Weekly Fundamental Dose: 08 – February – 2018
Having witnessed the worst-day in history for Dow Jones Industrial Average Index, followed by its gradual recovery, global investors are all waiting for the upcoming Quarterly Inflation Report (QIR) from the Bank of England as “Super Thursday” mood is gaining momentum. However, it isn’t the only thing that could keep entertaining investors for the rest of the week because China’s inflation numbers, UK’s Manufacturing Production & Canadian Jobs report are there to observe for tomorrow.
Let’s take a look on what’s happened and discuss fundamentals concerning the aforementioned details/events.
Employment Details Proved To Be Savior For The USD
While talk of monetary policy alterations at the ECB & the BoJ provided noticeable damages to the US Dollar during previous three weeks, strong wage growth and upbeat NFP rejuvenated concerns for increase in Inflation and more rate-hikes from the Fed at the end of last-week, which in-turn helped the greenback to post its first positive weekly closing in earlier four. As a result, the EUR and the JPY had to decline whereas rising USD triggered profit-booking of the commodities that dragged AUD, NZD and CAD towards south. Further, GBP couldn’t enjoy optimistic testimony of the BoE Governor due to downbeat PMIs while Gold witnessed dearth of safe-haven demand on account of rising investor bets favoring the US Dollar. Additionally, Crude prices also weakened with higher US stockpiles and rig counts challenging the recent positivity among energy traders.
Wild Market Moves & Greenback’s Sustained Strength
Friday’s surge in U.S. Treasury yield, followed by the USD’s up-move, wasn’t a one-day affair as global equity markets registered heavy draw-down on Monday based on the expectations that more US rate-hikes could hurt the multi-year high equities. With this, USD and JPY rallied across the board while rest of the currencies had to take the losses wherein commodity-liked currencies, like AUD, NZD and CAD, were bitterly hurt. The GBP had an additional burden in the form of weaker than expected Services PMI that dragged it southwards whereas EUR couldn’t confront the strong US currency. Moreover, the Gold couldn’t justify rise in safe-havens because of strong US Dollar while Crude had to become the victim of commodity selling.
BoE Takes The Center-Stage Of Attention For Now
With every action following a counter-action, market sell-off also witnessed a bit of relief on Tuesday. Though, it couldn’t last long as Wednesday’s strong comments favoring the Federal Reserve’s rate-hike by some of the FOMC members accelerated the USD’s north-run and adversely affected rest of the Forex market. With this, commodity frontier again got a punch in the face that dragged the Gold and Crude towards south whereas dovish RBNZ announcement, postponing a rate-hike time-frame and target to achieve the inflation, followed by news of higher US production and disappointing stockpile details, became additional negatives.
While concerns that the Federal Reserve could accelerate its tightening schedule this year gain much of the market attention till now, Thursday’s monetary policy meeting by the Bank of England, which comprises quarterly inflation report (QIR) and economic forecasts, become the eye-candy of analysts on Thursday.
During its latest QIR release in November, the BoE inflated the GDP and Inflation forecasts for the near-term while cutting down unemployment expectations. However, the inflation softened recently and the GDP rallied while unemployment remained unchanged then after.
Considering the recent changes in UK economics and rising GBP, the BoE Governor is more likely to praise the Sterling’s performance and may even emphasize on the currency strength’s ability to push the central bank towards another rate-hike after it announced once in a decade lift late last-year.
Hence, while BoE is more likely to turn out as a positive event for the GBP, be it expected hike in economic forecasts or hawkish words from Governor Carney, any disappointments could have higher repercussions as market players are already aiming central-bank’s rate-hike by mid of this year and absence of signals supporting the same could make the recent decline in the Pound stronger.
Other than the BoE, Friday’s headline Inflation releases from China, UK’s Manufacturing Production and Canadian Employment report are some additional data-points that may entertain global traders for the rest of the week.
Following its surprise miss of the Trade surplus, China’s inflation numbers are also expected to add pessimism for commodity players. The CPI might register 1.5% mark against 1.8% prior while PPI could flash 4.3% numbers compared to 4.9% earlier.
Moving on, UK Manufacturing Production growth is likely to soften to 0.3% from 0.4% prior while the Goods Trade Balance may reveal shrinking deficit of -11.5B against -12.2B earlier.
At the end, Canadian employment details may not please the Loonie traders as the Employment Change is expected to flash +10.3K mark versus +78.6K earlier and the Unemployment Rate might also increase a bit to 5.8% from 5.7% previous mark.
In case of politics, US senate leaders announced a two-year budget agreement worth of nearly $300 billion of additional funding on Wednesday to avoid frequent government shutdown crisis. However, the same needs to be approved by the House of Representatives and the Senate in order to reach the President for being a law. Moreover, Brexit front and the German play of politics to satisfy coalition members could continue offering intermediate market moves.
Given the recently soft Chinese data-points, dip in inflation could provide additional weakness to the commodities’ front, which in-turn could negatively affect the AUD, NZD and CAD, whereas disappointing Canadian job numbers may weaken CAD more.
Further, US political crisis are less likely to offer much drawbacks to the USD as this time both the political parties, namely Republican & Democrats, seem joining hands to make America better. Though, some democrats are still demanding ease of immigration laws to support the latest amendment while worrying about the budget deficit and may cause intermediate pullbacks of the USD.
Even after breaking the 1.2360 support, the EURUSD still has an upward slanting trend-line, around 1.2160-55, which may confine its further downside, breaking which it can come to 1.2080 while an upside break of 1.2360 can again fuel the pair to 1.2430 and then to the 1.2500. For GBPUSD, the 1.3830 and the 50-day SMA level of 1.3650 are strong support to watch with 1.4000 and the 1.4120 being important resistances to observe. Further, USDJPY seems struggling in a range of 108.30 and the 110.30 whereas USDCAD must clear 1.2600 on a daily closing basis in order to aim for 1.2720 otherwise it can come down to re-test 1.2400 mark. Additionally, AUDUSD might bounce off the 50-day SMA level of 0.7800 to 0.7870, failing to which can drag it further down to 200-day SMA level of 0.7745 while 0.7270 and the 200-day SMA level of 0.7140 are likely crucial levels for the NZDUSD traders.
Have a nice trading-day …..