February 23, 2017

Daily Observations:

Most major Asian indices followed US equities lower, despite rather dovish minutes from the Fed’s most recent meeting. The US dollar was weaker overnight but manage to pare some of its losses during Asia trade this morning. Gold was largely unchanged.

US:

  • According to the Fed’s minutes of its latest meeting, policymakers expressed confidence they can raise rates gradually, and a hike “fairly soon” might be appropriate to avoid the risk of an overheated economy.
  • The FOMC wants to shift out of this ultra-gradual mode, and they seem to have more conviction about a series of increases this year but aren’t convinced now is the right time to take the next step. That could change at any time if data confirms their forecast or beats it, the minutes further showed.
  • Fed Governor Jerome Powell told reporters after the release of the minutes that a rate increase may be appropriate in the near future if the economy stays on track.
  • Allianz SE chief economic adviser Mohamed El-Erian tweeted that given the FOMC minutes and recent economic data, the implied probability of a March rate increase “seems too low” – currently at 34%, and sees odds of a March hike at 50-60% instead. He added that February’s jobs reports, particularly wage growth, will have a “notable impact” on the committee at next month’s meeting.
  • The benchmark 10yr Treasury yield fell 2bps to 2.41% after rising 2bps earlier following the more-dovish-than-expected minutes.
  • The US dollar edged lower with the Bloomberg Dollar Spot Index declining 0.2% in New York, but paring losses to gain 0.1% in Asia this morning.
  • The S&P 500 Index fell 0.1% with losses in the energy sector offsetting gains by utility shares.
  • So far in the US earnings season, quarterly profit for S&P 500 companies are up 5.4%, the strongest growth since 3Q 2014, according to Bloomberg data.

Canada:

  • Retail sales in December declined 0.5% from a month earlier, worse than the 0.0% growth projected by analysts. Excluding automobile sales, retail sales fell 0.3%, missing the 0.5% increase predicted.

France:

  • Independent candidate Emmanuel Macron agreed to an alliance with his centrist rival Francois Bayrou, boosting his run for presidency against populist National Front leader Le Pen.
  • Marine Le Pen’s head of cabinet was charged yesterday for being the recipient of misappropriated funds, according to the Paris prosecutor’s office. Le Pen has formally rejected the allegations, saying they were politically motivated.

UK:

  • GDP in 4Q 2016 expanded 0.7% quarter-on-quarter and 2.0% year-on-year, with the former exceeding estimates of 0.6% but the latter missing expectations of 2.2%.
  • Exports jumped 4.1% from the previous quarter, beating the median estimate of 2.0%. Imports over the same period unexpectedly declined 0.4%; analysts had predicted a 0.3% gain.

Australia:

  • Private capital expenditure last quarter declined 2.1%, slowing from the 3.3% decline in Q3 but worse than the median estimate of -0.5%.

Precious Metals:

  • Spot gold was largely unchanged following the release of last night’s Fed minutes as the precious metal continues to be stuck in a range, held down by the outlook for higher US interest rates and a stronger dollar, yet buoyed by investors seeking a haven from political risk in the US and Europe..
  • The precious metal looks to continue its sideways movement over the near term, between the $1,220/Oz and $1,250/Oz range.
  • Silver for immediate delivery was mostly unmoved as well earlier today, with the metal fluctuating around the $18/Oz handle.

Oil:

  • Crude oil futures expiring in April declined 1.4% in New York before paring losses in early Asian trade this morning and gaining 0.9% back above the $54/bbl handle.
  • The American Petroleum Institute is expected to report later today US inventories dropped by 884,000 barrels last week, the first contraction of the year.

 

USDSGD:

  • Spot 1.4160
  • USDSGD fell by as much as 0.5% to 1.4109 last night before paring declines earlier today.
  • The 100-day moving average which has supported the currency over the past 2 weeks has been broken. However for the pair to move lower, a break below the key 1.4000 level is necessary.
  • The currency pair’s downtrend since the turn of the year remains intact although a breakout above the 1.4325 resistance could signal a reversal.

 

AUDUSD:

  • Spot 0.7674
  • AUDUSD briefly advanced beyond the 0.7700 last night before USD weakness drove the currency pair back to its lows. The pair was 0.2% lower at 0.7665 earlier today.
  • The currency pair is showing signs of exhaustion following its move from below 0.7200 in end-December; a retracement back to the 0.7500 support is possible over the medium-term.

 

USDCAD:

  • Spot 1.3162
  • USDCAD rebounded off the 1.3200 resistance overnight to erase earlier gains and was largely unchanged this morning.
  • The pair has however risen above its 200-day moving average of 1.3150, possibly signalling more upside momentum in the near future.
  • To the upside, 1.3200 remains as an important resistance level, while support-wise, 1.3000 is the level all eyes are on.

 

USDCNH:

  • Spot 6.8646
  • The PBOC strengthened its daily reference rate to 6.8695 to the dollar, from 6.8830 a day earlier.
  • USDCNH rebounded off its 100-day moving average, gaining 0.1% to 6.8656 earlier today. The currency pair has been locked within the range of 6.8000 to 6.9000 for most of this year.
  • The 6.8000 remains as a significant support level.

 

USDJPY:

  • Spot 113.26
  • Renewed USD weakness today resulted in USDJPY paring earlier gains of as much as 0.6%.
  • The currency pair continues to trade sideways within the 112 to 115 range.

 

GBPUSD:

  • Spot 1.2437
  • GBPUSD slipped 0.3% to 1.2424 earlier today, as the currency pair continued to be buoyed above the 1.2400 handle.
  • The key resistance at 1.2800 needs to be broken convincingly to signal a reversal in the currency pair’s post-Brexit downtrend. To the downside, the 1.2400 support continues to remain crucial.
© Jachin Capital Pte Ltd

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