Daily Fundamental Dose: 08 – June – 2017
Following weak US Jobs report and a terrorist attack in London, traders adopted a defensive stance since the start of the crucial week which comprises trifecta of disruptions like UK elections, ex-FBI Director’s testimony on Trump conversations with him and ECB meeting. As all of which are scheduled on the same day, i.e. Thursday, market players are tightening their belts to witness noticeable moves during the so called Super “Super Thursday”. Let’s examine the fundamentals relating to all these important events.
The Story So Far
With disappointing US employment details adding strength to pessimism concerning fractured US politics and inflation woes, the US Dollar Index (I.USDX) had to register extended declines. However, abating political risk at EU and upbeat economics made EUR a bit more favorite of markets while JPY maintained its gains on safe-haven demand. Further, commodity basket was also happy with weaker greenback, which in-turn helped AUD, NZD and CAD, whereas Crude had to bear the burden of latest rift between Qatar and some Middle-East countries. Additionally, GBP struggled with different polls showing scattered chances of Theresa May’s dream of getting clear majority in House of Parliament after Thursday’s crucial vote.
On Wednesday, the US Dollar witnessed a pullback as news revealed that ECB might cut down its inflation forecast during today’s meeting. Further, the GBP gained a bit after latest polls revealed that Conservatives are favorite amongst voters whereas JPY also trimmed some of its weight but the Crude had to drop heavily on surprise inventory pile-up from US. Moreover, AUD and NZD kept rising without many details except Chinese optimism and better than forecast AU GDP number.
Moving on, start of the Thursday proved to be a less volatile with downbeat AU Trade Balance and weak Japanese GDP but higher exports’ data from China saved commodity currencies from registering heavy decline.
All Eyes On UK, US and ECB Now
While early-day patterns revealed that traders are being reluctant to add major positions before testimony from ex-FBI Director, James Comey, the ECB’s monetary policy meeting and the UK general election, majority of them are closely watching the UK election polls to foresee GBP’s fate whereas Comey’s testimony and ECB are getting less eye-share at the moment.
To start with UK election, Britishers are scheduled to vote for choosing their ruling party at House of Parliament carrying 650 seats and the result of which will start counting from 10 PM London time. Though, majority of the exit-polls, which by-far have been influential in forecasting actual results, might declare the Conservative’s future before the formal announcement by early-Friday.
Theresa May’s Conservative party, which took the risk of snap election in order to gain house majority and smooth functioning of Brexit negotiation with EU, was on lead since the announcement of such surprise election but have lost its charm off-late due to two recent terrorist attacks at the heart of UK. On the other hand, her arch-rival, Jeremy Corbyn from Labour party, got the chance to promote his focus on inequality, high public spending and some welfare schemes. Latest polls from YouGov signals Tories (Conservatives) getting 42% votes in favor while claiming house majority while Labours have 35% supporters.
As regards the outcome, a clear majority of Conservatives, which is more likely, can help the GBP to extend its northward trajectory towards pre-Brexit levels while a small majority or a minority in House couldn’t save the Pound anymore.
Shifting to another important event of the day, monetary policy meeting by the European Central Bank (ECB) is likely to make EUR traders busy. While Mario Draghi led policymakers aren’t expected to alter their present monetary policy, forget about signaling tapering, the hawkish leader might not lose the chance of praising upbeat EU economics and optimism surrounding the region. However, the inflation has been biting the policy hawks and the same could have a downward revision during the bank’s forecasts that are to be discussed.
Given the ECB’s hawkish view on EU economy, the EUR can enjoy additional north-run but a cut in inflation outlook may damage the regional currency’s near-term gain. Hence, Draghi’s speech will be key to observe.
Last but not the least, Testimony by Ex-FBI Director, James Comey, is a wildcard that could either make or break the hopes on Trump administration. The ex-officer would appear before a Congressional panel and discuss all his conversations with Mr. Donald Trump relating to the Trump administration’s alleged role in having Russian help during presidential campaign. There are brighter chances that Comey might avoid revealing any surprises but could make his point clear that Trump did push him to tame investigations against his (Trump’s) own administration. Though, Trump being a sharp leader could use some more pushes and may avoid any more damages, not to mention chances of his resignation from highest US post.
Even if Comey’s soft nature might restrict him to blast against Trump, any strong comments (proofs) revealing Russian role in election campaign could raise more doubts on the Trump administration’s capacity to offer pro-growth policies, which in-turn could be negative for the US Dollar. Though, next week’s FOMC, which is likely announcing a rate-hike, may help greenback recover some of its latest losses.
Hence, while UK election is likely to be on the top of traders’ head, ECB and Comey’s testimony are also crucial events that could propel heavy market moves.
In addition to what is already mentioned above, Friday’s Chinese Inflation, UK Manufacturing Production & Goods Trade Balance and the Canadian Jobs report are some other details that investors may observe after the Crucial Thursday.
UK Manufacturing Production is expected to reverse the prior -0.6% contraction with +0.8% while Trade deficit may shrink to -12.0B from -13.4B. Further, Chinese CPI is also likely to be a welcome figure with 1.5% gain compared to 1.2%; though, expected dip in PPI, to +5.7% from +6.4%, could disappoint commodity traders a bit. Additionally, increase in Canadian Employment Change, to 11.5K from 3.2K, needs to confront with a higher Unemployment rate of 6.6% from 6.5% to direct CAD moves.
The EURUSD is struggling to maintain its upward trajectory beyond 1.1285, which in-turn could open doors for 1.1330 and the 1.1410 while a daily closing below 1.1160 might open doors for 1.1080 important support. In case of GBPUSD, 1.3050 and the 1.2760 continue being crucial levels whereas 108.00 and the 110.80 are expected strong numbers for USDJPY. Moreover, AUDUSD’s break above 100-day SMA level of 0.7560 could help it confront 0.7610 with 0.7500 acting as nearby support but NZDUSD still has some room till 0.7250 with weakness being less expected until a closing break below 200-day SMA level around 0.7100.
Have a nice trading-day ……