Weekly Review and Outlook 29th May 2017

Mark NugentMay 2017, Trading Plan

Weekly Forex Review – Week Commencing 22nd May 2017

Economic Calendar

Over the weekend:

Nothing.

Monday

UK PM May made an abrupt U-turn on a key manifesto policy after a very negative poll reaction upon it’s initial announcement last Thursday.

ECB’s Weidmann said normalization should come closer if recovery lifts wages and that Eurozone prices pressures are muted. (Newswires) Elsewhere, commodity linked currencies extended on gains against the greenback following the recent upside across the metals complex.

Saudi Energy Minister Al-Falih said he does not expect any objection within OPEC to extend the deal for 9-months and that the deal will be similar to previous one but with minor changes. Al-Falih added that the Iraqi PM gave the Iraq oil minister permission for an extension of the deal for 9 months. (Newswires) Iraq, Oman and Russia all concur.

Tuesday

UK Police confirmed at least 22 were killed and 59 injured at the Manchester Arena following an explosion which police are treating as a terrorist incident. (Newswires)

Moody’s downgraded China’s sovereign credit rating to A1 from AA3; outlook revised to stable from negative. Moody’s commented that the rating reflects expectations that China’s financial strength will erode somewhat over the approaching years. (Newswires)

The IMF and German Finance Minister Schauble are said to have reached an agreement on Greek bailout with the IMF willing to participate in the program if Greece proves debt is sustainable. (Handelsblatt)

Wednesday

FOMC Minutes

– FOMC minutes show the Committee thought it was prudent to wait for further evidence that recent weak data was transitory before hiking again.
– Fed staff presented a plan to set gradually increasing limits on balance sheet reinvestment that would start low and be raised every 3 months until fully phased in; nearly all Committee members viewed the proposal as favourable.
– USD and treasury yields backed up following the release as the Fed sounded a little more uneasy about the domestic economic outlook (although it suggested that the assessment of the economy had changed little since the March policy meeting) and no real detail was given on balance sheet normalisation.

In Canada, the Overnight Rate was kept at 0.5% as per expectation.

Thursday

In the UK, Second Estimate GDP missed at 0.2% vs 0.3%.

Oil prices extended on yesterday’s 5% losses, with WTI crude futures firmly below USD 49/bbl on disappointment after OPEC extended the output cut deal by 9 months as expected, but refrained from deeper cuts. Furthermore, there was no option for a 3-month extension of the deal and no extra countries added to the deal, while Libya and Nigerian production still had no upper bound.

Fed’s Bullard (Non-Voter, Dove) stated that prices have begun to deviate noticeably from 2% inflation path and that lagging price level is worrisome. (Newswires)

Fed’s Williams (Non-Voter, Hawk) repeated that his view for 3 hikes this year is appropriate and stated that the US economy is performing somewhat hot. Williams also commented that the Fed should release balance sheet details in the approaching months and begin trimming this year, while he further added that balance sheet reductions should be gradual and on auto-pilot. (Newswires)

Friday

Tokyo Core CPI exceeded expectations (0.1% vs 0.0%).

US Preliminary GDP beat expectations at 1.2% vs 0.9%.

Market Reaction

The Markets started the week with improved risk sentiment. This dulled somewhat with the dovish Fed announcement on Wednesday. The S&P500 made new all-time highs and closed above the 2400 handle. US 10 Years saw little change over the week. UK equities moved up slowly. Oil was hammered on Thursday when the OPEC meeting failed to make deeper cuts to production caps. As of today (30th), half of this drop has been recovered and the oil price is stuck at support/resistance around USD50/bbl. The USD rose slightly over the week. GBP dropped as polls narrowed. The JPY weakened Monday to Thursday and then gained it all back on Friday. Commodity currencies remain rangebound.

Trading Plan

Two trades closed lasy week. Trade 27 (WTI long) closed at breakeven and Trade 28 (USDJPY long) closed for a loss of 0.5%. Trade 29 (S&P500 long) remains open with stop at breakeven. Month-to-date performance is +1.4% and year-to-date performance is +9.09%.

Weekly Forex Outlook – Week Commencing 29th May 2017

Economic Calendar

Over the weekend: North Korea tests another missile.

Fed’s Williams (Non-Voter, Soft Hawk) stated the Fed will begin shrinking balance sheet later this year. Williams added US has reached and surpassed full employment and that inflation is moving towards 2% within a year or so. (Newswires)

US President Trump tweeted that the massive tax cuts/reforms he submitted is moving along the process very well and ahead of schedule, while he also suggested increasing spending for healthcare. (Newswires)

US President Trump’s son-in-law and advisor Kushner reportedly had undisclosed communication with Russian ambassador Kislyak on at least 3 occasions via telephone calls between April and November last year, according to press reports. Furthermore, there were also reports that Kushner is under pressure to take a leave of absence from the White House and that the US Senate Intelligence Committee has requested all Trump campaign documents since 2015. (Newswires)

Mon – UK, US Bank Holiday and Chinese Dragon Boat Festival.

Greece is back! EUR saw pressure overnight amid reports Greece could opt out of their next payment if creditors fail to agree on debt relief.

Right now (Tuesday 30th, 9am BST), global equities are steady, oil and gold are static, the JPY is weakening after strengthening, the GBP is recovering, the EUR is dropping on the Greece debt news and commodity currencies remain range-bound.

Tues – US Core PCE

Wed – Eurozone CPI Flash Estimate; CAD GDP

Thurs – GBP Manufacturing PMI; ADP Non-Farm Payroll

Fri – US Average Hourly Earnings and Non-Farm Employment

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