Weekly Fundamental Dose: 27 – September – 2018
With the FOMC & the RBNZ results already being out & loud, in addition to an end to Abe-Trump talks, the trade-war concerns emanating from US-China & NAFTA, together with few second-tier details from UK, US & Canada, can offer busy days ahead to global investors.
Let’s start discussing fundamentals about each one of them.
Market Optimism Dragged The USD Downwards
In spite of witnessing fresh tariff-war between the U.S. & the China, market-players sensed a sign of optimism from the rate of levies that were lower than previously promised. As a result, the US Dollar Index (I.USDX) marked consecutive second weekly loss due to cut in its safe-haven demand while commodity-linked currencies like AUD, NZD & CAD took advantage of such positivity. Further, welcome data-points at home and progress at Brexit summit played their role in fueling the GBP whereas EUR surged on the USD’s decline. However, the JPY couldn’t enjoy greenback’s drop because of its risk-safety status & the BoJ’s dovish statements but the Gold benefited from the US Dollar’s weakness. Additionally, Crude prices aptly portrayed supply crunch based on depleting US inventories, upcoming sanction on Iran & speculations that OPEC-led alliance won’t increase their output at the last-weekend’s meeting.
Greenback Pared Early-Week Losses After FOMC
At the start of present week, trade & political factors remained in highlight as UK PM’s announcement that recent Brexit talks resulted an impasse met with China’s rejection to US trade-talk invitation and US Deputy Attorney General’s leave. Though, optimism surrounding US-Japan discussions and bets that Fed might find it hard to extend rate-hike trajectory to next-year dragged the greenback down before FOMC. However, upbeat dot-plot and hawkish statements from the Fed Chair Jerome Powell rejuvenated the US Dollar’s strength and is likely pushing it towards a weekly positive.
On the other hand, recently erupted political crisis in EU due to Italy’s budget issues weakened the EUR whereas GBP seems losing its momentum on lack of fresh positives from the Brexit. Moving on, the JPY also started recovering some of its latest losses after Abe-Trump agreed to start bilateral trade-talks and put a halt on US tariffs on Japanese cars. Furthermore, AUD, NZD & CAD are likely failing to extend their latest gains as not only dovish statements from RBNZ but pessimism at Chinese economy & Sino-US trade-war also hurt commodity basket. At the end, Crude kept stretching its north-run despite higher US stockpile & White House announcement to drop plans of using strategic reserves as OPEC-led alliance refrained to respect Mr. Trump’s push for higher output.
Trade Front & Economic Calendar To Regain Investor Attention
With most of the important details/events already announced, investors may shift their attention back to U.S. trade-tussles with China & Canada in addition to observing Brexit developments. Moreover, political problems at Italy and second-tier stats from US, UK, Japan & Canada can offer intermediate trading opportunities to market-players.
Starting with the trade-tussles, after China’s rejection to US trade-talk invitation Mr. Trump criticized the dragon nation’s policies at UN and maintained his tough stand favoring “America First” agenda. On the other hand, Trump administration’s NAFTA negotiations with Canada couldn’t end well and the White House leader has already announced inclination to present details of Mexico only deal, which Canada can later-on join if situations improve. In case of Brexit, Labor party promised to vote against Mrs. May’s plan at parliament and may cause second referendum on the British departure from the EU, which in-turn resulted worries to UK PM’s political future at a time when she is already finding it hard to please regional leaders to accept her proposal.
At the political front, departure of U.S. Deputy Attorney General, who was looking over the Russian meddling in 2016 Presidential election, raised tensions for the Trump administration as the upcoming authority might tighten Robert Mueller’s investigation. Additionally, EU leaders got another worrisome sign from Italy as the nation will soon present its budget and may not respect the regional guidelines.
Coming to the economic front, Thursday offers US Durable Goods Orders and Final GDP while Japan’s Tokyo Core CPI, UK Final GDP, EU Flash CPI, Canadian GDP, US Chicago PMI and Personal Spendings are up for release on Friday.
While Final reading of Q2 2018 U.S. GDP isn’t expected to change from 4.2%, the Durable Goods Orders may please greenback buyers if matching the +1.9% growth forecast against -1.7% prior contraction. Further, Japan’s Tokyo Core CPI may also remain unchanged at +0.9% and the same goes with UK Final GDP of 0.4%. However, the EU Flash CPI may rise from 1.0% to 1.1% and the Canadian GDP could also improve to 0.1% from 0.0% earlier. Moreover, the U.S. Personal Spending might soften to 0.3% from 0.4% previous whereas the Chicago PMI could also disappoint USD Bulls with 62.3 mark versus 63.6 earlier.
To Sum Up, while factors like trade-war & upbeat Durable Goods Orders could help the USD to post its first positive weekly closing in three, domestic political pessimism might confine the greenback’s surge.
For others, Italy can keep creating problems for the EUR but upbeat Inflation can help the regional currency whereas Brexit could continue causing problems for the GBP. Further, the JPY can stretch its recent up-moves based on successful US-Japan talks but overall USD strength may limit the traditional safe-haven’s rise.
Moving on, commodity-linked currencies might find it hard to stop their declines as rejuvenated trade-war concerns and sluggish fundamentals at home could play their roles.
Break of short-term ascending TL seems dragging the EURUSD to 1.1655 & 1.1610 supports with 1.1755 & 1.1815-20 being strong upside resistances whereas GBPUSD is likely coming back to 1.3020 & 1.2985 supports while 1.3300 & 1.3365-70 act as important resistances. Further, the USDJPY’s failure to sustain the 112.75 TL break may drag it to 112.15 & 111.80 with an upside break of 112.75 likely confronting the 113.15 & 113.70. Moreover, AUDUSD’s inability to clear the 0.7280-90 resistance-region could recall the 0.7200 & 0.7130 on chart with 0.7370 being follow-on level to watch past-0.7290. Furthermore, NZDUSD has 0.6620-15 & 0.6540 as supports with 0.6690 & 0.6725 likely resistances while USDCAD has to close beyond 50-day & 100-day SMA confluence of 1.3045-50 in order to meet the 1.100 & 1.3180 else its pullback to 1.2955 & 1.2865 can’t be denied.
Have a nice trading-day ……