April 20, 2017

Daily Observations:

Asian stock markets climbed as oil pared back some of its overnight slump and better-than-expected trade data in Japan boosted optimism in the global economy. The Fed’s Beige Book showed the US economy continued to expand steadily. Gold slid below the $1,280/Oz handle, while the 10yr Treasury yield regained above the 2.20% mark.

US:

• According the Fed’s Beige Book released Wednesday, which is based on anecdotal information collected by regional Fed banks covering mid-February through the end of March, the US economy continued to grow at a modest-to-moderate pace in recent weeks as a tight labor market helped broaden wage gains, though consumer spending was mixed.
• Wages showed progress in responding to a tightening job market with most districts reporting “difficulty filling low-skilled positions” and stronger demand for higher-skilled workers. Inflation was modest, with selling prices climbing “only slightly”, the report indicated.
• The Beige Book painted a picture of an economy maintaining its steady expansion, without a rapid pickup that would reflect the surge in confidence among consumers and businesses. At the same time, underlying growth might not be was weak as some estimates indicate, such as the Atlanta Fed’s GDPNow forecast showing a 0.5% pace of GDP gains in the first quarter, following the previous period’s 2.1% rate.
• Federal Reserve Vice Chairman Stanley Fischer said he expects the Fed’s removal of accommodation will be driven by continued expansion of the economy, and that foreign economies are likely to benefit from the developments that induce the Fed to tighten.
• The Fed’s Boston President Eric Rosengren, commented that the central bank should shrink its out-sized balance sheet slowly enough that officials don’t need to alter the path of interest-rate increases. While that exit “could begin relatively soon”, he said “the tightening of short term interest rates should not need to be much different than it would be in the absence of shrinking the balance sheet”.
• The US dollar rallied overnight, as a tumble in crude oil prices weakened commodity currencies against the greenback; the Bloomberg Dollar Spot Index rose 0.5%, erasing all of Tuesday’s losses.
• Treasuries declined after the Beige Book noted healthy economic activity and hawkish comments from Rosengren; the benchmark 10yr Treasury yield rose 4bps to 2.21%.
• The S&P 500 Index retreated 0.2%, with IBM leading all losers to fall 4.9% after the company reported its 20^th straight quarter of year-on-year declines.

France:

• Ahead of the first round of voting in France’s presidential election this weekend, polling is suggesting it will be a close call. Every poll for the past month has shown independent Emmanuel Macron and the national Front’s Marine Le Pen taking the top 2 spots. Yet both front-runners have been steadily slipping over the past 2 weeks, and Republican Francois Fillon and Communist-backed Jean Luc Melenchon are now within striking distance.

Europe:

• European Central Bank officials signalled that they’re getting close to the point when they’ll start preparing for the end of an era of unprecedented stimulus. Executive Board members Benoit Coeure and Peter Praet agreed that the euro-area recovery has become broad-based, while diverging on whether the risks to that outlook are still skewed to the downside.

Japan:

• Exports in March grew 12.0% from a year earlier, the fastest pace in more than 2 years, surpassing the median estimate of 6.2%. Imports jumped 15.8% over the same period, the biggest gain in more than 3 years, and comfortably beating the expected rise of 10.0%.
  
• According to a Bloomberg analytical piece, exports have recently become a bright spot in Japan, and this morning’s data indicates the growing health of the global economy, particularly in Asia.

Precious Metals:

• Spot gold is poised to decline for a third consecutive session, and was 0.7% lower at $1,274.27/bbl earlier.
• The precious metal has pulled back a little following a 7.4% rise over the past month, but is expected to be supported above its 200-day moving average at $1,255.91/Oz, amid increased geopolitical uncertainties surrounding North Korea, the French elections, US-Russia relations, and more recently, UK’s upcoming snap elections. The key psychological resistance at $1,300/Oz remains.
• Silver for immediate delivery declined by as much as 0.7% to $18.1047/Oz, pulling back to its 200-day moving average near the $18/Oz handle.

Oil

• Crude oil futures expiring in May tumbled 3.8% to $50.44/bbl in New York, falling the most in 6 weeks after the Energy Information Administration reported US output last week increased to the highest level since Aug. 2015.
  

USDSGD:

• Spot 1.3982
• USDSGD was steady and seems to be consolidating in a narrow range, sandwiched between its 200-day moving average and trend line resistance from the high in January.
  
  (source: Bloomberg)
• The 5-month low of 1.3909 acts as the next key support level. To the upside, the next resistance is at 1.4082.

AUDUSD:

• Spot 0.7509
• The Aussie dollar paused its 2-day sell-off, and looks to be supported around the 0.7500 handle, mainly tracking the recovery in iron ore prices after the ferrous metal snapped 2 days of sharp losses.
• AUDUSD declined by as much as 0.4% to 0.7492 last night before paring declines earlier today.
• Having fallen below its 200-day moving average for the third time in 6 weeks on Monday, the pair could test its 3-month low of 0.7473 should bearish momentum persists.

USDCAD:

• Spot 1.3478
• USDCAD advanced 0.5% to 1.3490, with oil’s overnight slump proving tailwinds for the currency pair.
• The major resistance level at 1.3600 – a 14-month high, looms ahead.

USDCNH:

• Spot 6.8854
• The PBOC earlier weakened its reference rate by 0.19% to 6.8792664 to the US dollar, from 6.8664 yesterday.
• USDCNH was mostly steady, edging 0.1% higher to 6.8873 on the back USD strength.

USDJPY:

• Spot 108.94
• USDJPY recovered back to the 109 handle, following overnight dollar strength. It will be interesting to see what the pair does from here on, as it is currently trading right around its 200-day moving average of 108.87.
• The pair earlier this week closed below its 200-day moving average for the first time since 9 Nov. last year.

GBPUSD:

• Spot 1.2789
• GBPUSD corrected 0.5% lower earlier today to as low as 1.2771, largely due to USD strength as well as a technical correction following its huge jump earlier this week.
• The 200-day moving average of 1.2616 will act as key support level moving forward. The 1.3000 psychological level could provide some short-term resistance, but over the longer-term, the key level to watch is 1.3500.