Weekly Review and Outlook 1st May 2017

Mark NugentMay 2017, Trading Plan

Weekly Forex Review – Week Commencing 24th April 2017

Economic Calendar

Over the weekend:

The French election first round was on Sunday. Macron and Le Pen went through to the second round as per the polls, with the expectation that Macron will win in the second round. There has been a relief rally in the EUR and global equities have gapped up on Monday morning. The JPY has also gapped up (weakening) on the improved risk sentiment.

US President Trump said he will unveil a tax plan this week in which businesses and individuals will receive a “massive tax cut” under a tax reform package. Trump stated that the tax cuts will be bigger than any tax cut ever and will be released on Wednesday or shortly thereafter. (AP) However, there were separate reports that that suggested the timing of the tax plan is in dispute as his budget director, Mick Mulvaney, said it might not come until June. (WSJ)

US Congress and White House could be facing a government shutdown over administration demands to find funds for a border wall, while other reports suggest officials are unsure if President Trump will sign funding bill without money for the border wall heading into the expiry of the congressional deal to fund government at midnight on Friday. (Politico/Guardian)

Monday

The US has stated its formal intention to impose a 20% import duty on Canadian timber and are threatening to do likewise on dairy products.

The closing of an import restriction in ultra-filtered milk from the US to Canada has caused a decline in the NZD as it is viewed that this will have a negative impact on global dairy prices.

North Korea conducts a huge live-fire drill to mark the 85th anniversary of the foundation of the Korean People’s Army. A US submarine docks in the South Korean port of Busan.

Tuesday

US administration official confirmed that President Trump’s tax plan is to be released on Wednesday, which will reduce tax on repatriation of corporate profits from overseas to 10% and cut the tax rate on pass-through businesses to 15% from 39.6%. (Newswires)

Wednesday

Australian CPI q/q coming in at 0.5% vs 0.6% expectation.

The Trump administration’s tax plans confirmed a 15% corporation tax and simplification of the tax brackets for individuals. More details to come. (CNBC)

Canadian Core Retail Sales beat expectation (-0.1% vs -0.2%). The headline figuire missed (-0.6% vs 0.0%).

There were initial reports that US President Trump was said to be close to notifying countries of his intent to withdraw from the NAFTA. However, it was later reported that Trump agreed to not terminate NAFTA ‘at this time’ following conversations with Mexican President Pena Nieto and Canadian PM Trudeau. (Newswires)

Thursday

BoJ maintained its QQE with yield curve control policy and the interest rate at -0.10% as expected. BoJ raised its economic assessment and stated that Japan’s economy is turning towards moderate expansion. BoJ also said Japan is likely to see inflation hit 2% target around fiscal 2018, although added that momentum towards target is lacking and that risks for economy and prices are tilted to the downside. (Newswires)

ECB kept rates unchanged at 0.00%. Draghi says there is no need to discuss sequencing (hiking rates before the end of QE) at this time; ECB not sufficiently confident that inflation is on track. Draghi wraps up his opening statement as markets focus on his comments that risks to the downside are diminishing and are moving towards being more broadly balanced. Goes on to say net purchases of EUR 60bln/month to continue to end of 2017 or beyond if necessary and reiterates that rates will remain at present or lower levels for an extended period of time.

Friday

Tokyo Core CPI was still deflationary but beat expectation (-0.1% vs -0.2%).

UK Prelim GDP missed at 0.3% vs an expectation of 0.4%.

Canadian GDP also missed (0.0% vs 0.1%) as did US Advanced GDP (0.7% vs 1.3%).

Market Reaction

After Sunday’s French election the sentiment was positive. The EUR rose and global equities gapped up and continued up. The market was risk on. This lasted into Tuesday. By weekend, there was widespead equity consolidation, oil consolidation and a dropping gold price. US 10 Year moved in a tight range. As well as the rise in the EUR, the GBP broke out of its consolidation zone and the JPY weakened. CAD continuted down on trade issues with the US and the AUD and NZD also fell.

Trading Plan

Trade 21 closed (Japan 225 long) for a gain of 2.08% on risk of 0.53%. Performance in April was +3.12% and year-to-date is +7.58%.

Weekly Forex Outlook – Week Commencing 21st May 2017

Economic Calendar

Mon – US Core PCE hit expectations at -0.1%.

Tues – BoJ minutes for March 15th-16th meeting stated that Japan’s economy continued moderate recovery trend and exports picked up. Minutes also stated that members agreed inflation lacked strength and that it was not appropriate to raise the yield target because yields rose overseas. (Newswires)

RBA kept the Cash Rate unchanged at 1.50% vs. Exp. 1.50% (Prev. 1.50%), while it reiterated that unchanged policy is consistent with sustainable growth and achieving inflation target. RBA also commented that higher commodity prices give significant support to Australia’s national income and that a broad-based pick up was seen globally since last year. (Newswires)

Wed – US Fed Funds Rate and Statement; UK Construction PMI

Thurs – UK Services PMI; ECB President Draghi speaks; BOC Gov Poloz speaks

Fri – RBA Monetary Policy Statement; US Average Hourly Earnings and Non-Farm Payroll; Fed Chair Yellen speaks

Final round of French presidential election (Sunday 7th May).

Financial News

Draghi’s solid and broad Euro area recovery in five charts

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