Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Chief Macro Strategist
AUD wilts further on weak GDP
John J. Hardy
Chief Macro Strategist
Summary: A weaker than expected Q4 GDP print sees the AUD lower overnight, even as RBA Governor Lowe remains firmly optimistic. Elsewhere, EURUSD has pushed back to the 1.1300 level ahead of tomorrow’s ECB meeting.
Australia’s Q4 GDP came in at half the anticipated rate – a mere +0.2% versus the +0.4% QoQ expected. The Reserve Bank of Australia’s Philip Lowe had another chance overnight to spin the situation in a bit more cautious light, but he insisted on maintaining a positive outlook, hoping that the Australian economy could weather the housing slump.
Elsewhere, price action remains muted, with USD and JPY firmness the most salient theme besides sterling volatility as we count down the days to the Brexit endgame. The market showed little reactivity to a very strong ISM non-manufacturing survey for February. Today we watch for how the market treats USDCAD over the Bank of Canada meeting and a speech from the Fed’s John Williams. By the end of the week, the market will have more to chew on after tomorrow’s European Central Bank meeting and whether the US February jobs report sees new highs for the cycle in average hourly earnings.
Trading interest
Long USD: remaining short AUDUSD and long USDCAD and short EURUSD – tightening stops slightly here on further progression of these trades – 1.1380 on EURUSD, 1.3270 on USDCAD and 0.7095 on AUDUSD.
Considering EURJPY downside again – will check back post-ECB tomorrow – for now, 2-month put spreads an idea for half a position
Chart: AUDUSD
AUDUSD is down through the first layer of support around 0.7055 after a weak GDP print. RBA Governor Lowe maintains an optimistic stance, but the market is increasingly second guessing this rosy outlook and beginning to more firmly price rate cuts, though odds for a cut don’t rise above 50% probability until the August RBA meeting. We continue to watch for a breakdown below 0.7000 – particularly if we continue to see resilient or better US data that sees the market second guessing and delaying the expected time frame for the Fed’s shift to a more accommodative stance.
Elsewhere, price action remains muted, with USD and JPY firmness the most salient theme besides sterling volatility as we count down the days to the Brexit endgame. The market showed little reactivity to a very strong ISM non-manufacturing survey for February. Today we watch for how the market treats USDCAD over the Bank of Canada meeting and a speech from the Fed’s John Williams. By the end of the week, the market will have more to chew on after tomorrow’s European Central Bank meeting and whether the US February jobs report sees new highs for the cycle in average hourly earnings.
Trading interest
Long USD: remaining short AUDUSD and long USDCAD and short EURUSD – tightening stops slightly here on further progression of these trades – 1.1380 on EURUSD, 1.3270 on USDCAD and 0.7095 on AUDUSD.
Considering EURJPY downside again – will check back post-ECB tomorrow – for now, 2-month put spreads an idea for half a position
Chart: AUDUSD
AUDUSD is down through the first layer of support around 0.7055 after a weak GDP print. RBA Governor Lowe maintains an optimistic stance, but the market is increasingly second guessing this rosy outlook and beginning to more firmly price rate cuts, though odds for a cut don’t rise above 50% probability until the August RBA meeting. We continue to watch for a breakdown below 0.7000 – particularly if we continue to see resilient or better US data that sees the market second guessing and delaying the expected time frame for the Fed’s shift to a more accommodative stance.
The G10 rundown
USD – the US dollar is trading firmer across the board outside of USDJPY, where the yen is likely to outperform on any notable further shift lower in risk appetite. Watch out for Fed’s Williams (voter) out speaking today.
EUR – the February Eurozone services PMIs were revised slightly higher from the preliminary estimates, but this isn’t enough to lift sentiment for the single currency and the ECB not likely to inspire confidence either, as the next policy moves of any impact (i.e., not TLTROs etc.) will have to come from the fiscal side.
JPY – interesting to note the lack of a response in treasuries to a very strong US data point yesterday – helping the yen to continue to firm. Further risk off on signs of momentum finally rolling over in risky assets could add a bit more fuel for further JPY consolidation.
GBP – sterling was volatile yesterday both on concern that the EU’s chief Brexit negotiator Michel Barnier would not offer any alterations to the EU’s stance but also on remarks by the UK Attorney General, Geoffrey Cox, that there is still hope for a breakthrough.
CHF – USDCHF came to life and posted its highest close in two weeks yesterday – further upside is contingent on a strong USD. EURCHF is thoroughly rangebound ahead of ECB – watching for reactivity there.
AUD – weak GDP print overnight adds to the downside risk, though we still trade within the range in the key AUDUSD pair and China’s CNY floor makes the outlook for a break lower more challenging. Still see pressure to downside until proven otherwise.
CAD – a potentially important Bank of Canada meeting today if it raises its level of concern in line with the steady decline in rate expectations. The market is actually more aggressively positioning for the first rate cut from the Fed than from the BoC (no easing yet priced). USDCAD trading at important resistance around 1.3375.
NZD – weak AUD data powering a bit of AUDNZD downside, and we watch for a possible new low close for the cycle today as the market prices the RBA to lead and exceed the Reserve Bank of New Zealand in pivoting toward providing more policy accommodation.
SEK – EURSEK rejected the test of the recent cycle highs above 9.60 – providing a technical hook for bears looking to get involved for consolidation well back into the range. Keep in mind the krona’s historically weak in real effective exchange rate (REER) terms.
NOK – looking for that confirmation that we have yet to see after the large bearish reversal in EURNOK that unfolded over year-end and into January. Let’s have a look at how the market treats the ECB meeting tomorrow. Risk appetite and oil prices more important in other NOK pairs.
Upcoming Economic Calendar Highlights (all times GMT)
11:15 – US Feb. ADP Employment Change
13:30 – Canada Dec. International Merchandise Trade
13:30 – US Dec. Trade Balance
15:00 – Canada Bank of Canada Rate Decision
15:00 – Canada Feb. Ivey PMI
15:30 – US DoE Weekly Crude Oil / Product Inventories
17:00 – US Fed’s Williams (Voter) to speak
19:00 – US Fed Beige Book
00:30 – Australia Jan. Retail Sales
USD – the US dollar is trading firmer across the board outside of USDJPY, where the yen is likely to outperform on any notable further shift lower in risk appetite. Watch out for Fed’s Williams (voter) out speaking today.
EUR – the February Eurozone services PMIs were revised slightly higher from the preliminary estimates, but this isn’t enough to lift sentiment for the single currency and the ECB not likely to inspire confidence either, as the next policy moves of any impact (i.e., not TLTROs etc.) will have to come from the fiscal side.
JPY – interesting to note the lack of a response in treasuries to a very strong US data point yesterday – helping the yen to continue to firm. Further risk off on signs of momentum finally rolling over in risky assets could add a bit more fuel for further JPY consolidation.
GBP – sterling was volatile yesterday both on concern that the EU’s chief Brexit negotiator Michel Barnier would not offer any alterations to the EU’s stance but also on remarks by the UK Attorney General, Geoffrey Cox, that there is still hope for a breakthrough.
CHF – USDCHF came to life and posted its highest close in two weeks yesterday – further upside is contingent on a strong USD. EURCHF is thoroughly rangebound ahead of ECB – watching for reactivity there.
AUD – weak GDP print overnight adds to the downside risk, though we still trade within the range in the key AUDUSD pair and China’s CNY floor makes the outlook for a break lower more challenging. Still see pressure to downside until proven otherwise.
CAD – a potentially important Bank of Canada meeting today if it raises its level of concern in line with the steady decline in rate expectations. The market is actually more aggressively positioning for the first rate cut from the Fed than from the BoC (no easing yet priced). USDCAD trading at important resistance around 1.3375.
NZD – weak AUD data powering a bit of AUDNZD downside, and we watch for a possible new low close for the cycle today as the market prices the RBA to lead and exceed the Reserve Bank of New Zealand in pivoting toward providing more policy accommodation.
SEK – EURSEK rejected the test of the recent cycle highs above 9.60 – providing a technical hook for bears looking to get involved for consolidation well back into the range. Keep in mind the krona’s historically weak in real effective exchange rate (REER) terms.
NOK – looking for that confirmation that we have yet to see after the large bearish reversal in EURNOK that unfolded over year-end and into January. Let’s have a look at how the market treats the ECB meeting tomorrow. Risk appetite and oil prices more important in other NOK pairs.
Upcoming Economic Calendar Highlights (all times GMT)
11:15 – US Feb. ADP Employment Change
13:30 – Canada Dec. International Merchandise Trade
13:30 – US Dec. Trade Balance
15:00 – Canada Bank of Canada Rate Decision
15:00 – Canada Feb. Ivey PMI
15:30 – US DoE Weekly Crude Oil / Product Inventories
17:00 – US Fed’s Williams (Voter) to speak
19:00 – US Fed Beige Book
00:30 – Australia Jan. Retail Sales
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