The yen tries to break a six-day decline, while the euro tests $1.10


Overview: China released stronger-than-expected data, but that didn’t prevent further declines in mainland and Hong Kong stocks today. The Hang Seng was tagged almost 6% and the Chinese CSI 300 fell just over 4.5%. Note that the Golden Dragon Index of Chinese companies trading in the United States has fallen by more than a third since Russia invaded Ukraine. Almost all regional markets except Japan fell. The European Stoxx 600 is giving back yesterday’s 1.2% gain and more, and US futures are slightly weaker. The fall in equities appears to be helping the bond market stabilize after yesterday’s strong sell-off. The 10-year US Treasury yield is close to 2.10%. The dollar is taking a six-day lead against the Japanese who had taken it from around 114.80 JPY to 118.20 JPY. The greenback is weaker against major currencies, but against the Canadian dollar. The euro is accelerating the movement. After testing $1.09 yesterday, the single currencies are struggling to hold above $1.10. Central European currencies lead the emerging market complex higher. Gold and oil continue their decline. Gold was holding the $1925 zone, which is roughly in the middle of the rally below $1800 that started in late January. A break could signal a move towards $1890. April WTI was sold below $100 and appears to be heading towards support near $90. It fell about 5.8% yesterday and is still down about 6% today. OPEC’s monthly production report is due later today. The US natgas is down about 2.3%, while the European benchmark is up 8.6% after falling 17.3% yesterday. Iron ore fell for the sixth consecutive session, in which it fell around 16.5%. Copper is firm after falling 2.25% yesterday. May wheat is up 2.5%. It had fallen almost 1% yesterday.

Asia Pacific

There is a lot of pessimism surrounding the Chinese economic outlook, but today’s data for the past month was mostly better than expected. Industrial production is up 7.5% year-to-date compared to a year ago. The median forecast (Bloomberg survey) was for a 4% increase. Retail sales rose 6.7%, more than double the median forecast. Investment in fixed assets jumped 12.2%. The market was expecting 5.0%. Real estate investment was expected to contract by 7% but on the contrary to increase by 3.7%. A disappointment emerges. Unemployment surveyed fell from 5.1% to 5.5%. Elsewhere, China’s one-year medium-term lending facility remained unchanged at 2.85%. There had been speculation that it would be reduced.

Japan to release February trade figures tomorrow. Without fail for more than 25 years, Japan’s trade balance in February improved from January. January’s deficit was almost 2.2 trillion yen. The February deficit is expected to be around 150 billion yen. Yet rising food and energy prices are creating a negative terms-of-trade shock in Japan. This, coupled with some administrative prices, should boost inflation in Japan from next month.

The dollar approached the resistance we identified near 118.60 JPY but pulled back. Initially, the greenback looked set to extend its lead for the seventh consecutive session against the yen, but after hitting JPY118.45, it reversed to test JPY117.70. The dollar was extremely overextended as it moved more than three standard deviations above its 20-day moving average (the Bollinger Band is set at two standard deviations). We see support in the JPY117.35-JPY117.40 area. The Aussie dollar extended its losses to around $0.7165. It finished last week near $0.7280. The $0.7150 zone corresponds to a retracement (61.8%) of this rally which started in late January around $0.6970 and peaked earlier this month at $0.7440. A close above $0.7200 can help stabilize the technical tone. The dollar widened its gap for the second day in a row against the Chinese yuan. The greenback hit CNY 6.3860, its highest level for the year. The benchmark rate was set at 6.3760 CNY, well above the forecast of 6.3630 CNY.


The UK employment report was better than expected. Unemployment for the three months to January fell to 3.9% and is below pre-pandemic levels for the first time. The number of employees jumped 275,000 in February, more than double the median forecast in the Bloomberg survey, although January’s gain was revised to 61,000 from 108,000. applicants fell by 48,000 in February and revised by 67,300 in January (vs. -32,000). Average weekly earnings were also a bit firmer than expected. The BOE meeting ends Thursday and the swap market is pricing around a 1 in 4 chance of a 50 basis point move.

The German ZEW March survey collapsed. The assessment of the current situation fell from -8.1 to -21.4. This is the lowest since last May. The expectations component fell to -39.3 from 54.3. The Bloomberg survey’s median forecast called for a reading of 5.0. This may warn of a marked deterioration in March’s preliminary PMI expected next week.

As the Ukrainian capital comes under fire, it seeks missile defense systems. Israel has submitted its request for the Iron Dome interception system. Each missile costs around $50 million and Israel says it does not have sufficient supplies. There is speculation that the United States may offer its two Iron Dome systems. Estimates suggest that Ukraine received over 17,000 anti-tank missiles and thousands of anti-aircraft missiles. The United States has warned China against providing material aid to Russia following allegations that Russia sought help from Beijing in the early days of the invasion.

The Euro recovered from yesterday’s brief foray below $1.09 to hit $1.1020 today. A move above $1.1040 is needed to signal something technically significant. Intraday momentum indicators suggest this is unlikely. Indeed, the risk is that North America brings the single currency back to the $1.0940 zone. The pound has held support at $1.30, but the rebound is less than impressive. It stalled near $1.3050. Yesterday’s high was near $1.3080 and the five-day moving average is around $1.3065. The 50% retracement of the British Pound’s rally from the March 2020 low is around $1.2830 and this is the next big target below $1.30.


The United States releases February producer prices today. The stock should have accelerated to 10%, while the core could approach 8.7% (from 8.3%). The market is expecting a gain in the Empire State manufacturing survey in March (6.1 from 3.1), but would anyone really be surprised by a weaker report? The focus is on the FOMC meeting which starts tomorrow. A rise in rates, an estimate of the pace of settlement of the balance sheet and new forecasts are anticipated.

West Virginia Sen. Manchin rejected Biden’s nominee for Vice Chairman of Fed Oversight and all but scuttled Raskin’s nomination. Manchiin has become a key vote for the administration’s agenda. Recall that in 2020, Trump beat Biden by 39 percentage points in West Virginia.

Canada announces February housing starts, existing home sales and January manufacturing sales. There are no data points that move the market, even in the best of times. Tomorrow, Canada will release February CPI numbers and an acceleration in the headline and underlying fundamental metrics will bolster expectations of at least another 25 basis point rate hike next month (OIS is around 62 % chance of a 50 basis point move) and for its balance sheet to start shrinking in April or May.

Note that El Salvador’s bitcoin bond is expected to hit the market later this week, although some suspect it may be delayed. A 10-year bond issued by a thermal energy company is planned, and the government hopes to be able to raise $1 billion, which seems terribly optimistic. Many seem skeptical and a report suggests that around 2% of work remittances in January used digital wallets, despite the seemingly lower costs. Bitcoin has lost around 20% of its value since the day before it became legal tender in El Salvador.

After testing support near CAD 1.27 late last week after Canada reported much stronger than expected February jobs data, the greenback surged above 1.28 CAD yesterday and close to 1.29 CAD today. Last year’s high was recorded in late December near CAD 1.2965. Intraday momentum indicators are strained, but risk aversion and falling oil prices are weighing on sentiment. Support is visible in the CAD1.2825 area. The greenback is consolidating in a narrow range against the Mexican peso. Support is visible in the MXN20.83 area. It has not traded below since March 4. Initial resistance is seen near 21.00 MXN, although last week it reached near 21.47 MXN.


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