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I. Market focus:
The beginning of the final session of the week was marked by the moderate strengthening of the U.S. currency. The minutes from the January meeting of the Federal Open Market Committee (FOMC), which were released on Wednesday, forced many investors to reassess their expectations for the dollar. Concerns over the growth of the U.S. debt and speculations that the forecasts for the U.S. economy could be lowered, which had kept the dollar under pressure in recent months, abated somewhat, while the chances of a faster pace of tightening in U.S. monetary policy increased. Ahead, speculations the Fed can raise interest rates quicker than anticipated are likely to continue to intensify, and this may lead to a reverse in the downward trend of the dollar. In that respect, the U.S. labor market data for February, especially statistics on changes in wages, and the outcomes of the Fed’s March meeting are seen the most important upcoming events for the dollar. Before the publication of the labor market data, the U.S. dollar is likely to consolidate, although the range of this consolidation can be rather wide.
Today, the main scheduled events for the currency market will be the release of the January statistics on consumer price indices in Canada (at 13:30 GMT). The economists’ forecasts look rather contradictory, but, given the dynamics in recent months, it seems highly possible that the data will be quite strong. Since investors monitor closely whether the inflation approaches the Bank of Canada's (BoC) target, an increase in inflationary pressures can trigger a strong reaction in the market.
In addition, volatility in the markets may increase in response to the comments of the Fed policymakers Dudley (15:15 GMT), Mester (18:30 GMT) and Williams (20:40 GMT).
II. The market highlights are:
The data from the Labor Department reported on Thursday the number of applications for unemployment benefits unexpectedly fell to a nearly 45-year low last week, pointing to tightening labor market conditions. According to the report, the initial claims for unemployment benefits decreased 7,000 to 222,000 for the week ended February 17. Economists had expected 230,000 new claims last week. Claims for the prior week were revised downwardly to 229,000 from the initial estimate of 230,000. Meanwhile, the four-week moving average of claims rose 2,250 to 226,000 last week. It was the 155th straight week that claims remained below the 300,000 threshold, the longest streak since 1970.
Statistics Canada announced Thursday that the Canadian retail sales decreased 0.8 percent m-o-m to CAD49.65 billion in December after gaining 0.3 percent m-o-m in November (revised from an initially reported 0.2 percent m-o-m advance). That marked the sharpest decline in retail trade since December of 2015. The result was below economists’ forecast, suggesting a flat m-o-m performance. According to the report, sales fell in 6 of 11 subsectors, representing 42 percent of total retail trade. The main contributors to the December drop were lower sales at general merchandise (-5.3 percent m-o-m), health and personal care (-3.8 percent m-o-m) and electronics and appliance stores (-9.1 percent m-o-m), which more than offset gains at motor vehicle and parts dealers (+2.1 percent m-o-m) and food and beverage stores (+1.4 percent m-o-m). Excluding motor vehicle and parts dealers, retail sales decreased 1.8 percent m-o-m in December. In y-o-y terms, Canadian retail sales increased 5.8 percent in December, slowing from an unrevised 6.5 percent rise in November. In 2017, sales at the Canadian retailers advanced 6.7 percent compared to a 5.2 percent rise in 2016. That was the highest gain since 1997.
The U.S. Energy Information Administration (EIA) revealed on Thursday that crude inventories fell by 1.616 million barrels to 420.479 million barrels in the week ended February 16. Economists had forecast an increase of 1.795 million barrels. At the same time, gasoline stocks rose by 0.261 million barrels to 249.334 million barrels, while analysts had expected a gain of 1.350 million barrels. Distillate stocks dropped by 2.422 million barrels to 138.945 million barrels last week, while analysts had forecast a decline of 1.2 million barrels. Meanwhile, oil production in the U.S. decreased to 10.270 million barrels per day from 10.271 million barrels per day in the previous week. U.S. crude oil imports averaged over 7.0 million barrels per day last week, down by 867,000 barrels per day from the previous week.
Statistics New Zealand reported on Thursday that the volume of retail sales in New Zealand rose 1.7 percent in the fourth quarter of 2017 compared with the previous three months. That was above economists’ expectations for an increase of 1.4 percent following a 0.3 percent advance (revised from +0.2 percent) in the third quarter. According to the report, 11 of the 15 industries recorded increases in sales volumes in the reviewed quarter, with food and beverage services (+3.7 percent q-o-q), motor vehicle and parts retailing (+2.1 percent) and supermarket and grocery stores (+1.4 percent q-o-q) outperforming. On the contrary, accommodation recorded the largest decrease (-2.3 percent q-o-q). In y-o-y terms, retail sales grew 5.4 percent in the fourth quarter, accelerating from a revised 4.6 percent increase in the prior three-month period.
The Ministry of Internal Affairs and Communications reported on Thursday that Japan’s consumer prices rose 1.4 percent y-o-y in January of 2018, following a 1.0 percent y-o-y increase in the prior month. That was slightly above economists’ forecast for a 1.3 percent gain and represented the highest rate since March of 2015. Individually, the fuel, light and water charges (+4.6 percent y-o-y) rose the most in January, followed by prices for food (+3.2 percent y-o-y), medical care (+1.6 percent y-o-y) and transportation and communication (+0.7 percent y-o-y). On the contrary, prices for furniture and household utensils (-1.2 percent y-o-y) fell the most. The nationwide core consumer price gauge, which excludes volatile fresh food prices, rose 0.9 percent y-o-y in January, the same increase as in the previous two months and in-line with economists’ expectations.
III. Market Situation
The currency pair EUR/USD dropped moderately, losing more than half of the gains of the previous day, as the U.S. dollar demonstrated the broad strengthening in response to the renewed increase in the U.S. Treasury yields. At the same time, some pressure on the pair was put by the comments of the European Central Bank's (ECB) governing council member Jan Smets, who noted that the strong euro currency was a “point of attention” for the Bank. “Foreign exchange rates are a point of attention. The volatility on the foreign exchange markets remains a point of attention,” he said. At the same time, Mr. Smets emphasized that as long as the stronger currency was supported by economic fundamentals, it did not pose a problem. “Only if, as we said last time after our monetary policy meeting in Frankfurt, this volatility becomes excessive, when certain levels are breached because of overshooting, because of a devaluation policy to increase competitiveness, can problems occur,” he added. Today, the focus will be on the final data on Germany's Q4 GDP and the Eurozone’s inflation statistics. According to economists forecasts, Germany's economy in the fourth quarter of 2017 grew 0.6 percent q-o-q and 2.9 percent y-o-y, while the Eurozone’s consumer price index (CPI) rose 0.4 percent m-o-m and 1.3 percent y-o-y in December. Resistance level - $1.2434 (high of February 19). Support level - $1.2205 (low of February 9).
The currency pair GBP/USD consolidated near the opening level, as investors took a breather after yesterday’s solid growth, which was caused by a drop in the U.S. currency while awaiting new catalysts. With an empty economic calendar in the UK ahead, market participants will focus on the news about Brexit talks, the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.4143 (high of February 16). Support level - $1.3763 (low of February 9).
The currency pair AUD/USD traded slightly lower, due to the broad strengthening of the U.S. currency and dropping prices for some commodities. Investors also continued to analyze the minutes from the January meeting of the Federal Open Market Committee (FOMC), which revealed the Fed officials positively assess the prospects for the U.S. economy and consider it appropriate to continue further gradual monetary policy firming. Resistance level - AUD0.7934 (high of February 19-20). Support level - AUD0.7758 (low of February 9).
The currency pair USD/JPY rose moderately, due to the positive dynamics of the U.S. currency and a decrease in demand for safe haven assets, caused by a gradual return of risk appetites on the back of the reassessment of the outlook for Fed policy normalization. Japan’s inflationary data also had a minor impact on the pair. The Ministry of Internal Affairs and Communications reported that Japan’s consumer prices rose 1.4 percent y-o-y in January of 2018, following a 1.0 percent y-o-y increase in the prior month. That was slightly above economists’ forecast for a 1.3 percent gain and represented the highest rate since March of 2015. Meanwhile, the nationwide core consumer price gauge, which excludes volatile fresh food prices, rose 0.9 percent y-o-y in January, the same increase as in the previous two months and in-line with economists’ expectations. Resistance level - Y107.91 (high of February 14/21). Support level - Y105.56 (low of February 16).
U.S. stock indexes closed mostly higher on Thursday, with the S&P and the Dow ending a two-session losing streak, helped by gains in industrial and energy shares. Investors’ worries about a faster pace of interest rate hikes by the U.S. Federal Reserve were eased by comments by St. Louis Fed President James Bullard, who expressed concerns that a “bunch of hikes” could turn Fed policy restrictive.
Asian stock indexes closed higher on Friday, supported by mostly positive signals from Wall Street and resumed risk appetites.The Japanese stocks rose, rebounding after Thursday’s sell-off, which was triggered by the release of the minutes of the Fed’s last meeting, which prompted some investors to boost the chance of faster rate hikes in the U.S. A weaker yen also provided support the Japanese stocks today.
European stock indexes are expected to trade higher in the morning trading session.
Yields of US 10-year notes hold at 2.93% (+1 basis points)
Yields of German 10-year bonds hold at 0.71% (0 basis points)
Yields of UK 10-year gilts hold at 1.55% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded little changed. Crude oil for delivery in April settled at $62.78 (+0.02%). The crude oil prices consolidated near the opening level, as investors took a breather after yesterday's rally. The growth of crude oil quotations was also limited by the strengthening of the U.S. currency. Market participants’ focus is gradually shifting to the weekly data on the U.S. oil rig count from Baker Hughes.
Gold traded at $1,326.60 (-0.40%). Gold prices dropped moderately, due to the positive dynamics of the U.S. currency and a partial profit-taking after yesterday's gains. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose by 0.24 percent to 89.95. Since gold prices are tied to the dollar, a stronger dollar makes the precious metal more expensive for holders of foreign currencies.
IV. The most important news that are expected (time GMT0)
Harmonized CPI ex EFAT
Consumer Price Index
Bank of Canada Consumer Price Index Core
FOMC Member Dudley Speak
Baker Hughes Oil Rig Count
FOMC Member Mester Speaks
FOMC Member Williams Speaks
|remaining time till the new event being published|
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