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    • China’s sovereign debt downgraded by Moody’s

      currency trading strategies Comments Off on China’s sovereign debt downgraded by Moody’s

      AUSTRALIA, MARCH 7, (CNBC): China’s finance ministry chastised Moody’s on Wednesday after the US rating agency downgraded Beijing’s sovereign credit rating, highlighting investor concerns over rising debt and the slow pace of economic reforms intended to transform the country’s growth model.

      “Moody’s has overestimated the difficulties faced by China’s economy and underestimated the government’s ability to deepen reforms,” the ministry said in response to the downgrade, which initially rattled China’s stock markets and currency. Moody’s downgraded China one notch from Aa3 to A1, its fourth-highest rating. On the credit scale used by rival agencies Fitch Ratings and Standard and Poor’s, the move is equivalent to a downgrade from double A minus to A plus. S&P still rates China at double A minus although with a negative outlook, while Fitch already had China at A plus.

      Mario Singh Official Website

       
    • U.S. Economic Recovery Is Ending? Continue Shorting Dollar?

      currency trading strategies Comments Off on U.S. Economic Recovery Is Ending? Continue Shorting Dollar?

      Historical data shows the current stretch of U.S. recovery could walk into the end, short USD/JPY?

      How low the U.S. dollar will go?

      Dollar has fallen steadily as the administration endured a series of legislative and legal setbacks, and fell sharply this week after revelations that Mr Trump pressed James Comey, the FBI director, to drop the Russia probe. USD fell to near a six-month low during Friday’s overnight session and it suffered its worst week in more than a year, wiping out all its gains since Donald Trump was elected US president as investors fretted that a growing White House scandal might derail Republican initiatives to boost the economy, and the political outlook has changed considerably over the last couple of weeks.

      Meanwhile, cautious comments from FOMC non-voter James Bullard weighted on the USD. Bullard reiterated his support for just one more Fed funds rate hike this year and noted that “the FOMC’s contemplated policy rate path such as two more 25bps rate hikes this year is overly aggressive relative to actual incoming data on U.S. macroeconomic performance.

      For this week, markets’ participants are likely to shift into Fed’s FOMC statement for the month of May. The Minutes will likely reinforce the case for a 14 June Fed funds rate hike, and should provide further detail on the FOMC’s thoughts on reducing the size of the Fed’s balance sheet. The support to the dollar should be very limited since market has already expected a rate hike next month.

       

      On Tuesday, the Trump administration will submit its full 2018 budget plan to Congress. But not to get confused, this is unlikely to have a material impact on the USD. The budget will simply outline in more details the administration’s mandatory spending initiatives, not those fiscal reforms market paying attention into.

      Does the current U.S. economic recovery is too stretched? Maybe

      From the recent major economic data released by the U.S., the slowdown in inflation, ISM manufacturing PMI, with the decline in commodity prices, the U.S. economy is likely to further cool down. Most importantly, the data show that the economic recovery cycle in the United States is nearing its longest in history. The main reason for this long cycle of economic recovery in the United States is highly due to the Fed’s highly accommodative monetary policy.

      Now we are in the situation that Fed has to raise the interest rates gradually with little other choice. Because if the Fed not to do so, they may have to raise the rates more aggressively and that carries the risk of leading the economy into recession. Still, the Fed knows the economic condition better than anyone else, there is lacking of the new growth engine.

      The chart below shows that there have been 5 periods when U.S. unemployment rate fell sharply in the period 5 times since 1970. Current recovery stretch since 2009 is longest since that one happened in 1990.

      In 1975 -1979 years: 4 years

      In 1982 -1989 years:  7 years

      In 1992 -2000 years: 8 years

      In 2003 -2007 years,: 4 years

      In 2009 – now: 8 years so far

      US unemployment

      EUR/USD may face some technical retracement this week, not fundamental  

      Major currencies were mostly weaker against the US dollar this morning, including EUR, EUR/USD may consolidate some of its recent strong gains against the USD and AUD this week. Encouraging Eurozone economic activity, the prospect of the ECB announcing a path to more tapering of its asset purchase program at the June ECB meeting, and improving Eurozone capital inflows will continue to underpin EUR. This week’s EUR highlights are May’s IFO pan German business climate and PMI releases. The data will confirm the robust pace of economic activity in the Eurozone which is EUR supportive.

       

      Our Picks

      EUR/USD – Slightly bearish. We expect this pair to move towards 1.1125 in coming days as some technical retracement expected

      USD/JPY – Slightly bearish. We expect the pair may move towards 110.80

      USDJPYH1

      Gold – Slightly bearish.  We expect slightly improving risk sentiment may pressure the price towards 1246

       


      Top News This Week
      (GMT+8 time zone)

      U.S. : GDP. Friday, 26 May, 8.30pm.
      We expect figures to come in at 0.8% (previous figure was 0.7%).

      U.S.: FOMC meeting minutes, 25 May, 2am

      Mario Singh Official Website

       
    • Softer Dollar Seen Amid Potential Strong Euro Data

      currency trading strategies Comments Off on Softer Dollar Seen Amid Potential Strong Euro Data

      Softer U.S. data may prompt USD/JPY to drop below 113, good time to short?

      U.S. dollar downside risks seen increasing after soft inflation

      Dollar index fell below its 200-day moving average during Friday’s overnight session and US 10-year Treasury yields edged lower after slower U.S. inflation and disappointing retail sales growth weighted on pace of Fed’s rate hikes expectations this year. Together with softer China PPI data released last week, we think the global inflation growth faces the risk of slowing down.

      Inflation in world largest economy slowed in April at an annual pace of 1.9%. This is the lowest rate in almost two years and below the key 2% threshold. Meanwhile, the retail sales rose by just 0.2% MoM in April, below consensus 0.4%. Though the Fed is widely expected to raise interest rates at it’s meeting next month, the pace of rates normalisation in second half is expected to slow down if the trend confirmed slower inflation growth.  Market has widely forecasted two more hikes this year after 25bp increase two months ago, any slower pace of hiking is set to undermine the strength of U.S. dollar.  The chart below shows that Fed fund rates have been consistent with the trend of U.S. inflation rate over a long period of time

      US inflation

      China ‘Belt & Road’ initiatives help to boost sentiment on yuan and rest of EM currencies, not a postive news on U.S. dollar

      Chinese President Xi Jinping pledged $ 124 billion over the weekend for his new Silk Road plan to forge a path of peace, inclusiveness and free trade, and called for the abandonment of old models based on rivalry and diplomatic power games. The strategy of belt & road plan comes with the plan on further yuan internationalisation, as a major funding boost denominated in yuan currency to the new Silk Road is pledged. The funding includes an extra 100 billion yuan into the existing Silk Road Fund, 380 billion yuan in loans from two policy banks and 60 billion yuan in aid to developing countries and international bodies in countries along the new trade routes. Such environment requires yuan to be more internationised than its current status. If China needs to pursue that, the nation is likely to anchor on currency stability, otherwise capital outflows will increase along with a more liberal capital market. USD/CNY has been moving below 6.9 again these days, which could be an effort of Chinese authorities to stabilise its currency.  A stable yuan will also influence other currencies in the region, such as TWD, MYR, KRW etc., appreciation in these currencies may also contribute to the weakness of the U.S. dollar.

      Euro Zone economic data could further support the single currency

      EUR/USD can sustain a move above 1.1000 this week supported by encouraging Eurozone economic activities. Rising PMIs in both manufacturing and service sectors call for the GDP growth in first quarter to be in a good shape.  The ZEW economic sentiment survey released on Tuesday is likely to improve due to lower political risk. The implication is ECB may start to reduce monetary policy accommodation sooner rather than later which bodes well for EUR. Interestingly, Der Spiegel reported on Friday that ECB will likely signal a shift away from its super-accommodative monetary policy stance as early as July.

      EU Manufacturing

      Our Picks

      EUR/USD – Slightly bullish.  We expect this pair to move towards 1.10 in coming days if the economic data beats earlier forecast.

      EURUSD

      USD/JPY – Slightly bearish.  We expect the soft sentiment on dollar may drag this pair towards 113.

      USDJPYH1


      Top News This Week
      (GMT+8 time zone)

      Euro Zone: GDP. Tuesday, 16 May, 5pm.
      We expect figures to come in at 0.6% (previous figure was 0.5%).

      UK: CPI. Tuesday, 16 May, 4.30pm.
      We expect figures to come in at 2.5% (previous figure was 2.3%).

      Japan: GDP. Thursday, 18 May, 7.50am.
      We expect figures to come in at 0.3% (previous figure was 0.3%).

      Mario Singh Official Website

       
    • EUR/USD Buying Dip Opportunity Seen After Macron Wins French Election

      currency trading strategies Comments Off on EUR/USD Buying Dip Opportunity Seen After Macron Wins French Election

      Euro seen profit-taking after Macron won French election

      Not surprisingly, Emmanuel Macron has won the French election of becoming the next French President, beating Marine Le Pen in the Final round of the French Presidential election. EUR/USD has lifted in early Monday morning trade, up 0.25% to 1.1023, but seen profit taking activities after that. Further modest gains in EUR/USD are widely expected at this moment and probably a buy on dips strategy for EUR/USD could be adopted in coming days. Eurozone’s improving economic data as well as low funding costs in Europe, are strong incentives for equity based investment in the Eurozone, which will also support the single currency.

      U.S. payrolls data further adds Fed’s rate hike possibility in June

      U.S. job growth rebounded sharply in April and the unemployment rate dropped to 4.4 percent, near a 10-year low, pointing to a tightening labor market that likely confirm the case for an interest rate hike next month. Nonfarm payrolls surged by 211,000 jobs last month after a gain of 79,000 in March. April’s job growth, which was broad-based, surpassed this year’s monthly average of 185,000. However, this strong job data failed to lift the U.S. dollar.

      We think the key driver behind the drop in dollar index is that risk sentiment seen largely improved, as sound economic condition and ease in French election encourage investors to park their cashes into euro assets, which its currencies’ fair value is much lower than the U.S. dollar. Chart below shows that moves in euro dollar has been in tandem with Dow index since middle of March when the Fed raised the rate, given euro has over 56% weight in dollar index, improving risk sentiment globally seen a downside risk to the U.S. dollar.

      pic 1

      How the rising China FX reserves to potentially influence the direction of dollar moves 

      China’s FX reserves rose in April for a third straight month according to the data released over the weekend, beating market expectations, as capital controls and a pause in the dollar’s rally helped staunch capital outflows. Reserves rose $ 21 billion in April to $ 3.03 trillion, compared with an increase of $ 3.96 billion in March to $ 3.009 trillion. Main reason behind the rising is the weak sentiment in greenback, discouraging the Chinese investors to park the cash overseas.

      Most importantly, PBOC’s reaction towards the change in FX reserves is likely to change the course of greenback. When China’s capital outflow pressures increase, PBOC may sell its FX reserves to defend its Chinese yuan. In our estimate, there are over 60% of its assets are held in U.S. dollar, while most of them are U.S. Treasuries. In other words, increases in China capital outflows could indirectly pressure the U.S. sovereign bonds yield higher. Chart below shows that in the period of second half last time, falling China FX reserves and surges in U.S. 10-year sovereign bond yield occurred at the same time.

      pic 2

      When current situation doesn’t require PBOC to massively dump its reserves, with expectations on Fed to gradually raise its policy rate, there is less risks to induce the U.S. Treasuries yield to move much higher from the current level. A separate chart below shows a high correction between U.S. 10-year yield and dollar index.

      pic 3

      Our Picks

      EUR/USD – Slightly bullish.  We expect this pair to find support around 1.09 in coming days.  Consider going long around this level.

      FM WMR 20170508-EURUSDDaily

      AUD/USD – Slightly bearish.  Monetary policy in China tightening could further pressure this pair lower, and various Chinese economic data could not be strong enough to support this pair.  Consider going short if price rebounds to next resistance level at 0.7425

      FM WMR 20170508-AUDUSDH1


      Top News This Week
      (GMT+8 time zone)

      China: CPI, Wednesday 10 May, 9.30am.
      We expect figures to come in at 1.2% (previous figure was 0.9%).

      New Zealand: Cash rate decision. Thursday, 11th May, 5am.
      We expect rate to remain unchanged at 1.75% (previous figure was 1.75%).

      UK: Cash rate decision. Thursday,  11th May, 7pm.
      We expect rate to remain unchanged at 0.25% (previous figure was 0.25%).

      Mario Singh Official Website

       
    • EUR/USD opens higher with more than 180 pips gap!

      currency trading strategies Comments Off on EUR/USD opens higher with more than 180 pips gap!

      Emmanuel Macron and Marine Le Pen won the first round of election.  Is it a good time to short EUR/USD expecting the gap to close?

      France held their first round of presidential election over the weekend.  The end result could be the best of all the probable outcomes.  This is reflected in the price gap of more than 180 pips when EUR/USD opens higher for the week.  The celebration may be short-lived as market is likely to look forward to the second round of election on 7th May.  On one corner representing the euro bull, its Emmanuel Macron the globalist and on the other corner representing the euro bear, its Marine Le Pen an anti-EU.  The euro could swing in either direction depending on the final result.  Uncertainties lead to “sell first think later” phenomenon, we prefer to go with the sell on rally approach.  From now until 7th May, any fresh poll results showing a shift in support between Macron and Le Pen are likely to cause some short-term volatility in euro.

      Theresa May Calls Snap Election

      UK Prime Minister Theresa May surprised the market by calling for a snap election on 8th June and the parliament has given the approval.  2017 is truly the year of elections in Europe.  She is clearly “frustrated” by the lack of support in the parliament and is looking for a mandate to lead UK into the negotiations with EU.  Some called this a masterstroke of a politician to throw her rivals off guard in order to garner more support.  Regardless of her motive, investors are buying it.  GBP/USD rallied to 1.29, a 6-month high.  We expect GBP/USD to continue to find support around 1.28, unless fresh poll shows May is losing her popularity.

      What will BOJ* and ECB** do this week?

      Both Japan and Europe are struggling to get their inflation back on track.  BOJ Governor Kuroda mentioned in a speech last week the current bond purchases will continue.  We do not expect Kuroda to make any changes in their upcoming official policy announcement.  The prolonged easing is likely to put some pressure on the yen.

      ECB President Mario Draghi is not about to scale back on easing either.  Europe is having a tough time hitting their inflation target and it just make things more difficult in the year of elections.  There are too much uncertainties looming and we expect ECB to maintain an accommodative policy in their upcoming policy meeting.  The near term fate of the euro will depends on the French presidential election.

      * Bank of Japan   ** European Central Bank


      Our Picks

      GBP/USD – Slightly bullish.  We expect this pair to find support around 1.2770.  Consider going long around 1.2770.

      EUR/JPY – Slightly bearish.  Uncertainties are likely to dampen the euro strength.  Consider going short if price breaks the support around 119.20.

      XAG/USD (Silver) – Bearish.  Silver is on a downtrend amidst optimism arising from UK snap election and dollar strength.  Consider going short on rallies.


      Top News This Week
      (GMT+8 time zone)

      Canada: Core Retail Sales m/m.  Wednesday 26th April, 8.30pm.
      We expect figures to come in at 0.6% (previous figure was 1.7%).

      Europe: Minimum Bid Rate.  Thursday 27th April, 7.45pm.
      We expect figures to remain unchanged at 0.0% (previous figure was 0.0%).

      US: Advance GDP q/q.  Friday 28th April, 8.30pm.
      We expect figures to come in at 1.2% (previous figure was 2.1%).

      Mario Singh Official Website

       
    • “Pot Calling The Kettle Black”, is Trump the pot?

      currency trading strategies Comments Off on “Pot Calling The Kettle Black”, is Trump the pot?

      Trump said the dollar is too strong and he likes interest rate to be low.  USD/JPY broke below 109 and display signs of heading towards 107.

      After months of labelling other nations of weakening their currencies against the dollar and gaining advantage over exports, it seems like Trump could be the most skilful currency manipulator by talking down the dollar.  In order to facilitate discussions with China, Trump has confirmed the Treasury will not label China as a currency manipulator in their report.  USD/JPY hit 22-week low and below are the 3 reasons:

      Reason #1

      Geopolitical risk heightened early last week as reports mentioned China was deploying troops to the border with North Korea in preparation for possible US strikes and Russia may have cut its communication with US.  These fuelled demand for safe-haven yen.

      Reason #2

      In his mid-week speech, Trump said the greenback is too strong and he prefers low interest rate policies.  He may even nominate more dovish members to Fed.

      Reason #3

      Lacklustre data – US inflation and retail sales underperformed against market expectations.  Core CPI came in -0.1% versus 0.2%, while core retail sales came in at 0% versus 0.2%.

      The above 3 reasons overshadowed the optimism from Fed chair Janet Yellen and her plan for gradual tightening.  With the lack of significant US data this week, USD/JPY may continue to trickle towards the next key support around 107.

      French Presidential Election 2017

      The highly contested French presidential election will be held in the upcoming weekend.  Should there be no candidate gaining a majority vote, the second round of election will be held on the 7 May between the top 2 candidates.  According to the recent poll, it is a tough fight among the top 4 candidates (in no particular order), Francois Fillon (Les Republicains), Marine Le Pen (Front National), Emmanual Macron (Independent) and Jean-Luc Mélenchon (Unbowed France).  We expect euro to remain weak and a possibility of significant gapping after the weekend depending on the result.


      Our Picks

      USD/JPY – Slightly bearish.  Consider going short if price retraces higher towards 109.

      EUR/JPY – Bearish.  This pair is on a strong downtrend.  Consider going short around 115.20.

      OIL/USD (WTI) – Reversal.  A reversal pattern Head & Shoulder is forming.  Consider going short after price broke the support around 53.00.


      Top News This Week
      (GMT+8 time zone)

      New Zealand: CPI q/q.  Thursday 20th April, 6.45am.
      We expect figures to come in at 0.7% (previous figure was 0.4%).

      UK: Retail Sales m/m.  Friday 21st April, 4.30pm.
      We expect figures to come in at 0.1% (previous figure was 1.4%).

      Canada: CPI m/m.  Friday 21st April, 8.30pm.
      We expect figures to come in at 0.4% (previous figure was 0.2%).

      Mario Singh Official Website

       
    • Non-farm payroll lowest in 10 months

      currency trading strategies Comments Off on Non-farm payroll lowest in 10 months

      The latest non-farm payroll fell below 100K, the lowest in 10 months.  Will USD/JPY fall to 110.50 again?

      The highly anticipated meeting between the two most influential leaders in the world ended last week.  President Trump and President Xi concluded the 2 days meeting on a positive note.  “We have a thousand reasons to get China-US relations right, and not one reason to spoil the China-US relationship,” Xi told Trump.  Trump described the relationship developed with Xi as “outstanding”.  “I believe lots of very potentially bad problems will be going away,’’ mentioned Trump.  Although no further details were provided, this could well be the best outcome.  The leaders of the world’s top two economies have done well to avoid further tension in times of geopolitical risks and a series of unfortunate terrorist attacks in Russia, Sweden and Egypt.

      Many were expecting to see weak numbers in the latest non-farm payrolls, but not as weak as 98K.  This is the lowest in 10 months and second lowest in 3 years.  USD/JPY plunged in the first 5 minutes but recovered and rallied higher.  The unemployment rate came in at 4.5%, much better than expected and the lowest since July 2007.  The positive ending of the Trump-Xi meeting aided the recovery as well.

      Geopolitical risks are fuelling demand for safe-haven.  FOMC meeting minutes did not provide clarity to the next rate hike and weak non-farm is dragging down the possibility of rate hike in June.  USD/JPY could be heading back towards 110 this week.

      RBA* on hold, BOC** expected to hold

      RBA held interest rate unchanged at 1.5%.  While they were optimistic about global growth, they acknowledged the weakness in their labour market.  Investors concluded RBA is likely to keep rates low for some time.  Risk aversion forced AUD/USD to 0.75 and started the week below 0.75.  The downward momentum is strong; profit taking could take the pair higher before going further down.

      Canada posted a surprise trade deficit last week, which followed by another surprise – no major sell-off in the loonie.  The trade deficit was dwarfed by the WTI rally in the last 2 weeks, which took it to 53 dollars a barrel.  We expect BOC to hold its interest rate at 0.5% this week.  They may express concern over their trade deficit and global uncertainties, at the same time show optimism over the recovery in oil price in their statement.

      * Reserve Bank of Australia     ** Bank of Canada


      Our Picks

      USD/JPY – Slightly bearish.  If this pair rejects the resistance around 111.45, consider going Short.

      AUD/USD – Slightly bearish.  This pair broke round figure support 0.75.  Consider selling at rallies.

      OIL/USD (WTI) – Slightly bullish.  Oil is having a strong recovery.  Consider buying at dips.


      Top News This Week
      (GMT+8 time zone)

      UK:CPI y/y.  Tuesday 11th April, 4.30pm.
      We expect figures to come in at 2.3% (previous figure was 2.3%).

      Canada: Overnight Rate.  Wednesday 12th April, 10pm.
      We expect figures to remain unchanged at 0.5% (previous figure was 0.5%).

      US: Core Retail Sales m/m.  Friday 14th April, 8.30pm.
      We expect figures to come in at 0.1% (previous figure was 0.2%).

      Mario Singh Official Website

       
    • Will non-farm payroll save the greenback?

      currency trading strategies Comments Off on Will non-farm payroll save the greenback?

      USD/JPY has been heading south after the March rate hike.  Will non-farm payroll push USD/JPY back above 112?

      Less hawkish Fed statement last month, diminishing hopes on Trump’s economy boosting policies and the recent possibility of penalising “currency manipulating nations” have set the greenback on a downward spiral.  Investors are not getting any assurance the new fiscal policies will be approved.  The FOMC meeting minutes will be released, if it is still lack of clarity on the next rate hike, USD/JPY may continue heading south.  We would also expect the market to speculate on the next rate hike based on the non-farm payroll.  If the data comes close to 200K, we do expect USD/JPY to go beyond 112 again.

      Article 50 Invoked

      Finally, UK has invoked article 50.  The reaction from the market is as we have anticipated.  There was an initial sell-off but it was short-lived.  GBP/USD recovered much of the losses before market closed.  Judging from the price action, market is postponing the decision to short the sterling and decide to focus on the immediate inflation threat.  If all 3 PMIs outperform, we may see the sterling rally continues.

      Euro in trouble

      Eurozone inflation fell short of expectation.  CPI came in at only 1.5%, down from the previous 2.0%.  Emmanuel Macron holds a comfortable lead over Marine Le Pen for now.  If some of you recalled, Clinton was leading Trump in the polls but the competition heated up closer to the actual date and the rest is history.  The French election may add more uncertainties closer to the voting day and without CPI returning to 2% or higher, we expect ECB to keep monetary policy loose.


      Our Picks

      EUR/GPB – Slightly bearish. Consider selling at peaks.

      USD/CAD – Slightly bearish.  Consider selling this pair if price broke support around 1.3280

      XAG/USD (Silver) – Slightly bullish.  Consider going Long once price broke above 18.25.


      Top News This Week
      (GMT+8 time zone)

      Australia: Cash Rate.  Tuesday 4th April, 12.30pm.
      We expect figures to remain unchanged at 1.5% (previous figure was 1.5%).

      UK: Services PMI.  Wednesday 5th April, 4.30pm.
      We expect figures to come in at 52.9 (previous figure was 53.3).

      US: Non-farm payroll.  Friday 7th April, 8.30pm.
      We expect figures to come in at 181K (previous figure was 235K).

      Mario Singh Official Website

       
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