Weekly Fundamental Dose: 08 – March – 2018
While political plays at EU, UK & US have been testing traders’ nerves since late last-week, now is the time when economic calendar, which comprises some top-tier catalysts like ECB & NFP, to regain market attention. In addition to ECB & NFP, monetary policy meeting by the BoJ, UK Manufacturing Production & Canadian Employment stats are some other details/events that could entertain investors.
Before discussing aforementioned factors, it would be better to go through what’s happened in global markets off-late.
Trump’s Protectionism Hurt The USD
It only took a single threat from the U.S. President Donald Trump mentioning his idea of imposing higher tariffs on steel and aluminum imports to reverse early-week gains of the USD, gain through hawkish testimony by the Fed Chair, and drag the greenback gauge (I.USDX) towards posting a weekly negative closing. As a result, the US Dollar dropped against majority of its counterparts on trade-war concerns whereas EUR benefited from Germany’s hard-earned grand coalition after months of efforts but the GBP couldn’t justify upbeat PMIs after UK PM Theresa May’s Brexit related speech failed to please the Pound buyers and the EU policymakers.
Further, the Gold and JPY were clear winners of the week as safe-haven demand and upbeat tone of the BoJ, favoring policy normalization, propelled both these avenues but the commodity-linked currencies, namely AUD, NZD and CAD, couldn’t take advantage of weaker USD due to risk-off market sentiment. Moreover, Crude also had to register a plunge as news of expectedly higher U.S. production & increased stockpile disappointed energy traders.
Political Plays Rule Trade Sentiment
Having witnessed a boost to trade-war concerns during last week, the present week momentum has largely been directed by political plays at EU, UK & US. At US, resignation of Trump’s top economic adviser, Gary Cohn, over his disagreement with Mr. President’s tariff idea, followed by White House announcement mentioning tariff plan to spare select countries, entertained momentum traders while Italy’s hung parliament and EU policymakers draft guidelines on EU-UK relations after Brexit fueled market moves.
In case of economics, strong reading of UK Services PMI helped GBP to recover some of its latest losses while softer AU GDP & dovish tone of the RBA weakened Australian Dollar. Moving on, better than forecast US ADP Employment Change recently started soothing USD’s pain whereas not so welcomed announcements from the BoC kept hurting the CAD. Additionally, China’s rising trade surplus and an increase in exports favored commodity basket during early Thursday.
Economic Calendar To Regain Its Importance
With the Trump administration’s latest report favoring a measured tariff plan for various countries and a 30-day grace period for Canada & Mexico, global investors seemed relieved of trade-war speculations for now. With this, analysts fraternity may now concentrate on upcoming important details/events to better gauge the market moves.
Among them, monetary policy meeting by the European Central Bank (ECB) is likely to rule Thursday’s trade sentiment whereas China’s inflation numbers, BoJ, UK Manufacturing Production & Jobs report from US & Canada could offer liquid sessions during Friday.
Starting with today’s ECB, the central-bank isn’t expected to alter its current monetary policy but might give hints for further plan of actions that is highly awaited by EUR Bulls. Though, there are many challenges for the ECB at present to consider before indicating policy normalization. This includes soft inflation, Trump’s tariff-plan and Italy’s political deadlock. Hence, it is likely that Mr. President, Mario Draghi, could wisely use words in order not to be too hawkish in favoring the rate-hike concerns while communicating challenges to the economy.
Moving on to Friday, early-day release of Chinese inflation, namely CPI & PPI, may confuse commodity traders as CPI bears the consensus of printing 2.5% mark versus 1.5% prior but the PPI is likely declining to 3.8% from 4.3%. Further, BoJ is also likely to follow ECB’s foot-steps and isn’t expected to offer any change to its present monetary policy as testimony from the Japanese central-bank have recently showed that policymakers prefer waiting for further signs of improvement in inflation before announcing any alteration in its mammoth bond-buying and ultra-low interest-rates. Looking at the UK details, Manufacturing Production to be slowed down to 0.2% from 0.3% prior while Goods Trade Balance likely flashing welcome figure of -12.0B compared to -13.6B earlier.
If we observe scheduled Job reports from US & Canada, the Canadian Unemployment Rate isn’t expected to change from 5.9% but likely increase in Employment Change, to 17.5K from -88K, could help the CAD while US NFP is likely to rise a bit to 201K from 200K, the Unemployment Rate may take a dip to 4.0% from 4.1% and the Average Hourly Earnings might soften to 0.2% against 0.3% prior.
Given the news of measured tariff plan from US, an increase in NFP, coupled with decline in Unemployment Rate, can further strengthen the rate-hike concerns and may support the USD. Though, any disappointments may have higher repercussions for the greenback as Trump’s trade-war threats have already making the US currency less appreciable by global peers.
In case of the EUR, ECB President might not chose to maintain his hawkish stand and can hurt the regional currency which is also likely to be compressed by political uncertainty at Italy. Further, the GBP has to keep receiving the boost from economic calendar in order to avoid downbeat Brexit progress whereas CAD has a scope to recover some of its latest losses if employment stat pleases the Loonie traders.
Moreover, improvements in Chinese CPI can help the commodity basket as recent Trade Balance numbers have given a hope to the AUD, the NZD and the CAD.
At last, JPY can maintain its strength but BoJ’s comments will be closely examined and any negative statements might not hesitate dragging the currency to south.
EURUSD’s sustained trading beyond 1.2360-70 needs to surpass the 1.2445-50 in order to challenge the 1.2530 otherwise it can come-back to 1.2360 & 50-day SMA level of 1.2265. For GBPUSD, the 1.3960 and the 1.4000 are likely nearby resistances to watch with 1.3865 & 1.3750 TL being important supports to observe. Further, USDJPY has 106.40 & 105.30 range while USDCAD seems confined between 1.2860 & 1.3000. Additionally, AUDUSD needs to clear 0.7840 TL resistance to meet the 50-day SMA level of 0.7895 otherwise it can re-test 0.770 & 0.7725 supports while NZDUSD has to break the 0.7215–0.7315 area to register momentum.
Have a nice trading-day ……