New York Forex Report: Russia Sours Risk Sentiment
New York Forex Report: The announcement of former FBI director Mueller as special counsel overseeing the Russia inquiry may restore some credibility to the process but for markets, the concern is that the heightened focus on possible Russian influence on the presidential election and untangling any other lines of interest that may result from the probe further risks overshadowing the Trump team’s agenda. While work continues in Washington on trade, taxation etc, there is no doubt that the inquiry will become the primary focus for Washington for weeks or perhaps months to come. Risk aversion has extended this morning, rather than retreated, as a result. European stocks have followed the US lead lower from yesterday and US equity futures remains depressed this morning. US Treasury bonds remain well supported, with 10Y yields down 3bps to a little under 2.20% and commodity prices are broadly lower (WTI down nearly 2%, gold more or less flat). In the G10 FX space, the USD has steadied, making marginal gains against the EUR while the JPY remains well bid. The GBP is out-performing on stronger UK data and the commodity block is weak on lower resource prices.
USD US MBA mortgage applications took a turn and fell 4.10% WOW in the week ended 12-May, dragged by declines in applications for both new purchases and refinancing, adding to signs of lacklustre appetite in the housing market. The risk-off sentiment also hurt the prospects of US Fed rate hikes. Market rate hike expectations for a June Fed hike eased lower to 82.5% on 17 May (from 97.5 in the previous day) based on CME fed funds probability pricing.
EUR Eurozone’s consumer prices picked up to 1.90% YoY in April (March: +1.50% YoY), as quicker rise in energy and services offset smaller increases in food, alcohol and tobacco. A separate release showed construction output expanded at a slower pace of 3.60% YoY in March and February’s gain was revised sharply lower from 7.10% to 5.50%, as a result of slower growth in building and civil engineering. There will be several senior ECB officials speaking in public forums today including Weidmann, Mersch, Lautenschlaeger and Nowotny while the ECB will also release the account of the latest May ECB monetary policy meeting.
GBP UK job data came in positive although lower real wage growth as a result of rising inflation raised concerns UK consumers are in worse shape. Jobless claims increased at a lower rate of 19.4k in April while the UK labour market added more than expected jobs of 122k in March. Unemployment rate improved a notch to a 4-decade low of 4.60% while average weekly wages grew at a slightly faster pace of 2.40% YoY in the three months to March led by faster wage gains from the private sector.
JPY The Japanese economy quickened to 0.50% QoQ in 1Q17, driven by more robust demand stemming from both the private and public sector, suggesting no urgency for the central bank to act. Other reports were nonetheless weak. Industrial production extended its decline, slipping 1.90% MoM in March while machine orders unexpectedly fell 0.70% MoM in March followed a 5.60% MoM increase in February, pointing to weak business spending.
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Neutral
Technical: 1-3 Day View – Offers above Interim symmetry swing resistance at 1.1130 stall advance near term as 1.1040 supports bulls seek a test of broader symmetry swing objective at 114.30. Only below 1.0830 concerns near term bullish bias.
1-3 Week View – While 1.0830 supports 114.30 becomes the primary upside objective. A weekly close over 1.14 sets upside focus on 1.1876. Weekly close below 1.08 neutralises bullish objectives
Retail Sentiment: Bearish
Trading Take-away: Long
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Technical: 1-3 Day View – Psychological 1.30 magnet remains the upside objective for now with weekly symmetry swing objective at 1.3060 , only below 1.2750 concerns near term bullish bias.
1-3 Week View – The weekly closing breach of 1.2880 opens 1.30 as the next upside objective ahead of symmetry swing objective sited at 1.3238
Retail Sentiment: Bearish
Trading Take-away: Long
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish
Technical: 1-3 Day View – 115 becomes the next upside objective only back below 110.80 would concern the near term bullish bias, near term 112 is the upside hurdle that must be removed to rejuvenate bullish spirits.
1-3 Week View – As 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnet
Retail Sentiment: Bullish
Trading Take-away: Short
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish
Technical: 1-3 Day View – Close over 124.40 opens 129.44, near term support is sited at 123.30, only below 121.30 concerns near term bullish bias. Intraday bulls need to recapture 124.60 to infuse further upside momentum near term
1-3 Week View – The weekly close above 118.50 arrested the immediate downside risk, resetting focus on pivotal 124.40 a weekly breach of this level opens 129.44 as the broader upside objective
Retail Sentiment: Neutral
Trading Take-away: Neutral