Topic: Forextime FXTM Daily Market Analysis

Forextime.com Daily Market Analysis

Kiwi struggles after weak trade data


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The New Zealand dollar continues to be volatile for traders despite the upbeat rhetoric from the government of New Zealand and also the Reserve Bank of New Zealand. Trade Balance data today was anything but positive though as it came in at -705M (-500M exp), putting further pressure on the NZDUSD which has been under intense pressure from bears in the recent weeks. This combined with the recent drop in global dairy auctions will put pressure back on the New Zealand economy, and it will be interesting to see the view point of the Reserve Bank of New Zealand regarding this as trade balance has always been high on its agenda. However, there has been some slight wins as the housing market looks to be cooling off after enacting aggressive measures and the NZDUSD has started losing some of its value which will certainly help turn around further trade balance issues.  The key focus from here will be tomorrows GDP data, with many expecting it to be a robust figure for the quarter - despite the recent natural and market events which have caused some worries.

The NZDUSD continues to be an interesting trade with long trending runs and also large patches of ranging, but so far it has been all trend with no range as of late - a common theme across all commodity currencies since the Trump victory. The trade balance data today had little effect on the NZDUSD and the markets seemed to be positive to it; it's the USD strength though which is causing issues for commodity currency bulls. Support was certainly found at 0.6881 and traders will be looking to see if the daily candle closes out as a hammer which could indicate a swing here as USD traders may be looking to take a breather and unwind. If that is the case then resistance can be found at 0.6948 and 0.7000 as the next levels higher, however this is against the trend at present and I would expect fierce pressure around these levels from kiwi traders.

Across the 'ditch' and the Australian dollar continues to find itself under some pressure as well against the USD, but one trade that has been quite interesting has been the trading around the AUDJPY after yesterdays Bank of Japan holding fire. Recently, the AUDJPY trended up sharply before hitting and forming a strong trend line on the daily chart which is quite bearish in nature since 2014. The clear respect of this trend line will be key for a number of traders strategies, and as the Yen continues to look to get weaker the AUDJPY may see another attempt to take a higher level here.

The move higher on the daily chart as of today shows a strong candle trying to engulf all the recent loses after finding support at 84.754, and I would expect a further rise to also find resistance at 86.188 before looking to play of the trend line yet again.



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By Alex Gurr, Guest Analyst

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Fed outlook turns hawkish

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The US economy was thrown back into the spotlight today as the FOMC minutes were released and the dovish FED of the past certainly looked a thing of the past, with some of the most upbeat and hawkish minutes that have been seen in a long time. Almost all of the officials present in the meeting expected that with Trumps appointment growth was expected to pick up in line with his expansionary policies. One thing that also stood out was the FED's own expectation around inflation with expectations that it will increase to the magic 2% mark in the medium term, and the recent lift in quarterly inflation was further credit to this theory. Regardless of the trump effect the FED looks to be singing the same tune as the market and that can only be positive for the bulls in the short term. The real question will be around what Trump can actually do with congress in order to get the US economy moving again and the economy expanding further - even when it's almost at full capacity when it comes to employment.

Regardless of how you viewed the FOMC minutes, the recent economic data out of the US has been positive with the construction spending m/m lifting to 0.9% (0.5% exp) and ISM manufacturing PMI also lifting to 54.7 (53.8 exp). All of this has boded well for traders and the markets have responded accordingly with the S&P 500 lifting back up to a strong level of resistance in anticipation of tomorrows economic data due out on the employment sector and the services sector as well. Even with resistance currently sitting at 2272 the expectation of further highs is fresh on traders' minds and they will be looking to push the boundaries further in the current climate. A push upwards to 2300 is very much on the cards if the market sees further positive US economic data tomorrow.

One thing that is also worth watching out for in tomorrow's trading is oil markets, previously they have been moving quite rapidly in the low volume trading and volatility is certainly ever traders friend. The recent build up in private storage showed that perhaps oil markets still needed a little more time to correct and we saw prices fall accordingly down to the 20 day moving average before finding dynamic support. Expectations are for a decline in overall oil inventories, but after the recent private reading the market may have altered its expectations. 

Technically speaking though oil is looking very strong with resistance sitting tight at 54.46, to get past this level we would need to see a large drawdown in crude oil inventories, and this may be a bit of an ask just after Christmas. Any further falls are also likely to struggle past the 20 day moving average, and even more so the 50 day moving average which is acting as dynamic support for market movements at present.


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By Alex Gurr, Guest Analyst
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Asian equities retreat as investors shift to cautious mode

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After a strong start for the year, equity markets started to cool down in the second trading week of 2017. Most Asian major indices are in red today, as Wall Street failed to make new highs and the Dow retreated further from the key psychological 20,000 mark, while oil suffered a steep selloff on Monday.

Investors who built their positions based on Trump’s victory are likely to start cashing out for the time being and shift their focus on fundamentals with the earning season kicking off later this week when U.S. big banks release their fourth quarter results. I’m not confident to call a correction yet, but certainly many investors got ahead of themselves betting on fiscal stimulus, and while business usually tends to under promise and over deliver, this doesn’t seem to be the case with the U.S. new President.

Although Kuwait’s Oil Minister Essam Al-Marzouk who is chairing the committee to oversee compliance of OPEC’s output assured the markets that OPEC and non-OPEC members will abide to the planned cuts, still both oil benchmarks dropped 4% on Monday. This clearly indicates that it’s not just an OPEC game, and the expected increase in U.S. and Canadian supplies are likely to threaten the oil rally. Data from the U.S. on Friday showed rig counts rose for ten consecutive weeks and it’s just about some time for this to translate into additional production, suggesting that downside risk may remain in play, and rather than just focusing on implementations of OPEC production cuts, investors should be looking at the bigger picture on whether supply will meet demand in the second half of 2017.

The U.S. dollar fell for a second day, extending its slide from the 14-year high hit on January 3. The pull back in the dollar came despite hawkish speeches from Fed officials suggesting that the central bank is getting closer to achieving its dual mandate. Both Fed presidents, Charles Evans and Patrick Harker aren’t ruling out three rate hikes in 2017, while Eric Rosengren called for stepping up the pace of interest rates hikes to prevent inflation from overshooting. However, traders are still not yet completely convinced and pricing in only two hikes for 2017 according to CME’s Fed Watch. With no tier one economic data on the calendar until Friday, U.S. bond yields will remain to be the key driver for the greenback.

The Pound remained under pressure after Monday’s steep selloff on comments from UK’s Prime Minister Theresa May which intensified fears of “Hard Brexit”. Although the pound looks undervalued, the risk of further selloff may remain in play as we get closer to triggering article 50. Meanwhile comments from Scotland’s First Minister on BBC that she’s not bluffing about her vow to hold a second referendum on Scottish independence if Britain leaves the single market is another factor to worry about on the medium-term.


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By Hussein Sayed, Chief Market Strategist (Gulf & MENA)

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President-elect leaves dollar bulls unimpressed

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The long-awaited first press conference by President-elect Donald Trump left many investors with more questions than answers as he failed to justify the current premium priced in the dollar and equity markets.

We already knew that Trump wants to build a border wall with Mexico, bring back U.S. production onshore, and that he’s willing to be the best job creator America ever knew, but what’s his plans on corporate tax reforms? How and when is he planning to spend on roads, bridges, and other infrastructure projects? Is he going to impose tariffs on imported goods from China, Mexico and the rest of the world? Unfortunately, no updates were revealed.

Thus, the greenback was dragged, falling against all major currencies on Wednesday with the dollar index falling to lowest levels since Dec 14 at 101.28. The selloff continued until early Thursday suggesting that dollar bulls are no more willing to price any additional premium until we get more clarity on his promised fiscal plans.

The continued fall in U.S. treasury yields is another factor dragging the dollar. U.S. 10 year yields have been in a down trend since Dec 14, losing 11.8% in value after spiking 42% since the election results were revealed.

U.S. stocks were less impacted, and managed to close higher despite the volatility and sharp selloff in pharma stocks which were attacked by Trump. Whether the rally can be sustained will depend on two factors, earning growth and actions from Trump’s administration as his words and tweets are clearly starting to show less influence.

The combination of dollar weakness, lower U.S. yields and doubts in Trump's policies offered gold a boost, with the yellow metal posting a high of 1,199. So far gold has recovered 6.8% from December lows, and trader higher in 11 out of 13 days. Fed Chair Janet Yellen’s speech will probably decide whether we’re going to see a break and hold above 1,200 today.



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By Hussein Sayed, Chief Market Strategist (Gulf & MENA)
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Aussie dollar cracks major levels


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The Australian dollar swung heavily today as US bulls finally looked to sell off in the wake of economic uncertainty around the United Kingdom. Volatility was most certainly the key player for the day, and traders took full advantage. Yesterday there were strong comments that the AUD was currently overvalued, but it would seem that the market had other ideas as it raced up the charts knocking out some key levels along the way. The market is further poised for today consumer sentiment, which will give some indication if the Trump effect has spread to Australia in the wake of recent events. Expectations have previously been very low and I would expect this to be the theme going forward but with the possibility of a surprise in economic data as we have previously seen.

For the AUDUSD traders resistance was not a problem today as it smashed through 0.7531 on the charts and looked to climb even higher, coming up just short of 0.7567. The 0.7567 level is very strong and I would expect to see some stiff resistance unless we see some positive fundamental data come out in the next few hours. In the event of a pullback I would expect that the 100 day moving average could act as dynamic resistance if it is a strong pullback, otherwise I would anticipate that former resistance level at 0.7531 looking to hold out in the long run.

One of the interesting things about a stronger USD has been the flow on effect to metals, none more so than silver which has so far seen a solid bullish trend appear in the short term and has briefly pushed through resistance at 17.133. The strong sell off today in USD certainly had a big impact in helping making this progress, but the real test is set to come as it sizes up resistance at 17.308, which I would expect to be a very strong level. The 200 day moving average is also intersecting with this strong level of resistance and has previously acted as a strong dynamic level for market movements. However, the trend is certainly your friend and this could be the case as silver looks to climb higher in the build up to Trumps inauguration on Friday.

Lastly, the NZDUSD has managed to also climb up the charts, but recent reports around the dairy auction paint a messy picture that shows that New Zealand's economy may not be as strong as recent economists had predicted. The jump higher today to resistance at 0.7222 has shown there is strong demand during patches of weakness, however this level has proved time and time again to also fight back and push prices lower.


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By Alex Gurr, Guest Analyst
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Trump vs Yellen & Draghi vs Weidmann

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The U.S. dollar has been on a roller-coaster this week. After dropping by more than 1% on Tuesday the dollar index recovered 0.9% from its lows. The steep drop in the currency came after comments from Donald Trump suggesting that the dollar is too strong, and this led some traders to believe the recent rally could have come to an end, but comments from Fed Chair Janet Yellen on Wednesday brought back hopes to the bulls.

Ms. Yellen did not specify the timeline or the pace of projected interest rates hikes, but she indicated the Fed will raise rates few times a year until 2019 and warned of a nasty surprise if the central refrained from acting. Although there’s no precise definition of “few” but reasonably means two to three times a year, which leave many central banks behind. 

Recent economic data supports Yellen’s views as inflation rose in 2016 at fastest pace in five years. U.S. CPI jumped 0.3% in December to breach the 2% benchmark, and if oil prices held above $50 the trend is not likely to reverse. This leaves only the Fed's preferred gauges of inflation, the PCE and Core PCE Price Index below 2%. However, there is a high risk of these indices overshooting the Fed’s target if fiscal policies came into play and the Fed will be left with little options but to fasten the pace of monetary policy tightening, thus keep supporting the dollar.

On the shorter run, Trump will remain the center focus for traders and his inauguration on Friday will play a major role in the dollar’s direction. It’s highly unlikely to reiterate that the strong dollar is hurting the economy, but if his speech contains more of protectionist policies than stimulus measures, it could harm the dollar, at least in short term.

The European Central Bank is meeting today and most likely keep monetary policy unchanged after the central bank extended and reduced the monthly bond purchases to €60 from €80 in their last meeting. Although it might be considered a non-event, we’ll be carefully listening to Draghi to see if the recent improvement in Eurozone data especially when it comes to inflation, will force the ECB to start considering unwinding their QE policies.

PMI’s across the Eurozone reached 5.5 years high in December and inflation climbed to 1.12, the highest since August 2013. Meanwhile German inflation jumped to 1.7%, thanks to higher oil prices. This will undoubtedly create a battle between Bundesbank's Weidmann and Draghi on when to end the loose monetary policy. Of course, Mr. Draghi has his reasons, especially that political risks will intensify in the next couple of months with presidential elections in France, Germany and Netherland’s, but once we’re over it, I believe the ECB will start ending their untraditional QE policies. This suggests the Euro is likely to remain under pressure until probably mid-2017.



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By Hussein Sayed, Chief Market Strategist (Gulf & MENA)
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President-elect leaves dollar bulls unimpressed

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The long-awaited first press conference by President-elect Donald Trump left many investors with more questions than answers as he failed to justify the current premium priced in the dollar and equity markets.

We already knew that Trump wants to build a border wall with Mexico, bring back U.S. production onshore, and that he’s willing to be the best job creator America ever knew, but what’s his plans on corporate tax reforms? How and when is he planning to spend on roads, bridges, and other infrastructure projects? Is he going to impose tariffs on imported goods from China, Mexico and the rest of the world? Unfortunately, no updates were revealed.

Thus, the greenback was dragged, falling against all major currencies on Wednesday with the dollar index falling to lowest levels since Dec 14 at 101.28. The selloff continued until early Thursday suggesting that dollar bulls are no more willing to price any additional premium until we get more clarity on his promised fiscal plans.

The continued fall in U.S. treasury yields is another factor dragging the dollar. U.S. 10 year yields have been in a down trend since Dec 14, losing 11.8% in value after spiking 42% since the election results were revealed.

U.S. stocks were less impacted, and managed to close higher despite the volatility and sharp selloff in pharma stocks which were attacked by Trump. Whether the rally can be sustained will depend on two factors, earning growth and actions from Trump’s administration as his words and tweets are clearly starting to show less influence.

The combination of dollar weakness, lower U.S. yields and doubts in Trump's policies offered gold a boost, with the yellow metal posting a high of 1,199. So far gold has recovered 6.8% from December lows, and trader higher in 11 out of 13 days. Fed Chair Janet Yellen’s speech will probably decide whether we’re going to see a break and hold above 1,200 today.


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By Hussein Sayed, Chief Market Strategist (Gulf & MENA)

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Yen continues to strengthen


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Despite all the global economic indicators and central bank movements the Yen continues to be one of the major players in the FX market. So far the Bank of Japan has been keen to hold off any further action as the market continues to offer up a stronger USD, which in turn helps push their agenda of weakening the exchange rate. While not ever country in the G8 is in agreement with the tactics taken by Japan previously, this lends weight to the US economy forcing the changes, and it's likely we will continue to see strong fluctuations in the USDJPY. The only major thing this week on the Japanese side is the CPI data, with market expecting below average CPI compared to what Abenomics has so far promised - so there is potential for movement if it beats estimates.

On the charts the USDJPY continues to show case a strong trending mentality. So far the bears looking to be taking control and forcing it down the chart in a strong channel which has so far faced very little resistance. The 20 day moving average has also been acting as dynamic resistance in the market so far, preventing any further movements higher and I would expect this to remain the case until USD strength looks to continue on a global scale. Any movements lower however, are likely to find support quite strong at 112.442 and 111.688 - with market expectations looking very strong after the recent reversal in the previous days.

Regardless of all the global attention the US economy has been getting the S&P 500 has so far been one of the largest benefactors with it set to make a large move if technical patterns are anything to go off. New home sales and consumer sentiment are likely to help drive the market in the coming days, and the market will be looking for further positive news to help push the S&P 500 higher, despite it touching record highs as of late.

Technically speaking the S&P 500 is looking very strong as of late from a bullish perspective, with the 20 day moving average acting as dynamic support all the way up on the daily chart. The tightness of the current band on the chart gives weight to the fact that a breakout is set to occur and I would be looking at the bulls for them to take control. However, resistance at 2278 continues to impede the bulls from rallying higher and may cause further issues in the coming days until we see further positive data.


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By Alex Gurr, Guest Analyst

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AUD leads Asian trading session


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The Australian dollar is taking the spotlight as the Reserve Bank of Australia is set to have its decision about the current interest rate levels, and the market thus far is not expecting anything much from the RBA. With the interest rate held at 1.50% it still remains one of the highest in the developed world, but the Australian economy is currently waiting to see what the outcome will be from the Trump effect, and while things have been rocky it does seem that the economy is starting to look slightly better. However, yesterdays retail sales showed that it's not all smooth sailing as it dipped to -0.1% m/m (0.3% exp), this result lends weight to the fact that the RBA may touch on the consumer economy not picking up as expected. But the real weight will be focused I feel on the economy as a whole and the commodity sector which has been recovering in recent months in anticipation of the global economy picking up.

Markets have been very much a fan of commodity currencies in recent weeks, with global risk appetite picking up the demand for yield has lead to large jumps in the NZD and of course the AUD, with the AUD looking very much the stronger of the two. So far the AUDUSD has been on a very bullish trend and it certainly has not seemed to lose any steam at present. The 20 day moving average has acted as dynamic support as it has moved up the chart, and this looks likely to be the first real test as comes under pressure. After all markets can't remain bullish forever, especially when it comes to FX markets. At the same time resistance at 0.7680 has so far stifled the bulls in there run up the charts, but the recent bearish movement has found strong bullish sentiment so expectations are building for further movements past this level onto the next major level at 0.7730.

Global up turn has so far been talked about, but not come through just yet. However, oil markets have been looking more and more uncertain when it comes to direction for the majority of traders. One thing that does remain clear is that oil is coming under further pressure in the markets to find some direction. At present the 20 day moving average continues to act as dynamic support and is pushing the bears out of the market as it looks to take on the key level of resistance at 54.46. As the two come together expectations will build for a bullish breakout, or if we had a reversal we could see some strong bearish pressure. Pressure will build though, and the bulls have the advantage in this sort of scenario and fundamentals starting to lean in their favour.



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By Alex Gurr, Guest Analyst
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Traders look to hedge in Gold

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The world and the markets continue to struggle to focus on economic data as Trumps economic policies take centre stage. This should come as no surprise these days given the power one man can wield on an economies; as we saw with Abenomics. But that was just Japan and the US market is the world's largest free market and is Trump is throwing his weight around, which in turn has led to strong movements and volatility being one of the major themes of the market. Commodities have so far been a mixed bag for most traders in the market, however trending is become a key theme and the metals market is looking tradable in its present form.

Gold has been on the upside in the recent weeks as Trump continues to put pressure on the market, especially around his comments on currencies and the fact that a number of countries should stop manipulating their currency. There is further speculation that Trump may in fact also start a currency war globally, however how that would look is still unknown and also comes with large risks for the US economy - large fluctuations might be good for traders, but for an established economy it can cause a world of pain. If exports are winners in the long run, then importers and the general consumer are worse off and vice versa.

Gold has so far but in a very bullish trend for a few weeks and it looks set to continue as people look for a hedge in the event of a currency war. Resistance at 1245 held up quite nicely when pushed over the last few days, but after the quick drop gold has found support on the 100 day moving average. Any further drops for Gold are likely to find support at 1208, but even before that the 20 day moving average would also be something to consider and watch. If Gold continues to run higher then I would expect the next major level of resistance to be found at 1262 and it may look to take a breather at this key level.

Oil has also been another major player in the market that everyone is taking a tough look at, after last week's oil inventory data shocked the market coming in at 13.83M barrels (2.53M exp). This was a quite a large inventory build up and was somewhat unexpected after the recent cuts from OPEC back a few months to help bolster prices. Additionally America picking up pace was also expected to cause further increases in demand.

Technically speaking, Oil on the charts though has so far failed to breach through the resistance level at 54.46 and unless we see further cuts of even a pick-up in demand then it could actually slide further down the charts. So far the 20 day moving average and the 50 day moving average have been slowing down any bearish movements, but it's only a matter of time before it slips lower unless we see some changes.


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By Alex Gurr, Guest Analyst
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Oil looks to break out

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Over the last few months hedge funds and traders have been seen placing large bets that OPEC will indeed come through with its production cuts and oil will accordingly jump higher, so far it has been positive on the production cut front, and we are starting to see oil markets looking like they may trend again - instead of the ranging behaviour we have seen over the last few months. One thing worth noting in all of this is how important Russia is, given that it just become the world's largest producer of oil as it overtook Saudi Arabia. But so far so good as 90% of the production cuts that were outlined have been implemented. However, US inventory data has been not positive for oil traders as since Trump has taken to office there has been a build up of supply, something that many were expecting not to happen. Despite all of the pros and cons oil has looked to jump back to life.

The 20 day moving average was key for oil as it looked to trend slowly up the chart, it had a few breakdowns previously but seems to still respect the level and as of now is sitting just below resistance at 54.36. What will be key here will be if oil can push above this level and look to extend higher; breaking out of the ranging phase and looking to trend again as it has historically been so good at. Above the current resistance level the next level will be found at 55.19 which was where the market looked to extend to earlier in December after the OPEC cuts were announced I would expect to see this area already priced in with the cuts, but it would also be pushed higher if we saw a reduction in US oil inventory data.

One of the other interesting commodities as of late has been silver, as it has charged up the chart much like gold on the back of speculation around Trump uncertainty. While not as popular as gold it has been a stand out performer in recent months and should not be discounted as it's prone to large movements on the c harts. And with preliminary GDP and unemployment claims still on the horizon for the US economy this week there is certainly room for further large movements. Also the USD weakness could be something that looks to push silver higher in the short term.

From a technical point of view silver has been quite bullish as of late, with large movements upwards since December in a constantly trending pattern. The 20 day moving average has largely been shadowing silver on the charts, with large bearish movements being pushed back by the silver bulls upon touching this level. The 200 day moving average has also been heavily respected, but the focus right now is on resistance at 18.091 with the market treating this like the level to beat. Long tails on the candles are also pointing that the bulls have not given up and further extensions higher may indeed be quite possible.


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By Alex Gurr, Guest Analyst
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The week ahead: Draghi’s turn to drag the Euro?

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Last week the greenback was the biggest loser among all major currencies. The dollar index slipped to a 10-month low, while the Euro, the Pound, the Lonnie, and the Aussie all posted new 2017 highs.

The dollar has been falling since the beginning of 2017 despite the two rate hikes which occurred in March and June, and the many hawkish comments from FOMC members. Part of the blame falls upon the delay of President Trump’s economic agenda. However, most recently it was the poor economic data that led investors to question the trajectory and speed of interest rates hikes.

Janet Yellen’s testimony to Congress on Wednesday and Thursday did not help the dollar either. She did not seem confident that inflation is on the right path and Friday’s flat consumer price index raised concerns that the Fed may be done with hiking rates this year. U.S. retail sales figures added salt to the wound after recording the biggest drop in more than a year in May falling by 0.3%. The sluggishness in consumer spending, wage growth and inflation will likely to worry Fed officials. Furthermore, if the weakness persists in the next couple of month, it will prove that the slowdown in the economy is not due to transitory factors but probably structural problems. Until data takes a U-turn, dollar bulls will remain reluctant to jump in and the dollar weakness may resume in Q3.

Next week investors will shift their focus to the European Central Bank and Bank of Japan. It has been almost three weeks since Mr. Draghi said, “Deflationary forces have been replaced by reflationary ones.” His confidence and bullish assessment of the euro zone recovery sent the Euro above 1.13 and despite the ECB officials attempts to dampen investors’ expectations over tightening policy the Euro still appreciated by more than 2.5% since June 27.

I think Mario Draghi will choose his words more carefully when the ECB meets on Thursday. The last thing he wants is a strong Euro and tightened financial conditions for now. Since no changes are expected on current monetary policy the tweaks in the statement and Draghi’s tone are all what matters to traders. It is a complicated process to start normalizing policy without disrupting markets and so while the ECB wants to prepare investors for gradual wind-down of asset purchases, policy makers are likely to hint that rate hikes will remain low for a prolonged period. However, I prefer buying the Euro on dips then selling on rallies with end year target around 1.18.

The dollar’s weakness drove Sterling to a 10-month high to trade above 1.31 for the first time this year. The pound also found support from BoE’s Ian McCafferty who said the central bank should consider unwinding its 435-billion-pound quantitative easing program earlier than planned and he’s looking to vote for a rate rise again in August. It seems that monetary policy is having more weight than the Brexit talks and if Tuesday’s inflation figures from the U.K. surprised to the upside, expect GBP to continue rallying. However, traders should also keep a close eye on Brexit negotiations which are going to resume on Monday.

China’s GDP release on Monday will be monitored very closely by Aussie traders. Markets are expecting a 1.7% rise in Q2 from 1.3% in Q1. The RBA minutes are scheduled for release on Tuesday followed by the employment report on Thursday. It requires another set of positive reports to further widen the differentials in bond yields; however, without a shift in monetary policy stance the Aussie gains are likely to be limited.



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Dollar gasps for air while Euro bulls take a breather

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The Greenback received a thorough pummelling on Tuesday after reports of Republican legislators failing to pass a revised healthcare bill rekindled concerns over Trump’s ability to implement tax cuts and infrastructure spending. Sentiment was already turning increasingly bearish towards the Dollar following last week’s soft US inflation reading, with sellers swiftly exploiting the fresh setback to Trump’s domestic agenda, in order to attack prices further. With the Greenback displaying signs of sensitivity to monetary policy speculations and the probability of a 25-basis-point rate increase in December dropping to 43% according to CME FedWatch Tool, further downside could be on the cards.

As the US economic calendar is fairly thin today, with only US building permits and housing starts in focus, price action is likely to dictate where the Dollar Index trades. Technical traders could be tempted to utilize the technical bounce on the daily time frame to drive the Index lower. A solid breakdown and daily close below 94.60 may encourage a further selloff towards 94.00.

Euro bulls wait for Draghi

Thursday’s main risk event for the Euro will be the European Central Bank meeting, which is widely expected to conclude with monetary policy left unchanged in July. Investors will closely scrutinize the meeting and press conference for clues on whether the central bank may announce plans to reduce its bond-buying program in September. With ECB President Mario Draghi’s optimistic speech in Sintra sparking speculations of QE tapering and also playing a role in the current Euro rally, he may choose his words carefully on Thursday. Although the economic conditions in Europe continue to stabilize, inflation is still far from the 2% target and it will be interesting to hear Draghi’s thoughts on this. While the improving macro-fundamentals and absence of political risk in Europe have heavily supported the Euro, bulls may need further inspiration in the form of QE tapering expectations. It becomes a question of whether Draghi will offer the bulls what they crave or will end up clipping their wings.

From a technical standpoint, the EURUSD is heavily bullish on the daily charts. The breakout and daily close above 1.1500 could encourage a further incline higher towards 1.1615.

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Commodity Spotlight – WTI Crude

WTI Crude Oil edged slightly lower on Tuesday after API reported US inventories increased by 1.63 million barrels last week. Although prices ventured towards $46.55 during Wednesday’s trading session this had nothing to do with a change of bias, but rather profit taking, as sentiment remained bearish. Recent reports of Ecuador publicly admitting that it will not meet OPEC’s cut commitments, presents a threat to the production cut deal, with fears of a domino effect exposing oil prices to further downside risks. The bias towards oil remains bearish and further downside may be expected as the supply overhang erodes investor attraction towards the commodity. Much attention will be directed towards the pending report from the US Energy Information Administration (EIA) this afternoon, which could compound to oils woes if there is a build in crude inventories.



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