WEEKLY REVIEW: 28th August 2017
THE WEEK AHEAD
Market moving numbers: 28th August – 1st July 2017:
The highlight this week would be the Amrican Nonfarm Payrolls (NFP) which takes places at the very end of the week. The team at EssenceFX opines this to be the most significant economic data release; which is usually anticipated to bring about the most trading volatility. In order to reignite any chance for a third United States (U.S) Federal Open Market Committee (FOMC) Interest Rate hike to take place sometime towards the end of the year, a strong positive in the U.S NFP is deemed necessary. Interestingly this week, we could view a higher chance of reignited U.S Dollar strength if the US NFP follows through the positive U.S Second quarter Gross Domestic Product (GDP) which came in at 3.0% and the U.S ADP (a much watched indication to the NFP release) which came in at 237,000; both outperforming analyst forecast. Nonetheless in order to not be caught in a "buy on rumour sell on fact" scenario, the team here at EssenceFX notes on the crucial practice to monitor the overall U.S Dollar Index increase prior to make any trading decisions; a significant rise prior to the official NFP release to raise more caution.
In addition to this, given the overall stronger positive market sentiment towards other currency pairs, as the market still largely falls under the presumption that no further FOMC Interest Rate hikes to take place this year, other currency pairs which show strong interest rate rise potentials continue to be of interest. The prime star of the lot would be the CAD related pairs. In reference to the USD/CAD, the team notes that this pair is still aggressively continuing to test and clearly break past the psychological 1.25 level. This week, the Canadians are set to release their June 2017 monthly GDP data which if positive, could lead the USD/CAD to fall below this strong support level. In addition to this, the market is also eagerly anticipating for Interest Rate Increase cues from the Eurozone and the United Kingdom (U.K). These two economies will be releasing some potentially market moving data post midweek as indicated in the economic calendar above.
In regards to global politics, North Korea's Kim Jong-un launched what they'd term as an 'ultra modern rocket system' over Japan and indicated that this was a prelude to more military operations directed at the American territory of Guam. This drove up the demand for safe havens briefly as this gave rise to fears of a war sparking between the two nations. Gold moved up to a new historical high while both the JPY and CHF jerked down noticeably. Delving deeper into the case of safe havens, several recent developments have caused us to reassess our take on safe havens for one; the recent announcement of blockchain moving into the financial mainstream with IBM's dealings with certain European banks and the continued hype in cryptocurrency with more mainstream players jumping in especially post heavier support from colossal entities such as the International Monetary Fund (IMF). In some instances, it does lead us to question whether the IMF 'intentionally' offloaded so much of their holdings of gold onto China. Nonetheless, the team will continue to closely monitor the developments of competing Gen Z favouring currency alternatives vis-a-vis the typical age long established Gen X favoured safe havens to provide you with a better overview. For the week, the team feels rather indifferent on safe havens.
In relation to our highlighted 'populist movement' and the psychological effects it continues to bring upon our modern day society, the team here at EssenceFX would like to reiterate based on what happened in the recent United Kingdom (U.K) elections; there are a large mass of U.K citizens which demand for a change of leadership in the country. With U.K as a precedent, it intrigues us when we anticipate the possibilities and surprises the upcoming German Elections might bring, set to take place on the 24th of September 2017. Nonetheless for the case of the Europeans, a recent update the team of us views as pertinent to the strength of the Euro is that the French Finance Minister Bruno Le Maire stated that he wanted to create a single economic zone to “rival China and the US” as many countries on the continent emerge economically. In our view, the “deepening of economic and monetary union” objective is a difficult one to achieve as there is much public opposition to the idea of a superstate. Nonetheless, deepening global competitiveness as well as positive numbers out of Europe as of late could ignite some fresh considerations in regards to the matter.
In conclusion of this week's write-up, we would like to once again bring your focus back to the bigger picture as we close off with this question: "Can the U.S still hike Interest Rates this year?" If the answer is no, then we urge you to pick out on early trading signals to buy other currency majors pending their own Interest Rate hikes as it would be most certain for these currencies to strengthen against the USD.