Trading news

Light news flow keeps risk-taking alive, MBA mortgage applications

- The lack of news provides traders with the opportunity to loosen FX safe haven trades, while taking some marginal risk

- The big mover was the Philippines exchange, which continued its post-presidential election rally with a strong recovery in asset prices indicating that the election of populist Rodrigo Duterte is viewed as an opportunity by investors

- With USDJPY solid rebound to the 109 levels we do not anticipate direct FX intervention despite heightened rhetoric

- Surprisingly, despite Brazilian social unrest and political uncertainty the BRL gained marginally against the USD. However, BRL traders should stand ready for rouge and amplified volatility in the currency 

- New Zealand: The latest bi-annual Financial Stability Report indicates that risk to outlook is threatened by the rapid rise of the housing market

- RBNZ has opened the door to further interest rate cuts. We remain bearish on the NZD based on the monetary policy outlook

- We will be closely monitoring US MBA Mortgage applications, which we view as an important barometer to assess the true health of US economy. With US housing prices now at stratospheric levels, we foresee a decline in the real estate market

- USD seems overvalued with financial markets increasingly resistant to any form of optimism on the subject of rate hikes. We are sticking to our target of 1,20 for EURUSD

 

The lack of news provides traders with the opportunity to loosen FX safe haven trades, while taking some marginal risk. Data from the US indicates that the labor market remains solid as JOLT job openings came in higher then excepted, while China provided further evidence of stabilisation despite disappointing trade data. Regional Asian equity markets were mixed, following the impressive US rally, as the Nikkei and Shanghai composite rose marginally, while the Hang Seng dipped -0.67%. The big mover was the Philippines exchange, which continued its post presidential election rally, rising 3.36%. The strong recovery in asset prices indicates that the election of populist Rodrigo Duterte is viewed as an opportunity by investors. USD was weaker against G10 and EM Asia but selling pressure was light. Japan's April foreign reserves increased $410 mln to 1.262.509 bln, while the MoF confirmed that no direct FX intervention took place in Q1 2016. With USDJPY solid rebound to the 109 levels we do not anticipate direct FX intervention despite heightened rhetoric. Australia's May Westpac/MI consumer confidence index rose 8.5% m/m to 103.2, reaching the highest level since January 2014 and reversing the decline of the last two months. The positive result gave AUDUSD a slight bump off the 0.7300 low to 0.7391. Crude oil remained weak, bouncing around the $44.50 handle despite unrest in Nigeria and wildfires in Canada. Brazil's senate will vote today on whether to put President Dilma Rousseff on trial. Surprisingly, despite the social unrest and political uncertainty the BRL actually saw a marginal gain against the USD. BRL traders should stand ready for rogue and amplified volatility in the currency. In New Zealand, the latest bi-annual Financial Stability Report indicated that risk to outlook was threatened by the rapid rise of the housing market. RBNZ’s Wheeler suggested that macro prudential measures would be used to rein in house price inflation rather than monetary policy (by tightening interest rates). By directly addressing the bubble in housing the RBNZ indirection has opened the door for further interest rate cuts. We remain bearish on the NZD based on the monetary policy outlook.

 

Yann Quelenn, market analyst: MBA Mortgage Applications: “We still consider US real estate data to be a fundamental tool in assessing the true health of the country's economy. The era of zero-interest rates has catapulted housing prices over the past few years to almost subprime levels. According to data from the Federal Housing Finance Agency, which tracks such changes in residential property, the index in early 2007 was at 380 while it now lies around the 370 mark. The low volume of mortgage applications which stagnated around the same level from 2010 to mid-2015 has now picked up. This volume nonetheless decreased 3.4% for the week ending April 29. Data for the week ending May 6 will be released early this afternoon and we are expecting it to print negative. In our view, the slight uptick in mortgage volumes that we have seen over the past year is exclusively due to Fed monetary policy. There are strong expectations that real estate rates will climb, so now is certainly the time for some to renegotiate their loans or to buy a new property before rates go up. We also think that sellers are hoarding property due to current prices as there are also strong expectations for rates to stay low for a longer time. And this is not wrong. The Federal Reserve, despite its multiple statements, has still not managed to raise rates this year. In any case buyers will be more cautious especially due to stratospheric prices and due to the current draconian lending criteria. As a result, we foresee a decline in real estate. Currency-wise, such data will simply reflect the underlying difficulties of the Unites States. The dollar still seems overvalued to us. Financial markets are increasingly resistant to any optimism when it comes to the topic of rate hikes. The probability for a September raise is now only around 33%. We maintain our target of 1.20 for the EUR/USD pair.” ---

With a very light calendar FX trade will remain subdued and non-directional. The highlight of the European session should be the UK March industrial production. Markets anticipate industrial production to print at 0.5% m/m, with manufacturing output expanding by 0.3% m/m. However, due to Brexit-induced weakness abundantly seen in UK data, risk is skewed to the downside.

Wednesday, 11 May, 2016 / 8:28

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Source : http://swissquote-fx.com/en/research-and-analysis/

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