The Canadian dollar is falling and Euro continues to rise on expectations of strengthening the European economy
The Dollar steadied as market fears of a trade-war eased stemming from Donald Trump’s tariff proposal on imported steel and aluminum last Thursday. The Dollar/Yen reversed losses as risk appetite returned and the US ten year yield advanced to 2.88% (2.86%).
Italian discontent saw anti-establishment parties surge in the election while Germany’s Social Democrats agreed to form a government with Angela Merkel’s Conservatives. The net effect was a flat Euro, which finished at 1.2325 (1.2323).
The outcry against Trump’s 25% and 10% levies on imported steel and aluminum came swift and strong. Senior lawmakers from Trump’s Republican Party urged him to reconsider proposing the tariffs. Trump said he won’t back down but does not expect “war”.
The Italian election result was somewhat balanced out by the decision of Germany’s Social Democrats to form government with the Conservatives.
Sterling stabilised, managing to gain against the Dollar and Euro after PM May said a Brexit transition deal was close.
A lack of progress in NAFTA (North America Free Trade Agreement) talks combined with waning Canadian consumer confidence saw the Loonie slump.
Trump’s tariff tirade roiled markets at the end of last week. And while Trump has said he is not backing down, traders and investors have shrugged-off the initial impact. Perhaps, just like the North Korea rattling, the drama will ease. Investors are expecting the Republican Congress to restrain Trump and that he will back down eventually. While the uncertainty has eased, it has not erased.
China does not want a trade war. Ray Dalio, founder of Bridgewater Associates (a hedge fund that manages $ 160 billion according to its website) said in a LinkedIn blog post that he believes an acceptable trade deal between China and the US is possible.
US ISM Non-Manufacturing PMI beat expectations which aided sentiment. Euro Zone Final Services PMI slipped, missing forecasts. Australian Building Approvals for February beat forecasts but was offset by revised fall in January.
Economic data and events today:
Australia’s Q4 Current Account and February Retail Sales this morning. The RBA’s rate decision and statement follow later today (GMT 3.30 am, 6 March, Local Time 2.30 pm, 6 March). Next is the Canadian Ivey PMI diffusion index in the afternoon.
Tomorrow sees the Bank of Canada policy rate meeting with the European Central Bank on Thursday and the Bank of Japan on Friday. Canadian and US Payrolls finish off the week.
The Dollar Index (USD/DXY) steadied, managing a mild climb to end at 90.071 (89.977 yesterday). While the Dollar was generally mixed against its Rivals, falls in the Yen and Canadian Dollar lifted the Index. USD/DXY closed above 90.00 and held the 89.80 level. Immediate resistance is found at 90.20 and 90.50. Immediate support lies at 90.00 and 89.85. Expect consolidation with today’s likely range 89.95-90.35. Look to buy dips, we are likely headed toward 91.00.
EUR/USD – initially rose after news reports of the German Social Democrats voting to form a government with Angela Merkel’s Conservatives. EUR/USD jumped to 1.2364 (overnight high) before easing off to 1.2330 as the Italian election results filtered in. The result saw anti-establishment Eurosceptic Five Star Movement party do better than expected and a rightist alliance emerge. EUR/USD then plunged to its lows at 1.2269 before steadying to climb back to 1.2325 at the NY close. Taken together the election results did not alter the market’s views on the strengthening European economy. That said, economic data of late has begun to slow from its strong pace in 2017. Speculative long Euro bets remain a multi-year high. EUR/USD has immediate resistance at 1.2350/60. Immediate support lies at 1.2300 and 1.2280. Look to sell rallies with today’s likely range 1.2250-1.2350.
USD/JPY – turn-around from its soft tone in yesterday’s trade finding a base at 105.35. As risk sentiment improved the Dollar rose steadily trading to 105.80 initially. The advance in the US Ten year yield to 2.88% (from 2.86% yesterday) coupled with a fall in the Japanese Ten year JGB yield to 0.03% (0.06% yesterday) saw USD/JPY jump to 106.25, this morning’s high. The Dollar has settled at this level and looks poised for more gains. Immediate resistance lies right here at 106.30 and then 106.60. Immediate support can be found at 106.00 and 105.80. The yield differential in the ten years has widened to 5 basis points. Interesting that this occurred as the market was driving the USD/JPY down to the 105.00 area. Look to buy USD dips with today’s likely range 105.90-106.90.
AUD/USD – The AUD/USD traded in a relatively narrow range between 0.7726 and 0.7770, closing at little-changed at 0.7762 (0.7764 yesterday). The improvement in risk appetite, as well as the rise in most metals, has provided the Aussie with some support. At their meeting yesterday, China’s People’s Congress reaffirmed a continued growth rate of 6.5%. Iron ore futures yesterday though fell as China announced further cuts to steel and coal production. Today sees the RBA policy decision meeting and statement. The Australian central bank is expected to keep the cash rate steady at its current 1.5%. Immediate resistance lies at 0.7770/80 and then at 0.7800. Immediate support can be found at 0.7740 and 0.7725. Likely range today 0.7710-0.7790. Look to sell rallies.
USD/CAD – soared to close at 1.2995 from 1.2885 yesterday. The Loonie has steadily lost ground against its southern counterpart Greenback as confidence in the economy wanes. The BOC’s decision to hike rates 3 times (twice in 2017 and once this year) has begun to slow the economy. Political jitters from continuous delays in NAFTA negotiations as well as talk that Canada will not be exempt from tariffs on steel and aluminum with the US hit the Loonie.
USD/CAD has immediate resistance at the psychological 1.3000/10 level. Immediate support can be found at 1.2930. Which is the lowest number of spec long bets since mid-January? Likely range today 1.2920-1.3020. Prefer to sell rallies on this puppy.
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