But unlike the recent test of 1.25 positioning is much lighter so we could punch higher as traders continue moan over not buying the dips to the low 1.22’s

The Malaysian Ringgit

Powerful bullish signals are falling on deaf ears as investors are far and few between due to Chinese Lunar New Year and quite frankly it’s not worth paying the holiday liquidity premiums to put on risk. Very little offshore interest today so expect the market to remain quiet.

High Levels of Canadian Debt Worry BoC

A senior Bank of Canada official says the central bank is looking at how the high levels of household and public debt could pose a challenge to how it manages monetary policy.

In a speech to the Manitoba Association for Business Economists, deputy governor Lawrence Schembri says high debt levels mean there is less space, on average, for more borrowing to stimulate demand.

The central bank is also looking at what the gradual decline in interest rates over the past 25 years and a reduction in the estimates of the “neutral interest rate” mean for the monetary policy framework.

Schembri says the trend rate of economic growth has been decreasing and that could also pose challenges because cyclical forces that normally help propel an economy out of an unexpected downturn may be less powerful.

The Bank of Canada sets its key interest rate target with the goal of keeping inflation at two per cent.

It has raised its target for the overnight rate three times in the past year after cutting it in response to a drop in oil prices. The benchmark rate, which influences the prime rates at Canada’s big banks, stands at 1.25 per cent.

via Financial Post

Gold Takes Breather After Strong Gains

Gold prices is trading sideways in the Thursday session, after surging higher on Wednesday. Currently, the spot price for an ounce of gold is $1351.30, up 0.05% on the day. On the release front, PPI gained 0.4%, matching the forecast. Core PPI also gained 0.4%, beating the estimate of 0.2%. Both indicators rebounded after declines in the previous month. Unemployment Claims climbed to 230 thousand, just above the estimate of 229 thousand. Manufacturing data was mixed. The Empire State Manufacturing Index continues to slow down, and dropped to 13.1, missing the estimate of 17.7 points.The Philly Fed Manufacturing Index rose to 25.8, easily beating the estimate of 21.5 points. On Friday, the US releases key housing and consumer confidence numbers.

The US dollar has sagged against the major currencies, and gold has jumped on the bandwagon. On Thursday, gold jumped 1.6% on disappointing retail sales reports. Concerns of high inflation was a catalyst for the market sell-off last week, and fears of a resumption in the downward spiral are weighing on the dollar. If investors react negatively and ditch the markets yet again, safe-haven assets like gold will likely be the big winners. Gold prices were down in the first half of February, but gold has recovered these losses, after posting strong gains of 2.7% this week. US fundamentals remain solid, as the US economy is showing strong expansion, the labor market remains at capacity, and inflation levels are moving higher. This has led some analysts to attribute the recent sag in the US dollar to technical factors rather than fundamental reasons.

The new head of the Federal Reserve, Jerome Powell, received a rude welcome from the stock markets, as he started his new position last week. Powell sought to send a reassuring message on Tuesday, saying that the Fed is on alert to any risks to financial stability. However, it is clear that the Fed’s hand is limited when it comes to stock markets moves, and the volatility which we saw last week could resume at any time.Currently, the Fed is planning three hikes this year, but that could change to four or even five hikes, if inflation continues to head upwards and the robust US economy maintains its strong expansion.

 

XAU/USD Fundamentals

Thursday (February 15)

  • 8:30 US PPI. Estimate 0.4%. Actual 0.4%
  • 8:30 US Core PPI. Estimate 0.2%. Actual 0.4%
  • 8:30 US Empire State Manufacturing Index. Estimate 17.7. Actual 13.1
  • 8:30 US Philly Fed Manufacturing Index. Estimate 21.5. Actual 25.8
  • 8:30 US Unemployment Claims. Estimate 229K. Actual 230K
  • 9:15 US Capacity Utilization Rate. Estimate 78.0%. Actual 77.5%
  • 9:15 US Industrial Production. Estimate +0.2%. Actual -0.1%
  • 10:00 US NAHB Housing Market Index. Estimate 72. Actual 72
  • 10:30 US Natural Gas Storage. Estimate -193B. Actual -194B
  • 16:00 US TIC Long-Term Purchases. Estimate 50.3B

Friday (February 16)

  • 8:30 US Building Permits. Estimate 1.29M
  • 8:30 US Housing Starts. Estimate 1.23M
  • 8:30 US Import Prices. Estimate 0.6%
  • 10:00 US Preliminary UoM Consumer Sentiment. Estimate 95.4

*All release times are EST

*Key events are in bold

 

XAU/USD for Thursday, February 15, 2018

XAU/USD February 15 at 12:15 EST

Open: 1350.66 High: 1357.19 Low: 1348.61 Close: 1351.30

 

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1285 1307 1337 1375 1416 1433
  • XAU/USD posted slight gains in the Asian session but retracted in European trade. The pair is showing limited movement in North American trade
  • 1337 is supporting support
  • 1375 is the next resistance line
  • Current range: 1337 to 1375

Further levels in both directions:

  • Below: 1337, 1307, 1285 and 1260
  • Above: 1375, 1416 and 1433

OANDA’s Open Positions Ratio

XAU/USD ratio is showing movement towards long position. Currently, long positions have a majority (55%), indicative of trader bias towards XAU/USD breaking out and moving higher.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.