· The dollar rose against most of its peers on Wednesday as reports of renewed tension in U.S.-China trade negotiations supported safe-haven bids, although the Federal Reserve’s policy meeting later due in the day limited the greenback’s gains.
Against a basket of key rival currencies, the dollar was almost 0.1 percent higher at 96.454 as it managed to find its footing after hitting its lowest level since March 1 at 96.291 in overnight trading.
The index is still down 1.3 percent from a three-month high of 97.71 hit on March 7, on views the Fed will strike a dovish tone during its latest policy meeting.
· “What has been priced out of global markets is the notion that we’re going to see a negative resolution to the trade talks,” said Chris Weston, head of research at foreign exchange brokerage Pepperstone in Melbourne.
“The last thing we need to see now is an increase in tensions that suggest there is a heightened probability that the U.S. are going to put their tariffs on that $200 billion trench at 25 percent,” he added.
· U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are expected to travel to China next week for another round of trade talks with Chinese counterparts.
· Yukio Ishizuki, senior currency strategist at Daiwa Securities, said he did not think market participants were expecting a quick resolution to the Sino-U.S. trade spot any time soon.
“For the time being, the market will keep reacting to the headlines as they come and go,” he said.
· Investors’ immediate focus was on the Fed to see whether the central bank will affirm its commitment to “patient” monetary policy and for clues about the likely path of U.S. borrowing costs.
· Most currencies remain within well-trodden trading ranges before the Fed decision, as market participants were cautious after taking cues from U.S. data offering new signs the world’s top economy is on a path of slower growth.
On Wednesday, the euro and the Japanese yen were both down against the dollar. The single currency was a shade lower at $1.1347.
The yen gave up about one-sixth of a percent to 111.60 yen per dollar. The greenback got some help from Japanese importers on a “gotobi” date - a multiple of five - on which accounts are traditionally settled.
Sterling was a shade lower at $1.3259. It had pared gains overnight on concerns that British Prime Minister Theresa May’s request for delaying Brexit was running into complications with the European Union.
· Ahead of the Fed meeting this week, the DXY Index’s forecast is still neutral. US Treasury yields haven’t moved enough in the pre-Fed trading sessions to warrant a significant change in outlook either. Accordingly, price remains within an ascending triangle in place since November. Triangle support comes in around 96.25 through the end of the week; below here, and bears may start to take control.
· Japanese Yen Technical Analysis: USDJPY Still Eyes 112 Resistance
USD/JPY remains well within the uptrend channel which has bounded trade for much of this year. However, the JPY112.00 level has capped the market. The pair has failed to get above there on a daily closing basis despite coming close in the last three weeks and even topping that point intraday on March 1.
Now however we can clearly see the convergent uptrend and downtrend lines of a pennant formation on the daily chart. This is what’s usually known to technical analysts as a ‘continuation pattern.’ What that means is that the previous market impulse is likely to be regained once the pattern has been broken.
· Full-tilt dovish would be if the Fed downgraded its growth and inflation forecasts and completely eliminated any avenue for a rate hike in 2019. From one perspective, rates markets see this to be the case, given that there’s a 25% chance of a 25-bps rate cut being priced-in by the end of the year.
· The U.S. Federal Reserve on Wednesday is expected to hold interest rates steady, shave the number of hikes projected for the rest of the year, and release long-awaited details of a plan to end the monthly reduction of its massive balance sheet.
Investors now put a 75 percent probability on the likelihood the Fed won’t raise its overnight benchmark interest rate, or federal funds rate, any more this year, according to CME Group’s FedWatch tool. The fed funds rate is currently set in a range of 2.25 percent to 2.50 percent.
New quarterly economic and rate projections to be released with the latest Fed policy statement at 2 p.m. EDT (1800 GMT) will show how closely policymakers align with that view. The Fed’s December projection called for two hikes this year, but that is widely expected to be cut to a single increase at the conclusion of the two-day policy meeting on Wednesday.
The more intense focus among investors may be on the balance sheet, and the Fed’s plans to stop reducing its holdings of Treasury bonds and mortgage-backed securities each month by as much as $50 billion.
Details of that plan are also expected to be released on Wednesday, providing investors with a sense of how much longer the drawdown will continue, and what will likely be left in the Fed’s portfolio of assets when it stops.
· A slowdown in China’s economy -- not the trade war -- is now the biggest risk for investors for the first time in almost two years, according to the latest fund manager survey by Bank of America Merrill Lynch.
About a third of investors polled said that slower growth in China is their biggest concern, replacing trade war risks which had topped the list for nine straight months, according to a survey of 186 fund managers conducted this month by the bank. A corporate credit crunch came in third, followed by U.S. politics.
Stock markets globally have been roiled by ongoing concerns surrounding the U.S.-China trade war for over a year. While both these worries are interconnected, markets have been relatively unreactive toward newsflow the trade discussions compared with that on global economic growth.
· US officials plan to travel to China next week to resume face-to-face talks aimed at ending a trade war between them, media reports said.
The US accuses China of stealing intellectual property from American firms, forcing them to transfer technology to China.
Washington wants Beijing to make changes to its economic policies, which it says unfairly favour domestic companies through subsidies and other support, and wants China to buy more US goods to rein in a lofty trade deficit.
China accuses the US of launching the largest trade war in economic history and is unlikely to embrace broader structural changes, which are seen by some as a way to contain its rise.
Important sticking points in negotiations include how to enforce a deal and the pace at which the US and China will roll back tariffs imposed over the past year, the Wall Street Journal said.
Chinese officials say President Xi Jinping does not want to participate in a summit with Mr Trump unless the main issues in the trade talks are agreed to avoid a situation where Mr Trump could walk away at the last minute, according to the Financial Times.
The damaging trade war has cast a shadow over global trade and is contributing to a slowdown in the world economy.
· British Prime Minister Theresa May will request a short delay to Brexit in a letter to the European Union on Wednesday, Sky cited an unidentified senior government source as saying.
But the ultimate length of the delay was unclear amid the political chaos in London. May had warned that if parliament did not ratify her deal, she would ask to delay beyond June 30, a step that Brexit’s advocates fear would endanger the entire divorce.
· Theresa May will not be asking the EU for a long delay when she formally requests that Brexit is postponed.
EU Brexit negotiator Michel Barnier has said the EU will not grant a delay without a "concrete plan" from the UK about what they would do with it.
BBC assistant political editor Norman Smith said the delay would not be beyond the end of June.
Any delay will have to be agreed by all 27 EU member states and Mrs May is heading to Brussels on Thursday to discuss the matter with fellow leaders.
· Confidence among Asian companies held near three-year lows in the first quarter as a U.S.-China trade dispute dragged on, pulling down a global economy that is already on a downward path, a Thomson Reuters/INSEAD survey found.
The Thomson Reuters/INSEAD Asian Business Sentiment Index tracking firms’ six-month outlook was flat in the March quarter from the previous quarter’s 63, compared with a near three-year low of 58 set in the September quarter.
· Misunderstandings over China’s Belt and Road Initiative (BRI) are “hard to avoid”, a senior Chinese diplomat said on Wednesday ahead of a trip to Europe by President Xi Jinping during which Italy is set to join the multi-billion dollar trade scheme.
Italy has angered its EU partners by planning to sign infrastructure deals with China, pushing itself as a big backer of the initiative at the heart of Beijing’s foreign policy strategy that is Xi’s signature diplomatic and trade push.
Italy, which is expected to send a high-level delegation to the second Belt and Road summit in Beijing in late April, will be the first stop on Xi’s tour from March 21 to 26 that will also take in France and the tiny principality of Monaco.
· China is ready to strengthen “a global strategic partnership” with Italy, Chinese President Xi Jinping wrote in an Italian daily on the eve of his visit to the euro zone’s third-largest economy.
“With my visit I wish to set out together with Italian leaders the guidelines for bilateral relations and take them into a new era,” Xi said in an article he wrote for Corriere della Sera.
Xi said China was ready to coordinate more closely with Italy over international issues such as climate change, including within multilateral organizations such as the United Nations, the World Trade Organization and the G20.
· Oil prices dipped on Wednesday, retreating from a four-month high as economic growth concerns dampened the outlook for fuel consumption.
However, analysts said oil was still well supported by voluntary supply cuts led by producer club OPEC and U.S. sanctions against Iran and Venezuela.
International Brent crude oil futures were at $67.50 a barrel at 0222 GMT, down 11 cents, or 0.2 percent, from their last close. Brent touched $68.20 a barrel on Tuesday, its highest since Nov. 16.
U.S. West Texas Intermediate (WTI) crude futures were at $58.83 per barrel, down 20 cents, or 0.3 percent, from their last settlement. WTI hit a high of $59.57 a barrel on Tuesday, the highest since Nov. 12.
· CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices are testing resistance marked by the 50% Fibonacci retracement at 59.63. A daily close above that opens the door for a test of former support in the 63.59-64.43 area, reinforced by the 61.8% Fib at 63.71. Any substantive reversal lower requires confirmation on a break below the 55.37-75 zone, which would mark invalidation of the uptrend from late December and expose the 50.31-51.33 region.
Reference: Reuters, CNBC, BBC, Daily FX, Bloomberg
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