Daily Fundamental Dose: 03 – August – 2017
While overhaul in Trump administration and North Korea’s missile tests added strength to already looming political turmoil at US, uninspiring data-points continued playing their role in dragging the US Dollar Index (I.USDX) towards testing the lowest level in fifteen months. On the other hand, hawkish mood at ECB & BoE, backed by comparatively stronger economics, has been helping the EUR and the GBP respectively while commodity basket and the commodity linked currencies, like AUD, NZD and CAD, managed to capitalize greenback’s south-run.
However, Thursday’s announcement of Quarterly Inflation Report (QIR) by the Bank of England (BoE), followed by Friday’s monthly release of Employment report, continue to maintain their higher degree of importance in the eyes of investors to forecast near-term market moves. Let’s quickly understand fundamentals behind them.
Economics & Politics Both Remain Against The USD
Even if latest US GDP, housing market figures and Durable Goods Orders portrayed strength of world’s largest economy, disappointing Inflation details seem a big barrier into the Fed’s rate-hike plan for which traders are also concerned. Additionally, political upheaval, including North Korea’s repeated missile-tests, allegations on Trump administration to avail Russian help during 2016 Presidential election and Republicans’ failure to get Healthcare bill repeal/replace passed in house, continue raising bars into the implementation of Donald Trump’s pro-growth policies on which he was selected to become 45th President of US. Though, majority of Federal Reserve policymakers continue expecting a reversal in inflation and stick to their plan of offering another rate-hike by this year-end together with cut to balance-sheet debt.
In case of the EUR, the ECB have now started respecting inflow of upbeat data-points and signaled autumn will be a time when policy tightening will be discussed, which in-turn helped the EUR to become the strongest G10 currency at the moment. Further, GBP also gained form BoE’s hawkish sentiment and welcome economics, together with expectations concerning soft Brexit, while JPY and Gold remained as buyers’ favorite due to their safe-haven feature. Additionally, global oil producers’ commitment to stick to the production-cut accord have now started helping the Crude prices with summer season and decline in gasoline inventories being additional reasons for energy prices to rise. Due to this, CAD, AUD and NZD have been in green region; however, recent dip in New Zealand’s quarterly jobs report and soft Chinese stats have been a concern for such currencies’ traders to refrain from being too hawkish.
During the present week, contrasting Manufacturing PMIs from China’s official and private sources, coupled with a bit dovish RBA and negative New Zealand employment change, affected the AUD and NZD while CAD couldn’t celebrate rising Crude prices and reversed from 200-week SMA while comparing to the USD. Further, some of the Fed policymakers continued terming inflation downtick as temporary and remained committed to their promise of another rate-hike in 2017 together with balance-sheet cut. Moreover, EU inflation figures remained strong by helping EUR up-moves and mixed announcements from UK PMIs couldn’t drag the GBP down. Additionally, the JPY and Gold failed to extend their prior advances due to month-start profit-booking and WGC report signaling drop in Gold demand during H1 2017.
The Super Thursday & Jobs-Day Gain Market Attention
Having observed a sustained downtick in the US Dollar during early-week, contrast to the on-going increase in EUR & GBP, market players are now trading slowly during the start of “Super Thursday” when BoE is scheduled to announce its QIR details. For the USD traders, Friday’s monthly release of employment details will become crucial to judge whether the Fed could keep maintaining its promise or not.
Let’s first talk about today’s UK Services PMI which is up for release before BoE meeting. The leading indicator to predict UK GDP seems strong to flash 53.7 mark v/s 53.4 previous number and can keep pleasing the GBP Bulls before the BoE releases Quarterly inflation report and its monetary policy meeting outcome. Even if the BoE isn’t expected to alter its present monetary policy, press conference from BoE Governor, just after the policy statement release and QIR announcement, together with QIR forecasts, will be observed closely.
During its May QIR release, the BoE revised down Unemployment forecasts but raised the labor productivity predictions while registering a short-term downward bias for the Inflation and less change in GDP.
Considering latest raft of optimism at BoE, Given the hawkish sentiment at BoE, upbeat economic projections in the QIR, coupled with positive Services PMI, could help the GBPUSD to extend its north-run while in an otherwise case the downturn may have limited tenure to prevail because of soft Brexit concerns.
Moving towards US employment report, the Non-Farm Payrolls (popularly known as NFP) registered a four-month high, to 222K, during its early-July release but is expected to print a bit soft number, to 183K, in Friday’s scheduled announcement. However, likely increase in Average Hourly Earnings, to 0.3% from 0.2%, coupled with a dip in Unemployment Rate, to 4.3% from 4.4%, may again depict the strength of US labor market. Additionally, Thursday’s ISM Non-Manufacturing PMI & Factory Orders are both signaling contrasting forecasts with ISM Non-Manufacturing PMI likely posting 56.9 mark against 57.4 but the Factory Orders may rise by +2.7% versus -0.8% prior.
At the political front, US seems eyeing to levy heavy duties on Chinese products in the country as policymakers doubt the dragon nation is violating some property rights while Russia’s order to cut US staff on its land performing diplomatic missions in response to new sanctions levied on Kremlin also seem a reason for worry to USD Bulls. Furthermore, uncertainty over Trump administration’s alleged relation with Russia during 2016 Presidential election and introduction of new leaders add the fuel to US political turmoil.
Hence, with economics likely registering mixed outcomes concerning the strength of US economy, coupled with political turmoil continue raising worrisome signs, chances of the US Dollar’s upside are less likely. However, strong jobs report may offer intermediate strength to the greenback in recovering some of its latest losses.
Other than US & UK details, Canadian jobs numbers, scheduled for release on Friday, also gain attention from investors as Canadian Employment Change might follow the route of weakness with 14.6K figures against 45.3K prior but with no expected change in Unemployment rate, which is at present 6.5%. As a result, the CAD’s present profit-booking might get extended.
EURUSD continues aiming for 1.2000 psychological mark but its follow-on up-moves might be confined by 1.2020-40 horizontal-region whereas GBPUSD has to clear 1.3280 resistance in order to meet the 1.3440-50 resistance-area. Further, USDJPY bounced off from 110.00 and may now aim for 111.55-60 but AUDUSD’s break of short-term ascending trend-line indicates its further downside to 0.7870 with 0.8015-20 acting as nearby resistance. Moving forward, NZDUSD may take a rest around 0.7370 and could reverse to 0.7480 while USDCAD needs to clear 1.2640 & 1.2770 in order to aim for 1.2860 but a dip below 1.2530 can again fetch it to 1.2425 support-mark.
Have a nice trading-day ……