Forex Analysis for Friday 5th May 2017
UK Services PMI beat expectation (55.8 vs 54.6) as did Construction and Manufacturing earlier in the week.
Friday: RBA Monetary Policy Statement showed inflation and GDP forecast were mostly unchanged from the February statement with GDP forecast for H1 2017 maintained at 1.50%-2.50% and FY 2017 forecast maintained at 2.50%-3.50%. However, RBA upgraded its outlook for H1 2018 by 25bps to 2.75%-3.75% and stated that the expected increase in underlying inflation is still quite gradual, citing low wage growth.
Oil slides through support due to a number of concerns rattling traders:
– Increasing cynicism about OPEC’s ability to ease the global supply glut and producer willingness to extend cuts given that prices haven’t recovered to mid-60’s as some producers would have hoped for.
– Increasing output from US shale producers which will naturally make any re-balancing of the market more difficult
– Demand-side factors with no notable pick-up in demand that some had hoped for with soft Q1 US growth also a cause for concern.
– Increasing production from Libya which is currently exempt from OPEC cuts. Although geopolitics could limit some return of supply to the market for the nation.
– Despite production levels being reduced by OPEC and non-OPEC nations as per the agreement, some have raised questions as to whether nations have been dipping into inventories to keep export levels up.
Sentiment turned risk-off as the concern with oil extended to commodities more generally, with copper and iron ore down. This pushed commodity currencies lower and the JPY has begun to strengthen. The major impact on equities has been the AUS200 which is heading down towards the 50MA. The EUR and Euro50 continue to rise ahead of Sunday’s final round in the presidential election.
US Average Hourly Earnings and Non-Farm Payroll; Fed Chair Yellen speaks.
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