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Reuters polling shows the US dis expected to fall 4% (and EUR/USD up 5%)

  
Analysis, Forex
Latest Reuters poll of over 70 currency strategists taken Feb 28-March 6
  • USD expected to weaken
  • EUR/USD forecast at $1.19 in a year
Strategists said a positive outcome to U.S.-China trade negotiations was already priced in
  • not likely to give the USD a lift
Reuters with a comment from MUFG
  • “As we pointed out at the start of this year, we see the relative cyclical support for the dollar being less favourable this year than last and that suggests to us some dollar depreciation ahead. The end of balance sheet shrinkage will reinforce a much less active Fed on raising the fed funds rate
  • In addition, there is already evidence of foreign investors being more reluctant to invest in U.S. portfolio securities and we view this reduced appetite as partly a consequence of the level of the U.S. dollar and partly on concerns over the deteriorating budget deficit outlook.”

US 10-year yields aren’t so sure about a break higher after all

  
Analysis, Forex

A look at US 10-year yields

A look at US 10-year yields
I have been watching the downward triangle in US year yields for awhile. The break in the trend coincided in the latest leg-up in USD/JPY.
What’s happening now is that the break is fading. Meanwhile, USD/JPY has flattened out.
It’s a minor dichotomy at the moment but I think it’s amplified because of recent economic data. The ADP revision and the strong ISM non-manufacturing report (along with the best new orders since 2005) haven’t moved the needle, which is troubling for the bulls in USD/JPY and those hoping for Treasury yields to move higher.
Technically, a downward triangle isn’t exactly the strongest technical signal to begin with. It’s starting to look like the trend is more of a sideways move in the 2.60%-2.80% range and that will be the track to watch.

Weekly US EIA crude oil inventories +7069K vs +1450K expected

  
Analysis, Crude

Weekly US oil inventory and production data

  • Last week crude inventories fell 8647K
  • Gasoline -4227K vs -1625K expected
  • Distillates -2393K vs -1000K expected
  • Production 12.1m vs 12.1 mbpd prior
API yesterday:
  • Oil +7290K
  • Gasoline -391K
  • Disitllates -3100K
This report isn’t as bearish as the API numbers yesterday. Crude is bouncing on the headlines back to $55.80 from $55.55 beforehand.

Thoughts about the ECB and Euro

  
Analysis, Economy
Mario Draghi’s term at the helm of the ECB is winding down.  He will step down in October.  It has not been an easy job.  The light at the end of the tunnel in 2017 turned out to be another train in 2018.  The eurozone enjoyed 0.7% quarterly growth every quarter in 2017.  The ECB was able to outline an exit from its asset purchases.  The debate began over sequencing and when the first rate hike could be delivered.
But alas, the cyclical recovery fizzled and in the second half of 2018, the German and Italian economies contracted.  Price pressures eased. At the last meeting, the concerns had reached a point that the ECB took unprecedented action and downgraded its risk assessment before the staff provided updated forecasts.  
 
The staff has to make good on this at this week’s meeting.  In December, the ECB forecast 1.6% CPI and 1.7% GDP growth.  Both will likely be revised lower.  We suspect that CPI projection will be shaved by 0.1%-0.2% and the GDP to be marked down to 1.2%-1.4%.  It is, arguably, preferable to have to lift the forecasts in the future rather than cut them again. The extent that the 2020 forecasts are revised, however, may offer more insight into the mood of policymakers and their level of concern of the risks this slowdown does continue to evolve into an outright contraction.
Even if the cart was before the horse, the combination of the changed risk assessment and the updated forecasts require a policy response.  The policy response will more nuanced than a change in rates.  There are two levers.  Forward guidance and a new loan facility.
(more…)
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