Weekly Fundamental Dose: 29 – November – 2018
After Fed Chair’s U-turn on ‘neutral-rates’ and softer than expected US GDP, not to forget worrisome statements from BoE, IMF & ECB, investors are all set to concentrate on this week’s big issues, namely Trump-Xi meet on the sidelines of G20 and minutes of latest FOMC. However, possibilities of EU Flash CPI & China’s official Flash PMIs offering intermediate moves can’t be denied as well.
Let’s not waste much time and start discussing market fundamentals.
Pessimism Played Its Role & Rejuvenated USD Growth
During last-week upbeat sentiment concerning Sino-US trade deal and doubts over Fed’s future rate-lifts dragged the greenback down till late but fears surrounding global economic growth and plunging Crude prices finally offered US Dollar Index (I.USDX) the room to mark positive weekly closing. With the USD on recovery mode, EUR couldn’t ignore sluggish PMIs & political tensions between the EU & Italy while GBP remained weak on Brexit uncertainty. Moving on, AUD, NZD and CAD became victims of commodity plunge and the JPY also failed to enjoy safe-haven support, which Gold aptly realized, after disappointing data-points at home favored BoJ’s lose monetary policy. Moreover, Crude maintained its top-spot on Bears’ radar based on surging US inventories and recent reports showing highest exports by an OPEC leader.
Trump & Powell’s Remarks, Together With Soft GDP, Challenged Greenback Bulls
While fears emanating from US-China trade-deal & Fed Vice Chair’s comments supporting gradual rate-hikes helped the US Dollar to extend its upside till mid-week, Trump’s another fire on Federal Reserve Chairman and the Chair’s comments mentioning that the Fed Rate is ‘just below’ neutral-rate dragged the US currency downwards. With this, the EUR buyers forget about early-week’s dovish comments from ECB President and rather concentrated on Italy’s readiness to respect EU budget norms but GBP kept being volatile on Theresa May’s efforts to get her proposal approved by UK parliament.
If we look at the AUD & the NZD, both of them seem recovering earlier losses ahead of the G20 on expectations of a positive outcome whereas CAD couldn’t avoid Crude’s south-run due to increasing US output & likely dent in future energy demand. Moving on, JPY & Gold recently started benefiting from USD’s decline & rush towards risk-safety.
Not Only Xi-Trump Meet But FOMC Minutes Also Remain Highlighted
Having witnessed investors’ response to recent communication from Fed, Mr. Trump & US stats, it’s important to watch over Thursday’s FOMC minutes & the developments at G20, starting from Friday, in order to determine near-term market moves. Also, Friday’s Chinese official Manufacturing & Non-Manufacturing PMIs, followed by EU Flash CPI and Canadian GDP, may entertain momentum traders.
First things first, the FOMC meeting minutes, which generally go unnoticed if the meeting doesn’t carry Fed Chair’s speech & quarterly economic forecast, would command a higher eye-share this time. The reason being on & off signals from the Fed policymakers and Mr. Trump’s sustained opposition to rate-lifts, coupled with expected global economic downturn & positive fundamentals at home. Even if the central-bank held its monetary policy unchanged at latest meeting, analysts might want to check how many of the FOMC board members are in favor of restricting the central-bank’s tightening.
Turning to G20, the gathering in Argentina starts from Friday but what’s actually crucial is Saturday’s dinner of US & Chinese leaders alongside the summit to discuss their future trade-ties. Not only Sino-US trade prospects but comments from global leaders concerning US President’s trade protectionism and how Saudi Arabia would reflect to recent drop in Crude prices would also be closely observed.
Looking at the trade side, White House communicates Mr. Trump is ready to have a deal with China but the President has repeatedly threatened the dragon nation to levy fresh tariffs on $200 billion if the talks fail. The U.S. demands include opening up Chinese borders for American businesses without infringing their intellectual properties and promising higher imports while China stands ready to co-operate on globalization, at least verbally, but hasn’t spoke for IPR allegations and imports from world’s largest economy. Considering the nature of demand and the leaders, it’s less likely that any trade-deal can be struck at this meeting; however, chances of witnessing a positive announcements for future deal and/or halt to present trade-war can’t be denied.
Moving on to scheduled economics, the China’s Flash Manufacturing PMI is likely remaining unchanged at 50.2 and the Non-Manufacturing PMI may soften to 53.8 from 53.9 whereas Canadian GDP isn’t likely to benefit from a 0.1% mark. Moreover, EU Flash CPI may soften to 2.1% from 2.2% and can push ECB to remain on sidelines before announcing a rate-hike at the end of 2019.
At the political front, Theresa May is trying hard to convince her party members & opposition leaders to vote in favor of her Brexit proposal on December 11 but majority of them have already shown readiness to turn it down and topple the PM, if needed. In case of EU, Italy has communicated its desire to cut budgetary deficit to respect regional norms but is yet to take any strong action.
Hence, while FOMC minutes could help clear the current doubts over future Fed moves, Xi-Trump meet may spread worries across the board if both the global leaders refrain respect each others’ demands. Also, political pessimism at UK & EU, together with likely soft outcomes from scheduled EU, Chinese & Canadian numbers, can keep pushing investors to risk-safety.
As a result, the USD may maintain its gains due to its safe-haven appeal whereas commodity-linked currencies, EUR & GBP can witness pullback. Though, a strong positive outcome from the G20 might not hesitate fueling the ex-USD batch of currencies.
Although Fed Chair’s remarks on Wednesday triggered noticeable recovery of the EURUSD, the pair is still far from being strong as the 1.1455-65 resistance-confluence, comprising 50-day SMA & immediate descending TL, followed by 100-day SMA level of 1.1535 stand tall to challenge the buyers. As a result, the 1.1260 and the 1.1215 can continue remaining on the market radar as supports. Same is the case with GBPUSD that’s recently bounced off the upward slanting support-line stretched since mid-August, at 1.2710 now, but has to surpass the 50-day & 100-day SMA joint around 1.2975-80 in order to meet the 1.3000, the 1.3070 & 1.3135 resistances otherwise it’s pullback to the 1.2760, 1.2710 & 1.2660 can’t be denied. On the other hand, USDJPY again failed to clear the 114.05-10 resistance-region and may revisit the 112.90 & 112.50 rest-points whereas the 112.30, 100-day SMA level of 112.15 and an ascending trend-line, at 112.00, could restrict the pair’s near-term declines.
In case of commodity-linked currencies, the AUDUSD needs to conquer the 0.7340-50 area so that 0.7380 & 200-day SMA level of 0.7425 can gain market attention else the 0.7240, comprising 100-day SMA, the 0.7200 & the 50-day SMA mark near 0.7175 may please the sellers. Further, NZDUSD rises above 200-day SMA level of 0.6865 towards the 0.6885 & 0.6900 barriers, breaking which 0.6925 & 0.6950 might become Bulls’ favorites but inability to sustain the breakout could reprint 0.6810 & 0.6755 as quotes. At the end, the 1.3310-20 zone again played its role in limiting USDCAD’s upside, which in-turn can flash 1.3250 & 1.3200 on chart while the 1.3385, the 1.3400 & 61.8% FE level of 1.3485 may entertain pair optimists past successful break of 1.3320 barrier.
Have a nice trading-day ……