Weekly Fundamental Dose: 23 – August – 2018
Although FOMC minutes are already out and loud to help the USD recover some of its latest losses, headline EU PMIs, annual meeting of global financial leaders at Jackson Hole and political plays surrounding US & Australia are still left to propel market moves. Not only this, US New Home Sales, Durable Goods Orders and Japan’s CPI are some additional factors that investors might be interested in reading.
Let’s start discussing each of these catalysts in detail.
Trade Optimism Dragged The USD Down
Having registered noticeable gains in past few weeks, the US Dollar Index (I.USDX) finally marked a negative weekly closing during last-week as China’s readiness to initiate trade-talks with the U.S. after few months of block dimmed the greenback’s safe-haven appeal while mixed data-points dragged the currency gauge further towards south. As a result, the commodity-linked currencies, namely AUD, NZD & CAD, took a U-turn from their lows but the JPY & Gold became victims of risk-on market sentiment. Further, EUR & GBP surged as upbeat data-points outpaced Brexit pessimism while Crude dropped on increasing US inventories and worries concerning future demand at the time when trade protectionism is hurting global economies, especially China.
Political Backlash For Trump Added Weakness Into Greenback Before FOMC Minutes
While trade optimism was already weighing on the U.S. currency, news that US President criticized Fed’s role and two of Mr. Trump ex-political aides, namely former personal lawyer Michael Cohen and campaign chairman Paul Manafort, pleaded guilty on various counts, including hush-money paid to a playboy model, added weakness into the greenback since the week-start. However, the FOMC minutes offered a sigh of relief to USD optimists during early Thursday as the statement conveyed policymakers’ readiness to keep increasing interest-rates during the next-year if economy allows.
During early-week, the EUR benefited from the USD’s decline while GBP strengthened on speculations that UK will be able to secure a soft Brexit by October. Further, the NZD & the CAD enjoyed the US Dollar’s weakness and upbeat data-points at home but the AUD dropped as political trauma at the nation challenging PM’s status dragged the currency southwards. Though, JPY couldn’t avoid sellers as signals from BoJ officials still favor lose monetary policy but the Gold gained due to USD’s drop. Additionally, the Crude prices surged as readiness on the part of U.S. to release strategic reserves and surprise drop in inventories pleased energy traders.
At the political front, Turkey has a week-long break but still keep complaining of the U.S. behavior while China has also indicated displeasure with Mr. Trump’s trade-protectionism after witnessing 25% of tariff hike on another $16 billion worth of goods. Moreover, Iran is also against the US sanctions whereas EU is criticizing Russian behavior and pushes various global leaders to join in the punishments for the Vladimir Putin led economy.
Not Only Politics But Economic Calendar Also Heats-Up
Given the on-going low-level talks between the U.S. & Chinese trade ministers and political backlash for Mr. Trump and Mr. Turnbull being much anticipated news, slew of upcoming details/events could also offer busy trading sessions to market players. Among them, EU PMIs, Fed Chair’s speech at Jackson Hole Symposium, Japanese National Core CPI & US Curable Goods Orders are likely gain much of market attention.
Starting with the Thursday’s EU Flash Manufacturing & Non-Manufacturing PMI, both the headline economic gauges are likely to maintain their previous levels of 55.1 & 55.4 and hence are less expected to alter EUR moves unless registering extreme contraction to forecasts. After EU PMIs, monthly reading of US New Home Sales could entertain momentum traders on Thursday as the housing market indicator is likely flashing 643K mark compared to 631K earlier.
On Friday, Japan’s National Core CPI could start the day with positive news for the JPY Bulls if matching +0.9% consensus against +0.8% prior. After then, the U.S. Durable Goods Orders could become disappointment for the USD optimists as expectations favor -0.7% mark versus +0.8% previous but Core Durable Goods Orders, indicating +0.5% growth vis-a-vis +0.2% prior, could help limit the greenback’s downturn.
Even if investors feel satisfied with the moves offered by aforementioned factors, they won’t ignore Fed Chair’s speech at the annual gathering of global financial leaders taking place at Jackson Hole. The gathering becomes crucial as not only global central-bankers but some of the crucial financial market players also remain present at the event that has historically fueled trade-sentiments by offering hints of critical policy moves.
The event becomes even more important for the USD traders this time as Mr. Trump becomes the first President to show his resentment from Fed in public in nearly a decade. As a result, analysts will closely examine as to how the Fed Chair, Jerome Powell, manage to convey his rate-hike policies and expected reversal of balance-sheet debt.
Other than these catalysts, how US & Chinese policymakers reach to strike a balanced trade proposal for their leaders to discuss and how Mr. Trump could confront Turkey, Iran and Robert Mueller’s investigation could also become important to observe.
Unless sticking to his hawkish statements without uttering trade-related problems and Mr. Trump’s criticism, the Fed Chair can’t please the USD buyers at the time when not only international leaders but the domestic investigators are also causing problems for the greenback.
On the other hand, commodity-currencies may have to wait for the Sino-US trade-talk results to recover their latest losses while AUD seem weaker as AU PM Turnbull face another challenge after winning Tuesday’s voting as several top-tier leaders resigned and demand one more poll.
With the political plays likely activating risk-off market sentiment and the U.S. President is also witnessing hard-time, the JPY & the Gold could mark gains while EUR & GBP may have to rely on greenback moves and Brexit developments to signal near-term moves.
EURUSD fall short of clearing 50-day SMA level of 1.1610, which in-turn signal brighter chances of the pair’s drop to 1.1500 and the 1.1430 re-tests; though, a D1 close beyond 1.1610 could propel the quote to 1.1680 trend-line. On the contrary, the GBPUSD is still away from 1.2955-60 resistance-region, break of which can help it confront the 50-day SMA level of 1.3075 while 1.2800 & 1.2680 may offer immediate supports during the pair’s decline. Further, USDJPY has to conquer the 111.00-05 resistance-confluence comprising 50-day SMA & adjacent TL in order to aim for 111.50 & 112.00 levels otherwise its pullback to 110.35 and then to the 110.00-109.85 support-confluence, including 100-day & 200-day SMA, can’t be denied.
In case of the USDCAD, the pair bounced off the 100-day SMA and may challenge the 1.3060, followed by the 50-day SMA level of 1.3135, ahead of looking at the 1.3180 mark while a daily close beneath 1.2975 might not hesitate fetching the pair to 1.2910. Moving on, AUDUSD broke nearby support-line and can revisit the 0.7250 & 0.72000 rest-points with 50-day SMA level of 0.7385 and the 0.7440 are expected to keep limiting the quote’s short-term advances. At last, the NZDUSD also reversed from 0.6720-25 resistance-confluence but has to dip below 0.6670 TL support to extend its downturn towards 0.6640 and the 0.6600 support whereas 0.6715 and the 0.6725 are likely crucial resistances for the traders to watch as break of which can flash 0.6760 on the chart.
Have a nice trading-day ……