Investors were attracted by the rise in bond yields and dropped stocks.
US stocks down led by technology stocks, Apple is down 4.1% on the day. 

The three main US indices closed lower on the last day of the week. The S&P 500, the Dow Jones and the Nasdaq all closed below their 50-period simple moving average. The S&P 500 Index dropped 0.90% to 2,670 while the Dow Jones Industrial Average DJIA lost 0.80% to 24,463 and the Nasdaq Composite Index fell 1.3% to 7,146. 

The decline was led by technology shares, especially Apple which dropped 4.1% on Friday on the back of comments from Morgan Stanley bank which said that Apple’s iPhone sales for the June quarter will disappoint the market. Ten of the eleven S&P 500 main sectors closed in the red. The technology sector was down 1.5% while the consumer staples sector was down 1.68% on the day. 

Collaborating to the drop in stocks is the rise of the US bond yields. Investors decided to rotate their assets and turned to bonds. The 10-year Treasury Note jumped to 2.96% close to 2014 highs. Behind the move are the stronger US economy and increasing US inflation.

“I am calling this a momentum trade because it has largely been driven by commodity prices. As we have learned over the last few years, those baskets can rise and fall at any time as certain short-term factors cause spikes in prices, then settle back down into a more ‘normal’ trading range.” commented Kevin Giddis, head of fixed income at Raymond James.

S&P500 Index Daily chart

The main trend is bullish but the market is currently having a pullback. Resistances are seen at 2,718.75 and 2800 swing highs while support lies at 2,650 swing low (early March) and at 2,551.75 cyclical low.

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Trumps‘s tweet criticizing OPEC cuts sends crude oil lower but then black gold recovers losses quickly.
Longer-term fundamentals for oil are still well in place for oil. 

Crude oil WTI is trading at around $68.38 per barrel virtually unchanged as the commodity traded mainly sideways on the last day of the week but still at levels not seen since late 2014.

Earlier in the day, Trump tweeted that he was not happy with current oil prices. “Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!” says Trump by Tweeter. Oil ticked lower on the tweet but then prices quickly recovered. 

The OPEC and Russia decided to cut production in January 2017 in order to support the prices of oil. 

Oil prices are higher for many reasons: diplomatic tensions with Russia, the Iranian deal that needs to be renewed on May 12, tightening supply led by OPEC and Russia, a global demand for oil which is steady and a decreasing Venezuelan oil production. 
Khalid al-Falih, Saudi oil minister, said that OPEC has no intention to decrease the cuts for the time being and that it would be premature to discuss it at the next meeting in June. He added that the global economy could put up with higher prices and that oil demand would persist regardless of higher prices. 

Crude oil WTI: levels to watch

The trend is bullish. Support is seen at 67.76 swing high and at 67.00 figure, while resistance is seen at 68.91 supply level and 69.56 high of the year.

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Profit taking and Presidential election polls send the Peso sharply lower. 
USD/MXN rises almost 3% in 2 days. 

The Mexican peso ended the week as the worst performer among the most-traded currencies. It dropped sharply during the last two days and the slide still has room to go. 

The USD/MXN pair reached the lowest level since September at the beginning of the week under 18.00. The Peso failed to hold under 18.00 and weakened modestly. The currency started to decline sharply on Thursday and on Friday peaked at 18.68, the highest level since March 23. It was the biggest 2-day gain in months. 

The Peso was affected by profit-taking after rising from March to mid-April and it also turned lower following the release of new polls showing that candidate Andres Manuel Lopez Obrador’s has increased to more than 20 points ahead of the presidential elections to be held July 1. Also, a stronger US dollar pushed the pair to the upside. 

Despite the recent decline, the Peso continues to among the best performers of 2018. It rallied earlier on optimism about NAFTA and higher crude oil prices. After recent moves, the outlook clouded for the Mexican peso 

Banxico sure looking

After the sharp and quick depreciation, eyes would star turning to the Bank of Mexico. Will it implement more actions to curb Peso’s weakness? Is another rate hike possible? Much of what happens, will depend on what happens next week with USD/MXN. 

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According to analysts from Danske Bank, next week, the European Central Bank will keep rates unchanged and they see that the flash PMI will indicate whether the euro area cycle is weakening further. 

Key Quotes: 

“In the euro area, we are awaiting the PMI figures due for release on Monday (…) We believe a further decline is pending for April. Several survey indicators have pointed to lower optimism, fear of a trade war and the euro appreciation last year is starting to show its impact on activity. We believe Manufacturing PMI will decline to 55.5 in April. Similarly, Service PMI has declined to 54.9 in March since peaking at 58.0 in January. We believe Service PMI is set for a further decline to 54.3 in April.”

“On Tuesday, the German Ifo expectations are due for release. Similar to the PMIs, the Ifo expectations have been declining in recent months, reflecting the lower optimism on the future.”

“The main event next week is the ECB meeting on Thursday. We do not expect any announcements with regards to policy changes from the governing council at this meeting.”

“We expect ECB to come with its first rate hike in December 2019, but with a 20bp size on the deposit rate hike instead of a 10bp hike in Q2 19. Recent data on inflation has disappointed compared to ECB projections, and the declining activity indicators should further lead the ECB to revise its GDP forecast downwards at the June meeting. Taken together, we believe the ECB is likely to postpone the first hike, as its current projections seem overly optimistic given recent developments.”

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Jocelyn Paquet, an analyst at National Bank of Canada, points out that the Canadian February Retail Sales report will no be enough to salvage the performance of the economy during the first quarter. 

Key Quotes:

“Canada’s retail sales increased a consensus-matching 0.4% in February. That result came after a downwardly-revised +0.1% print the prior month (initially reported as a 0.3% advance).”

“Discretionary sales, i.e. sales excluding gasoline, groceries and health products, had a decent month, climbing 0.7%. In real terms, Canada’s retail spending was up 0.3% in February, following three straight monthly declines.”

“The retail results for February came in line with consensus expectations. The increase registered for motor vehicles and parts was certainly encouraging after that category recorded the worst 3-month performance since 2008 between October and January (-9.0% in total). The below-consensus reading for ex-auto retail sales should not be overly concerning.”

“The relatively good monthly result will likely not be sufficient to salvage Q1’s performance.”

“Real retail sales are on pace to decline 5.8% in annualized terms in the quarter. That would be the worst print registered since the recession and it may have translated into the first negative contribution to GDP from consumption spending on goods since 2015Q1.”

“Whatever its cause, the deceleration of consumption growth in Q1 is consistent with our view that Canadian real GDP growth softened to roughly 1.5% annualized in the first quarter of the year.”

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NZD/USD back to the 0.7200 handle on stronger USD 
Last week’s long NZD/USD trade on upbeat China’s President comments has now been totally retraced.

The NZD/USD is trading at around 0.7206 down 0.88% on Friday.

The NZD/USD is falling for the fourth day in a row and has now tested its 100-period simple moving average on the daily time frame at 0.7213.

The recent drop down in the kiwi is mainly attributed to US dollar strength. US bond yields are spiking to multi-week highs, which in turns boosts the greenback as more investors turn to US bonds exacerbating the USD demand. The US Dollar Index (DXY) is currently trading at 90.26 which is a level not seen since early April.

Last week move higher in the kiwi close to the 0.7400 handle was mainly driven by enthusiasm on the back of the comments of the Chinese President. Xi Jinping said that he wanted to push for free trade and open up its economy to foreign investments. He also spoke about lowering tariffs on the auto industry. However, later on, the upbeat comments were denied by a Chinese official who said that China would still retaliate in a trade war environment. Since China is a top trading partner with New Zealand, any news that affects China also generally affects the NZD. 

Earlier on Wednesday, the New Zealand inflation numbers for the first quarter of the year came in line with expectations. The kiwi had a 30-pip intraday boost up but quickly resumed its downtrend as the data had no strong deviation to the upside and the general sentiment had shifted to bearish for the kiwi. 

NZD/USD 4-hour chart

Support is priced in at 0.7188 swing low and at 0.7153 cyclical low, while resistance is seen at 0.7244 swing low and 0.7350 swing high and at 0.7396 cyclical high. 

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According to analysts from Wells Fargo, the European Central Bank will keep rates unchanged on Thursday. They see the end of the QE program by year-end. 

Key Quotes: 

“The Eurozone economy is growing steadily, but the inflation data there remain benign as evidenced by the 1.3 percent rate of CPI inflation reported in March. The ECB left rates unchanged at its most recent meeting in March; however, the accompanying policy statement removed language regarding the possibility of additional quantitative easing (QE) measures if the outlook deteriorates. After having already halved the pace of QE, we look for the ECB to eventually end its current €30 billion per month pace of asset purchases by the end of this year and begin to hike rates at some point in 2019.”

“The ECB meeting next week will give financial markets an idea of how policymakers’ intentions are evolving against a backdrop of only tepid inflation in Europe.”

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Data to be released next week in the US includes GDP, PMIs, and capital goods orders. Analysts from Danske Bank, look for US Q1 GDP to be around 2.0% q/q annualized.

Key Quotes: 

“In the US, the preliminary Q1 GDP growth estimate is due for release on Friday. There are signs that economic activity slowed in the first quarter, with growth in consumer spending coming out weaker than first expected and the investment indicator not as strong as previously. AtlantaFed suggests GDP growth was 2.0% q/q AR while NYFed’s GDP indicator says 2.8%. We believe the former is more likely than the latter.”

“We remain optimistic about full-year GDP growth due to the tax package among others and hence we expect the Fed to continue its gradual hiking cycle.”

“Markit PMIs are due for release on Monday. Empire regional PMIs fell in March which points to a slowdown in manufacturing sector. The gap between ISM and Markit PMI manufacturing remains a mystery although we consider ISM to have come in at a too high level. We believe both indices will fall over the coming months.”

“On Tuesday, capital goods orders figures for March are due to be released, which will give us an impression of whether investments will gain momentum after a few weak months. We still expect that investments will drive US growth to a greater degree this year compared to the past couple of years.” 

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AUD/USD ends week lower after a significant 2-day slide. 
Slide finds support slightly above key technical support. 

The AUD/USD pair dropped sharply on Friday for the second-day in-a-row. In a few hours, the pair erased April’s gains. 

From Thursday’s high lost almost 150 pips, making a strong reversal. From hitting the highest level in a month dropped to the lowest in 10 days, in a period of 30 hours. 

The slide took place amid a rally of the US dollar across the board. The greenback strengthened on the back of higher US bond yields. Also on Friday, risk aversion and a slide in commodity prices affected the AUD/USD. 

Despite falling sharply against the US Dollar, the Aussie rose constantly over the week versus the Kiwi, even after weak Australian employment data. Next week, the key data from Australia will be Q1 inflation numbers. 

AUD/USD Levels to watch 

The pair was rejected from above 0.7800 and tumbled, falling back under the 20-day moving average that stands at 0.7715, now a resistance. A recovery above the mentioned line could ease the negative tone. Above the next resistances might be seen at 0.7760 and 0.7800/10. 

Today AUD/USD bottomed at 0.7654 and then rebounded modestly. It was trading at 0.7673, down 85 pips for the day. The slide found support above the key support around 0.7640 (March and April lows). A break below would intensify the bearish momentum. The 0.7640 area is a key level to watch over the next sessions. 

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Mauricio Oreng, Senior Brazil Strategist at Rabobank, points that they project USD/BRL at 3.30 for the end of this year and 3.70 for the end of next year, as they anticipate an election-led rally late in 2018 and a re-pricing on lower global liquidity in 2019.

Key Quotes: 

“The BRL has been on a weakening path since late January, moving all the way from 3.13/USD (on 25-Jan-2018) to around 3.40/USD (as of late). The Brazilian currency has stood amid the worst performers among the major currencies.”

“What our numbers do indicate (and, we believe, with a reasonable degree of accuracy) is that while the BRL weakness from 3.13 (25-Jan-2018) to 3.27 (21-Mar-2018) was highly led by  global market conditions, with the subsequent jump to just below 3.40 (as of now) driven by factors not captured in our models. As per the latter, we believe greater political fears and lower interest rate are very good candidate for drivers.”

“We look for USD/BRL at 3.30 for the end of this year, as we anticipate an election-led rally (i.e. with strengthening of political groups supporting economic reforms) offsetting effects of a continued reduction in global liquidity (as DM central banks normalize policy). We anticipate the latter will play a more important role for the BRL in 2019, as we look for USD/BRL at 3.70 for the end of next year.”

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