Weekly Forex Review – Week Commencing 16th October 2017
Monday was risk on and that remains the position this morning.
Brexit impasse continues with UK PM May said to be against a GBP20b divorce bill.
The USD rises and US equities continue to edge upwards, as does the US 10 Year yield. UK equities show Brexit impasse-related weakness. The AUS200 soars on good results from miners. Gold reverses on the positive risk tone and the strengthening USD. The JPY remains flat, not reacting to the risk tone. The GBP makes a small move down, biding its time while PM May negotiates in Brussels.
Early today, RBA minutes from 3rd Oct meeting say their rate decisions are based on their domestic economy and will not move “mechanically” in tandem with rate hikes elsewhere. They then reiterated their stance that steady policy is consistent with growth and inflation goals and that further strength in AUD would result in slower growth and inflation.
Tuesday was risk on. The USD rose as it was reported that Trump was likely to appoint the hawk Taylor as next Fed Governor. Announcement expected before Trump leaves for Asia on 3rd November. Final CPI in the Euro Zone was on track, both Headline and Core. UK CPI was on track at 3%. BoE Governor Carney was in front of the Treasury Select Committee and his general comments on Brexit were interpreted as being bearish.
US equities grind upwards. Elsewhere equities are flat. Gold continues down. The US 10 Year yield was flat on the day but has recommenced its upwards direction this morning. The GBP drops on Carney’s comments and PM May’s inability to generate positive news on the Brexit front. Currencies are all essentially rangebound.
This morning, GBP Average Earnings beat expectation and the prior number was revised up.
Yesterday saw UK Average Earnings beat expectations, fuelling the chances of an interest rate hike.
There was some good news on the Brexit front, with EU’s Tusk saying that there is promising progress in Brexit talks with London and that he will recommend the start of internal preparations for the next phase of Brexit talks. However, Tusk later added that he doesn’t expect any breakthrough in Brexit talks today and that concrete proposals are needed from the UK. (Newswires)
We remain risk-on with US equities rising, USD flat, Gold dropping, US 10 Year yield rising and the JPY weakening. The NZD drops on political uncertainty as post-election coalition building is proving difficult.
My Gold trade continues to perform.
Early today we saw Chinese GDP and Industrial Production meet expectations.
The USD moves up after the US Senate voted to adopt a budget resolution, which paves the way for Trump’s desired tax overhaul. US equities rise and gap up today. There are some encouraging words out of Brussels, supporting UK equities which had been down. Gold had risen but the strong USD pushes it back down. US 10 Year yield rises. The JPY weakens. We had gone slightly risk-off during the day yesterday but are now firmly risk-on again. The EUR rises to resistance despite the strong USD.
The NZD drops by 2% on political issues. Overnight, Winston Peters of NZ First announced that his party would back the opposition and not the incumbent party. The coalition is expected to make the 37-year old Jacinda Ardern the new PM. The platform has argued for full employment, limiting immigration, and understanding that “[NZ] start to return to an economy that realizes that we live or die by exports.” (Daily FX)
Themes for the week were:
1. GBP sentiment – PM May’s visit to EU and economic data will drive the GBP this week.
No real direction until Brussels love-in on Friday when the GBP rose.
2. Looking for equity pullbacks to go long.
3. Gold – looking for a short when current pullback is over.
Took the trade on Monday night. Currently doing well.
Weekly Forex Outlook – Week Commencing 23rd October 2017
Over the weekend, PM Abe wins re-election in Japan with a supermajority, consolidating his expansionist economic policy, i.e. more QE and paving the way for constitutional change.
Spanish PM Rajoy dissolves the Catalan parliament andplans to hold elections within 6 months.[mepr-hide if=”loggedin”]
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