Weekly Fundamental Dose: 01 – November – 2018
Be it robust stats from the U.S. or safe-haven push from Sino-US tussle & political pessimism at EU, UK & China, the US Dollar Index (I.USDX) managed to pass October month with good marks. However, the greenback gauge is still left to cross the week with two crucial events lined for release, namely BoE’s Quarterly Inflation Report & monthly employment stats. Also, result announcements from companies like Apple & second-tier numbers like UK PMIs & AU Retail Sales might offer intermediate trade opportunities going forward.
Let’s start discussing each one of these catalysts in detail.
Bulls Kept Supporting USD In Search Of Risk-Safety
While better than expected prints of US Durable Goods Orders & GDP can be considered as extra help for the greenback’s second weekly surge, increased political worries at Italy, Germany & UK, not to forget US-China trade-war, proved to be main sources of power for the rise of US Dollar Index (I.USDX). Not only USD, the JPY & Gold also benefited from the market’s rush towards risk-safety but comparative strength of the yellow metal was restricted by speculations that India & China, largest bullion buyers, might not be able to offer the same precious-metal demand as they have been due to recent economic challenges faced by Asian nations.
Alternatively, ECB President Mario Draghi’s hawkish comments couldn’t please the EUR buyers when EU-Italy were at war of words & regional PMIs were declining whereas GBP had to bear the burden of Brexit uncertainties. In case of commodity-linked currencies, like AUD, NZD & CAD, problems at the world’s largest commodity buyers, China, continued marking hurting its trade-partners’ currencies. It should also be noted that Crude prices slumped for third consecutive week as US inventories kept rising and Saudi Arabia showed readiness to pump more output in case Iranian sanction hurt market demand-supply balance.
Markets Extend Favor For The Greenback On Eco-Politico Factors
Present week hasn’t been different for the USD as upbeat prints of economics so far published, coupled with political problems at China, EU & UK, continued pushing traders to greenback. However, there was a change of sentiment for JPY & Gold as both of them declined after BoJ conveyed steady support for loose monetary policy and downgraded inflation forecast while worries for Asian markets grew stronger, which in-turn raised question for the Bullion’s future demand.
The EUR got another blow, in addition to problems at Italy, when German Chancellor Angela Merkel’s party got bitter results at state elections in Frankfurt’s home state, Hesse, followed by the Chancellor’s announcement that she’ll bid adieu to politics after her term expires in 2021. On the other hand, GBP was quite sluggish before rallying on the news that the UK PM has signed an informal Brexit deal with EU for British services to operate regional markets as they have been after their departure.
Meanwhile, Chinese authorities became active after headline stats, including PMIs, spread disappointment, which in-turn helped the AUD and NZD to recover some losses on the hopes of additional demand backed by extra stimulus from the dragon nation. Though, CAD could take advantage of the same even after BoC Governor favored further rate-hikes as Crude prices stretched south-run farther on old concerns affecting energy demand when US stockpiles as steadily rising.
UK & US Calendars Are In Limelight
Even if majority of the headline details/events are already out & loud, two top-not catalysts are still there in pipeline to play their moves, namely Thursday’s monetary policy meeting by the Bank of England (BoE) wherein it’ll release Quarterly Inflation Report (QIR) followed by the Friday’s U.S. employment report including NFP. Additionally, Thursday’s UK Manufacturing PMI & US ISM Manufacturing PMI before the Friday’s AU Retail Sales, UK Construction PMI & US Factory Orders are some other stats that are worth observing.
First thing first, the monthly release of UK Manufacturing PMI might join the global manufacturing indices in printing softer figure of 53.0 against 53.8 earlier and the US ISM Manufacturing PMI is also expected to follow the suit by marking 59.0 number compared to 59.8 prior.
As far as the BoE’s monetary policy meeting is concerned, the central-bank isn’t expected to alter its present policy moves after announcing a rate-hike in at earlier meet. However, the focus will be on its concern for Brexit and QIR. While uncertainty emanating from the British departure off the EU region can stop policymakers from favoring another rate-hike so soon, recent recovery in UK economics and Carney’s support to monetary policy tightening can help them upwardly revise the quarterly economic forecasts. In doing so, the BoE leader might not risk ignoring Brexit and the same is less likely to support the central-bank go ahead as Bullish as it was. Hence, how the British banker juggles with Brexit and economic optimism will be a good show to watch.
Turning to Friday, the early-day AU Retail Sales isn’t likely to change from its 0.3% mark whereas UK Construction PMI may soften to 52.0 from 52.1 and the US Factory Orders can register slower growth figure of 0.5% compared to 2.3% earlier. Also, Canadian job numbers, up for Friday, might add worries for CAD traders if matching 12.7K consensus for Employment Change vis-a-vis 63.3K prior when the Unemployment Rate isn’t expected to change from 5.9%.
In case of US Employment stats, the headline Non-farm Payrolls (NFP) may rally to 193K from 134K prior but the Average Hourly Earnings could dip to 0.2% from 0.3% while Unemployment Rate might not deviate from nearly five decade low of 3.7%.
Other than economics, political plays are also likely to keep playing background music for traders. Herein, how China retaliates to the new allegation of copyright stealing from the U.S. and how EU can handle pressure from Italy & Germany’s coalition members will be closely observed. Moreover, recent news from Brexit was considered very good but the same needs to be actual and backed by the UK parliament in order to help the GBP regain its previous strength else it’s downturn can’t be denied.
To sum up, present political pessimism at EU & UK, together with Sino-US tussles, can continue highlighting safe-haven appeal of the USD and fuel it towards another weekly positive; though, any disappointment from the final jobs report before November’s mid-term election at US could derail the greenback’s strength.
Moreover, BoE’s might play safe to communicate its hawkish view at the time when Brexit uncertainty is looming, which in-turn couldn’t offer additional strength to the GBP unless PMIs & fresh news for the deal sound positive.
EURUSD’s needs to offer a close beneath 1.1300-1.1285 horizontal-support in order to extend its south-run towards 1.1210 & 1.1180 otherwise its pullback to 1.1430 & 1.1500 can’t be denied. On the same line, the GBPUSD also has to dip below 1.2660 on a daily closing basis to please the Bears with 1.2580 & 1.2470 else 1.2920 & 1.3000 can keep entertaining short-term buyers. Further, the USDJPY could continue signaling 113.50-55 and the 114.00 till it trades beyond 112.80, breaking which immediate support-line, at 112.00, & 100-day SMA level of 111.60 should be observed for supports. Moving on, the USDCAD has justified its strength to target 1.3220 & 1.3260 resistances with the break of 1.3110, which now acts as nearby supports for the pair together with 100-day SMA level of 1.3075. Moreover, AUDUSD has 0.7165, comprising 50-day SMA, and the 0.7200 as adjacent resistances with 0.7040, 0.7020 & 0.7000 likely close supports whereas NZDUSD can aim for 0.6610 & 0.6655 until it drops below the 0.6500, which in-turn could open the gate for the quote’s slide to 0.6470 if conquered.
Have a nice trading-day ……