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US 'Sticky' Core CPI At Post-Recession Highs; USD To Recover Lost Ground Chair Yellen mentioned it, and a majority of FOMC members appeared to agree that the acceleration in US core inflation was largely due to more volatile items.
However, while that may be the case at the margin, it fails to make note that even measures of inflation that exclude volatile items have also moved up in the past year. And in some cases they’re not just moving higher.
The Atlanta Fed’s “sticky” measure of core CPI, which only uses components with low volatility, has reached its highest level since the recession and is in touching distance of pre-crisis norms.
If the strengthening in core inflation proves more persistent than FOMC members currently believe, the Fed will turn more firmly towards a June hike which will see the US$ recover some recent lost ground.
U.S. small business confidence hits new two-year low U.S. small business confidence fell to a fresh two-year low in March amid persistent worries about sales and profits, the latest indication that economic growth braked sharply in the first quarter.
The National Federation of Independent Business (NFIB) said on Tuesday its small business optimism index dipped 0.3 point to a reading of 92.6 last month, the lowest since February 2014.
It has declined from a reading of 100 in December 2014 and has pushed further off its 42-year average of 98.
"A 'chartist' looking at the data historically might conclude that the index has clearly hit a top and is flashing a recession signal. The April survey will decide whether or not the alarm should be rung," the NFIB said in statement.
The soft reading fits in with recent economic data on consumer and business spending as well as wholesale inventory investment that have suggested economic growth slowed sharply from the fourth quarter's 1.4 percent annualized rate.
Gross domestic product growth estimates for the first
quarter are currently well below a 1 percent rate.
Four components of the NFIB index rose last month, with the remaining six declining.
While small business owners were fairly upbeat about business conditions in the next six months and their attitudes toward capital spending improved a bit, they was some softening in their views of the labor market.
Still, labor market indicators remained strong, with a hefty increase in the share of owners planing to raise compensation. At the same time, small business owners are more inclined to cut prices than raise them to boost sluggish sales and weak profits.
"Inflationary pressures remain dormant on Main Street. A recovery in spending is the only way to create inflation," the NFIB said.
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GBP/USD: Breakout Levels; USD/CAD: Bottom Of Cloud Selling GBP/USD into trend line resistance near 1.4360 is supported by the lack of momentum shown by RSI, notes Bank of America Merrill Lynch.
"However, if resistance starts to break, the trend would also be breaking above the weekly linear resistant trend line. It has mostly failed at this level all year.
A daily bullish MACD cross and a weekly bullish MACD cross suggest that there is some countertrend strength.
A breakout would point price to another retest of the April 2015 lows, highlighted by the orange rectangle of 1.45-1.4575," BofA argues.
Turning to USD/CAD, BofA notes it finally breaks its monthly range after sitting on a horizontal area of support between 1.2850-1.3020 for almost a month.
"It has traded around the 50wk average and failed to move back above a broken trend line (1.3325). Our market profile chart suggests a decline to the bottom of the Ichimoku cloud at 1.2400.
Any move lower must break RSI support to show downward momentum. MACD just crossed negative suggesting a growing downtrend," BofA projects.
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Big Figure Over Day, Trades Below $1.13 According to the US census bureau, retail sales declined 0.3% from 0.0% in March, while the control core gauge was unchanged from the revised 0.1%. Both measures fell short of expectations.
In addition, PPI inflation accelerated to -0.1% on a monthly basis, up from -0.2% in February, and the yearly print slipped to -0.1%. Moreover, the core PPI measures eased from February levels.
The greenback declined temporarily after the release, and was spotted around $1.1325, but the move was corrected soon. The greenback regained its footing and even printed new daily highs around $1.1280, leaping one big figure or around 0.9% since yesterday's close.
Attention will now switch to Thursday's US CPI for March. Inflation should stay at February levels, which might not be enough for the current anti-dollar sentiment to change and therefore the greenback may come under selling pressure.
"As we had anticipated, the hawkish line-up of Fed speakers gave the oversold USD a bullish push. Richmond Fed Lacker commented that faster pace of inflation suggested that roughly four 25bp rate hikes would be warranted in 2016," Peter Rosenstreich, chief FX analyst at Swissquote bank, said on Wednesday.
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EUR/USD falls sharply, as strong China exports bolsters slumping dollar EUR/USD fell sharply on Wednesday, plunging to its lowest closing level in more than two weeks, as a wave of strong economic data eased fears of a global slowdown propping up the slumping dollar against its main rivals.
The currency pair traded in a broad range between 1.1268 and 1.1391, before settling at 1.1277 down 0.0096 or 0.93% on the day. With the sharp decline, the euro closed under 1.13 against the dollar for the first time in nearly a dozen sessions. The dollar has come under intense pressure in recent weeks amid strong indications from the Federal Reserve that it will delay the timing of its first interest rate hike of 2016.
Despite Wednesday's rally, the dollar is still down more than 1.5% against its European counterpart since the Federal Open Market Committee (FOMC) lowered its interest rate forecast last month at a closely-watched meeting. The U.S. central bank now expects to raise short-term interest rates no more than twice this year, down from previous expectations for as much as four rate hikes in December's outlook.
EUR/USD likely gained support at 1.0538, the low from December 3 and was met with resistance at 1.1496, the high from Oct. 15.
The dollar bounced from near-eight month lows on Wednesday after the Chinese government reported on Wednesday that exports surged by 11.5% in March on an annual basis, defying expectations for slight gains of 2.5%. The upbeat data bolstered investor confidence, one month after Chinese exports plummeted more than 25% in dollar terms. In renminbi terms, Chinese exports soared nearly 19% on the month while imports fell mildly in March.
Further upward moves in the greenback were limited from soft producer price and retail sales data last month. In March, the U.S. Bureau of Labor Statistics' PPI-FD index fell by 0.1%, extending mild losses from the previous month in spite of continued increases in oil prices. Analysts expected consensus gains of 0.3%. Meanwhile, retail sales last month fell 0.3%, amid sharp declines in auto sales. While gasoline sales surged 0.9% as prices spiked to their highest level in two months, overall sales minus gasoline fell 0.4% in March, underscoring the impact of higher prices at the pump.
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY EUR/USD: Bearish: Downside potential likely limited to 1.1145.
We turned bearish EUR yesterday and there is no change to the view. While we expect EUR to head lower from here, the downside potential appears to be limited to 1.1145.
Resistance is at 1.1350 but only a move above 1.1395 would indicate that our bearish expectation is wrong (would lower stop-loss only when there is a clear move below 1.1230).
GBP/USD: Neutral: In a broad 1.4000/1.4350 range now.
We have held a neutral view for more than 3 weeks and since then; both rally and dip in GBP have been unsustainable and short-lived. As indicated yesterday, a move below 1.4105 would indicate that GBP has moved back into a consolidation range (recent high of 1.4348 did not reach our rebound target of 1.4380).
In other words, there is no change in our neutral view and we expect this pair to trade in a broad 1.4000/1.4350 range for now.
AUD/USD: Neutral: Break above 0.7750 would indicate resumption of bullish trend.
While upward momentum continues to improve, we prefer to wait for a clear break above the major 0.7750 resistance before turning bullish.
That said, this appears to be likely scenario unless there is move back below 0.7580/85 (0.7635 is already a strong support).
NZD/USD: Neutral: Back into range trading, likely between 0.6760 and 0.6970.
As highlighted yesterday, only a clear move above the 0.6965/70 resistance would indicate the start of a bullish phase. The surprising rapid drop from the high of 0.6952 took out the strong 0.6870 support and from here, NZD has likely moved back into a consolidation range, likely between 0.6760 and 0.6960.
USD/JPY: Neutral: Bearish phase ended, in a broad 108.40/111.00 neutral range.
The break above 109.60 earlier indicates that the bearish phase that started in the middle of last week has ended. The outlook for the next couple of weeks is viewed as neutral and we expect USD to trade sideways, likely within a broad 108.40/111.00 range.
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USD Remains Vulnerable The US dollar turned in a mixed performance last week which, given the softer than expected inflation, retail sales data, and industrial output figures, coupled with the poor technical backdrop, could be a signal that its decline in recent months has run its course.
The dollar-bloc continued its advance, led by the Australian dollar's nearly 2% gain. Higher commodity prices (the sixth weekly advance for the CRB Index in the last eight weeks) may have helped. The persistent strength of the Australian and Canadian dollars has frustrated our attempt to pick a top. Both currencies made new multi-month highs.
We continue to believe that both currencies are over-extended. The Australian dollar's technical condition appears stronger than that for the Canadian dollar. However, we note that the new highs have not been confirmed by the RSI or MACDs. This bearish divergence warns against chasing the market, even if one is not prepared to short them yet.
The Australian dollar recorded its high on April 14 near $0.7740. It consolidated ahead of the weekend. A break of the $0.7600 area could signal the beginning of the topping process, but a break of the $0.7470 area is probably needed to be convincing.
The Canadian dollar set its high a day before the Aussie. The US dollar has to resurface the CAD1.3050 area to confirm a low is being carved out. Instead, if its weakness continues, a break of CAD1.2745 warns of a move toward CAD1.26.
The euro fell to $1.1235 last week, its lowest level since Yellen spoke at the NY Economic Club at the end of March. It is not clear from a technical perspective if this pullback is the beginning of a more sustained move or whether it’s simply a short bout of profit-taking before the uptrend resumes. A move above $1.1350-$1.1380 would suggest the euro's uptrend remains intact.
The ECB will not unveil new initiatives this coming week, but will likely offer some more details of its new stimulative measures. There is some risk that Draghi may note that the euro's strength is counter-productive, which would also lend credence to our understanding that 1) there was no secret agreement to drive the dollar down in Shanghai and 2) policymakers in Europe and Japan are as surprised and frustrated with their currencies' strength.
The dollar recovered against the yen from a multi-year low near JPY107.65 at the start of the week to JPY109.75 at the end of the week. However, before the weekend, the dollar posted a reversal by trading on both sides of the previous day's range and then settled below the low recorded then. The close before the weekend was poor; on the lows of the day. A break of JPY108.40 would suggest a return to the recent lows. After such a sharp move, it seems more reasonable to expect the bottoming process to be a process rather than a "V."
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Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY
EUR/USD: Bearish: Downside potential likely limited to 1.1145.
There is no change to our bearish view but as highlighted previously, downward momentum is not very strong and the downside potential is likely limited to 1.1145. Stop-loss remains unchanged at 1.1395 but 1.1350 is already a strong short-term resistance.
Looking further ahead, this pair has to move below the strong 1.1230 support within the next few days as a prolonged consolidation above this level would lead to a rapid loss of momentum.
GBP/USD: Neutral: In a broad 1.4000/1.4350 range now.
There is not much to add as GBP continues to trade in an erratic manner.
The outlook is still neutral and we continue to expect this pair to trade in a broad 1.4000/1.4350 range for now
AUD/USD: Neutral: Diminished odds for an upside break.
As indicated in recent updates, despite the clearly improved upward momentum, we prefer to wait for a clear break above the major 0.7750 resistance before turning bullish. The sharp drop upon opening today does not bode well for AUD and the odds for an upside break has diminished considerably.
From here, AUD has to move clearly above the key 0.7765 resistance (level moved higher from 0.7750) before further up-move can be expected. On the downside, strong support is at 0.7585 but a clear break below this rather crucial level could lead to a rapid sell-off towards the early April low of 0.7490.
NZD/USD: Neutral: Range trading between 0.6760 and 0.6970.
The outlook for NZD is mixed as this pair continues to trade in an erratic manner. There is no change to our view wherein we expect further choppy range trading within a broad 0.6760/0.6970 range
USD/JPY: Neutral: Increasing downside risk.
We turned neutral USD last Friday after our stop-loss was triggered at 109.60 (high of 109.73). The sharp drop upon opening in Sydney was clearly unexpected. The downside risk is increasing quickly and a daily closing below 107.50 would indicate a resumption of the bearish trend.
The odds for such a move appear to be quite high unless this pair can reclaim 109.40 in the next few days.
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Germany's ZEW says better Chinese data lifted investor expectations Germany's ZEW commenting in the wake of their latest survey
Life's a bit of a drag overall then. ZEW in rightly cautious mood.
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