Analysts at Nomura expect US existing home sales to increase only modestly by 0.2% m-o-m to an annualized rate of 5390k.

Key Quotes

“Incoming data on pending home sales, which track contract signings, were weak in January, suggesting some drag on existing home sales (contract closings). Although consumer fundamentals remain favorable, mortgage applications for home purchases fell in February, pointing to some downside risk on our existing home sales forecast. Looking ahead, the ongoing shortage of previously owned homes for sale as well as the prospect of rising mortgage rates will likely weigh on sales.”

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   •  China said to introduce counter-tariffs, targeting US agricultural exports.
   •  Global trade war concerns prompt some safe-haven buying.
   •  Downside remains limited ahead of the key FOMC announcement.

The USD/JPY pair dropped to fresh session lows, closer to the 106.00 handle, in a knee-jerk reaction to the WSJ report on possible Chinese countermeasures against the planned US tariffs. 

According to the report, citing people familiar with the matter, China is said to target US agricultural exports, depending on what the Trump administration proposes. The headlines fueled concerns of a full-blown US-China trade war and prompted some aggressive safe-haven buying. 

The pair, however, managed to quickly recover around 25-pips from lows and seemed to track a goodish pickup in the US Treasury bond yields. Investors seemed reluctant to place aggressive bets and preferred to wait on the sidelines ahead of the latest FOMC monetary policy update, due to be announced later during the NY trading session.

Technical levels to watch

The 106.00 handle might continue to act as an immediate support, below which the pair seems to aim back towards challenging mid-105.00s before eventually dropping to the key 105.00 psychological mark.

On the upside, 106.60 level seems to have emerged as an immediate resistance, above which a bout of short-covering could lift the pair beyond the 107.00 handle towards testing the 107.35-40 supply zone.
 

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Preliminary data for GBP futures markets from CME Group noted open interest shrunk fort the first time after three consecutive gains by around 2.5K contracts on Tuesday vs. Monday’s finally 232,861 contracts. Similarly, volume went down significantly by more than 82K contracts extending the weekly drop.

GBP/USD still targets 1.41 and beyond

Cable’s up move still appears healthy, although the recent decline in both open interest and volume begs some caution in the near term. In addition, yesterday’s ‘inside day’ could be indicative of some respite in the up trend. That said, the imminent BoE event and progress on the Brexit front should be crucial for Cable.

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Analysts at TD expects the Fed to hike rates by 25bps at the March FOMC, in line with a nearly-universal consensus.

Key Quotes

“We look for changes in the statement to show an upgrade to the balance of risks and convey stronger conviction in the outlook. While markets have speculated about the risk of four 2018 hikes, we think the bar is too high to see a shift in the median 2018 dot but look for the 2019 dot to shift higher, signaling three hikes next year.”

“On the data front, existing home sales for February and the Q4 current account balance are both scheduled for release. The market expects home sales to rise 0.4% m/m to a 5.4m unit pace while the current account deficit is expected to widen to $125.0bn.”

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According to statistics released by the Bureau of Economic Analysis (BEA) this Wednesday, the U.S. current-account deficit increased to $128.2 billion (preliminary) in the fourth quarter of 2017 from $101.5 billion (revised) in the third quarter. 

   •  The deficit was 2.6 percent of current-dollar gross domestic product (GDP) in the fourth quarter, up from 2.1 percent in the third quarter.

   •  The $26.7 billion increase in the current-account deficit mostly reflected increases in the deficits on goods and secondary income and a decrease in the surplus on primary income.

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The BCB today is expected by the overwhelming majority of consensus to cut rates again by 25bps, suggests the analysis team at Rabobank.

Key Quotes

“We hold to our call of no shift in policy as we don’t believe that the last single inflation print is enough to signal a material shift in either the BCB’s baseline scenario or balance of risks. Furthermore, the BCB risks sending a message to the market of an overly dovish stance, after signaling at the last meeting a halt to the easing process. Rising market volatility and threats to global trade diminish the economic risk/reward of further easing, particularly absent any chance for further (needed) substantial fiscal reform. BRL stability could become increasingly threatened, and necessitate interest rate support from the BCB.”

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The pair quickly reverted the knee-jerk to the 1.2260 region.
USD remains offered albeit above the 90.00 handle.
US FOMC gathering next on tap, with a rate hike already priced in.

The single currency remains bid on Wednesday amidst a generalized softer tone around the buck and EUR/USD looking to stabilize in the 1.2270/90 band ahead of the Fed meeting.

EUR/USD consolidative ahead of FOMC

The pair stays in recovery-mode following yesterday’s strong pullback to the 1.2240 region, coincident with the relevant short-term support line off 2018 lows (January 9), which continues to hold pretty well for the time being.

Looking ahead, spot is poised to come under pressure as market participants see the Fed delivering a ‘hawkish hike’ today. Despite the expected move on rates, the focus of attention should be on the first press conference by Chair Powell and the updated ‘dots plot’.

Apart from the Fed meeting today, Existing Home Sales for the month of February are due ahead of the EIA weekly report on US crude oil supplies.

EUR/USD levels to watch

At the moment, the pair is gaining 0.27% at 1.2274 and a breakout of 1.2414 (high Mar.14) would target 1.2448 (high Mar.8) en route to 1.2557 (2018 high Feb.16). On the flip side, immediate contention emerges at 1.2241 (low Mar.21) seconded by 1.2206 (low Feb.9) and finally 1.2165 (low Jan.18).

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According to the WSJ report, citing people familiar with the matter, China is said to plan countermeasures against the US President Donald Trump’s proposed tariffs. 

China is likely to target US agricultural exports of soybeans, sorghum and live hogs, but the plan could change based on what the Trump administration proposes.

The headlines sparked concerns of a full-blown US-China trade war and prompted some safe-haven buying, with the USD/JPY pair falling the 106.00 neighborhood in a knee-jerk reaction to the news report.

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   •  Resurgent US bond yields help offset USD weakness and prompt some fresh selling. 
   •  Weaker copper prices did little to lend any support and stall the downfall.
   •  The Fed’s outlook for future interest rates should provide a fresh directional impetus.

The AUD/USD pair struggled to build on early tepid recovery move and fell to fresh three-month lows in the last minute. 

The pair failed to capitalize on some renewed US Dollar weakness, with a goodish pickup in the US Treasury bond yields seen as one of the key factors prompting some aggressive selling around higher-yielding currencies – like the Aussie. 

Expectations that the Fed would raise interest rates by 25 bps, and signal towards a faster monetary policy tightening cycle remained supportive of the recent upsurge in the US bond yields and reason behind the pair’s slide to fresh YTD lows. 

Hence, investors’ focus would remain glued to the Fed’s latest economic projections and the outlook for future interest rates, which would drive the USD in the near-term and eventually provide some fresh directional impetus.

Technical levels to watch

A follow-through weakness below 0.7665 level now seems to drag the pair even below 0.7640 intermediate support towards challenging the 0.7600 round figure mark. On the upside, the 0.7700 handle now becomes immediate resistance, which if cleared might prompt some short-covering move and lift the pair back towards the 0.7720-30 supply zone.
 

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