Weekly Fundamental Dose: 02 – November – 2017
Even as welcome economic data-points from US & UK, coupled with almost a close choice of Fed Governor Jerome Powell as next Fed Chair, portrayed the market optimism during early-week, the once in a decade rate-hike from BoE and Friday’s US NFP now grabs investors attention. Additionally, announcement of US President Donald Trump’s tax plan and UK Services PMI might offer intermediate market moves.
Let us start discussing fundamentals concerning each one of them.
It Was Another Positive Week For The US Dollar
Be it upbeat economics or the speculations that next Fed Chair will be a hawk, needless to mentioned about Trump’s tax-plan & upbeat earnings from tech-giants, the US Dollar had all around positive news to flash another positive week on the chart. For the EUR, the same wasn’t true as problems in Spain and Catalonia met with the ECB’s tentative tapering to drag the regional currency toward south whereas GBP also declined even after witnessing upbeat GDP as the BoE’s much anticipated rate-hike is likely to be one and done case. Further, JPY registered gains after Shinzo Abe managed to achieve noticeable majority in snap election but the Gold had to bear the burden of stronger USD. Additionally, AUD dropped on disappointing inflation figure and the CAD adhered to the BoC’s dovish stand while NZD justified uncertainty surrounding new government’s plan to overhaul the economic and monetary aspects of the nation. However, the Crude prices refrained to respect the broader weakness in commodity basket with repeated favors to global production-cut supporting reduction in supply-glut situation.
Pullback In USD, Rising GBP And Volatile Markets Welcome The New Month
Having registered handsome gains during last week, the US Dollar witnessed some profit booking during the start of the week after the news broke that President Donald Trump’s former campaign manager is under charge by US authorities investigating possible Russian meddling in 2016 election campaign. However, the same couldn’t last long after the FOMC upgraded its economic assessment and reinforced December interest-rate hike. Though, the EUR still awaits a pullback because softer than expected Flash CPI restricted the regional currency moves but the GBP rallied considerably after upbeat Manufacturing PMI and optimism surrounding the Brexit. Moreover, AUD and CAD kept treading water WITH China’s sluggish PMI whereas NZD gained on better upbeat employment figures. The JPY lost some of its charm in front of the greenback but the Gold advanced during the crucial week which carries many important event/details while the Crude softened a bit on concerns of higher US production.
Everyone Awaits BoE’s QIR And US NFP For Now
As we arrive to the crucial Thursday when the BoE is all ready to announce its once in a decade rate-hike and the US President is also scheduled to reveal his choice of Fed Chair, in addition to House of Congress’ declaration of Trump’s tax-plan, majority of investors are eagerly waiting for the outcome. Furthermore, Friday’s NFP and UK Services are extra burden that analysts have to take care after tackling today’s events.
Starting with the US President’s choice for the next Fed Chair, it is almost clear by now that Fed Governor, Jerome Powell, will be at the helm of Federal Reserve after February. Mr. Powell has been supporting the present Chair and has never crossed her analysis. So, market players expected continuation of the Yellen-like rule even after her retirement.
In case of the Trump’s tax proposal, the House Ways And Means Committee is still struggling to describe how the deficit, due to tax cuts, would be funded and there are many other loopholes in the tax plan which needs to be resolved. Hence, any more delay or drastic alteration to the President’s promised guide could come out and hurt the USD.
Coming to the crucial component of Super-Thursday, the Bank of England (BoE)’s monetary policy meeting and release of Quarterly Inflation Report (QIR). While the rate-hike is almost given, investors would analyze the QIR and Mr. Governor’s language during press conference in order to determine chances of further such moves.
During its August QIR, the BOE revised down GDP & Inflation forecasts and expected labor market to improve and hence clues relating to the strength of the economy will be closely analyzed. Further, Mark Carney also has to sound optimistic about the MPC members’ assent to rate change and should convey likeliness to many such moves in the upcoming future in order to win the hearts of Pound buyers.
With the Fed’s next chair likely having same characteristic as the present one, uncertainty surrounding the Fed Chair’s economic outlook and the rate-hike have diminished. However, the tax plan is an issue for the USD traders to watch.
For the GBP, while the rate-hike is a known factor, the QIR should include upward revision to the economy and the BoE should also signal many such future moves in order to win confidence of the Pound buyers.
Now moving towards the Friday, early-day momentum is likely to be governed by the UK Services PMI, the lead indicator for the economy, which might hurt GBP Bulls’ bias with 53.3 figure compared to 53.6 previous. Though, expected improvement in US jobs report might boost the traders’ morale afterwards.
Forecasts suggests better employment report than the last month when NFP suddenly plunged into negative territory due to hurricane season. The Nonfarm Payrolls (popularly known as NFP) is likely to recover from -33K to 311K and the Average Earnings might soften to 0.2% from 0.5% prior while no change is expected to happen into the Unemployment rate of 4.2%.
Considering the political uncertainty, which is likely to hurt the greenback for short-term, Jobs report should register strong figures to let the USD sustain its previous month rally.
EURUSD continue trading below the 100-day SMA level of 1.1700 and indicate brighter chances of its drop to 1.1550 whereas USDJPY may struggle between 112.80 and the 114.50 region. Further, GBPUSD should clear the 1.3340 in order to meet 1.3410 until then chances of its re-test to 1.3110 can’t be denied while USDCAD’s inability to sustain 1.2900 break may fetch it to 1.2770. Moreover, AUDUSD seems heading to confront the 0.7750 with 0.7630 acting as nearby support but the NZDUSD’s recent recovery from 0.6820 may find it hard to clear the 0.6950 and the 0.7000 resistances.
Have a nice trading-day ……