US dollar

Short term outlook
Bullish
Medium term outlook
Neutral
DAILY UPDATE

The US dollar is slightly lower today against major currencies today. The buck is currently the weakest against the euro and the Australian dollar. Yesterday, the dollar surged alongside rising US Treasury yields. Since mid-April, the dollar has been strengthening as US bond yields rise in anticipation of future rate hikes. 

Looking at US Treasuries, 10-year bonds have finally managed to close above 3%. The bonds are currently yielding 3.031%. While the yield curve has been steepening in recent weeks, this is out of sync with the longer term trend. In the short-term, higher crude oil prices are driving inflation expectations. In turn, this is driving bond yields and the US dollar higher. In the longer-term, the yield curve is likely to resume flattening once the crude oil bull market runs out of steam or if US growth decelerates. As both growth and inflation are simultaneously accelerating today, expectations are rising for more rate hikes (helping the dollar). Our short-term outlook on the US dollar is bullish, while our medium-term outlook remains neutral.  

USD/JPY is down slightly today and currently trading above 109.30. EUR/USD is up slightly and trading above 1.2170. The pound is up slightly, and GBP/USD is currently above 1.3940.

Looking at economic data and events from the US this week, traders will be paying close attention to upcoming Q1 2018 GDP growth figures. The Chicago Fed national activity index for March (0.1 vs. 0.27 expected) was below expectations. Existing home sales for March (5.6m vs. 5.5m expected), Markit services PMIs (54.4 vs. 54 expected), and manufacturing PMIs (56.5 vs. 55 expected) were ahead of expectations. S&P/Case-Shiller home prices for February (6.8% vs. 6.3% expected) and March MoM new home sales (4% vs 1.9% expected) were both ahead of expectations. Later today, we’ll see weekly initial jobless claims figures as well as durable goods for March. On Friday, the most important day, we’ll see Q1 GDP growth and Q1 personal consumption expenditures. We’ll also see the Michigan consumer sentiment index for April. Last week, the Fed’s Beige Book suggested that growth continues to accelerate at a moderate pace.

Euro

Short term outlook
Bearish
Medium term outlook
Neutral
DAILY UPDATE

The euro is mostly higher today. The common currency is currently strengthening against all major currencies except the Australian dollar. Yesterday, the currency weakened, particularly against the US dollar, Canadian dollar and the British pound. As US interest rates rise while traders question the ECB's resolve to tighten monetary policy, the euro is becoming relatively less attractive as an investment destination. 

Turning to recent news and events, the most important event today is the upcoming ECB meeting. As we wrote in our  preview of the event, the consensus expects Draghi to provide unchanged forward guidance while hinting at an announcement regarding the end of the bond buying program. The most important language to look for includes commentary regarding the asset buying program, inflation and risks. While investors remain optimistic that the ECB will imminently adjust its monetary policies, we have argued that the Bank will struggle to go beyond beyond ending its asset buying program as Eurozone growth decelerates. The odds for a 2019 rate hike are currently around 50%, and this is currently priced into the euro. Our short-term outlook on the euro is bearish, while our medium-term outlook is neutral.  

EUR/USD is up slightly and trading above 1.2170. The euro is up slightly against the yen, with EUR/JPY trading above 133.0. Finally, the euro is up slightly against the pound, with EUR/GBP above 0.8730.

Looking at this week’s economic events from the Eurozone, the most important event includes an upcoming ECB interest rate decision. Eurozone manufacturing PMIs for April (56 vs 56.1) were below expectations. Services (55 vs. 54.6 expected) and composite (55.2 vs. 54.9 expected) PMIs were ahead of expectations. German IFO expectations for April (98.7 vs. 99.5 expected) were significantly below estimates. Later today, the most important day, we’ll see the ECB’s latest interest rate decision and hear from ECB President Draghi. We’ll also see May GfK consumer confidence from Germany. On Friday, we’ll get German unemployment figures. We’ll also see a range of sentiment data from the Eurozone for April (services sentiment, economic sentiment, business climate, industrial confidence and consumer confidence). Last week, the ZEW sentiment survey for April was below estimates.

British pound

Short term outlook
Neutral
Medium term outlook
Bullish
DAILY UPDATE

Pound sterling is looking mixed today. The British pound is currently selling off against the euro, while rising against the US dollar and the Canadian dollar. Yesterday, the pound sold off against the US dollar and the Canadian dollar, but ended the day higher against all other major currencies. Given the UK's significant trading relationship with the Eurozone, the pound tends to broadly track the fortunes of the euro. As such, pound traders will be watching today's upcoming ECB meeting. We covered more details in our  euro daily update

Turning to recent news, Theresa May has reiterated that the UK will not pursue a customs union with the European Union in a secret meeting with pro-Brexit members of the Conservative Party. According to Bloomberg, May held the meeting at her office on Tuesday. The Prime Minister is also being pressured to drop her "customs partnership" proposal given its complications. Beyond pressure from her own party, a senior DUP MP has also warned May regarding the DUP's customs union "red line". According to The Telegraph (paywall), the DUP warned it would vote against the government if it pursued a customs union. Our short-term outlook on the pound is neutral, while our medium-term outlook on the pound remains bullish.

GBP/USD is currently above 1.3940. EUR/GBP is up slightly, with the exchange rate above 0.8730. The pound is flat against the Australian dollar and flat against the Canadian dollar. GBP/AUD is currently above 1.8410, while GBP/CAD is above 1.7890.

Looking at this week’s economic data from the United Kingdom, traders will be watching upcoming Q1 GDP growth figures. Public sector borrowing figures for March (-£0.262b vs. £1.600b expected) beat expectations. On Friday, the most important day, we’ll get Q1 GDP growth. We’ll also see GfK consumer confidence for April as well as Nationwide housing price growth for April. Last week, March inflation figures were below estimates while Governor Mark Carney downplayed the possibility of a rate hike in May.

Japanese yen

Short term outlook
Bearish
Medium term outlook
Neutral
DAILY UPDATE

The Japanese yen is slightly higher against all major currencies today. The yen is currently the strongest against the British pound and the Australian dollar. Yesterday, the yen continued to weaken alongside rising bond yields. After strengthening in spite of rising yields earlier in the year, the currency has become more sensitive to interest rates in recent history. 

Turning to latest news, political developments from Japan have had a limited impact on the yen. Earlier this week, LDP Party Affairs Committee chairperson Hiroshi Moriyama stated that the lower House of the Diet may be dissolved if a motion of no confidence is raised against Abe's cabinet. While polls continue to suggest a majority victory for the LDP, this raises the risk of Abe losing power. Given the Japanese Prime Minister's program of "Abenomics", the risk of Abe leaving would result in yen strength. So far, yen traders have ignored Abe's deteriorating political fortunes, and continue to focus on bond yields. Our short-term outlook on the yen is bearish, while our medium-term outlook is neutral.  

USD/JPY is currently trading above 109.30. EUR/JPY is currently flat and trading above 133.0.

Looking at Japanese economic data and events this week, the Bank of Japan’s upcoming meeting will be watched closely. The March Nikkei manufacturing PMI (53.3 vs. 52.6 expected) was ahead of expectations. The leading economic index for February (106 vs. 105.8 expected) was ahead of expectations. The All Industry Activity Index for February (0.4%) met expectations. Foreign investment in Japanese equities (+¥480.4b) and Japanese investment in foreign bonds (+¥950.3b) continue to suggest capital outflows from Japan. Tomorrow, the most important day, we’ll get the latest interest rate decision from the Bank of Japan, its outlook report and a press conference. We’ll also see the Tokyo consumer price index for April, the unemployment rate for March and March household spending. Finally, we’ll get March industrial production, and March retail sales, and March housing starts.

Australian dollar

Short term outlook
Bearish
Medium term outlook
Bearish
DAILY UPDATE

After making small gains earlier today, the Australian dollar is currently weakening against all major currencies except the British pound. Yesterday, the currency was particularly weak against the US dollar. The currency sold off alongside emerging market currencies such as the Chinese yuan as the US dollar broadly strengthened. 

While AUD/USD was higher this morning, the pair is now weakening thanks to a sell-off across Chinese financial markets. Both Hong Kong's Hang Seng Index and the Shanghai Composite are currently trading lower. Prices of industrial metals have also been falling since late last week. Looking at the GSCI industrial metals index (a broad measure of industrial commodity prices), the index is down sharply today. Given Australia's significant trading relationship with China, the Australian dollar is highly sensitive to Chinese growth expectations. As Chinese economic growth decelerates, AUD is weakening as a result. Our short-term outlook and medium-term outlook on the Australian dollar remains bearish. 

AUD/USD is down slightly and trading just above 0.7560. EUR/AUD is up slightly and trading above 1.6090. GBP/AUD is flat and trading above 1.840.

Turning to economic data and events from Australia this week, traders will be watching upcoming inflation figures. RBA Assistant Governor Kent downplayed fears regarding interest-only mortgages. The Q1 consumer price index (1.9% vs. 2.0% expected) was below expectations, while the RBA’s trimmed mean CPI (1.9% vs. 1.8% expected) was ahead of expectations. Export (4.9% vs. 4.1% expected) and import prices (2.1% vs. 1.3% expected) were both ahead of expectations, helping the inflation outlook. Tomorrow, we’ll see producer prices for Q1. Last week, changes in employment missed expectations.

Canadian dollar

Short term outlook
Bearish
Medium term outlook
Neutral
DAILY UPDATE

The Canadian dollar is currently slightly weaker. CAD is currently weakening against all major currencies except the US dollar. Yesterday, the loonie strengthened during US trading hours despite broad US dollar strength. While the Canadian dollar has weakened considerably since last week, rising crude oil prices continue to support the currency. 

Turning to recent news, Bank of Canada Governor Stephen Poloz said that the outlook for the economy is "finally positive". While Poloz believed that interest rates would ultimately head higher, he cautioned against moving too quickly given significant household indebtedness. Reiterating his previous comments, he said that ongoing softness warranted further monetary policy accommodation (meaning that rates will stay lower for longer).

Turning to recent NAFTA news, Canadian Foreign Minister Chrystia Freeland said that good progress has been made with regards to auto content rules. According to a Reuters story, the US softened its demand for North American auto content from 85% to 75%. Other outstanding issues include looming steel tariffs, and Canada's opposition to the sunset clause. Our short-term outlook on the Canadian dollar is bearish, while our medium-term outlook is neutral.  

The USD/CAD exchange rate is currently above 1.2830. The euro is up slightly against the Canadian dollar, with EUR/CAD currently above 1.5640. The pound is flat against the Canadian dollar, with GBP/CAD trading above 1.7890.

This is a very light week for economic data relating to the Canadian dollar, as no significant data releases are scheduled for this week. Last week, the Bank of Canada maintained its existing interest rates, while suggesting that accommodative policies were set to continue.

Gold

Short term outlook
Neutral
Medium term outlook
Bullish
DAILY UPDATE

Gold is breathing a sigh of relief today. Yesterday, the precious metal sold off sharply as both the US dollar and US Treasury yields rose sharply. As US growth and inflation accelerate simultaneously this quarter, the Federal Reserve is more likely to raise interest rates at a quicker pace or communicate more aggressive forward guidance. 

An active Fed is a clear negative for gold, and a topic we covered in a longer commentary published yesterday. While our outlook on gold is currently bullish, this is increasingly threatened by a rising US dollar. Since 2017, a weak currency has helped asset prices accelerate (including gold prices). As US growth remains strong while ex-US growth starts decelerating, the dollar is more likely to start strengthening. This quarter, the dollar is being helped by rising bond yields. In future quarters, we expect the dollar to start strengthening as risk sentiment worsens further. While our outlook on the dollar is neutral today, expect gold prices to begin weakening once the dollar enters a bullish trend later this year. Our short-term outlook is neutral, while our medium-term outlook on gold remains bullish. 

After its most recent top around $1,353, gold is now above $1,323.

Crude oil

Short term outlook
Bullish
Medium term outlook
Bullish
DAILY UPDATE

Crude oil prices are slightly higher today - both WTI and Brent are up slightly. Yesterday, the commodity managed to shrug off an unexpected build in US crude inventories according to US EIA data. While the consensus estimate called for inventories to fall by 2.4m barrels, the actual figure was +2.2m barrels instead. 

As we have written before, crude oil traders continue to ignore rising US production as end-user demand remains strong. Instead, crude oil prices have been more heavily influenced by supply-related concerns. Production in Venezuela has fallen by almost 1m barrels per day since early 2016 thanks to political instability in the country. The likelihood that Trump will re-impose sanctions on Iran could remove another 1m barrels per day from the market. Ahead of Trump's decision (May 12), crude oil prices are likely to remain supported. While earlier news headlines suggested that French President Macron's pitch to Trump had some possibility of success, this is looking less likely today. Our short-term and medium-term outlook on crude remains bullish.  

WTI is currently trading above $68.20. Brent crude is currently above $74.20.

Looking at US crude oil stocks, the most recent EIA figures (April 25) showed rising crude oil stocks and rising gasoline inventories. Crude oil inventories rose (+2.2m vs. -2.4m expected). Gasoline stocks were up (+0.8m vs. -1.0m expected) while distillate stocks (-2.6m vs. -1.7m expected) were down. Looking at reactions in markets, crude oil prices managed to strengthen following the EIA report.


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Looking at this week’s Commitments of Traders Report, the most notable changes include falling net positions in the Australian dollar and rising net positions in the British pound. Changes in other currencies and commodities were fairly limited. In general, speculators continue to buy the euro and the British pound, while betting against the US dollar, the Swiss franc and the Australian dollar. T…

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Tags: US dollar

Relative to recent history, this week’s Commitments of Traders Report contains few notable changes. Looking at the data, the most significant moves include rising net long positions in the euro and falling net long positions in the Australian dollar. Changes in other currencies and commodities were relatively modest. On the bullish side, speculators continue to accumulate net long positions in th…

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This week’s Commitments of Traders Report includes quite a few notable changes. The number of long positions in the Canadian dollar have fallen by a significant degree, while speculators have also increased their short positions in the currency. The result is that speculators are now net short the Canadian dollar for the first time since July 2017. Speculators have also cut long positions in the …

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