US Session Forex Brief, March 6 – Calm Markets Ahead of Important Data Later this Week

Today has been yet another quiet day in financial markets, even more so than yesterday. In fact, yesterday we saw some nice price action after the US non-manufacturing PMI came much higher than expected, especially new orders which jumped to the highest level since 2005. That implies that activity in non-manufacturing sectors will increase in the coming weeks, hence the 40 pips increase in the USD.

Today the economic data has been very light in the European session and the sentiment seems uncertain. Risk assets such as stock markets haven’t made their mind yet, whether to turn bullish or bearish while risk currencies are not making any decisive move yet, to set the direction for the day. There was a move in the Australian Dollar early in the Asian session after the economic growth in Q4 fell to just 0.2% against 0.5% expected as the GDP report showed. That increases the odds that the RBA (Reserve Bank of Australia) cuts interest rates, hence the 70 pip decline in AUD/USD today.

Later on we have some important data from Canada such as trade balance, interest rate decision from the Bank of Canada, although nothing is expected to change from that event,l. But the rate statement and the Ivey PMI might get things moving for the CAD. But, that will only be related to the CAD and won’t change anything in the bigger picture for the financial markets, so we will be left with the sentiment to trade today and whatever comes up during the US session, such as tweets from Trump if he feels like it today.

European Session

• Iran Rules Out Negotiations With US – The Iranian President Rouhani ruled out negotiation with the US early this morning. He said that the US wants a regime change adding that Iran’s leadership is united and supported by the nation. He ended by saying that Iran is in an economic and psychological war with the US and its allies.
• Italian Economic Growth – Italian Vice Prime Minister Luigi Di Maio commented this morning that Italy will reach its growth target for this year. Although, the official GDP target is at 0.6% for this year which is quite low. Yet, the Italian statistics office ISTAT stated in its monthly note that the leading indicators shows persisting difficulty for the Italian economy. The economy fell into recession in H2 last year as it contracted for two quarters, so it will be an uphill battle.
• No Solution on Brexit Coming from the EU – Reuters reported earlier that the EU doesn’t expect a breakthrough in Brexit before the weekend. The European Commission also commented that Barnier remarked there is no solution yet to the Irish border issue. Barnier also said that talks with the UK have been ‘difficult’.
• DUP’s Wilson Still Against the Brexit Deal – DUP Party lawmaker of Northern Ireland reinforced his Party’s position against the current Brexit deal. He reiterated that no-deal Brexit would be better than this deal. The withdrawal agreement remains a huge cause of concern.
• OECD Cuts Global Growth Forecasts for 2019 – The OECD released growth forecasts for this year which are lower, citing policy uncertainty, trade tension and weaker confidence. Numbers below:
  • US economic growth of 2.6% this year (0.1% lower*)
  • US economic growth of 2.2% in 2020
  • Eurozone economic growth of 1.0% this year (0.8% lower*)
  • Eurozone economic growth of 1.2% in 2020
  • China economic growth of 6.2% this year (0.1% lower*)
  • China economic growth of 6.0% in 2020
  • Japan economic growth of 0.8% this year (0.2% lower*)
  • Japan economic growth of 0.7% in 2020
  • UK economic growth of 0.8% this year (0.6% lower*)
  • UK economic growth of 0.9% in 2020
• UK Trade Secretary Still Sees No-Deal Brexit as a Possibility to Vote Next Week – Liam Fox commented today that he is not ruling out voting for a no-deal Brexit next week. No-deal Brexit doesn’t amount to an existential threat for him. So, odds of a no deal Brexit increase.

The US Session

• FED’s Dudley Still Hawkish on Rate Hikes – The former New York Fed president was speaking to Bloomberg earlier on saying that the FED is not necessarily done increasing interest rates. After a weak Q1, he expects the economy will pick up steam. FED tightening is back on the table in H2 this year.
• Theresa May’s Spokesman Speaking on Brexit – James Slack said that talks in Brussels yesterday were difficult but are ongoing. There was a robust exchange of ideas. The EU says they want this resolved and for Britain to leave with a deal, but to do that we require changes and that’s what we continue to press. The UK government remains committed to holding a meaningful vote on deal by Tuesday.
• US Trade Deficit Widens – The US trade balance for December came at -$59.8B against -$57.9B estimated. The previous month was revised lower as well to -$50.3 billion -$49.3 billion previously. Exports came at -1.9% versus -0.7% in November, while imports increased by 2.1% versus -2.8% in November. Goods deficit at a massive -$81.54 billion.
• ECB to cut outlook by enough to warrant new loans (TLTROs) – The ECB is said to debate maturity and interest rate of new loans. It will cut inflation projections through 2021, although they see a return to trend growth toward year end.
• BOC Interest Rate Decision – The meeting by the Bank of Canada will be in less than an hour. They are expected to keep interest rates unchanged at 1.75%, but don’t rule out a surprise decision after the negative numbers we have seen from Canada recently. The statement will also be important for traders.
• Canadian Ivey PMI – This indicator which shows the level of a diffusion index based on surveyed purchasing managers has been declining since it peaked at 61.8 points in October. It fell to 54.7 points in January but is expected to make a turnaround today and increase to 55.1 points. Not much, but a reversal of the declining trend.

Bearish AUD/USD

1. The trend has turned bearish since late February
2. The downtrend picked up pace last night
3. Fundamentals point lower

The pullback is over for USD/JPY

AUD/USD has turned bearish since Tuesday last week just one pip below 0.72. The trend has been strong since the smaller moving averages such as the 50 SMA (yellow) have been providing resistance during this time and it picked up pace last night after the Australian GDP report for Q4 of 2018 came much lower thn expected. But, I will wait for a retrace higher to the 20 SMA (grey) and will try to short this pair up there.

In Conclusion

Everything remains pretty quiet still. EUR/USD had a wobble on the ECB comments earlier on to cut inflation projections for this year but closed the H1 candlestick unchanged. Let’s see if the Bank of Canada will give us something to trade today.