WEEKLY REVIEW: 11th September 2017
THE WEEK AHEAD
Market moving numbers: 11th September – 15th September 2017:
This third week past the American Non Farm Payrolls (NFP) release once again brings about some exciting American data to look forward to. The American Core Consumer Price Index (CPI) and American Retail Sales for August 2017 will be released sometime during the end of the week. If both these economic releases turn out to be anything more than mildly positive, it would very likely tilt the United States (U.S) Dollar (USD) to be the stronger performer for the week. However, the team here at EssenceFX opines that the focal point for the week is to look out for solid reversal signals if a positive U.S CPI and U.S Retail Sales scenario were place; this will most certainly further build on the chance of a final Federal Open Market Committee Interest Rate hike.
Delving deeper into Interest Rates, ranking at the top of economic data anticipation by traders would the case of the Bank of England's Interest Rate Decision. Ignoring oftentimes mainstream rhetoric on the United Kingdom (U.K) post Brexit, the various Purchasing Managers Index (PMI) releases out of the U.K have been largely positve supported by a weaker Pound Sterling (GBP) and moving along this third quarter of the year, the team here at EssenceFX opine that would have already built in to form a positive overall Consumer Price Index (CPI) and employment translation; both August 2017 results for these two economic data's to be released during the early half of this week. In the event that the two preceding U.K data's come off as favorable; it would then be interesting to reassess on whether a U.K Interest Rate hike could take place as soon as this week during the Bank of England's (BoE) Interest Rate Decision sometime towards the end of the week. In essence, the team of us here opine that positive preceeding data should at least encourage for a 'shift in tone' for the regulators which could translate into some strenghtening for GBP related pairs. The team here at EssenceFX opine that at least for the case of the GBP/USD, we could potentially see a rise to the 1.3270 level this week.
On a less important yet potentially significant note, the team notes that the Swiss National Bank (SNB) shows some (although very minimal) chance in our opinion of inching up their rates slightly from their negative 0.75% zone to alleviate some pain off depositors. The team here at EssenceFX think that due to the recent tensions between North Korea and the U.S which contribute to investor preferences of holding the safe haven Swiss currency (CHF), regulators are unlikely to change Interest Rates as this would strenghten the CHF and bolster it's safe haven status even further. Due to the same reason, if an Interest Rate hike were to occur, traders and investors may expect huge strenghtening of the CHF to take place. In addition to this, the Australians are set to release their August 2017 Employment Change data sometime during midweek. If positive, the team views this to continue to build on the momentum of an already strenghtening Australian Dollar (AUD). Overall, the team here at EssenceFX remains most bullish on the AUD over the longer term given certain major supporting factors as discussed before here.
In regards to global politics, the highlight for the week in our opinion would be North Korea's statement as follows: "The Democratic People's Republic of Korea (DPRK) is ready and willing to use any form of ultimate means; the forthcoming measures to be taken will cause the U.S the greatest pain and suffering it had ever gone through in it's entire history". Translated into financial relevance, this drove markets crazy; spiking the demand for safe havens assets, propelling gold well above the 1,300 level. The escalating political tensions has sparked much safe haven demand as of late. China continues to remain less verbal in regards to matters pertaining North Korea. Formerly U.S President Donald Trump expressed his dissatisfaction towards China over their inability to curb North Korea's nuclear ambitions. This comes in response after reports indicated that the North Korean economy recorded it's highest GDP growth in 17 years despite ongoing sanctions; speculatively largely attributed towards their dealings with China. In regards to this, what's also interesting to note is that while 18 countries wanted a strong statement on the intercontinental ballistic missile test launched by North Korea, two countries namely, Russia and China found it unnecessary for North Korea to provide an explanation. Trade between China and North Korea grew almost 40% in the first quarter. Coincidence or not? We shall let you decide.
In addition to that, safe haven demand was also bolstered by a very heavy blow to cryptocurrencies; Chinese regulators have started a campaign to ban initial coin offerings (ICO) in the country. Bitcoin in particular, has proved to be a popular financial transfer vessel since China's strict regulation on capital outflows. This move follows as a result of pressure the Chinese regulators are facing to keep the local currency stable.
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, this month. 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.
Several recent developments have caused us to reassess our take on gold 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 haven to provide you with a better overview. For the week, the team feels rather indifferent on safe havens, with a slightly negative bias in occurence of a highly positive U.S CPI and Retail Sales release.
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.