Analysts at ANZ explained that trade tensions between China and the US have escalated in past 24 hours, with Trump announcing a raft of new tariffs aimed at directly China. 

Key Quotes:

“The tariffs are said to hit roughly USD60bn worth of Chinese imports to the US and are being implemented on the premise that American intellectual property (IP) needs protecting from China’s state-led and market distorting efforts to steal US tech and IP. Tariffs will target the aerospace, information and communication technology, and machinery space at 25%. The US will also raise a WTO case and implement investment restrictions. The big question is where to from here? While signing the order Trump stated “this is the first of many”. China has said they will respond with ‘measured and proportional’ levies on the US, which is expected to include imports of US automotive, soybean, aircraft and computer chips. Agriculture is considered a likely target because it’s one of the few sectors where America has a trade surplus with China and it’s a sector weighted towards Trump’s support base.”

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EUR/JPY drops sharply but recovers key level. 
Yen gains on risk aversion triggered by trade war fears. 

The EUR/JPY pair tested today again the 131.00 region but failed to break and dropped sharply. It bottomed during the US session at 129.48, the lowest since March 5 and then rebounded back to the 130.00 area. Price continues to move sideways near a critical support. 

The slide of the pair was triggered by a rally of the yen. The Japanese currency soared on the back of risk aversion. US President Trump announced a plan to impose tariffs on Chinese imports, reviving trade war fears. The DOW JONES was losing 1.67% and the NASDAQ was down 1.37%. 

Technical levels 

The bias continues to point to the downside as EUR/JPY remains unable to recover the 131.00 area. The downside remains limited below 130.00. A daily close well above 131.00 is likely to add momentum to the euro while if the close takes place below 130.00, a decline to the lowest level since August seems likely.

Below 130.00 support levels might lie at 129.60 (Mar 19 low), 129.30 (Mar 5 low) and 129.00. On the upside, immediate resistance could be seen at 130.25/30 (US session high) followed by the 20-day moving average at 131.00 and 131.30. 

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EUR/USD bulls were unable to break the 1.2400 level.
EUR/USD will most likely need a strong catalyst to break above 1.2500.

The EUR/USD is trading at around 1.2310, down 0.20% on the day as market participants digest the news from the FOMC meeting which took place on Wednesday.

EUR/USD daily chart:

The FOMC meeting didn’t provide a clear direction  for the EUR/USD. While bulls took the upper hand on Wednesday after the FOMC meeting, they couldn’t break the 1.2400 resistance. The single currency is trading above both its 100 and 200-period simple moving average so the trend is still basically in place. However, the consolidation has been taking place since mid-January of this year with  the market now trading between the 1.2200-1.2400 range. The market will likely need a strong reason to make a clear break above the 1.2500 multi-year pivot level.  For example, the ECB might have to over-deliver or the Fed disappoint greatly, or some political conjunction would have to enter into play, but it is likely that some catalysts will be  strong enough to break 1.2500. Neither the RSI nor the MACD indicate that a bull continuation is underway as of now. 

EUR/USD 15-minute chart:

The EUR/USD found some support at the 1.2300 figure, helped by the 200 SMA. Both the RSI and the MACD are showing some positive divergences. Traders are likely expecting a little bounce here with the possibility to reach 1.2340 previous supply zone. Further resistance is seen at 1.2370 Asia high and finally at 1.2390 which is the high of the day. On the flip side, if the bulls fail, support is seen at 1.2270 previous bull base and at 1.2240 Wednesday´s low.  
 

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Analysts from Danske Bank, believe that the Bank of England is heading for a May interst rate hike and they also believe another hike in November is likely, which is more than the one BoE hike forecast by consensus.

Key Quotes: 

“The Bank of England maintained monetary policy unchanged but two BoE members (Ian McCafferty and Michael Saunders) voted for an immediate rate hike (vote count 7-2 for an unchanged Bank Rate). While Mark Carney has already revealed that the BoE no longer wants to pre-commit to a hike, this was as close to a pre-commitment as we could get.”

“While the positive contribution to CPI inflation from GBP depreciation is fading, the BoE thinks domestic cost pressure is increasing, as slack has been more or less absorbed. In order to avoid a more persistent CPI inflation overshoot, it is appropriate to raise rates. The BoE still expects growth to remain above potential GDP growth over the forecast horizon.”

“With respect to Brexit, the Bank of England did not alter its communication despite the agreement on transition. Based on Mark Carney’s comments at a press conference after the February meeting, the BoE had already pencilled in a high expectation of a  Brexit transition agreement so it does not really alter the outlook for the BoE.

“We still believe the BoE is heading for a May hike and we also believe another hike in November is likely, which is more than the one BoE hike forecast by consensus. As we argued back in February after the last meeting, the BoE seems to have launched a regular hiking cycle and this meeting has not changed our view. Markets have priced in approximately 42bp hikes this year, so we are more hawkish than both other houses and market pricing.”

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Trump plans to impose tariffs on China, reviving trade war fears. 
USD/JPY is trading at the lower end of its multi-week range. 

The USD/JPY is trading at around 105.73 down 0.28% on the day as the White House takes steps to restrict Chinese investment and to put tariffs on $50B in Chinese imports for stealing technology. Any protectionist news can be interpreted by the market as USD bearish. However, so far the USD seems quite supported with the dollar index trading at 89.83 but showing signs of bull exhaustion at the time of writing.

In the US, Friday will see FOMC´s Member Bostic delivering a speech at 12.10. 

Coming up next in Japan is the National CPI dataset which is not as popular as the Tokyo CPI. 

Earlier in the US Session, we saw the Initial Jobless Claims for the week ended March 16th coming worse-than-expected while the Continuing jobless claim came in at 1.828m better than anticipated. The Housing Price Index and the Markit Manufacturing PMI in March came both above expectation.  

USD/JPY 1-hour chart

The bulls found support at the 105.26 level earlier in the European session and the market managed to bring it  up to 105.80 before finding resistance. The bulls broke above the 20 SMA which is seen as an encouraging sign for further higher prices. 

USD/JPY 5-min chart

The USD/JPY on the 5-minute chart has formed a wedge pattern at the 105.80 resistance. The structure implies that we could see some resistance at this level. However, if the wedge fails we might have a breakout equal to the bull leg we say today from the bottom at 105.26. Support is seen at 105.50 previous supply zone and 105.30 previous swing low. Resistance is seen at 106 previous high and at 106.20 previous supply zone. 

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Analysts at Scotiabank noted that the outlook for relative central bank policy is offering modest support however sentiment and positioning remain critical and JPY bears remain vulnerable to adjustment. 

Key Quotes:

“Domestically, near-term risk lies with the CPI data at 7:30pm ET. 

The latest BoJ comments from board member Wakatabe provided no major surprises with a reiteration of a bias toward exceptional levels of accommodation alongside a pushback on questions about purchases of U.S. debt. 

Risk reversals are steady, for both EUR/JPY and USD/JPY.”

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Analysts at UOB Group noted that the Reserve Bank of New Zealand on early Thursday morning and kept its policy rate unchanged at a record low 1.75% (since Nov 2016) as “inflation is expected to weaken further in the near term” before trending up toward the bank’s 2 percent target, according to Acting Governor Grant Spencer.

Key Quotes:

“In its statement, RBNZ noted that monetary policy will remain accommodative for a considerable period while numerous uncertainties remain and monetary policy may need to adjust accordingly. It highlighted that inflation is expected to weaken further nearterm due to softness in food and energy prices while GDP was weaker than expected in Q4. The statement made no mention about the NZD currency.”

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GBP/USD: rejected on the 1.42 handle as DXY picks up a bid on Central Bank divergences.
GBP/USD: BoE holding off until May, not much new in the statement. 

The US dollar has made a comeback as markets figure the divergence between the Fed and others playing catch up is still wide despite the disappointment of there being only three hikes on the Fed’s dot plot for 2018. Currently, GBP/USD is trading at 1.4099, down -0.29% on the day, having posted a daily high at 1.4221 and low at 1.4076.

It has been a pretty action-packed week for the pound so far, what with the initial Brexit news at the start of the week that gave the pound a boost, propelled higher by weakness in the dollar and markets taking out the positive as a whole from a mixed set of data releases from the UK. 

White House mayhem: VIX spiking, but dollar higher, stocks and USD/JPY recovering from major sell-off

Today’s markets were trading off the UK Feb retail sales beat that sent the pound to 1.4179 the high straight off the bat – (The data arrived up 0.8% vs 0.4% forecasted. Jan was revised down 0.3%. 1.5% y/y vs 1.3% f/c). However, cable rallied further on the BoE decision, meet=ing the aforementioned high before a rebound in the DXY sent cable into a drift to the rising 50-hr SMA. at 1.4081.

BoE sends cable through the roof on knee-jerk to 1.4221

“The Bank of England maintained monetary policy unchanged but two BoE members (Ian McCafferty and Michael Saunders) voted for an immediate rate hike (vote count 7-2 for an unchanged Bank Rate). While Mark Carney has already revealed that the BoE no longer wants to pre-commit to a hike, this was as close to a pre-commitment as we could get,” noted analysts at Danske Bank. Meanwhile, analysts at Rabobank explained that there wasn’t much new in the policy statement. “Given the market’s strong beliefs about a rate hike in May, we would argue that the Bank’s silence gives consent.”

GBP/USD levels

“The broader undertone of this market is constructive – sustained gains through bull breakout resistance and 40-day MA – and technical signals are aligned bullishly across short, medium and longer run oscillators,” – analysts at Scotiabank argued.  The 200-week moving average is located at 1.4288 and remains a key target through 1.4220. Spot at 1.4111 and low at just below 1.4080, 1.40 the figure comes next and ahead of 1.3890/08 as the 21-D SMA. Lower to 1.3840 guards the Feb 9th low is at 1.3765. 

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Analysts at ING explained that the current hold-ups for the BoC are trade related. 

Key Quotes:

“NAFTA and the threat of US tariffs on steel and aluminium have forced the Bank to pause and wait for a more secure economic environment before continuing their hiking schedule, these also being reasons for the CAD’s recent underperformance against its peers.

Nonetheless, there have been rumours of a potential NAFTA breakthrough with the US apparently making key concessions on content rules on cars, a possible sign that the deadlock in negotiations is beginning to thaw, but it is still early days and time will tell whether this is the case. 

Given the NAFTA storm does blow over we expect the Bank’s tightening cycle to continue in the second half of this year.”

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Hawkish BoE says: “ongoing tightening” will likely “be appropriate”.
“Two rate hikes “priced in” according to ING. 

The GBP/JPY is trading at around 149.17 down 0.53% on Thursday as traders seem to have bought the rumor and sold the fact. The market deemed there was no groundbreaking news from the BoE, at least no news that would warranty to buy more GBP just now.   

As expected, the Bank of England meeting ended up with interest rates unchanged on Thursday, but surprised the markets with a 7-2 voting, as two MPC members voted for a rate increase.

The odds for a May rate hike got higher as the February Inflation Report said that “monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than (previously) anticipated.” Both Ian McCafferty and Michael Saunders voted for a 25bp rate hike in March, which means that the rate hike can soon be on the cards. 

The monetary policy statement in March said: “ongoing tightening of monetary policy over the forecast period will be appropriate to return inflation sustainably to its target at a more conventional horizon.”

The BoE didn’t comment on the Brexit transition period however it said that it sees the whole Brexit process has “the most significant influence on uncertainty.”

Here is a Brexit timeline as seen by ING based on the European Commission data. 

What could reinforce the Yen is Trump restricting Chinese investment and put tariffs on $50B in Chinese imports for stealing technology.

GBP/JPY daily chart:

Strong resistance is seen at the 150.00 handle with the 55 and 100-period simple moving average seen 70 pips higher. The market found support at the 200 DMA close to 148.00 while it is now trading back into yesterday’s range. 

GBP/JPY 1-hour chart:

Today’s selloff was quite sharp. Resistance is seen at 149.50 previous supply zone followed by the 150.00 psychological figure. Intraday support is seen at 148.50, the 200 SMA. If the level is broken to the downside the next scaling point is likely seen at 147.00, the last swing low. 
 

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