Weekly Review and Outlook 7th August 2017

Mark NugentAug 2016, Trading Plan

Weekly Forex Review – Week Commencing 31st July 2017

Economic Calendar

Over the weekend:

Nothing.

Monday

ECB’s Mersch stated monetary accommodation is still needed and ongoing expansion in the euro area offers confidence. Mersch also stated that risks to the euro area growth may be to the upside and that headline inflation is dampened by weak energy prices, but added that underlying inflation is to rise gradually. (Newswires)

BoJ minutes from June 15th – 16th meeting stated that members agreed policy needs to be keep easy as price target is still distant. The minutes also reiterated that financial conditions were highly accommodative and that Japan’s economy has been turning towards a moderate expansion. (Newswires)

EUR Headline CPI Flash Estimate hit expectation at 1.3%. The Core number beat expectation (1.2% vs 1.1%).

US President Trump removed Scaramucci from the White House Communications Director role, removing any chance of a USD rally.

Tuesday

RBA kept rates unchanged as expected and mentioned the detrimental effects of a higher AUD, but stopped short of significantly jawboning the currency.

RBA kept the Cash Rate at 1.50% as expected and stated that it judged steady policy steady was in line with policy target.RBA also stated that higher AUD weighing on price pressures and would slow the economy, but added that growth is expected to pick up to around 3%. (Newswires)

GBP Manufacturing PMI beat expectation (55.1 vs 54.4).

EUR Prelim Flash GDP hit expectations at 0.6%.

USD Core PCE Price Index hit expectations at 0.1%.

US API Crude Oil Inventory Report (Jul 28) W/W 1779K (Prev. -10200K).

Wednesday

GBP Construction PMI misses (51.9 vs 54.3).

Thursday

GBP Services PMI came in on target (53.8 vs 53.6).

BoE Super Thursday:

Interest rates kept unchanged at 0.25% by an expected 2-0-5 vote (3-0-5 last time).

Asset Purchase Facility (QE) also unchanged by a unanimous vote (0-0-8).

BoE August Quarterly Inflation Report (QIR) Summary:

Forecasts:

Growth: 2017: 1.7% (Prev. 1.9%), 2018: 1.6% (Prev. 1.7%), 2019: 1.8% (Prev. 1.8%)

Inflation: 2017 Q3: 2.7% (Prev. 2.6%), 2018 Q3: 2.6% (Prev. 2.6%), 2019 Q3: 2.2% (Prev. 2.2%), 2020 Q3 2.2%

Average Weekly Earnings: 2017: 2.0% (Prev. 2.0%), 2018: 3.0% (Prev. 3.5%), 2019: 3.25% (Prev. 3.75%)

Unemployment: 2017 Q3: 4.4% (Prev. 4.7%), 2018 Q3: 4.5% (Prev. 4.7%), 2019 Q3: 4.5% (Prev. 4.6%), 2020 Q3 4.4%

*Above forecasts are based on the APF stocks, corporate bond stocks and TFS remaining at their current levels over the forecast period. Furthermore, market implied expectations suggest two rate hikes over the forecast period compared to just one seen in the May report with the first of those at around Q3 2018 (May exp. Was Q4 2018).

Key Judgements

1: Significant upward pressure on inflation from import prices eases only in H2 of the forecast period

2: As the remaining slack in the economy is absorbed, domestic price pressures gradually increase

3: Consumption grows at a subdued pace, broadly in line with households’ real incomes

4: Global growth remains strong, supporting UK net trade and investment in the face of continued uncertainty around Brexit

RBA Monetary Policy Statement: recent AUD rise had a modest effect on GDP and inflation forecast and that further strength in the currency would reduce economic growth and inflation. RBA also maintained its inflation forecast through to 2019, but lowered its GDP forecast for 2017 by 50bps to between 2.0%-3.0% from 2.5%-3.5%. (Newswires)

US Special Counsel Mueller impanelled a Washington grand jury in the Russia probe, which suggested the investigation is intensified rather than cooled down. (Newswires)
Friday

USD Average Hourly Earnings met expectations at 0.3%.

Non-Farm Employment Change beat expectations at 209K vs 182K.

Market Reaction

The USD rose significantly on Friday ending up on the week. Equities were mixed with the Dow30 being the best US performer, closing at a new all-time high. The FTSE100 and FTSE250 both rose on Thursday and Friday, ending up on the week. The Euro50 did likewise. Oil consolidated and gold dropped. The US 10 Year yield dropped over the week. On the currency markets, the EUR felt the effects of the USD strength on Friday, but was still up over the week. The JPY strengthened. The GBP was down over the week, after the BoE on Thursday took the wind out of its sails. Commodity currencies all ground down over the week.

Trading Plan

Two trades were opened during the week and remained so at the close: Trade 50 (EURUSD long) and Trade 51 (Dax30 long). Month-to-date performance +0.00% and year-to-date performance is +11.9%.

Weekly Forex Outlook – Week Commencing 7th August 2017

Economic Calendar

Over the weekend:

Nothing.

In the news:

Nothing

Mon – Nothing

Tues – Nothing

Wed – NZD Official Cash Rate, Rate Statement and Monetary Policy Statement

Thurs – Nothing

Fri – USD Core and Headline CPI

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Here is your Weekly Review and Outlook video.

I discuss last week’s trades at 9:45 and this week’s trading plan at 16:20.

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Profiles are HERE (Trades) and HERE (Dashboard).


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