WEEKLY REVIEW: 5th March 2018
THE WEEK AHEAD
Market moving numbers: 05th March – 09th March 2018:
In the previous week, the team here at EssenceFX formerly addressed that Federal Reserve governor Jerome Powell was set to give his very first testimony to the markets. Chairman Powell somewhat surprised the markets when he mentioned that there might be a possibility of as many as four Interest Rate hikes out of the Federal Open Market Committee (FOMC) to take place this 2018. The team here at EssenceFX note that this might pave the way for more other Central Banks to factor in bullish statements in regards to Interest Rates moving forward.
In regards to the week, the major highlight viewed by the team of us here at EssenceFX would be the 2018 Italian Elections which brought about more unexpected scenario's just as we have expected. The more 'populist' or 'Eurosceptic' parties in our opinion has potential to place renewed and substantial pressure on the Euro (EUR). This issue will come deeper into light in the upcoming weeks as the anti-EU Five-Star Movement which shocked markets by taking more than 30% of the tally tables out their proposed policies . While the team here at EssenceFX will track this potential pressures in the EUR in the weeks to come, this week in particular brings about perhaps the most volatility for the year as we are set to see as many as 4 Interest Rate Decisions (as per the economic calendar above) coupled with an end-of-the-week United States (U.S) February 2018 NonFarm Payrolls release.
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 lesser demand for safe havens assets due to political risk reasons.
Nonetheless for the 2018, gold continues to rise further towards now the high 1,330 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 since the recent crackdowns made in Korean Cypto Exchanges amidst a growing negative tone by global regulators. 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.
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 'more certain' (post Powell), we urge you to pick out on early trading signals to sell other currency majors in absence of any further Interest Rate hikes for the year as it would be most certain for these currencies to weaken against the USD (pending further optimism on their own interest rate hikes) moving along this 2018.