Trump/Yen, Yen/Trump

The Central Bank of Japan apparently took seriously Trump's warning to its main trading partners - not to try to manipulate exchange rates.
According to well-known sources, the central bank of Japan is said to change its monetary policy. The explanation is - to make it more effective. Market participants, however, fear that its preparing for normalization is becoming a reality.
And this led to a fall of the Japanese Nikkei 225 by nearly 300 points and a serious appreciation of the yen. The dollar, which reached trading levels of 113 yen in the past week, traded at levels 111.18 on Tuesday evening.
Indeed, the dollar marked its largest decline against the main currencies for three weeks. The dollar index lost 0.8% of its value on Friday, with the loss of 1% against the yen, the US currency declining 0.7% against the euro.
The bond repurchase program was launched by the head of the Japanese bank in the distant 2013. The aim was to raise inflation.
Now, however, according to experts, the Japanese central bank has to make a lot of effort to persuade Trump's administration that it does not artificially lower the exchange rate of the yen against the dollar.
On the other hand, it appears that 2% inflation targeting the bank is an unattainable goal, even against the backdrop of serious monetary stimulus. Buying bonds, however, has led to an increase in government debt of over 40% over the past five years. At the same time, the goals of the Japanese central bank do not seem to be achieved. And this largely points to the ineffectiveness of the bank's policy.
Interest rates on 20-year Japanese government bonds also rose 6 basis points to 0.535 percent, moving away from their 18-month minimum at 0.475 percent earlier this month.
It has to be mentioned that the currency war is already a fact, as a continuation of the trade between the US and China. On Friday, President Donald Trump accused the major trading partners of the US of manipulating their exchange rates and thus receiving unfair competitive advantages.
We can recall that the trade war between the two leading economies started earlier this month, with the imposition of reciprocal duties on goods for $34 billion.

Bears rule: the market on Friday found no reason to rejoice

On the evening of Friday, the US dollar lost against the euro and let it grow. The main currency pair is above 1.1720. The risk for the euro is Italy with its political imbalance, besides some of the politicians again mention the possibility of the country's exit from the euro area - this is not the driver at which the single European currency can rise in price.
In oil, the "bulls" are trying to win back part of the weekly sales, but in the last couple of weeks, no one has gone up for black gold effectively. A barrel Brent opens the week with worth about $73.07, the resistance is at $73.50 and $73.75 respectively.
The gold closed last week near historically low levels, at a price of $1,233.60.

Why was the dollar spared by the trade war? (2)

Last month, the ECB reaffirmed its non-aggressive policy, which helped renew the dollar's appreciation. The euro fell 0.7 percent against the dollar at the ECB meeting on June 14. Then the dollar rose the most against the euro in two years.
The outlook for the US economy is the best among developed economies, according to Marvin Loch, chief strategist at BNY Mellon. The Fed remains the most aggressive in its tone, compared to the other central banks around the world. Since the beginning of the year, the Reserve has raised the interest rate twice, and is expected to make two more hikes until the end of the year.
At the same time, the ECB is unlikely to raise interest rates by the end of the year, barely stopping the stimulus for that period.
In addition, credibility among bullish investors for the euro is diminishing as a result of the emerging trade war between the US and Europe. Experts point out that serious threats to foreign exchange markets may be an extraordinarily high short-term growth in the US economy, which would trigger a further strong appreciation of the US currency.
Investors continue to worry about the minimum slope in the interest rate curve, which continues to raise fears of an impending recession.

Why was the dollar spared by the trade war? (1)

The US dollar has so far been spared by the decline in other major currencies as a result of fears of a trade war between the US and China. Experts explain this, strange at first glance, with something very simple. Indeed, the trade war will not be good for the United States and the country's economy. Simply, it is expected to be much worse for US trading partners.
In this case of full force is the rule - "best among the bad ones". The rise in protectionism in the US, as a result of the US-China trade war, would generally hurt the US economy. So far, however, a mix of political events, fiscal stimulus, and concerns about bond market conditions can actually trigger a short-term rise in the US dollar.
Analysts from the ING investment bank explain the stability of the dollar with the "attachment" of the market participants to the US currency and the strong US economy compared to other developed economies. And as the currency pair with the best potential for growth of the US dollar, is the world's most traded one - EUR/USD, at least in the short term.

Long positions in the dollar are modern again

The bets on the dollar are again up-to-date after weakening the tension between the US and China and the postponement of the trade war.
In addition, the expectations are that the Fed will raise the interest rate at its next meeting in June, after failing to do so in May.
The dollar index added 2% since the beginning of the month to date, according to FactSet statistics.
The net long positions of speculators for the week until May 15 are again on a positive territory, for the first time since mid-March, just before the first quarter of Fed's interest rates hike for the year.
Better expectations are already evident in the spot market, where the dollar is booming, against the backdrop of the improvement in the interest rate differential, according to Jane Foley, Rabobank's chief currency strategist.
Investors are monitoring outgoing data for further evidence of the market sentiment and the future direction of green money.
In the first two weeks of May, leverage accounts held net long positions in dollars for the first time since January, according to Stephen Gallo, head of the Forex Trading Unit at IMO.
The US dollar is experiencing exceptionally strong growth, according to Mark Chandler, global strategist at Brown Brothers Harriman. This is a function of rising interest rates and the gradual rise in confidence that the Fed will raise interest rates three times this year, not twice as expected, the expert added.
The next Fed meeting on interest rates is on June 12-13. Futures indicate a 95% chance of raising interest rates by 25 basis points next month.

Interest rates on 10-year US government bonds again over 3%

Interest rates on 10-year US government bonds rose again above the exceptionally high level of 3%. This has led to a new appreciation of the dollar against other major currencies, and especially against European currencies.
Interest rate hikes are in the midst of new concerns about the breakdown of US-China talks. There are concerns that trade clash and war between the two sides is inevitable.
This is expected to trigger a rise in inflation and hence lead to a stronger rise in interest rates than current expectations.
Otherwise, the rise in the dollar has already had a very negative impact on the levels of metal trade. Gold went back to trading at $1,310 and platinum and silver fell to $903 and $16.30 per ounce.
Interest rates on 10-year US government bonds rose 2.3 basis points to 3.018 per cent on an annual basis, while those on 30-year bonds added 1.9 basis points to 3.148 per cent on an annual basis.
The popular interest spread between 2 and 10-year bonds remained at a level of 46.6 basis points, or close to its lowest levels in nearly a decade.
It is precisely the potential reversal of the interest rate curve, James Bullard warned yesterday. According to him, the interest rate curve may gain a negative slope at the end of this or early next year.

Nomura: Shorten the dollar in the summer

Temperatures are rising, and hence the tensions in foreign exchange markets. Japan's largest financial institution, Nomura Holdings Inc., has one offer for currency traders. And it is - to shorten the dollar in the summer.
The financial institution is of the opinion that a short dollar may be a good idea for the next three to four months. The recommendations are to shorten the dollar against the yen and the euro.
Since January, green money has been the strongest base currency, backed by Fed's rising interest rates.
Yesterday, the Fed kept the level of interest unchanged, warning that inflation was almost at the target level. Nonetheless, Nomura is of the opinion that the interest rate increase, which was not implemented yesterday, may begin to slow down.
And in an environment of expectation of ending the incentives from other leading banks around the world, the dollar may begin to decline compared to other major currencies, Nomura said.
Together with rising US inflation, Nomura believes that further interest rates, albeit at a slow pace, will have a very negative impact on the bond market.

Fed kept interest rates unchanged

The Fed kept the interest rate unchanged yesterday, but signaled that the inflation target was reached. Thus, the reserve, though disappointing investors expected an increase in interest rates at this meeting, opened its way to a June increase in interest rates.
The dollar initially declined, but subsequently recovered its losses. The euro returned at trading levels below 1.2000, with the pound continuing with its exceptionally strong impairment. Early this morning, a pound is exchanged for 1.3595 dollars.
The renewal of the Fed's inflation target is a major step after nearly six years in which consumer price growth in the world's largest economy is below the target of 2%.
The Fed also commented on the weak recent data on the labor market, saying labor market activity was slowing down, but it has performed well over the past few months.
In any case, at the next meeting on June 12-13, the Fed is expected to raise interest rates by 25 basis points after not doing so yesterday. Or, the market has bet almost 100%, that we will see a rise next month, unless something really dramatic happens.

The US dollar ran out of its range

The US dollar has overtaken its trading line from the past nine weeks to a basket of currencies.
Nevertheless, green money recorded its best weekly performance since November 2016.
For the week, the dollar index added 1.41%, ending at 91.343 points.
The main catalyst behind the rise of the dollar was the rise in interest rates on 10-year US bonds. They passed the 3% levels for the first time in more than four years. Investors have shrunk their positions in US bonds as a result of fears about rising inflation and the prospects for further interest rates.
In the rest of the news, consumer confidence rose to 128.7 points, exceeding analysts' average expectations, while orders on durable goods grew to 2.6% or against the previous reporting period.
The US GDP also turned out to be above average expectations at 2.3%. Investors, however, continue to worry about the poor performance of consumer spending.
Another major reason for the appreciation of the US dollar against other major currencies was the difference in the Fed's expected policy and other banks around the world that would most likely not be as aggressive to interest rates.

US dollar with weekly growth against all major currencies

Over the past week, we have witnessed something that is happening relatively rarely - the dollar has appreciated against all major currencies.
A major part of the appreciation of green money relative to other currencies was predetermined by the rise in interest rates on US bonds, to which the dollar is extremely dependent.
Investors have renewed expectations for further interest rates to be raised by the Fed during the year. The rising demand for more risky assets, on the other hand, has led to further strength for the US currency.
For the last week, the dollar index ended at 90.075 points, or an increase of 0.64%.
Late last week, Fed officials hinted at a further gradual rise in interest rates based on strong economic growth figures.
Fed San Francisco head John Williams said that inflation will rise this year to Fed targets of 2% and will remain above those targets a few years.
In order to protect the US economy from overheating, it is necessary for the Fed to continue raising interest rates, Williams said.
On the other hand, the leader of the Chicago Fed, Charles Evans, said it might be more appropriate to raise interest rates gradually.

Deutsche Bank: Inflation is the biggest threat at the moment

Forget the geopolitical tensions, the strikes in Syria, or the trade wars between the US and China. You have a much greater reason to worry if you invest in stock markets. This is warned by the experts of the leading German bank - Deutsche Bank.
Traditional inflation measures in the US show a sustained rise in consumer price inflation in recent months, following an anemic price increase nearly a decade after the end of the recent financial crisis.
At a time when the Fed has steadily upgraded the economy and the economy is recovering at an unsatisfactory pace, uncertainty has conquered inflation, which is the focus of almost all investors.
We are waiting for inflation, literally over the last nine years - since the end of the recession in 2009. Maybe you will ask yourself the question - Why is it now? We have not seen inflation over the past few years, so what has changed today? - commented experts.
And the answer to this question can be found in the weak US dollar. The dollar index was moving at a 90-point high for most of this year after falling freely over the past year.
This was a natural consequence of fiscal expansion over the last decade, which has led to a overheating of the US economy, a narrow labor market and price pressures, in light of a possible trade war between the US and China.
Expectations for higher inflation are consistent with consensus expectations. About 82% of fund managers, gave their opinion in a Bank of America poll earlier this month, expect inflation to accelerate next year. This is just below the pre-crisis levels of 86%.
According to the Labor Ministry, consumer prices have risen 2.4% y/y last month, or their fastest growth in 12 months. By abolishing volatile food and fuel prices, inflation stood at 2.1%.

GBP/USD

Next week investors' attention will be focused on the development of the geopolitical situation amid growing tension between the US and Russia after a missile strike on Syria and the introduction of new US sanctions against Russia.
Also in the focus will remain a trade dispute between the US and China. On Monday, the spring sessions of the International Monetary Fund and the World Bank will open.
On Friday, the dollar exchange rate changed insignificantly against the basket of other currencies amid uncertainty of investors regarding a military strike against Syria.
The pound went up against the dollar: the pair GBP/USD was trading at 1.4238 after it rose to a maximum of ten weeks at 1.4297 on Friday amid forecasts that the Bank of England will raise the interest rate as early as May.
In addition to the development of geopolitical and trade conflicts, investors will follow economic reports next week, the most important of which will be the report on the volume of retail sales in the US.
Also, the inflation data in the UK will be carefully analyzed, which will provide fresh indicators for the further course of monetary policy.

The dollar is losing after the continuing tension between the US and China

The dollar fell on Friday as a result of continued tensions between China and the United States and data on the weakest job creation in the US economy in March for six months.
Particularly pronounced was the depreciation of the dollar against what are considered "rescue currencies" - the yen and the Swiss franc.
On Friday, China warned that it could respond "at any cost" to President Donald Trump's threat of imposing import duties on $100 billion in Chinese goods.
The loss of the dollar accelerated after the Chinese Commerce Minister said his country would not hesitate to respond to further action by the US. He rejected possible talks between the two trading partners under the current conditions.
The trade drama between the United States and China overshadowed employment and unemployment figures in the United States, which reported less than expected new jobs in March.
Powell said at the end of last week that the Fed would most likely have to continue raising interest rates to keep inflation under control.
The dollar fell 0.5% against the yen to 106.89, as well as 0.5% against the franc to 0.9587 francs at the end of last week. The dollar index fell 0.4 percent to 90.12, with the euro rising 0.4 percent to 1.2282.
Employment data showed only 103,000 newly created jobs, well below the projected 193,000 new jobs and under 326,000 jobs in March.
The good news was the 0.3% growth in average hourly earnings, which raised annual inflation expectations.

The dollar has a temporary relief

On Friday, April 6, the single European currency against the dollar in the morning trading moderately subsiding, continuing the trend of yesterday's trading and the week as a whole.
On Thursday the currency pair EUR/USD retreated to the lowest levels since the first of March, amid a slight decline in concerns over the notorious trade war between the United States and China.
In the short term, we still do not have to expect any exploits from the dollar, since there is a risk of unforeseen political moves on the part of Trump in the light of the continuing uncertainty in the sphere of foreign trade.
As for macroeconomic statistics, today at 13:30 GMT in the US will be the March block of statistics on the labor market, and this time, employment is expected to increase in non-agricultural sectors by 195,000 after an increase of 313,000 a month earlier. The dollar, as a rule, appreciably reacts to this block of statistical data.

Exceptional growth for indices, the yen is cheaper

US indices rose sharply, and the dollar appreciated against the Japanese yen as a result of moderate optimism to find a way out of the potential trade war between the US and China.
More and more reports are being made of "quiet diplomacy" between the US and China to find a compromise on trade relations between the two countries.
The dollar index, which measures the performance of green money against the six major currencies, fell to 89.208, down from 89.49 at the end of last week.
The euro returned again at trading levels above 1.2400 against the dollar, while the British pound traded at 1.4221, compared to 1.4133 late on Friday.
Concerns about potential trade wars between the US and China, and other markets have triggered a rise in rescue currencies such as the yen and the Swiss franc.
However, with lower fears, investors reversed the dollar again to the Japanese yen. This led to a significant rise and three-digit growth in US indices, including the Dow Jones blue chip index.
US indices were close to "over-sold territory," after their fall in recent days, prompting many investors to target them in search of upward correction, according to market observers.

Analysis on pound

While the pound remains below 1.3950, it is vulnerable to further downturn, but if it breaks above this important level, it can expect more substantial recovery. Negotiations on the withdrawal of the UK from the EU are not going well, as the parties are still unable to reach an understanding on the single market, the customs union and the border between Ireland and Northern Ireland. Last week, there was no progress, and neither side is going to step back. The next important date for negotiations is March 22, when EU leaders will meet in Brussels to sign an agreement on the beginning of the transition period. They will also discuss the basic principles of conducting further negotiations on a number of issues, including trade.
The British economic data was not bad: activity in the service sector accelerated, judging by the latest index, and although the trade balance deficit has slightly increased, the volume of industrial production fell back at the beginning of the year. As there will be no fresh data in the UK this week, the GBP outlook is entirely dependent on the demand for the euro and US dollar. I expect that EUR/GBP will continue to fall in price.

Forecast on USD/CAD

The Friday report on employment in the non-agricultural sector of Canada was mixed: the unemployment rate declined, the number of employed dropped, the number of full-time employees declined. Nevertheless, after five months of relatively strong growth in the number of full-time employed, this drop is very modest. This week in Canada, there will be no fresh data, so the focus will be the speech of Bank of Canada Chairman Steven Poloz today. If his rhetoric is more "hawkish" than the rhetoric of a monetary policy decision, USD/CAD can quickly reach 1.2700.

AUD/USD forecast for the week ahead

Australia's GDP growth slowed in the fourth quarter, and retail sales grew less than expected, but investors are optimistic because of the statement by Reserve Bank Chairman Philip Lowe that the next change in rates will be more, and not less, as the economy moves in the right direction. This, in particular, indicates that the growth in spending in non-extractive industries is now the largest since the financial crisis. Nevertheless, for the time being, the central bank adheres to a neutral position. This week, the focus will be the speeches of RBA officials Michelle Bullock, Christopher Kent and Guy Debell. From a technical point of view, higher highs and lows indicate further strengthening of AUD/USD, which should reach at least 0.79.

Forecast on USD/JPY

The Friday report on employment in the US did not have a significant impact on the currency market, only confirming the presence of positive changes in the economy of the country. In February, 313,000 jobs were created, which was the biggest monthly increase in 3,5 years. Although the unemployment rate has risen, and wage growth has slowed, the main thing is that these figures are high enough for, the Federal Reserve to raise interest rates later this month. Activity in the service sector continues to grow at a healthy pace, and judging by the Beige Book, the economy to grow modestly or moderately from January to February, and the narrowing of the gap between supply and demand in the labor market to lead to higher wages and inflation.
This week, the focus will be on inflation and consumer spending for February. It is expected that the costs will roll back after the fall at the beginning of the year. As in the case of the employment report, if data on consumer prices or retail sales are not horrible, Fed Chairman Jerome Powell will raise interest rates this week for the first time after his promotion. USD/JPY rose at the end of last week and could reach 108 if US stocks continue to strengthen.

The Yen - the greatest winner of future trade wars

Last week, President Trump shook the market with the imposition of imported duties for steel and other products. This immediately triggered talks about potential trade wars that have affected currency markets.
The potential US involvement in a trade war with other countries around the world has led to serious sales of US stock markets.
One currency, however, wins against all the tensions and has seen a serious appreciation over rivals. And that was the yen. According to investors and analysts, however, the appreciation of the yen is just beginning.
These events are largely reminiscent of what happened in the early 1990s when the US took protectionist measures against Japan.
The yen reached a record high of 79.75 yen per dollar in 1995, when similar protectionist actions were taken by the United States.
The proposed tariffs can reduce the US economy's growth by 0.2 percentage points next year, posing additional threats as to how US trading partners will react, analysts at Barclays Plc say.
In search of security, the traders turned to the yen, the Swiss franc and the euro. Trade-sensitive currencies, like the Canadian dollar, also declined.