Weekly Fundamental Dose: 09 – August – 2018
Having witnessed market reactions to the Geo-political plays concerning global majors, not to forget the RBNZ & Chinese inflation numbers, investors may now shift their attention back to economic calendar that holds headline stats from US, UK & Canada. It should also be noted that fears emanating from Sino-US trade tussles, US-Japan meet and present political pessimism could also keep proving their significance going forward.
Let’s first understand the present market scenario before jumping on the forecast part.
Hawkish FOMC Helped The USD
While BoE Governor’s dovish remarks after the rate-hike & BoJ’s sustained favor to loose monetary policy played their roles to drag the GBP & JPY respectively, the US Dollar benefited from FOMC’s hawkish outlook towards world’s largest economy favoring gradual rate-hikes. As a result, the US Dollar Index (I.USDX) managed to ignore softer than expected NFP whereas EUR had to forgo upbeat CPI as ECB refrained from offering rate-hike signals until September 2019 during its latest meeting. In case of commodity-linked currencies, the AUD & the NZD kept declining against the broadly stronger USD that negatively affected commodity basket and there were few weak economics at home but the CAD took advantage of positive Canadian numbers. Moreover, the Crude prices also traded southwards as surprise hike in US inventories and receding tensions from Saudi Arabia’s halt to shipments through Red Sea disappointed energy traders.
Geo-Politics & Trade-War Entertained Investors This Week
During early-week, China announced its readiness to levy 25% tariffs on the $60 billion worth of U.S. goods if Mr. Trump goes ahead with his threat of hurting China’s $200 billion exports. In retaliation to this, the U.S. President Donald Trump said he has an upper hand in trade-tussles with China, which Beijing newspapers mocked, and also released the list of additional $16 billion worth of goods to have extra-tariffs starting in next two-week. Chinese authorities also announced $16 billion goods’ list to counter US attacks on its trade-system. The tit-for-tat between US & China kept entertaining market-players but PBOC’s efforts to curb Yuan’s plunge helped AUD and commodity-basket to a certain extent.
On the other hand, Saudi Arabia cut all its future trade & investment talks with Canada, called back their ambassador & gave a day’s time to Canadian officials to leave the kingdom after the nation demanded release of jailed rights activists, including one Canadian citizen, in the kingdom. However, the kingdom later said the same won’t affect its energy export accord with Canada. Furthermore, U.S. Secretary of State Michael Pompeo warned against turning down the North Korean sanctions after evaluating that the hermit kingdom hasn’t actually met the U.S. demands agreed during June month’s Singapore summit while the U.S. levied extra sanctions on Iran. Hence, active Geo-political plays & Sino-US trade tussles were in lime-light during present week.
On the economic side, RBA & RBNZ refrained to alter their present monetary policies wherein the later shifted back such speculations for two-year and caused heavy losses to the NZD. Though, the AUD managed to remain strong due to improvements at China, it’s largest consumer. The Chinese economic calendar flashed some welcome signs in the form of good export growth and higher CPI but soft PPI and US trade protectionism kept being negative for them. Further, the GBP plunged because of expectations favoring the UK’s exit from European Union at predetermined time even without any deal while the EUR took advantage of recovery in German figures and the region’s recent ability to strike positive trade-deals with the U.S. Additionally, the US Dollar jumped between gains & losses on dearth of headline data-points and bargain hunting at global trade front but the JPY remained strong as Geo-political pessimism & speculations concerning the BoJ’s hawkish efforts to come soon kept favoring the Japanese currency’s demand. At the end, Crude prices dropped as global trade-protectionism, better than forecast US stockpile and increasing supply from Middle East put a downward pressure on energy front.
Economic Calendar To Regain Market Attention
With the economic calendar likely flashing important details such as US CPI, PPI, UK GDP and Canadian employment numbers, investors may shift their attention back to the details/events rather than giving major importance to qualitative factors. Additionally, Japanese policymakers will meet their US counterpart on Thursday to discuss future trade-ties after EU managed to please Mr. Trump whereas developments concerning aforementioned Geo-political catalysts could also play their roles.
First things first, i.e. Japan-US meeting, the Japan is likely to try harder to please Mr. Trump to avoid barriers for its cars when US levies tariffs to safeguard its automobiles but has to fend off bilateral trade demands from the Trump administration. If the talks go well, the JPY would gain further while USD may have limited profits to flaunt.
Moving towards other details, Thursday’s US PPI is less likely to please greenback bulls as the factory-gate inflation numbers is expected to soften to 0.2% from 0.3% prior on MoM and remain unchanged at 3.4% on YoY. The Core PPI also shows the same indication of 0.2% against 0.3% on monthly basis and no change of 2.8% yearly figure.
On Friday, UK GDP, Manufacturing Production & Goods Trade Balance will be the first to please momentum traders. The Prelim GDP for Q2 2018 may witness soft growth figure of 0.2% from 0.3% prior and the same can support BoE Governor Mark Carney’s view favoring fewer rate-hikes and Brexit pessimism while Manufacturing Production growth may weaken to 0.3% from 0.4% earlier but the Goods Trade Balance can flash -11.9B stat versus -12.4B prior.
After UK data-points, US headline inflation stat, CPI, and the Canadian employment stats will gain market attention. The U.S. CPI managed to please rate-hike optimists on yearly outcome of 2.9% but the MoM figure retraced a bit to 0.1% from 0.2%. The same applies to Core CPI that surged to 2.3% from 2.2% YoY but remained unchanged at 0.2% on monthly basis. For the Friday’s releases, the monthly CPI mark can regain its 0.2% status and the YoY gauge may rise to 3.0% whereas Core CPI is expected to reprint earlier stats of 0.2% & 2.3% on MoM & YoY basis respectively. Last but not the least, Canadian Employment stats, on Friday, signals Employment Change to weaken to 17.5K from 31.8K while Unemployment Rate may dip to 5.9% from 6.0%.
US inflation numbers are likely to keep supporting the Fed’s gradual rate-hike approach unless being drastically down, which in-turn can help the USD; however, US trade-spat with China and recent sanctions on Russian & Iran, together with on-going talks with Japan, may keep checking the greenback’s rally.
Further, the JPY can benefit from Geo-political pessimism & successful US meeting, if any, whereas GBP may have to witness further downside if scheduled numbers flash soft marks. In case of AUD, NZD & CAD, efforts by Chinese central-banks can help them calm the Bears a bit but disappointments from domestic stats can keep showing their weaknesses.
EURUSD’s bounce off the 1.1530-25 support-zone isn’t a sign of its reversal unless it clears the 50-day SMA level of 1.1670, followed by the descending trend-line, at 1.1705 now. Hence, the pair’s pullback to 1.1530 and then to the 1.1500 become more expected with 1.1450 being consecutive supports to watch. Same is the case with AUDUSD, which recently surpassed the 50-day SMA but yet to conquer the 0.7495 TL & the 0.7525 figure, comprising 100-day SMA, that in-turn signal brighter chances for the pair’s dip to the 0.7370, the 0.7345 and the 0.7300 rest-points. Further, the GBPUSD seems all set to test 1.2780-70 region till it trades beneath the 1.3050-60 resistance-area, which if broken can fuel the quote towards 1.3165-70 resistance-zone. Moving on, the 100-day SMA level of 1.2960 and the 50-day SMA level of 1.3115 can keep restricting the USDCAD’s near-term moves whereas NZDUSD’s break of 0.6670 is likely fetching the quote to 0.6600 and the 0.6540 supports while an upside clearance of 0.6670 can help witness 0.6710 & 0.6745 on the chart. Finally, USDJPY has to provide a D1 close beneath the 50-day SMA level of 110.85 in order to visit 110.55 and 110.25-20 support-zone else its recovery to 112.00 & 112.15-20 can’t be negated.
Have a nice trading-day ……