10 minutes read report, 9 pages

 

To help speed reading blue is used for new arguments, forecasts are underlined and found at the beginning of each page.

How the forecasts did:

Last week’s arguments to keep the long AUDUSD and EURUSD trades paid off. Exiting USD index short positions at the beginning of the week was premature.

This week’s forecasts are providing little help, as there are no advised entry levels.

Major events of last week:

• China: China vetoed a UN measure to blacklist a Pakistani militant leader, founder of the group that killed 40 Indians last month. Indian groups urge to boycott Chinese goods in response.

China passed a new foreign investment law against forced technology transfers.

• Boeing: Following the second accident in a few months of a Boeing 737 Max plane, China grounded all such planes on Monday. The USA aviation initially continued permitting the particular plane, but on Wednesday they decided to ground them following the decisions of UK, Malaysia, Singapore, Australia and EU.
• USA-China: Tuesday’s hearing of Lighthizer at the S. Senate Finance Committee provided little insights for the ongoing trade negotiations with China.
• USA: Congress voted to block Trump from accessing the $3.7bn funds for his wall. Trump could veto their resolution
• Russia-Ukraine: The USA, the EU and Canada hit Russia with new sanctions that target particular Russian officials.
• UK: UK Parliament agreed to ask for an extension of the Brexit deadline.
• Cryptos: Total market cap at $140bn, +5.2% w/w, -83% from last year’s $821bn peak. During the week, MtGox founder managed to receive a suspended jail sentence from a Japanese Court. MtGox was the most important bitcoin exchange in 2014 and the victim of the most famous hacking attack.

Major events of next week:

• The FED, the Central Bank of Norway and the Bank of England are having their monetary meetings. At the beginning of the year a NOK rate hike on March was very likely. Latest inflation reading in Norway is also favoring this scenario that contradicts with the recent dovish/accommodating tone of Central Banks. I would go short EURNOK at 9.7800
• EU needs to approve the extension of the Brexit deadline.

JPY

Long trades for EURJPY are favored, but no entry level makes sense.

Strengths of JPY:

• GDP q/q growth rebounded from the negative territory. Domestically economy is doing fine. The only source of concern are the exports due to the moderate global growth.
• Monetary policy is unchanged.
• improving macro readings: GDP  (yet, it is expected to decrease in 2019), inflation, M2, current account, average cash earnings, household spending,capital spending, industries activity, economic sentiment

Weaknesses of JPY:

• deteriorating macro readings: unemployment, retail sales,Services PMI, manufacturing PMI, industrial production, housing starts, trade balance, monetary base, bank lending, sentiment reading

Watch / New Releases:

• Trade Balance, inflation, manufacturing PMI
• Next Monetary Meeting on 25 April

AUD

Keep the long AUDUSD trades targeting 0.7211

Strengths:

• China’s new foreign investment law.
• Australian federal elections are scheduled to occur on May.
• improving macro readings: retail sales, current account, trade balance, inflation, inflation expectations, unemployment, M1, private capital expenditure, AIG manufacturing index, household consumption recovered in 3Q18, wage price index, business confidence, building approvals

Weaknesses:

• GDP latest reading was unexpectedly lower. China reported very low imports (-5.7%m/m) and exports (-20%). Industrial production growth decreased and unemployment increased at 5.3%
• Westpac, one of the top four Australian banks, is expecting two rate cuts, in August and November 2019. Moreover it lowered it’s GDP expectations to 2.4%y/y from 2.7%
• deteriorating macro readings: GDP, inflation gauge, job advertisements, manufacturing PMI, service PMI, home sales, home loans,company operating profits, decreasing capital expenditure, construction work done, private sector credit, consumer’s sentiment

Watch / New Releases:

• Unemployment, Service PMI, Manufacturing PMI
• Next monetary policy meeting on April 2.

CAD

Long trades on USDCAD  are favored but no entry level makes sense.

 

Strengths of CAD:

• improving macro readings: employment change, inflation, current account, manufacturing sales, wholesale sales, retail sales (latest release was higher but it is still negative)

 

Weakness of CAD:

• Prime Minister is loosing political capital due to his involvement in helping the big contractor, SNC-Lavalin, to avoid criminal prosecution related to contracts in Libya. Elections are scheduled to occur in October.
• Thursday’s monthly report of OPEC had no downward revision of demand growth. In addition it was the first time in 6 months that US cut it’s total oil production. Yet, for oil prices to increase, an additional 1Million Barrels per day (MBpd) reduced OPEC supply will be needed, and this can only happen if China and India are denied access to Iranian oil. Current reduction exceptions permitted by the USA do not seem to end any time soon. Oil prices are increasing but I am not convinced that the trend will continue
• deteriorating macro readings: GDP, labor productivity, trade balance, capacity utilization, Manufacturing PMI, Ivey PMI, corporate profits,foreign securities purchases, building permits

Watch / New Releases:

• Wholesale sales, inflation
• Next monetary meeting on April 24.

 

USD

Short trades are favored

Strengths of USD – Risk off points:

• inflation m/m increased.
• deteriorating macro readings: GDP, current account, wholesale inventories and business inventories moving higher, Manufacturing PMI, Non-manufacturing PMI, core durable goods orders, consumer credit, optimism, consumer credit, personal spending, vehicles sales, new home sales, capacity utilization rate, the first low number

 

Weaknesses of USD -Risk on points:

• Geopolitical risk in Turkey, Taiwan, Pakistan India seem to be falling.
• Improving macro readings: unemployment, retail sales, unit labor cost, trade balance, Manufacturing Index,industrial production,services PMI, durable goods orders, capacity utilization rate, consumer confidence, construction spending, moving lower

Watch / New Releases:

• Factory orders, manufacturing PMI, services PMI, wholesale inventories
• Wednesday’s Monetary Meeting of the FED.

EUR

Keep the long EURUSD trades

Politics aside (Spain’s elections on April 28 and European election on May 26) wage growth, Italian growth and the German car industry are the decisive factors that drive the European outlook.

The ECB surprised markets by introducing a new TLTRO program that will begin in September 2019 and by changing its forward guidance and eliminating any thoughts for a first rate hike later than December 2019. There were board members favoring a March 2020 communication.

Strengths of EURUSD:

• improving macro readings: trade balance, current account, retail sales, unemployment, Services PMI, Manufacturing PMI (below 50),German GDP, German Trade balance, wage growth, industrial production, economic sentiment, private loans

 

Weaknesses of EURUSD:

• EU-USA trade relations will be the next point of focus. The Trump administration wants to include agriculture in the negotiations, the EU is willing to limit negotiations to industrial goods, as it was agreed in the July’s Junker-Trump summit. Additionally, the EU wants the steel and aluminum tariffs to be removed.
• downward revisions of expected GDP growth from European commission (1.3% EU growth from 1.9% expected in November) and from the ECB (1.1% revised from 1.7%)
• deteriorating macro readings: M3, PPI, investor confidence,consumer confidence, German factory orders, German industrial production, German retail sales

Watch / New Releases:

• Trade balance, German economic sentiment, current account, manufacturing and services PMI
• Next monetary meeting of the ECB on April 10

GBP

GBP is more likely to strengthen than fall, but no forecast is offered

For the last 7 issues I monotonously repeat that the most probable scenario is the extension of the deadline, new elections and/or  a new referendum. We are currently  2 weeks away from the deadline of Article 50.

“Extending Article 50 could become the U.K. version of the U.S. debt ceiling — perpetually rolling over after periodic political commotion, which people who like to be interesting will say is constructive because it enforces a “healthy debate”. And after that, we will all die.“ This was a well stated point of view of Sid Verma, published on Twitter.

 

Strengths:

• improving macro releases: GDP, unemployment, Service PMI, manufacturing production, industrial order expectations, industrial production, average earnings and wages, decreased inflation, lending to individuals, trade balance

 

Weaknesses:

• Some inflationary pressure was expected by BOE that would be responded with limited rate hikes, but inflation has already fallen below the 2.0% target.
• deteriorating macro releases: retail sales, M4, home prices, consumer’s confidence, current account, Business Investments, Construction PMI (below 50), construction output, Manufacturing PMI

Watch / New Releases:

• Average earnings, inflation, retail sales
• Thursday’s Monetary Meeting of the Bank of England