WEEKLY REVIEW: 5th February 2017
THE WEEK AHEAD
Market moving numbers: 5th February – 9th February 2018:
The highlight of the week which is expected to bring about the most volatility would be the Interest Rate Decisions due by three central banks namely the Reserve Bank of Australia (RBA), The Reserve Bank of New Zealand (RBNZ), and the Bank of England (BoE). Interestingly for the week, the team at EssenceFX notices that both the equity and cryptocurrency market tumbled tremendously with the Dow Jones plunging by 4.6%, the S&P500 by 4.1%, the FTSE100 by 2.6%, and Bitcoin, the prime cryptocurrency benchmark indicator moving to as low as the USD$5,900 level. This somewhat 'black Monday' looking phenomena was attributed much to the overall growing strength witnessed in the United States (U.S) economy post favorable economic data (i.e NonFarm Payrolls (NFP and unemployment) which indicates that the Federal Open Market Committee (FOMC) might step in to raise interest rates sooner than expected. This has also caused the overall U.S Dollar Index to strengthen once again, triggering broad based U.S Dollar (USD) strength across currency markets. The team here at EssenceFX are anticipating for this trend to continue with the exception of the Great Britain Pound (GBP) which we think, might surprise markets with a more positive Interest Rate statement due later this week.
Covering a little on potential regulatory risk, Federal Reserve governor Jerome Powell has effectively sworn in take over Janet Yellen effective this week. 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.
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 to 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 remains less 'ambiguous' now, we urge you to pick out early trading signals to sell other currency majors against the USD as FOMC Interest Rate hikes looms closer for the year as it would be most certain for these currencies to weaken against the USD moving along this 2018.