Daily Fundamental Dose: 31 – August – 2017
When early-week departure of top-tier Republicans from Trump administration triggered the USD’s sell-off, nobody knew that the week could end-up closing in red as majority of investors were optimistic about Jackson Hole Symposium. However, Fed Chair’s inability to provide any monetary policy signals, coupled with downbeat Durable Goods Orders and hurricane Harvey, dragged the greenback gauge (I.USDX) again towards south on a weekly basis.
During the start of present week, North Korea fired a missile over Japan and rejuvenated Geo-political tensions, but measured response from Trump and upbeat economics, like GDP and ADP figures, has been favoring the US Dollar to stay positive ahead of Friday’s crucial NFP. Let’s quickly analyze fundamentals.
Disappointment Dragged The USD While EUR Had Better Week
Contrast to the US Dollar, which suffered the loss due to sudden change in Trump administration, downbeat economic data-points and Fed Chair’s refrain to offer any monetary policy signals at Jackson Hole, the EUR managed to enjoy better week mainly because of upbeat PMIs and ECB President’s capacity to praise latest economic developments in the region and talking down strength of the EUR.
The GBP, however, couldn’t shine much with no change in its GDP figure and slow progress in Brexit developments while Gold and JPY remained strongly backed by safe-haven demand even if the BoJ President kept supporting loose monetary policy at global central bankers’ meet. Further, AUD portrayed sluggish moves due to absence of major event/details to observe but the NZD declined as New Zealand’s pre-Election Economic and Fiscal Update (PREFU) forecast a bit softer economic numbers to appear while going forward. Additionally, Canadian Dollar (CAD) justifies upbeat data-points with strong gains but the Crude prices couldn’t respect weak inventory details and dropped for fourth consecutive week.
So Far A “Good” Week For The USD
Even if Harvey the hurricane caused considerable damages to the US economy, mainly to oil refineries, and the North Korea fired a missile over Japan, the US Dollar seems having a good week till now. The reason was, US President’s surprisingly measured response to the hermit kingdom’s unacceptable behavior and strong GDP and ADP figures.
On the other hand, the EUR couldn’t sustain its uptick beyond 1.2000 psychological magnet, activated due to expected harsh response from US on North Korea’s missile fire, whereas GBP witnessed some pullback ahead of Friday’s UK Manufacturing PMI. Moving on, commodity currencies, like AUD, NZD and CAD, couldn’t confront stronger USD while JPY and Gold also had to comeback from their considerably high levels. Moreover, Crude prices remained sluggish and are heading towards fifth consecutive weekly decline even after witnessing more than expected decline in US stockpiles as Harvey’s damage to Oil industry shifted demand forces towards Gasoline.
EU CPI, US Core PCE and NFP Are On Traders’ Watch-List
Having witnessed upbeat figures of US GDP and ADP Non-Farm Employment Change, investors would closely observe Thursday’s Core PCE Price Index, the Fed’s preferred gauge of Inflation, followed by Friday’s Jobs report to determine near-term USD moves. On the other, upbeat result of China’s official PMI and a sluggish Japanese Industrial Production seems to have muted impact on early Thursday when the EU Flash CPI is also scheduled for release.
In addition to the aforementioned headline data-points, Thursday’s Canadian GDP, US Chicago PMI & Pending Home Sales, followed by Friday’s Chinese Caixin Manufacturing PMI, UK Manufacturing PMI & US ISM Manufacturing PMI might offer intermediate market moves.
While US Jobs report impressed greenback Bulls during its prior release, forecasts concerning this week’s announcement aren’t so optimistic. The NFP might register 180K mark, which is below 184K average for 2017 and 209K prior, while the Average Earnings are likely to revisit 0.2% growth figure by declining from 0.3% mark but the Unemployment Rate isn’t expected to change from 4.3%. Further, no change is forecasted in 0.1% Core PCE Price Index but Pending Home Sales could weaken by registering 0.6% growth from 1.5% prior. Additionally, Chicago PMI may offer intermediate strength to the US Dollar with 59.6 number against 58.9 marked in previous month whereas ISM Manufacturing PMI may join earlier PMI with 56.5 number against 56.3 prior.
Looking at the latest slew of upbeat US data-points, notably the CB Consumer Confidence, GDP and ADP, coupled with surprisingly calm attitude of US President on North Korean action, chances of the US Dollar to repeat the “on and off” pattern by posting a weekly gain are too high. However, Employment details and Core PCE might spoil the positive sentiment if flashing extreme negative outcomes.
Moving forward, EU Flash CPI may please the EUR Bulls, as the inflation gauge is expected to rise to 1.4% mark from 1.3%, which in-turn indicates brighter chances for the ECB’s autumn discussion on rate-hike to result in a positive announcement soon. In case of the UK Manufacturing PMI, the story is a bit different as the manufacturing gauge may remain almost unchanged with 55.00 figure versus 55.1 earlier result. Additionally, Caixin Manufacturing PMI might print 51.0 mark compared to 51.1 prior while Canadian GDP could keep hurting CAD with 0.1% growth versus 0.6% previous.
Although EU Flash CPI is likely to help the EUR, present mood at the trading desk isn’t favoring the logic as the regional currency has already rallied too much and is now on the pullback side. In case of the GBP, slow progress of Brexit developments and disappointed data-points can hurt the UK currency whereas commodity currencies, namely AUD, NZD and CAD, may have to bear the burden of stronger USD unless specific economics trigger individual currency’s up-moves.
While failure to sustain its rally beyond 1.2000 dragged EURUSD towards south, the pair is likely to witness additional downside towards 1.1830 and the 1.1740 with 1.2000 and the 1.2130 being important near-term resistances. Talking about GBPUSD, a daily close beyond 1.2970 is required for the pair to flash 1.3050 on the chart but a break of 1.2830 can fetch prices to 1.2770. Furthermore, USDJPY is heading towards 50-day & 100-day SMA confluence region of 111.15 with 109.50 & 108.30 being adjacent supports whereas USDCAD needs to surpass 50-day SMA level of 1.2710 in order to challenge 1.2780 without which it can revisit 1.2450-40 support-zone. Moreover, AUDUSD rests at immediate ascending trend-line support of 0.7880, breaking which it can test 50-day SMA level of 0.7830 and the 0.7780 supports while 0.8000 could continue limiting its upside. At the end, NZDUSD may find it hard to stretch its south-run below 200-day SMA level of 0.7130 and can bounce-back to 0.7300.
Have a nice trading-day ……