Analytics, News, and Forecasts for CFD Markets: currency news — 20-03-2019.

HSBC analysts suggest that the FOMC will likely maintain the current target range for the federal funds rate at the March meeting, but the median “dots” could show the possibility of further rate increases. 

• “The Fed’s narrative on interest rates has been clear since the dovish pivot at the January FOMC meeting: monetary policy is currently in a good place, and the FOMC will remain patient in assessing the need for any further adjustments to the policy stance. The March FOMC meeting is therefore likely to reinforce this.”
• “The Summary of Economic Projections will be released at the same time and the median “dots” could show that further rate hikes are likely, although less so than in December.”

The U.S. Energy Information Administration (EIA) revealed that crude inventories tumbled by 9.589 million barrels in the week ended March 15. Economists had forecast an increase of 1.750 million barrels.

At the same time, gasoline stocks fell by 4.587 million barrels, while analysts had expected a drop of 2.500 million barrels. Distillate stocks declined by 4.127 million barrels, while analysts had forecast a decrease of 1.500 million barrels.

Meanwhile, oil production in the U.S. increased by 100,000 barrels a day to 12.100 million barrels a day. 

U.S. crude oil imports averaged 6.9 million barrels per day last week, up by 186,000 barrels per day from the previous week.

• May wants to bring third meaningful vote as soon as possible
• There are no plans to extend an implementation phase
• PM's belief is that a long extension is not the way to go

• Not prepared to delay Brexit any further than 30 June
• Government intends to bring forward proposals for third meaningful vote
• UK policy remains to leave the EU in an orderly way

The full letter:

• Main options for EU leaders are to delay Brexit until before May 23 or at least until the end of 2019
• Any extension... should either last until May 23 or should be significantly longer and require (EU) election (in the UK) on May 23
• EU should offer only one extension; multiple extensions would keep EU in limbo 

China will strive to achieve its economic development targets for 2019, state television reported on Wednesday, quoting the cabinet after a meeting chaired by the country's Premier Li Keqiang.

According to the report, Chinese Premier said the government aimed to "maintain steady economic operations and promote high-quality development".

China will speed up tax and fee cuts and push reforms to help shore up the confidence of companies, he said, adding that the government would adjust tax rebates for exports of goods and services.

China is targeting economic growth of 6.0-6.5 percent for 2019. In 2018, the Chinese economy grew 6.6 percent, the weakest in 28 years.

The Confederation of British Industry (CBI) released its monthly manufacturing survey on Wednesday, which revealed the UK’s factory order book balance fell to +1 in March 2019 from +6 in the previous month. This was still comfortably above the long-run average of -13%.

Economist had forecast the reading to come in at+2.

According to the report, expectations for output growth over the next quarter reduced softly (to +7 from this month from +8 in February), while export order growth accelerated (to +8 from +1). In addition, the present stocks of finished goods rose further (to +11 from +10) and expectations for price inflation for the coming three months weakened noticeably to their slowest pace since September 2016 (to +7 from +22).

Piet P.H. Christiansen, senior analyst at Danske Bank, suggests that in the current environment, GBP remains in the hands of Brexit and at the moment, EUR/GBP seems stuck in the 0.85- 0.87 range.

“As an extension is already more or less priced in at this point, we expect any decision on (at least on the principles of) an extension will only be marginally positive for the GBP and EUR/GBP should remain above 0.85, in our view. If EU27 rejects an extension, which we cannot rule out given the more hawkish Brexit stance among EU27 leaders compared to the EU Commission (10% probability), we should see EUR/GBP break above 0.87, as markets will start pricing in a higher risk of a no deal Brexit again.”

Investors are set to gain as China is pushing for new ways that private sector money can fund its domestic companies, according to Helen Zhu, head of Chinese equities at BlackRock.

Her analysis comes amid Beijing's plans to introduce a new stock board for start-ups in Shanghai, which is being billed as a pilot program to test more market-oriented measures before rolling them out in China's other stock exchanges. The new science and technology innovation board was announced by President Xi Jinping in November and is expected to be launched by June.

"It's really opening the door to a very new and promising financing channel over the medium to longer term. And I think people will read that positively. I think the asset prices will respond accordingly as well." Zhu said.

Piet P.H. Christiansen, senior analyst at Danske Bank, points out that the road to a ceasefire to the US-China trade war was dented yesterday, but remains on track to a solution.

“Senior officials were said to have reported that Trump-Xi may only meet in June and not, as recently reported, April. However, talks are still ongoing and the discussions at this final stage are difficult. Next week, the US’ Lightizer and Mnuchin are travelling to Beijing and similarly, the following week China’s He is going to the US in an attempt to solve the disputes, which are currently said to focus on the intellectual property rights, drug data and patents as well as the enforcement metrics.”

According to the report from Office for National Statistics, the Consumer Prices Index (CPI) 12-month rate was 1.9% in February 2019, up from 1.8% in January 2019. Economists had expected a 1.8% increase.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 1.8% in February 2019, unchanged from January 2019.

Rising prices for food, alcohol and tobacco, and across a range of recreational and cultural goods produced the largest upward contributions to change in the rate between January and February 2019.

The largest, offsetting, downward contribution came from clothing and footwear, with prices rising between January and February 2019 but by less than between the same two months a year ago.

Analysts at TD Securities are expecting Canadian inflation to firm slightly to 1.5% in February vs 1.4% in January, reflecting a 0.7% increase in prices on the month.

“Gasoline prices lend a strong boost (+4.0% m/m), allowing for a lower drag from overall energy price deflation. We expect solid gains in food prices (+0.3% m/m) on the back of the weakening currency and stronger US prices. Such gains push food price inflation higher to 3.1% y/y. Core inflation measures are likely to be stable to lower. We expect unchanged BoC core metrics on average (1.9%) with risks skewed to 1.8%.”

In its latest monthly economic report, the Japanese government downgraded its view of the economy for the first time since 2016; citing recent weakness in exports and industrial production.

The Cabinet office states that the economy is in a gradual recovery but exports and output are showing signs of weakness.

An economic slowdown and extremely tight credit conditions pushed corporate debt to a record high in China last year, according to experts.

Defaults for Chinese corporate bonds — issued in both U.S. dollars and the Chinese yuan — soared last year, according to numbers from two banks.

Yuan-denominated debt rose to an "unprecedented" 119.6 billion yuan ($17.8 billion) — four times more than 2017, according to a February report by Singapore bank DBS.

Japanese bank Nomura's estimates were even higher, putting the size of defaults in onshore bonds — or yuan-denominated bonds — at 159.6 billion yuan ($23.8 billion) last year. That number is roughly four times more than its 2017 estimate.

Offshore corporate dollar bonds, or U.S. dollar-denominated debt issued by Chinese companies, followed the same trend. Nomura said the amount of such debt rose to $7 billion in 2018, from none the year before.

Karen Jones, analyst at Commerzbank, suggests that the USD/JPY pair is a bid near term as it is holding over a near term channel at 111.17 and while above here should chip away at resistance.

“Immediate resistance is 112.23, the 6th December low, the 112.43 55 quarter moving average and recent high at 113.71. We have a 5 month resistance line also at 113.05. We remain unable to rule out a deeper retracement to the 55 day MA and the 2 month uptrend at 110.16/23, which should hold for an upside bias to be preserved.”

Education Secretary Damian Hinds said, a long delay to Britain’s departure date from the European Union would not provide certainty.

Britain is currently due to leave the European Union on March 29 and British Prime Minister Theresa May will not request a long delay to Brexit.

“I don’t see how a long delay gives certainty. Actually we’ve had long time already... People are a bit tired of waiting for parliament to get our act together and get the deal passed. Unless and until a deal is finalised, there remains the prospect of the risk of no deal.” Hinds told.

Nordea Research discusses the USD tactical outlook around FOMC policy meeting.

"Most focus this week will be given to the FOMC meeting, as the market will be looking for signs on how, when and if the quantitative tightening will end. We judge that the current consensus expects the Fed to end QT by Q4-2019. Any hints on an earlier exit from the QT programme will give our slightly positive EUR/USD view a boost. Market sentiment has brightened and the FOMC may decide to keep the announcement of QT details for a rainy day, but details could also be announced as early as next week. Our baseline remains QT tapering starting in Q3 and ending in Q4 with excess reserves around 1.000bn. It will be negative if the Fed announces that excess reserves will continue to fall after the end of QT," Nordea adds.

British Prime Minister Theresa May will request a short delay to Brexit in a letter to the European Union on Wednesday, the BBC and Sky reported.

The delay, nearly three years since the United Kingdom voted to leave the European Union, leaves the Brexit divorce uncertain with options including leaving with May's deal, a longer delay, a disruptive exit, or even another referendum.

Just 9 days before the March 29 exit date, May is due to write to European Council President Donald Tusk to ask for a delay.

But the ultimate length of the delay was unclear amid the political chaos in London, with the BBC reporting that May would not ask for a long delay.

Federal Statistical Office (Destatis) said, in February 2019 the index of producer prices for industrial products rose by 2.6% compared with the corresponding month of the preceding year. In January 2019 the annual rate of change all over also had been 2.6%.

Compared with the preceding month January 2019 the overall index decreased by 0.1% in February 2019 (+0.4% in January 2019 and -0.4% in December 2018). Economists had expected a 0.2% increase.

In February 2019 the price indices of all main industrial groups increased compared with February 2018: Energy prices rose by 7.5% (-0.2% compared with January 2019). Prices of durable consumer goods as well as prices of capital goods were up 1.6%. Prices of intermediate goods increased by 1.1% (-0.1% compared with January 2019) and of non-durable consumer goods by 0.8%.

The overall index disregarding energy was 1.3% up on February 2018 and 0.1% up compared with January 2019.

• as far as I know, letter from UK PM May has not yet arrived

• there will be no negotiations on Brexit deal

EUR/USD

Resistance levels (open interest**, contracts)

$1.1474 (1723)

$1.1459 (1337)

$1.1444 (344)

Price at time of writing this review: $1.1348

Support levels (open interest**, contracts):

$1.1289 (3954)

$1.1244 (3038)

$1.1197 (2823)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 5 is 71851 contracts (according to data from March, 19) with the maximum number of contracts with strike price $1,1350 (4643);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3402 (635)

$1.3378 (419)

$1.3356 (793)

Price at time of writing this review: $1.3251

Support levels (open interest**, contracts):

$1.3171 (409)

$1.3142 (1098)

$1.3110 (680)

Comments:

- Overall open interest on the CALL options with the expiration date April, 5 is 23809 contracts, with the maximum number of contracts with strike price $1,3400 (4404);

- Overall open interest on the PUT options with the expiration date April, 5 is 26483 contracts, with the maximum number of contracts with strike price $1,2500 (4086);

- The ratio of PUT/CALL was 1.11 versus 1.09 from the previous trading day according to data from March, 19

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.