Weekly Fundamental Dose: 05 – April – 2018
While US-China trade tensions have been threatening market optimism off-late, recently sluggish economic data-points from US & UK, contrast to strong EU CPI numbers, shifted the investors’ attention back to respective central-banks’ upcoming policy moves. As a result, slew of headline data-points from UK & US, namely British Services PMI & US NFP, coupled with speeches by Fed & BoE Chiefs, now become crucial for market players to follow.
Let’s discuss fundamentals concerning this details/events.
FOMC Members & US GDP Helped the Greenback
During last-week, strong outcome of US Q4 2017 GDP and hawkish comments from some FOMC members, together with improved relations with North Korea, helped the greenback to recover latest losses and mark a positive weekly closing. As a result, the EUR & GBP, which had very numbers to watch, ended up posting a negative week while JPY & Gold also witnessed pullback in safe-haven demand due to the USD’s strength. Further, currencies of the export-oriented economies, namely the AUD, NZD & CAD, remained sluggish with trade-war pessimism whereas Crude prices also dropped on increased US stockpile.
The Tale of Holiday Shortened Week & Trade War Concerns
Even if speculations for increasing pace of Fed rate-hike & better US-North Korean relations favored the USD in last-week, the greenback couldn’t sustain those gains so far during the present week as Mr. Trump presented details of nearly $50 billion additional tariffs on Chinese products, which was later on retaliated by the China with notice of preparing the list encompassing same magnitude of tariffs on the U.S. products. Moreover, some of the second-tier stats, namely ISM Manufacturing & Non-Manufacturing PMIs, Factory Orders and ADP Non-farm Employment Change, have also missed their marks and provided additional weakness to the US Dollar Index (I.USDX).
On the other hand, majority of the global markets were closed on Monday due to Easter holidays but when came back to Tuesday they recovered their prior week losses due to USD’s drop. Those moves then gained strength when UK Manufacturing PMI registered upbeat reading, which later on was challenged by soft Construction PMI, while strong EU Flash CPI unearthed the ECB’s rate-hike bets. Further, AUD, NZD & CAD also strengthened on greenback’s weakness & positive developments at NAFTA front while JPY & Gold regained risk-averse traders’ attention. However, Crude prices couldn’t reverse its downturn on fears concerning higher US stockpile and expected increase in the production.
The Turn In US-China Tensions & Economic Calendar Seem In Lime Light From Now
On late-Wednesday, US authorities conveyed their openness to talk with China in order to avoid any such tariffs being recently released, which in-turn provided fresh life to the USD on early Thursday against majority of its counterparts. Also, NAFTA talks seem coming to a good point from where all the three partners, namely US, Canada & Mexico, can benefit and the same helped boost investor confidence.
Moving on, today’s UK Services PMI & Trade Balance for US & Canada are likely to remain highlighted for the day before pushing analysts to observe tomorrow’s US NFP, followed by speeches from BoE & Fed leaders.
Starting with the UK Services PMI, the headline gauge is likely to post 53.9 mark against 54.5 whereas US Trade deficit might increase to -56.9B from -56.6B prior. The Canadian Trade Balance can also flash increased deficit of -2.1B compared to its -1.9B earlier. In case of US Employment stats, the NFP may disappoint the Bulls with 190K figure versus 313K previous but the drop in Unemployment Rate to 4.0% from 4.1% and the increase in Average Hourly Earnings to 0.3% from 0.1% could help soothe the greenback’s pains. In addition to the US jobs numbers, the Canadian Employment details are also scheduled for release tomorrow wherein the Employment Change could increase to 18.8K from 15.4K but the Unemployment Rate isn’t likely to deviate from 5.8% mark.
If we observe the speeches by Fed & BoE heads, the BoE Governor, Mark Carney is scheduled to speak at the International Climate Risk Conference for Supervisors, in Amsterdam whereas his US counterpart, Jerome Powell, is ready to appear at the Economic Club of Chicago. While Fed Governor is likely to maintain his hawkish stand, considering economic improvement, he can discuss the trade-war tensions and may end-up hurting the greenback. On the contrast, BoE Governor is less likely to be loud mouthed and favor another rate-hike which majority of market players are expecting at the moment.
To sum up, the recent turn in US-China relations and not so worrisome employment details could help the USD to extend its up-moves if Mr. Powell reveals his favor for increased pace of Fed rate-hike while GBP may have to take a loss if Carney refrains to discuss the chances of rate-lifts by the central-bank.
Further, the EUR can continue its latest recovery on CPI while commodity-linked currencies, namely AUD, NZD and CAD, are more likely to depend upon the USD’s moves than the trade-war developments which recently have soothed. Though, Canada’s employment details may be off greater importance to watch.
EURUSD is likely declining towards longer-term TL support of 1.2220, breaking which 100-day SMA level of 1.2140 should gain bears’ attention while 50-day SMA level of 1.2340, followed by 1.2420, can entertain counter-trend traders. GBPUSD is gradually rising towards 1.4150 and the 1.4210 with 1.4020, the 1.3985 and the 1.3920 seem nearby supports to watch during the pair’s dip. Further, USDJPY is struggling with 50-day SMA level of 107.10, breaking which it can rally to 107.90 while inability to surpass the same can reprint 106.00 & 105.30 on the chart. Additionally, AUDUSD has to clear 0.7740 in order to meet the 100-day SMA level of 0.7780 else chances of its drop to 0.7650 & 0.7610 can’t be denied whereas NZDUSD is running towards 0.7335 and the 0.7355 with 0.7250 & 0.7200 being immediate rest-points to observe. At the end, USDCAD has 50-day SMA level of 1.2730 and the 100-day SMA level of 1.2690 to conquer if it is to extend the present south-run otherwise it can witness pullbacks till 1.2800 & 1.2860 resistances.
Have a nice trading-day ……