Analytics, News, and Forecasts for CFD Markets: currency news — 22-04-2019.

Arjen van Dijkhuizen, a senior economist at ABN AMRO, notes that China’s March activity data published over the past weeks clearly pointed to an improving momentum, compared to the weakness seen in late 2018.

1. Industrial production growth surged to 8.5% yoy (Jan-Feb: 5.3%) - with manufacturing output particularly strong, - although this number is likely impacted somewhat by Lunar New Year effect (with a sharp drop in March 2018).
2. Fixed asset investment also accelerated further, rising to 6.3% yoy (from 6.1% in Jan-Feb). That was supported primarily by a further improvement of state-led investment, a result of fiscal stimulus measures.
3. Retail sales growth surged to 8.7% yoy (Jan/Feb: 8.2%). The March PMIs published some weeks ago showed a clear uptick from February; the composite PMIs of both NBS and Caixin jumped by 1.5-2 points.
4. These strong activity data (particularly industrial production) also caused a jump in Bloomberg’s monthly GDP estimate, to 7.92% yoy in March (Feb: 6.63%), the highest number since December 2012.

• Saudi Arabia has a long history of working towards oil market stability
• In the next few weeks, the Kingdom will consult closely with other producers and key oil consuming nations to ensure a stable and well-balanced market

The Chicago Federal Reserve announced on Monday the Chicago Fed national activity index (CFNAI), a weighted average of 85 different economic indicators, stood at -0.15 in March, up from a revised -0.31 in February (originally -0.29), pointing to a decrease in economic growth.

Economists had forecast the index to come in at 2.55 in March.

At the same time, the index’s three-month moving average declined to -0.18 in March from -0.08 in February.

According to the report, three of the four broad categories of indicators that make up the index increased from February, but three of the four categories made negative contributions to the index in March.

The contribution from production-related indicators to the CFNAI moved up to -0.10 in March from -0.12 in February. Employment-related indicators contributed -0.03 to the CFNAI last month, up from -0.15 in February. The contribution of the personal consumption and housing category to the CFNAI decreased to -0.07 in March from -0.06 in February. Meanwhile, the sales, orders, and inventories category made a contribution of +0.05 to the CFNAI in March, up slightly from +0.01 in February.

Analysts at ANZ Group see further signs that the current growth slowdown in Asia may be close to a trough.

• China’s Q1 GDP growth has beat expectations but more importantly, the activity indicators for March showed improving momentum. Across the region, export data for March has been mixed so far, but the latest PMI new export orders point to a likely improvement in the months ahead.
• A key leading indicator for the global technology cycle is pointing towards a rebound, which would bode well for Asia’s exports. These signs, alongside our view that there would be further monetary stimulus from some central banks in the region, will help secure a growth recovery in the second half of 2019.

Analysts at ANZ point out that the RBNZ has surprised investors with a shift towards an explicit easing bias at its March meeting and the market pricing shifted aggressively, with 50bps of cuts priced in by the end of 2019.

• "Long-end yields have pre-empted a cut but we expect there will be another move lower once the first cut is delivered and markets open up to the possibility of a third. The Fed’s stance will likely cap any further upward moves in the long end, while there may be a brief repricing at the short end of the New Zealand curve following the RBNZ’s May meeting.”

Analysts at Australia and New Zealand Banking Group (ANZ) suggest that the New Zealand economy has been evolving broadly as expected, but softening near-term indicators have led them to lower the near-term outlook.

• Economic tailwinds are blowing a little more softly than they once were, and that’s being reflected in waning capacity pressures.
• We have brought our OCR cut call forward, with a 25bp cut penciled in for August (previously November), and two follow-up moves in November and February. With the RBNZ now expected to come to the party a little earlier than we previously thought, it shouldn’t be long before the economy gets the stimulus it needs to push economic activity back into the inflation-building territory.

Neil Shearing, Group Chief Economist at Capital Economics says that the latest set of economic figures from China suggests that the economy has begun to find its feet.

• Last week’s release of activity data for March showed that, having slowed for the best part of a year, conditions in the world’s second-largest economy are now starting to improve. This follows an improvement in March’s trade data (released earlier this month) and, before that, a rebound in China’s manufacturing PMIs.
• All of this reinforces a point that our China team has been making for a while – namely that policy support would ultimately put a floor under the slowdown in growth that began in mid-2018.
• Policymakers in Beijing are more cognisant now than in the past of financial vulnerabilities stemming from rising debt levels. Accordingly, the scale of policy stimulus this time has been much smaller than in previous downturns. Beijing has done enough to stabilize the economy but investors betting on a vigorous recovery in growth are likely to be disappointed.

Analysts at ANZ believe the build-up to the May RBA meeting will reach a crescendo in the coming weeks as the CPI looms large.

• With our expectation of a +0.4% we think that the case for a RBA cut remains thin, However, there will be little tolerance for any weakness, and we think that a core print in the realms of a +0.2% q/q could trigger an easing from the RBA. Should the CPI print as we expect, the AUD will likely push higher as easing expectations are unwound.
• For this strength to be sustained however, we would need to see the recent green shoots in the Australian economy sustaining. In this light, building approvals, PMIs, consumer confidence and private sector credit will be in focus.

Analysts at National Bank Financial note it will be a busy week for the markets, particularly in Japan with the release of March data on employment, industrial output, retail spending and corporate prices.

• “The Bank of Japan’s monetary policy decision will also be closely watched, especially after recent comments from Governor Haruhiko Kuroda that the BoJ has the capability to loosen policy further if needed.”
• “In Europe, a holiday-shortened week will feature potentially market-moving data including the eurozone’s consumer confidence index and Germany’s IFO index for April.”

About half of economists now expect the Bank of Japan’s next policy move to be monetary easing, including three who see it coming this week, according to a Bloomberg survey.

The other 45 of 48 economists surveyed said they expected the BOJ to leave its policy settings unchanged at a two-day meeting ending April 25. The number of economists predicting further easing from the BOJ has risen sharply in recent months, from 14% in December to 48% this month, as economic growth has slowed and inflation sagged. In April 2018, more than 90% said the next move would be tightening.

National Bank Financial’s analysis team suggests that in Canada, the central bank will take center stage this week as in addition to Wednesday’s interest rate announcement, the Bank of Canada will also release its Monetary Policy Report showing its latest economic projections.

“Nobody should be surprised if the BoC’s 2019 GDP growth forecast for Canada is downgraded a tick or two from last January’s estimate of 1.7%, courtesy of a weaker-than-expected handoff from last year i.e. 2018Q4. The Bank’s updated estimates of potential GDP will also be important given their implications for the estimation of the output gap. How dovish will the central bank be in its statement? Probably not too much, especially if it wants markets to reconsider any remaining expectations of rate cuts this year. While data hasn’t been stellar lately, there is reason to believe a rebound is in the works after the 2018Q4-2019Q1 slowdown, especially considering the rise of oil production and prices since then. As such, we expect the central bank to remain in pause mode and reiterate the need to maintain the overnight rate below its neutral range.”

ABN AMRO analysts are expecting an average Brent oil price of $70/bbl in 2019 and suggest that from current levels, both upside and downside risks are emerging.

“Downside risks contain Trump’s comments towards OPEC to rise production and cap the oil price. Upside risks are due to a possible final trade agreement between US and China as well as the insufficient level of investments in future exploration of – mainly – heavy sour oil. We remain positive on gold prices. First of all, our expectations of a weaker US dollar will lift price. Also, a less hawkish central banks and a more constructive outlook on the Chinese yuan will be supportive. And finally, the positive technical picture is also positive for price.”

China consistently opposes unilateral U.S. sanctions against Iran, the Chinese foreign ministry said amid reports that Washington is expected to announce that buyers of Iranian oil must halt imports soon or face sanctions.

Ministry spokesman Geng Shuang said China's bilateral cooperation with Iran was in accordance with the law.

China is a major importer of Iranian oil and was one of eight buyers who were granted a waiver by the United States to continue buying Iranian oil.

According to analysts at National Bank Financial, in the US this week, we’ll get Q1 GDP results on Friday and will be a key macro release.

“A moderation in growth from the prior quarter – recall the +2.2% growth print in 2018Q4 - is in the cards. That’s because of a likely drag from destocking after inventory accumulation last year. Trade probably contributed to Q1 growth thanks to rising exports and declining imports. Business investment spending may also have boosted growth based on rising shipments of non-defense capital goods excluding aircraft, a reasonably good proxy. But consumption spending growth seems to have lost steam based on retail results during the quarter. Overall, we expect GDP growth of around 1.5% annualized in the first quarter. We’ll get more information about the handoff to Q2 thanks to March data.”

A top member of Prime Minister Theresa May’s Conservative Party will tell her in the coming week that she must step down by the end of June or her lawmakers will try again to depose her, the Sunday Times reported, without citing sources.

May survived a vote of no confidence in December and although party rules mean lawmakers cannot challenge her again until a year has passed, lawmaker Graham Brady will tell her the rules will be changed unless she quits, the newspaper said.

Brady, who chairs the Conservative Party’s influential 1922 Committee of backbench lawmakers, will tell her that 70% of her members of parliament want her to resign over her handling of Brexit, the Sunday Times said.

With gold prices sinking to 2019′s lowest level last Thursday, Standard Chartered’s Suki Cooper believes they’re closing in on oversold territory. One of her key assumptions: The Fed its interest rate hike policy on hold through next year.

“The Fed will be on hold in 2019 [and] 2020 as it prepares its tools for the next downturn which is likely to come in 2021,” the firm’s executive director of precious metals research told.

Plus, Cooper notes gold follows a historical pattern that leads to higher prices when the Fed puts the breaks on a hiking cycle and even went on to cut rates. Cooper suggests central bank buying and increasing demand from China and India will also likely to support gold prices at higher levels versus 2018. She expects the yellow metal to test last year’s closing high of $1362 in the final three months of the year.

Spain’s Socialists increased their lead in a poll published in newspaper ABC that gave them 31.5% of votes, but fell short of a majority ahead of a general election on April 28.

It is the third poll in two days that shows the Socialists expanding their advantage, and forecasting that a coalition of three right-wing parties - People’s Party (PP), Ciudadanos and far-right Vox - would not get enough seats to form a parliamentary majority.

Socialist Pedro Sanchez could be reelected as prime minister if he forms a coalition with the support of at least two of the array of parties - far-left Podemos and a Catalan pro-independence group -  according to the ABC poll. But it also showed that 33% of voters have not decided who they will vote for next Sunday.

According to analysts at BNP Paribas, Eurozone’s slowdown is becoming increasingly evident, especially in the German economy, which has suffered from one-off factors but also from a slowdown of exports to China.

“Capacity constraints also play a role. Business climate in the manufacturing sector continues to decline. Italy has now entered a technical recession with quarterly growth negative in the third and fourth quarter of 2018. Inflation is now expected to decrease following the past drop in the oil price, while core CPI is hardly moving. The activity slowdown also implies that the pick-up in core inflation should be slower than expected until recently. We do not expect the ECB to move rates this year.”

The US is expected to announce on Monday that buyers of Iranian oil need to end imports soon or face sanctions, a source familiar with the situation told Reuters, triggering jump in crude prices to their highest for 2019 so far.

The source confirmed a report by the Washington Post that the administration will terminate the sanctions waivers it granted to some importers of Iranian oil late last year.

U.S. President Donald Trump wants to end the waivers to exert "maximum economic pressure" on Iran by cutting off its oil exports and reducing its main revenue source to zero.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1407 (4986)

$1.1365 (3816)

$1.1308 (285)

Price at time of writing this review: $1.1237

Support levels (open interest**, contracts):

$1.1225 (3238)

$1.1208 (1831)

$1.1188 (2885)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date May, 3 is 76684 contracts (according to data from April, 18) with the maximum number of contracts with strike price $1,1500 (5748);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3303 (2302)

$1.3208 (2240)

$1.3125 (1524)

Price at time of writing this review: $1.2992

Support levels (open interest**, contracts):

$1.2951 (1838)

$1.2920 (1547)

$1.2882 (2031)

Comments:

- Overall open interest on the CALL options with the expiration date May, 3 is 24272 contracts, with the maximum number of contracts with strike price $1,3500 (2445);

- Overall open interest on the PUT options with the expiration date May, 3 is 22915 contracts, with the maximum number of contracts with strike price $1,2600 (2559);

- The ratio of PUT/CALL was 0.94 versus 0.93 from the previous trading day according to data from April, 18

* - 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.