Weekly Fundamental Dose: 24 – January – 2019
With most of the week’s scheduled statistics are out & loud, not to forget BoJ’s dovish appearance and present political plays relating the U.S. government shutdown, Brexit & trade-deal, global investors could turn their attention to Thursday’s monetary policy meeting the by the European Central Bank (ECB).
While ECB meeting seems crucial for Thursday, there are some other catalysts that could offer busy trading days ahead. Let’s talk about them in detail.
Progressing Trade-Talks & Pessimism Elsewhere Reinforced USD Strength
In spite of witnessing sluggish data-points at home & political drama concerning government shutdown, the US Dollar Index (I.USDX) managed to post first positive weekly closing in previous five as progress at Sino-US trade-talks & negative news from rest of the world’s major economies pushed traders towards the greenback. The EUR had to bear the burden of disappointing statistics from Germany, France & Italy, coupled with ECB President’s comment that the regional economy is weaker than anticipated whereas GBP gave little importance to the UK PM Theresa May’s humiliating defeat at parliament Brexit vote as May’s successive victory in retaining her position dimmed prospects of hard Brexit.
Given the market mood in favor of the USD, traditional safe-havens like JPY, Gold & CHF remained less in demand while AUD, CAD & NZD failed to enjoy optimism surrounding a trade deal between world’s two largest economies as US Dollar strength & challenges to China’s economy threatened commodity basket. Additionally, Crude prices posted third back-to-back weekly gains on positive news emanating from US-China trade discussions & OPEC+ output cut.
Return of Bears
Last-week’s investor optimism couldn’t last long as renewed doubts over the China-US trade-deal and extended government shutdown at the U.S. joined hands with pessimistic statements from global leaders & central-bankers.
At the week-start, International Monetary Fund (IMF) cut global growth projections to three-year low and leaders at World Economic Forum (WEF) also communicated their dissatisfaction from expected future outcome. Not only this, Bank of Japan (BoJ) downgraded its inflation forecast and US politicians continue struggling to limit Trump’s Mexican border and yet push him to re-open the government offices.
In case of Sino-US trade, speculations that US turned down China’s request for preparatory talks ahead of crucial discussions next-week thwarted commodity front. Though, better than forecast CPI number from New Zealand helped NZD to remain positive despite declining AUD & CAD. Moreover, The EUR benefited from the USD’s decline due to showdown between politicians while GBP rose on brighter chances of no-deal Brexit.
Crude prices couldn’t deny future challenges to energy demand on the face of global pessimism while JPY & Gold also remained in dark due to traders’ downbeat support for the JPY after BoJ & expectations that China will buy less Gold in coming years because of hardships at home.
ECB Is Immediate Market Concern With Politics Playing Background Music
Having witnessed market reaction to nearby important events, Thursday’s monetary policy meeting by the ECB will gain higher investor attention whereas chances of US government re-open & receding tensions at Sino-US trade could perform their duties in the meantime. Also, EU & US Flash PMIs can add intermediate momentum before giving command to the ECB President.
Starting with monetary policy meeting the by the European Central Bank (ECB), the regional institution isn’t expected to alter its present monetary policy but President Mario Draghi’s press conference will be crucial to observe after rate-statement.
Recent disappointments from the region’s growth engines, namely Germany, France & Italy, together with global alerts and doubts over Sino-US trade deal, Draghi might not avoid conveying weakness of the economy, which in-turn signals delay of the central-bank’s policy normalizing efforts that were to start from 2019 end. However, Draghi is Bull at heart and might not try to spoil his image.
Turning to economics, EU Flash Manufacturing & Services PMIs bear consensus of 51.5 mark against 51.4 & 51.2 earlier while their US counterparts might post 53.5 Flash Manufacturing PMI against 53.8 prior and 54.0 figure for Services PMI compared to 54.4 earlier.
At the political front, US Democrats & Republicans are at loggerheads to allow for Mexican border and re-open the government offices after 34 days of shutdown. Opposition is ready to allow funds to Trump administration for tightening security at Mexican border but are not accepting the need for a wall. On the other hand, Donald Trump is also intact on his demand for a wall without which is he’ll delay the state of union address to the parliament.
Brexit concerns are still in jeopardy as opposition tries to gain support for another referendum but Theresa May wants to go ahead with her initial plan with some changes on Irish border issue. Sino-US trade deal isn’t at good shape before the crucial meeting between the US & Chinese leaders in Washington. China has shown ability to import more US products but is not accepting allegations of IPR theft.
Hence, while central-bankers are less likely to provide any upbeat signals to the global economy and political plays are also in bad shape, safe-havens like JPY & Gold may regain market confidence but EUR & commodity-linked currencies couldn’t be buyer’s favorites.
Further, GBP can continue enjoying market expectations for soft Brexit while USD may recover some of its latest losses if government shutdown concludes and ECB conveys pessimism.
Although ten-week long ascending trend-line seems restricting the EURUSD declines around 1.1330, the pair has 50-day SMA level of 1.1385 and the 1.1455 figure, including 100-day SMA, as immediate resistances to conquer in order to justify its near-term strength. As a result, chances of the pair’s drop to the 1.1260 and then to the 1.1215 can’t be denied unless the quote crosses 1.1455 on a daily closing basis. The GBPUSD is presently struggling with 1.3080-90 region, including 200-day SMA & seven-month old descending trend-line, with overbought RSI signaling a pullback to 1.2980 and then to the 1.2910 rest-point. However, successful encounter of 1.3090, also clearing the 1.3100 mark, can help the pair to aim for 1.3180 & 1.3260 numbers to north. On the same line, USDJPY also needs to provide a daily close beyond 109.80 to please buyers with 110.00, the 110.30 and the 111.00 resistances otherwise the 109.00, the 108.50 and the 108.00 consecutive supports may reappear on the chart.
On the other hand, the AUDUSD is likely declining towards the 0.7070, the 0.7020 and the 0.6980 supports but sustained break of 0.7185 could propel the quote’s rally to 0.7240 and the 200-day SMA level of 0.7315. Further, NZDUSD may find it hard to accelerate recent recovery as immediate TL resistance, at 0.6820, adjacent to 0.6845-50 and the 0.6880 horizontal-line, can continue challenging the pair’s nearby advances. As a result, the 0.6765, the 0.6730 and the 0.6710-05 might keep being sellers’ favorites. At the end, USDCAD can target 1.3445 & 1.3500 if it manages to conquer 1.3355, if not then 1.3290, the 1.3220 and the 100-day SMA level of 1.3190 should be watched carefully while holding short positions.
Have a nice trading-day …