Weekly Forex Review – Week Commencing 27th March 2017
The effect of the abandoned Obamacare replacement vote was manifest: a gap down and a move down in the USD index and global equity indices.
The ECB continue to paint a more neutral picture: Weidmann said the ECB are not yet seeing sustainable price growth, but would like to see less expansionary monetary policy.
A light day on the calendar.
BoE’s McCafferty stated that the BoE will be raising rates when the economy is strong enough and he personally does not know if he will vote for a hike soon. However, he did later state that he only has a limited tolerance for inflation overshoot. (Newswires)
The news was dominated by the UK government’s triggering of Article 50 and the immediate reaction from the EU.
The financial calendar yielded no significant news.
European Central Bank policymakers are wary of making any new change to their policy message in April after small tweaks this month upset investors and raised the specter of a surge in borrowing costs for the bloc’s indebted periphery. That’s according to Reuters. One ECB source said the bank has been overinterpreted by markets at its March 9 meeting. Taken aback when markets started to price in an interest rate hike early next year, policymakers are keen to reassure investors that their easy-money policy is far from ending, suggesting reluctance change message before June, six sources in and close to the Governing Council indicated.
US Final GDP exceeded expectations at 2.1% vs 2.0%.Market Reaction
CAD GDP m/m exceeded expectations (0.6% vs 0.3%).
The week started risk-off as the market digested Trump’s failure to deliver his Obamacare replacement, casting doubt on his abilities to deliver measures that had buoyed the markets, for example his planned reflationary instrastructure spending. However, risk-on sentiment soon returned and the USD index rose each day from Tuesday onwards. The S&P500 rose over the week as well. Oil recovered to over USD50/bbl and gold was essentially flat over the week. US 10 Year Treasuries were flat on the week. The major moves on the currency markets included four straight days of decline for the EUR, the appreciation of the CAD, and an appreciation in the AUD, driven by the expectation of improved copper prices. The GBP was down then up, exiting the week with a gain. The JPY was flat and then a weakening followed by a strengthening left it flat on the week. So, in summary – an early Trump-wobble quickly evaporated and the market became moderately risk-on.
Two trades closed last week. Trade 17 (Japan 225 long) exited (twice) at breakeven. Trade 18 (EURUSD short) exited for a gain of 0.61%. Monthly performance is + 4.37% and year-to-date is + 4.33%.
Weekly Forex Outlook – Week Commencing 3rd April 2017
Mon – AUD retail sales
Tues – AUD cash rate
Wed – USD FOMC Meeting Minutes; USD ADP Non-Farm Employment Change
Fri – USD Average Hourly Earnings and Non-Farm Employment Change
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