WEEKLY REVIEW: 22nd January 2018
THE WEEK AHEAD
Market moving numbers: 15th January – 19th January 2018:
Arguably, despite a much anticipated United States (U.S) fourth quarter (Q4) Gross Domestic Product (GDP), the U.S Dollar Index has proven to show a weakening trend since the start of this 2018. Therefore, the team here at EssenceFX forsees the European Central Bank (ECB) Interest Rate Decision to be the most watched news by traders for the week as there might be ample opportunity to buy the EUR on rumour of a more positive Interest Rate statement before selling on fact. In addition to this, the Bank of Japan (BoJ) is also set to announce an interest rate decision however, with largely any changes expected.
Covering a little on potential regulatory risk, Federal Reserve governor Jerome Powell has been named and confirmed by President Trump to take over Janet Yellen effective next February 2018. A recent update which took place on early 2018 indicates that The Senate Banking Committee has approved Fed Governor Jerome Powell to take over as chair of the central bank. A change of leadership usually translates into some policy related uncertainty and hence, could trigger some USD weakness. The team here at EssenceFX encourages our readers to keep up to date with this development. Meanwhile just to point out, this could be the reason the USD has starting to aggresively weaken recently.
In regards to global politics, there now seems to a fresh exchange of words between The United States and North Korea. U.S President Trump quoted that: "North Korean Leader Kim Jong Un just stated that the “Nuclear Button is on his desk at all times.” Will someone from his depleted and food starved regime please inform him that I too have a Nuclear Button, but it is a much bigger & more powerful one than his, and my Button works!". In response, North Korea mentioned that: "Trump’s bluff is regarded by the DPRK as just a spasm of a lunatic frightened by the might of Juche Korea and a bark of a rabid dog". At present, both countries have seemed to form somewhat a silent truce without any direct confrontations taking place. This has led to a fall in the demand for safe havens assets due to political risk reasons.
This has caused gold to further surge towards now the high 1,340 level in addition to the what we'd like to term as 'cryptocurrency bubble risk'. Over the past few weeks, prices of cryptocurrencies have dwindled after news of reported hacks on cryptocurrency exchanges taking place which is now further bolstered by the recent crackdowns in Korean Cypto Exchanges. In a related perspective, several recent developments have also caused us to reassess our longer term 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. One the the team opines moving along this 2018 is that falls in cryptocurrencies has somewhat led to the increase in gold prices, indicating to us a growing tendency of crypto holders cashing out their holdings in crypto and switching in to the age old safe haven (gold) for protection of value.
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 to also reflect on the surprises the recently announced German Elections has brought about, with the far right Alternative for Deutschland (AfD) party gaining strong momentum; resulting to their entry into parliament. The the team here at EssenceFX opines the Italian Elections which is set to take place sometime during 4th of March 2018 to bring about more unexpected scenarios.
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?" Since the answer currently remains as somewhat 'ambiguous', we urge you to pick out on early trading signals to buy other currency majors in absence of any further Interest Rate hikes (with the exception of the Canadian Dollar) for the year as it would be most certain for these currencies to strengthen against the USD moving until further optimism of more interest rate hikes are gathered moving along this 2018.