US dollar

Short term outlook
Bullish
Medium term outlook
Neutral
DAILY UPDATE

The US dollar is mostly flat today. The buck is slightly lower against the euro and slightly higher against the Japanese yen. Yesterday, the currency surged alongside rising US Treasury yields. Thanks to gains in crude oil prices over the past few months, rising inflation expectations are driving US bond yields higher. 

While bond yields have been rising since September 2017, higher interest rates failed to strengthen the dollar in recent history. This is because global optimism was running high at the time, and investors chased riskier opportunities in technology and emerging market stocks. Today, economic growth is decelerating in the Eurozone and in China, and investors are more sensitive to yields as a result. 

Turning to recent economic data, services and manufacturing PMIs were ahead of expectations. While sentiment data has disappointed in other regions, the outlook for US GDP growth remains bright. Between strong interest rates, relatively higher growth and the expectation of more rate hikes, the outlook for the US dollar is improving. We will upgrade our short-term outlook on the US dollar to bullish and our medium-term outlook to neutral later today. 

USD/JPY is up slightly today and currently trading above 108.70. EUR/USD is up slightly and trading above 1.2210. 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. Later today, we’ll see S&P/Case-Shiller home prices (February), as well as March new home sales. On Thursday, 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 slightly higher against major currencies today - the common currency is currently the strongest against the Japanese yen and the US dollar. Yesterday, the euro sold off sharply against the US dollar, while making small gains versus the Japanese yen and the British pound. Thanks to relatively higher US interest rates on comparable government bonds, the euro is becoming less attractive as an investment destination relative to the US dollar. 

Turning to recent economic data, Eurzone Markit manufacturing PMIs slowed from previous figures and were slightly below expectations. On the other hand, services and composite PMIs were ahead of expectations. While yesterday's sentiment data was reasonably good relative to expectations, the outlook for Eurozone growth continues to deteriorate. While media reports (such as this Reuters story) claim that the ECB is ignoring weaker economic data, the Bank will struggle to tighten monetary policy in the face of a significant slowdown. 

Following the recent sell-off, we will downgrade our short-term outlook to bearish and our medium-term outlook to neutral later today. 

EUR/USD is up slightly and trading above 1.2210. The euro is up against the yen, with EUR/JPY trading above 132.940. Finally, the euro is flat against the pound, with EUR/GBP above 0.8760.

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. Later today, we’ll see IFO expectations for April (from Germany). On Thursday, 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 slightly higher today. The British pound is currently strengthening against all currencies except the Canadian dollar and the euro. Yesterday, the pound sold off sharply against the US dollar thanks to rising interest rates. As US government bonds offer higher yields relative to comparable UK government bonds, the US dollar is a relatively more attractive investment. 

Turning to recent news, Prime Minister Theresa May suffered her third defeat in the House of Lords relating to Brexit. The upper house voted to amend the Brexit Bill such that a majority of EU rights are written into UK law following Brexit. Last week, the House of Lords voted in favor of a plan requiring ministers to report on progress relating to a UK-EU customs union. May's government has argued that the best outcome is to avoid a customs union (as this prevents the UK from independently negotiating international trade agreements). So far, May has failed to convince many in the Conservative Party that staying out of a customs union is in the UK's best interest. Later this year, the House of Commons will vote on a customs bill. The issue today is that the government is most likely to concede on the issue given broad support for a customs union with the EU. 

In recent history, the pound has showed limited reactions to political developments relating to Brexit. As we wrote in a recent  commentary, the ongoing pound rally is running out of catalysts. While the currency remains significantly undervalued, the case for buying pounds is becoming weaker. Our short-term outlook on the pound is now 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 0.8760. The pound is flat against the Australian dollar and flat against the Canadian dollar. GBP/AUD is currently above 1.8320, 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. Later today, we’ll see public sector borrowing figures for March. On Thursday, we’ll see Nationwide housing price growth for April. On Friday, the most important day, we’ll get Q1 GDP growth. We’ll also see GfK consumer confidence 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 once again lower against all major currencies today. The yen is currently the weakest against the US dollar and the Canadian dollar. Yesterday, the yen sold off sharply, particularly against the US dollar. USD/JPY rose by more than one yen to 108+. Thanks to rising bond yields, the yen is weakening alongside negative interest rate currencies such as the Swiss franc.  

Turning to recent news and data, Bank of Japan Governor Kuroda said that he expected inflation to rise to 2% within the next five years in an interview with  CNBC. He also said that monetary policy is set to remain accommodative, despite good global growth. He also stated that the Bank of Japan does not manipulate its currency, and that the "Japanese yen, from time to time, appreciate[s] too much." Turning to economic data, Japan's leading economic index was ahead of expectations and was slightly higher than previous monthly figures. Despite an ongoing slowdown across Asia, recent figures suggest some hope for continued growth. Following recent weakness, we will downgrade our short-term outlook on the yen to bearish and our medium-term outlook on the yen to neutral later today.  

USD/JPY is currently trading above 108.80. EUR/JPY is currently up slightly and trading above 132.80.

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. Tomorrow, we'll see the All Industry Activity Index for February. On Thursday, we’ll see foreign investment in Japanese equities and Japanese investment in foreign bonds. On Friday, 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

The Australian dollar is mixed today. AUD is currently making gains versus the Japanese yen, while selling off against the US dollar and the British pound. Yesterday, the currency sold off sharply, particularly against the US dollar. Following recent strength in the US dollar, the Australian dollar has been weakening alongside most commodity prices. 

Turning to recent news and events, today's Australian inflation data was mixed. While headline inflation was below estimates, the RBA's preferred measure of inflation (trimmed mean figures) were ahead of expectations. Looking at reactions in AUD/USD, the pair initially sold off but has more recently made up most of its losses. Turning to speeches, the RBA's Kent repeated that the next move in interest rates was likely to be up. He also stated that the fall-out from interest-only mortgages was likely to be limited, as a large volume of such mortgages are set to expire in 2021. Our short-term outlook and medium-term outlook on the Australian dollar remains bearish. 

AUD/USD is down slightly and trading just above 0.760. EUR/AUD is down and trading above 1.6020. GBP/AUD is down slightly and trading above 1.8310.

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. On Thursday, we’ll see the export and import price index for Q1. On Friday, we’ll see producer prices for Q1. Last week, changes in employment missed expectations.

Canadian dollar

Short term outlook
Neutral
Medium term outlook
Neutral
DAILY UPDATE

The Canadian dollar is mostly higher. The loonie is currently the strongest against the euro and the Japanese yen. Yesterday, the Canadian dollar sold off against the US dollar, despite surging crude oil prices. While WTI prices are 20% higher relative to their previous lows in mid-February, the loonie has been weak nonetheless. 

Turning to recent news, President Trump has once again linked NAFTA negotiations with illegal immigration from the Mexican border. In a recent tweet, Trump said "We may make this a condition of the new NAFTA Agreement." While hopes for a NAFTA agreement have been rising, developments relating to the treaty have been fairly volatile. In other news, the Wall Street Journal (paywall) is reporting that Trump is willing to withdraw from NAFTA unless he gets a better deal for American workers. 

Looking at the Canadian dollar in more depth, the recent sell-off has been accompanied by rising volumes. This was particularly the case last week, following the Bank of Canada's recent rate hike decision. Accelerating volumes are a troubling sign for the loonie, as it suggests that bears are trading with conviction. Following recent weakness, we have downgraded our short-term outlook to neutral. Our medium-term outlook also remains neutral.

The USD/CAD exchange rate is currently above 1.2830. The euro is down slightly against the Canadian dollar, with EUR/CAD currently above 1.5640. The pound is down slightly against the Canadian dollar, with GBP/CAD trading above 1.7870.

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 prices are slightly higher today. Yesterday, the precious metal sold off sharply as US Treasury yields soared alongside the US dollar. Looking at recent trading patterns, volumes on futures and options exchanges have been falling over the past few sessions (despite the accelerating sell-off). This is a good sign, as it suggests that bears do not have a lot of conviction in the move lower. 

While 10-year Treasuries came close to yielding 3.0% yesterday, they ultimately ended the day lower. As we have written in previous editions of the gold daily update, rising inflation is driving bond yields higher. As holding US dollar-based investments becomes relatively more attractive (i.e. as real interest rates rise), gold prices are falling as a result. Looking at gold today, the precious metal is enjoying a small rebound as US Treasury yields fall and the dollar trades sideways. After peaking just below 3.0% yesterday, 10-year Treasuries are currently yielding 2.965%. The US dollar is fairly mixed, following yesterday's surge. 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 $1,325.

Crude oil

Short term outlook
Bullish
Medium term outlook
Bullish
DAILY UPDATE

Crude oil prices are slightly higher today - WTI is making small gains while Brent crude is only very slightly higher. Yesterday, the commodity moved up sharply in a fairly volatile day of trading. Crude oil prices initially sold off following news that the US had extended its deadline for sanctions against Rusal (a Russian aluminum producer). Many other commodities also sold off following the news. During US trading hours, crude oil rebounded sharply and ended the day higher. 

There have been no recent events that have pushed crude oil prices higher. Instead, the commodity continues to benefit from rising geopolitical risks in the Middle East. Given Trump's likelihood to reinstate sanctions on Iran (a decision scheduled for May 12), crude oil prices remain in a bullish trend. So far, rising US supply has failed to dent the bull market thanks to strong global demand.

Looking at the technical picture for crude, note that Brent is now looking overbought on a daily chart. Following the crude oil's surge from February's lows, the commodity looks ripe for a short-term pullback. Our short-term and medium-term outlook on crude remains bullish.  

WTI is currently trading above $69.10. Brent crude is currently above $75.0.

Looking at US crude oil stocks, the most recent EIA figures (April 18) showed falling crude oil stocks and falling gasoline inventories. Crude oil inventories fell (-1.1m vs. -1.4m expected). Gasoline stocks were down (-3.0m vs. -0.3m expected) while distillate stocks (-3.0m vs. -0.4m expected) were also down. Looking at reactions in markets, crude oil prices strengthened following the EIA report.


Earlier today, we downgraded our euro outlook to neutral in the medium-term, and bearish in the short-term. As the euro runs out of momentum, the trend is now neutral based on quantitative factors such as price, trading volumes and volatility. While forward-looking economic indicators continue to suggest an ongoing expansion, growth appears to be slowing in rate-of-change terms. This is why our p…

Published 
Tags: Euro

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…

Published 

The outlook for the pound, while still bullish, is looking less optimistic today. More specifically, factors including the ongoing slowdown in regional growth, lower expectations for a May rate hike, and significant speculator interest in the currency are hampering the rally. Following Brexit, the trade-weighted value of pound sterling (a measure of GBP relative to other currencies) hit an all-t…

Published 

While the outlook for the Canadian dollar looked dire just a few months ago, the currency appears to have recently turned a corner. After looking oversold in late March, the currency managed to strengthen thanks to a rebound in crude oil prices. Two weeks later, the Canadian dollar received more good news as the Trump administration pushed to conclude NAFTA talks at a faster pace. In more recent …

Published 

In our previous take on the US dollar in early February, we wrote that the currency was set to remain weak. At the time, ex-US growth was accelerating, while speculator sentiment was only mildly bearish. While dollar bulls have argued that rate hikes should help the currency, we wrote that expectations for monetary tightening were rising around the world, limiting the impact from the Fed’s action…

Published 
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…

Published 

In our previous take on the euro in late February, we wrote that the bullish case for the currency was looking increasingly challenging. At the time, euro speculators were spooked by slowing forward-looking economic indicators, while upcoming political events in Italy and Germany risked the future unity of the region. While our outlook remains mildly bullish, this comes with the significant cavea…

Published 
Tags: Euro

Changes in the latest Commitments of Traders Report are fairly similar to last week. Traders are once again increasing their bullish bets on the Japanese yen and the British pound. Yen speculators are now net long for the first time since November 2016. On the bearish side, traders continue to bet against commodity currencies including the Australian dollar and the Canadian. While speculators bou…

Published 

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 …

Published 

Looking at this week’s Commitments of Traders Report, notable changes include rising net speculator positions in the Japanese yen, British pound and Australian dollar. US dollar net positions also fell significantly this week. While crude oil remains at a bullish extreme (looking at 36-month trailing averages, and net positions as a proportion of total open interest), our implied measure of US do…

Published 
Older Posts