Daily Fundamental Dose: 04 – May – 2017
Following last-week’s volatile moves, mainly driven by French election aftershocks, ECB’s disappointment and US policymakers’ ability to avoid government shutdown, the present week started with a drag in trading as majority of global bourses were closed on May-day. However, Tuesday proved to be a good-day for traders as soft Chinese Caixin Manufacturing PMI & hawkish RBA confronted with each-other but triggered noticeable AUD up-move. Additionally, UK Manufacturing PMI & New Zealand job figures were also strong enough to propel GBP and NZD respectively; however, there were no strong reason for US Dollar to stretch its prior advances and hence the currency was trading sideways before the FOMC came in play.
FOMC Rejuvenated Greenback Strength
Even if the soft ADP figure dragged the greenback a bit towards south on early Wednesday, monetary policy meeting by the US Federal Reserve provided much needed boost to the USD as FOMC members termed recently downbeat stats as expected and transitory towards helping the central bank to announce its promised two-hikes gradually during the remainder of 2017. As a result, traders neglected no rate-change outcome, which was much expected, and rolled their sleeves up to buy the currency.
On the other hand, UK Construction PMI couldn’t help GBP to extend its previous advances as tough start of Brexit talks between EU & UK hurt currencies of both these economies, namely Euro & Pound. Moving on, strong greenback hurt commodity basket, which in-turn dragged AUD, NZD and CAD wherein the AUD had additional reason in the form of slump in Iron Ore prices, its main export, to flash the biggest loss since November. Moreover, Crude couldn’t stop its south-run with lesser than expected drop in US inventory whereas JPY and Gold kept weakening on broader market optimism turning investors away from safe-havens when the Japanese markets are already closed for three-days till weekend. Furthermore, recent absence of any geo-political tensions between US and North Korea also helped to improve investor sentiment.
Crucial Days Ahead
While FOMC and drop in commodity basket, coupled with Brexit talks, remain in highlight till now, traders are waiting for Friday’s NFP and Sunday’s French election result to determine future moves of the market; though, Thursday’s UK Services PMI and US Factory Orders may offer intermediate liquidity. Let’s discuss them in detail.
To start with UK Services PMI, the British economic calendar has been upbeat recently and a good number from the influential reading, compared to 54.6 forecast & 55.00 prior, might help the Pound to divert attention off from Brexit talks by registering upside. Further, US Factory Orders and Trade Balance details, up for today itself, aren’t likely to please Bulls with 0.6% & -44.9B against 1.0% and -43.6B respective previous marks but a drop in Jobless Claims to 246K from 257K may soothe some of the pains. Also, there are some speeches scheduled during the later-day sessions by leaders of the ECB and the BoC which could become crucial for EUR & CAD if any signals for monetary policy are discussed.
Hence, while US details may halt the greenback’s latest rally for a short-period of time on Thursday, GBP, EUR and CAD can witness small recoveries depending upon scheduled outcomes.
Monthly details of US Jobs market, up for Friday, indicate mixed picture of the employment scenario at world’s largest economy as the NFP is expected to recover from 98K to 194K while Average Earnings are also likely to improve with 0.3% growth compared to 0.2% earlier but the Unemployment rate may inch up to 4.6% number from 4.5% prior. Additionally, there are some speeches scheduled by FOMC members on Friday, including the one from Fed Chair, which should also be observed closely as the Fed leader didn’t get a chance to face press on Wednesday and might say something that can affect US monetary policy.
Moving on, Canadian Employment Change and Unemployment Rate, followed by Ivey PMI, up for Friday release, are some second-tier details to observe for CAD traders. The Employment Change might favor CAD’s short-covering with 20.0K forecast compared to 19.4K earlier and the Ivey PMI could further stretch its improvement towards posting 62.3 figure versus 61.1 prior while Unemployment Rate is expected to remain unchanged at 6.7%.
At the end, final round of French election on Sunday grabs investors’ eyes as a surprise win by the Marine Le Pen, an anti-EU candidate, would be a disappointment for the regional currency EUR. However, centrist pro-growth candidate, Emmanuel Macron, has been taking a lead in polls showing chances of him being the next French leader since the first-round. Additionally, Marine Le Pen has also softened her stance against EU off-late and hence she is also gaining popularity in a gradual step which in-turn makes the upcoming election result all the more interesting.
On the geo-political front, North Korea, even if being silent in last few days, hasn’t dropped its plan to conduct many missile-tests and cautioned US warships coming closer to the Korean peninsula which could keep inflating the importance of safe-havens in case the cold war between two economies take a harsh stand. Further, U.S. House of Representatives will again vote to decide the fate of Trump’s proposed Obamacare repeal, which has already beaten twice before, on late-Thursday and the gain of Trump’s plan could assure investors about the business tycoon’s capacity to run the world’s largest economy in an efficient way.
To sum up, US jobs details, together with upbeat statements from some of the FOMC members may help the greenback close the week on a positive side but French election might again trigger a gap-up opening for the EUR during Monday. Also, the CAD is likely to recover some of its latest losses on positive data-points whereas JPY and Gold remain vulnerable to US outcomes and may keep trading towards south.
Technically, the 1.0835 and 1.0960 range becomes crucial for EURUSD traders whereas a break of 1.3000 may help GBPUSD to aim for 1.3055-60 with 1.2750 being nearby important support. In case of AUDUSD, the pair already dropped below 0.7400 and is currently targeting 0.7370 & 0.7355 while 0.6800 & 0.6950 seem crucial figures for NZDUSD. Further, USDJPY may find it hard to clear 100-day SMA number of 113.30 with 11.60 acting as good rest and the USDCAD is more likely to aim 1.3810 during its further rally and can’t be termed weak unless breaking 1.3580 on a closing basis.
Have a nice trading-day ……