Daily Fundamental Dose: 20 – July – 2017
Hello Traders,
While Friday’s disappointing US inflation set the stage for early-week drop in US Dollar, Republican leaders’ failure to pass health-care reform bill strengthened the greenback Bears on concerns of Trump’s inability to offer pro-growth policies and doubts over Fed’s hawkish mood. However, with less economics on hand, investors may now concentrate on big events of the week, namely ECB and UK Retail Sales, in order to determine rest of the week moves. Let’s quickly understand the fundamentals behind them.
Early Week Dominated By Greenback Bears & Commodity Optimists
With the Chinese Industrial Production & GDP figures again flashing welcome numbers & US Manufacturing figure remaining dismal, traders favored commodity currencies and shed their USD longs in anticipation of further downside by the greenback. On the top of that, Trump administration’s another failure to get enough votes for proposal to repeal/replace Obamacare provided additional weakness to the US currency till Wednesday. However, upbeat housing market stats helped the US Dollar to recover some of its latest losses ahead of the crucial ECB.
On the other hand, EUR kept pilling its weight even with not so hawkish data-points while GBP retraced a bit as weaker UK Inflation damaged recent optimism triggered by BoE members and on-going Brexit talks added worries for Pound traders. Further, AUD was the biggest winner as upbeat monetary policy meeting minutes and strong employment figures helped the currency to challenge two-year high while NZD portrayed volatile moves with New Zealand CPI’s decline. Moving on, CAD managed to enjoy Crude’s up-move, backed by US inventory depletion, whereas JPY trimmed some of its early-week gains on Thursday when BoJ once-again postponed timing for reaching inflation target and disappointed the Yen Bulls. Additionally, Gold and other commodity prices gained on USD weakness.
All Eyes On ECB Now
Although UK Retail Sales, the largest contrinutor to British GDP, seems important for the GBP, investors are more interested in watching how ECB President, Mario Draghi, maintains his latest hawkish mood conveyed during the central banking forum at Portugal.
Consensus reveal a +0.4% growth of UK Retail Sales compared to -1.2% and no change of monetary policy by the European Central Bank (ECB). Also, monthly release of US Philly Fed Manufacturing Index is likely to provide another drawback for the greenback with 23.4 figure versus 27.6 earlier.
Even if the ECB President is less likely to backtrack from his recent optimistic words, he might chose to say least about tapering of QE or not speak at all concerning the much anticipated aspect of the central bank’s mammoth monetary measure. However, his praise of the economic development could become sufficient for the EUR to stretch its upward trajectory beyond the recently tested 14-month high. In case of GBP, strong Retail Sales can rejuvenate calls for monetary policy tightening and can help the Pound to recover its immediate losses.
Moving on, Canadian Retail Sales & CPI will be the last figures to close the week wherein both the headline measures for the economy likely to disappoint CAD Bulls with -0.1% & +0.3% numbers against +0.1% & +0.8% respective priors.
At the political front, US President is making plea to Republicans to back the repeal/replace the Obamacare program before they start summer vacation whereas EU-UK seem at the loggerheads to start Brexit proceedings. Further, fears emanating from allegations on Trump administrations’ linkages with Russia during 2016 Presidential election and North Korean threat to keep filling their armor with missiles haven’t receded yet.
Hence, while ECB is more likely to keep nurturing the EUR Bulls, which in-turn may harm the USD, political turmoil at US could offer additional weakness to the greenback.
Moreover, GBP should recover some of its latest losses but slow pace of Brexit developments may keep the currency in check whereas CAD might have to witness a pullback in case if headline data-points register weakness.
However, JPY and the AUD are expected to maintain their strength with USD weakness helping both the majors.
Technical Analysis
EURUSD has already surpassed weekly trend-line and is aiming for the 1.1610-15 and the 1.1720 with 1.1430 being nearby support. GBPUSD is likely to struggle between 1.3130 and the 1.2930 area as it recently reversed from TL resistance while USDJPY’s break of “Head & Shoulders” indicate further downside of the pair to 111.20 with 112.80-85 acting as nearby resistance. Furthermore, AUDUSD witnessed a pullback from 0.7960 and can revisit 0.7850 but more downside is less likely while NZDUSD needs to clear 0.7370 in order to claim 0.7410 with 0.7250 seem adjacent support. Moreover, USDCAD failed to extend its downturn below 1.2570 and might revisit 1.2770 on weaker data-points while 1.2500 seem strong support on the downside if the pair keep declining.
Have a nice trading-day ……