Weekly Fundamental Dose: 07 – June – 2018
Although Friday’s US NFP helped the greenback to avoid a plunge by last week, improvements in global fundamentals, tech-shares’ rally and ire over US trade protectionism seem playing their roles in dragging the US Dollar down so far during the present week. As a result, the upcoming G7 summit at Quebec will become the hot topic as major industrial nations have already signaled this gathering to be a six plus one other kind due to Donald Trump’s trade tariffs. In addition to the G7 summit, Canadian Employment report and Chinese Inflation numbers will also become crucial to observe for rest of the week.
Having said what could gain market attention going forward, it’s better to check the background and fundamentals concerning the same.
NFP Became A Savior For The US Dollar
While receding political tensions at Italy & Spain, coupled with Donald Trump’s pressure on Steel & Aluminum tariffs hurt the US Dollar till late last-week, Friday’s strong employment report helped the greenback gauge (I.USDX) to recover some of its losses and closed near to the week opening. On the other hand, the EUR was very volatile due to political drama at Italy & Spain, which ended positively, and upbeat CPI but failed to register weekly gains as ECB’s recent dovish stand kept being a big negative for the regional currency. Further, JPY benefited from rising Geo-political tensions but the Gold couldn’t withstand strong US fundamentals whereas GBP stopped its south-run on welcome economics. Moving on, the AUD, NZD & CAD took advantage of the USD’s decline helping commodity basket & positive Chinese stats whereas Crude marked second weekly loss on growing concerns for rising US output and dialing back output-cut accord between OPEC & non-OPEC Oil producers.
The Tale of Trade Protectionism & Equity Rally
With the political problems at EU finally settling down after a long time, investors concentrated more on the economic improvement at global leaders, which in-turn triggered an equity rally and made currencies a bit despicable. However, that didn’t reduce the importance of US trade protectionism that gained major industrial nations’ anger. Due to this, the US Dollar has been on a negative side since the start of the week even after registering positive prints of second-tier economics.
When USD was bearing the fruit of Mr. Trump’s “America First” agenda, the EUR registered noticeable upside when a top-tier ECB member said that the central-bank will very soon announce end of its monetary easing. Moving on, the GBP also gained on strong Services PMI but the JPY lagged on not so welcome stats. Furthermore, the Gold managed to remain strong ahead of the likely tension-filled G7 while AUD and NZD marked green signs on welcome data-points and weaker US Dollar. Moreover, the CAD also remained positive but couldn’t rise as much as NZD & AUD because of the Crude’s decline based on surprise increase in US inventory.
All Eyes on G7
As its only a day away from the much anticipated two-day gathering of global industrial leaders, the G7 summit, investors are all examining chances of what could go wrong and how Forex market can portray those updates when ex-US members are likely to show their anger over the trade protectionism.
Not only market-players, global political leaders are also actively taking interest in the subject as they wished to see how Mr. Trump could confront his allies when nobody is happy with US trade tariffs.
To give some background of the situation, US President Donald Trump levied Steel & Aluminum tariffs on Canada, Mexico & EU during last-week after giving them some time off the same levies from initial announcement. With this, leaders of EU, Canada & Mexico have shown their readiness to retaliate against such measures and discuss the same when they meet Mr. Trump in G7. Some of them, namely Canadian PM Justin Trudeau and French President Emmanuel Macron have become harsh opponents of US policies and grabbed headlines so far during the present week.
China, which isn’t a member of G7, has also shown its anger over the US protectionism and warned to cancel all the trade promises made so far if the world’s largest economy continue marching on its trade tariffs. Moving on, Japanese President is meeting with US counterpart on Thursday to seek permanent exemption from US tariffs & get the hint of what Mr. Trump propose to discuss when he meets North Korean leader Kim Jong Un in Singapore during next week.
Latest developments from the trade front says US President is ready have one-to-one meet with his Canadian & French counterpart to discuss the trade issues but refrained to put the gun down. On the other hand, China is ready to import more than $25 billion of US goods to tame the present trade-tensions between the world’s two largest economies in return of favor to the ZTE.
All in all, global political leaders, mainly from the Canada, EU & France, are likely to show their resentment with US when they meet during Friday & Saturday while China is also trying to tame the Trump’s “America First” agenda.
Other than G7, Chinese Trade Balance and monthly employment report from Canada, up for Friday, followed by Saturday’s Inflation numbers from China, are likely being important to watch. It should also be noted that developments concerning Trump-Kim summit at Singapore are going smooth and catches less observers.
Among them, China’s Trade Balance could please commodity buyers with 238B surplus figure against 183B prior. Canada’s Employment Report become even more important this time as BoC has recently been hawkish and a strong number could signal another rate-hike from the Canadian central-bank. Forecast suggest, a +19.1K mark for Employment Change against -1.1K earlier while Unemployment Rate isn’t likely to alter from 5.8%. In case of China’s Inflation numbers, the CPI isn’t expected to change from 1.8% on a yearly basis whereas the PPI might please the Bulls with +3.9% mark against +3.4% previous print.
To sum up, G7 will undoubtedly be at center of market attention for rest of the week wherein US President Donald Trump’s ability to please his close allies will be tested. In case Mr. Trump fails to gain confidence of the rest G7 members, USD might have to decline further, which in-turn could be positive for JPY, EUR & commodity currencies. Moreover, welcome economics from Canada & China can infuse additional strength into the AUD, NZD & CAD.
EURUSD again aims for the 1.1845-50 resistance-region, breaking which 1.1940 and 1.2010-15 could appear in the Bulls’ radars to target while the 1.1720, the 1.1660 and the 1.1570 can offer nearby rests to the pair during its U-turn. Further, the GBPUSD has to clear the 1.3480 barrier to visit the 200-day SMA level of 1.3585 else it can come down to re-test 1.3300 & 1.3230 while USDJPY is finding it hard to conquer 200-day SMA level of 110.20, which can fuel it to 110.80 & 111.40, and may dip to 109.30 & 108.75 if the weakness persists. Moving on, AUDUSD aims for 0.7680 & 0.7730 with 0.7600 & 0.7560 being immediate supports whereas NZDUSD has 0.7090 & 0.7125 as resistances to watch unless it trades beyond 0.6980 support. At the end, USDCAD has 1.3100 & 1.2850 as important levels with either side breaks indicating 1.3180 & 1.2800 to appear on the chart.
Have a nice trading-day ……