Weekly Fundamental Dose: 10 – May – 2018
Even if US decision to back out of the nuclear deal with Iran & RBNZ’s surprisingly dovish message have already played their roles, not to forget about mixed economic releases from major developed countries, the present week still has some crucial events to propel global market moves, namely the BoE & US CPI. Additionally, Geo-political factors concerning Iran’s reaction to the latest blow and political deadlock in Italy, together with sluggish NAFTA talks, could keep entertaining momentum traders.
While important details/events are lying ahead for global investors to observe, it’s better to discuss what’s happened recently before jumping on the fundamental forecasts.
Optimism Favored The Greenback For One More Time
Expected monetary policy divergence between the Fed & rest of the major central-bankers have again started fueling the US Dollar when sluggish data-points have tamed down the talks of ECB & BoE’s monetary policy tightening. As a result, the US Dollar Index (I.USDX) managed to post third consecutive weekly advance while EUR & GBP had to bear the burden of pessimism. On the other hand, rise in USD served as a negative point for the commodity basket, including Gold, that dragged the AUD, NZD & CAD towards south. Further, the JPY remained mostly unchanged during Golden week holidays while the Crude surged before the scheduled announcement of US decision on whether it will respect the present accord to leave Iran sanction-free in exchange of no nuclear test from the Middle East nation or not.
Announcements & Statements Recently Ruled Trading Desks
Having witnessed sustained market support for the USD, greenback buyers faced a bit negative news at the start of the week when US-China talks failed to bridge the gap between world’s two largest economies. However, U.S. President Donald Trump’s announcement to levy fresh sanctions on the Iran & dump the 2015 deal, coupled with Fed Chair’s firm commitment to gradual rate-hikes, continued showing the political & economical strength of the U.S. that has been helping the greenback to extend it rise so far in the present week.
The EUR continued trading on the weaker side due to Germany’s disappointing details & Italy’s political deadlock but the GBP recovered some of its latest loses after coming back from the May-day holiday & witnessing upbeat Halifax HPI. The JPY & Gold couldn’t confront the USD’s strength but the CAD took benefit of the Crude’s rally on Iranian sanctions. However, there was no relief for the AUD due to RBA’s softer stance while the NZD plunged on RBNZ’s surprise dovish message indicating uncertainty on its next rate-change & cut to the economic forecasts.
Super Thursday & Active Friday Ahead
Notwithstanding the USD’s considerable rally, the GBP has already started showing its dissent to bend down but has yet to receive strong messages from the Bank of England (BoE) in Thursday’s monetary policy, which also included quarterly inflation report, to justify latest pullback. In case of US, the CPI is likely to gain heavy market attention on Thursday as well because the inflation gauge is already near the central-bank’s target and further rise may warrant increased pace of rate-hikes from the Fed. Moving on, Friday’s Canadian Employment details & US Prelim UoM Consumer Sentiment are some other data-points to entertain market-players.
Starting with the BoE, the central bank did reveal its favor for monetary policy tightening in its February QIR release and also revised the GDP forecasts upwards while letting the Inflation & Employment predictions broadly unchanged. However, the economic scenario has changed since then and now warrants the team Carney to stand pat in search of greater strength before signaling any further monetary policy moves.
For US Inflation readings, monthly figures for both the CPI & Core CPI haven’t been good as the former dropped to -0.1% & the latest remained unchanged at 0.2% during its latest release. Though, YoY figures have been welcome sign that the Fed may have to increase its rate-hike pace with the CPI rallying to 2.4% & Core CPI marking 2.1% stat. Forecasts suggest, the CPI to reverse its -0.1% MoM loss with +0.3% gain & rise to 2.5% on yearly basis with the Core CPI likely remain static at 0.2% on MoM & expected to increase to 2.2% on YoY.
Shifting to the Friday, Canadian Employment details may hurt the CAD’s recent recovery if matching the 17.8K forecast against 32.3K prior for Employment Change & reprint the 5.8% Unemployment Rate. Moreover, US Prelim UoM Consumer Sentiment may show weakness in consumer confidence by posting 98.4 stat against 98.8 prior.
At the Geo-Political front, US still has 180 days as per law before it can actually levy sanctions on the Iran and if any intermediate deal is signed during that time then the present upheavel may soothe. Also, Robert Mueller’s investigation of Trump administration has been itching Mr. Trump and may offer something negative for the USD while political deadlock in Italy, which may require another general election, coupled with sluggish NAFTA & Brexit talks, could keep making analysts busy.
Although the BoE isn’t expected to alter its present monetary policy, disagreements among the policymakers & upward revision to forecast may signal the central-bank’s readiness to offer another rate-hike during this year and can fuel the GBP.
For the USD, rallying inflation can push the Fed towards increasing rate-hike pace, whcih in-turn may strengthen the greenback, but Geo-political problems may keep prices under check. Further, the CAD could witness profit-booking on weaker job results; though, rising crude prices might confine the Loonie’s larger drawdown.
EURUSD’s break of ten-month old ascending TL, at 1.1900 now, signals the pair’s plunge to the 1.1770, the 1.1725 and then to the 1.1780-90 support-area whereas an upside break of 1.1900 can help it revisit the 200-day SMA level of 1.2020. The GBPUSD is struggling around the 200-day SMA level of 1.3540 within a range between the 1.3480 and 1.3620 while USDJPY again aims to confront the 110.20 & 110.80 with 109.00 TL & 100-day SMA level of 108.55 being adjacent supports to watch during its pullback. Further, the USDCAD has 1.2685, including 100-day SMA as important near-term support whereas 1.2950 & 1.3010 can confine the pair’s immediate advances. At last, AUDUSD’s bounce off the 0.7400 had to surpass the 0.7500 mark in order to aim for 0.7550 otherwise it can come down to 0.7400 & 0.7370-65 but the NZDUSD’s drop beneath the 0.6955-45 support-zone indicates the pair’s south-run to 0.6870 & 0.6870.
Have a nice trading-day ……