Weekly Market Commentary

Released Monday, 01 May 2017

Last week recap

Continued its rally, gaining sharply last week as centrist Emmanuel Macron won the first round in the French presidential election, the ECB left rates unchanged, and U.S. President Trump’s tax plan failed to impress the market. The week began with the rate initially gapping higher to 1.0904 and then falling to make its weekly low of 1.0820 on Monday after the results of the French election revealed that Emmanuel Macron had won the first round with 23.75% of the vote, followed by Marine LePen, who got 21.53%. Both candidates will face each other on May 7th for the final runoff. Both of the other candidates, Francois Fillon and Benoit Hamon endorsed Macron over LePen, with pro-Euro Macron expected to easily beat LePen next Sunday. Monday’s economic data had German Ifo Business print at 112.9 compared to an expectation of 112.4. The pair extended its gains on Tuesday after the U.S. CB Consumer Confidence index printed at 120.3 disappointing the market that was expecting a reading of 123.7, nevertheless, U.S. New Home Sales showed an annualized +621K compared to an expected 590K. On Wednesday, the rate made its weekly high of 1.0949 after the release of U.S. President Trump’s tax reform plan, which will have the corporate tax rate reduced to 15% from 35% and reduce the number of tax brackets from seven to three (10%, 25% and 35%). The pair then sold off on Thursday after the ECB left its benchmark Minimum Bid Rate unchanged at 0.0% as was widely anticipated. In the introduction to the associated Press Conference, ECB President Draghi noted that, “A very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase our asset purchase programme in terms of size and/or duration.” U.S. data on Thursday included Core Durable Goods Orders, which showed a decline of -0.2% m/m versus an expected increase of +0.4%, while the headline number showed an increase of +0.7% compared to an expectation of +1.5%. The rate gained a fraction on Friday after U.S. Advance GDP increased by +0.7% q/q versus +1.3% anticipated, while EZ CPI Flash Estimate increased by +1.9% y/y compared to +1.8% expected, and German Retail Sales, which increased by +0.1%, in line with expectations. EUR/USD closed at 1.0898, with an overall gain of +1.6% from its previous weekly close.
Extended its previous week’s gains last week as the BOJ left its benchmark Policy Rate unchanged with mixed economic data from both countries. The week began with the rate gapping up and subsequently selling off on Monday in the absence of any significant data out of either country. The pair then rallied after making its weekly low of 109.58 on Tuesday after BoJ Deputy Governor Kikuo Iwata stated that “the BOJ is carrying out a simulation based on several assumptions of an exit strategy.” Nevertheless, Iwata said that Japan is still far from meeting its inflation target of 2%. On Wednesday, the pair consolidated after making its weekly high of 111.77 as U.S. President Trump unveiled his tax reform plan. The rate then gained a fraction on Thursday after the BOJ left its Policy Rate unchanged at a negative -0.10% and the size of yearly asset purchases at JPY 80T, as was widely anticipated. In the BOJ’s quarterly Outlook for Economic Activity and Prices report, the central bank noted that, “Japan’s economy has been turning toward a moderate expansion,” which was the first time the BOJ has used the term “expansion” since March of 2008 in assessing domestic economic conditions. The pair gained another fraction on Friday after Japanese Household Spending declined by -1.3% y/y, more than double the expected decline of -0.6%. USD/JPY closed at 111.38, with a gain of +2.1% for the week.
Extended its previous week’s gains last week as UK PM May met with the EU’s Jean Paul Juncker and despite lower than expected data from the UK. Cable began the week making its weekly low of 1.2771 on Monday in the absence of any significant data out of either country. The rate gained a fraction on Tuesday despite UK Public Sector Net Borrowing, which increased to 4.4B compared to an expectation of 2.6B. On Wednesday, Cable consolidated after UK PM Theresa May met with European Commission president Jean-Claude Juncker on the Brexit process. The meeting, which included chief Brexit negotiator Michel Barnier, was held at 10 Downing Street. A Number 10 spokesman said that, “The PM had a constructive meeting this evening with president Juncker of the European Commission. Following the UK's letter of notification under Article 50, she reiterated the UKs commitment to achieving a deep and special partnership with the European Union.” The rate resumed its rally on Thursday after lower than expected U.S. Durable Goods Orders data. Cable then made its high of 1.2964 on Friday despite UK Preliminary GDP, which increased by +0.3% q/q, just missing the expectation of +0.4%. GBP/USD closed at 1.2946, with a gain of +1.1% from its previous weekly close.
Continued selling off last week, losing fractionally as all the commodity currencies were pressured by the price of crude oil, which traded below the $50 per barrel handle all week. The week began on a quiet note, with the rate consolidating after making its weekly high of 0.7583 on Monday as Australia observed a bank holiday, with no significant data out of the United States. The pair resumed its selloff on Tuesday after mixed U.S. housing and consumer confidence numbers. On Wednesday, the rate continued pressured after Australian CPI and Trimmed Mean CPI both increased by +0.5% q/q, in line with expectations. Thursday saw the pair consolidate after making its weekly low of 0.7439 after a speech by RBA Governor Phillip Lowe, speaking about the Chinese RMB, he noted that, “The effects of this transition – involving the internationalisation of the RMB and the opening up of the capital account – could ultimately be as wide-ranging as were the effects of Chinas ascension to the World Trade Organisation.” The rate then gained fractionally on Friday after mixed U.S. economic numbers. AUD/USD closed at 0.7487, with an overall weekly loss of -1.0%.
Extended its previous week’s gains last week as the price of crude oil continued under pressure and Canada reported lower than expected economic numbers. The rate began the week gaining after making its weekly low of 1.3410 on Monday as Canadian Wholesale Sales declined by -0.2% m/m, significantly lower than the expectation of +2.1%. The pair extended its gains on Tuesday after mixed U.S. economic numbers. On Wednesday, the rate added another fraction after Canadian Retail Sales declined by -0.6% m/m compared to an expected flat reading, while Core Retail Sales declined by -0.1%, beating market expectations of -0.2%. Thursday saw the pair consolidate at a slightly higher level despite lower than expected U.S. Durable Goods Orders data. The rate then made its weekly high of 1.3696 on Friday after Canadian GDP came out with a flat reading compared to an expected increase of +0.1%, while RMPI declined by -1.6% m/m versus -0.4% anticipated. USD/CAD closed at 1.3655, with a gain of +1.2% for the week.
Reversed direction, trading lower last week as asset flows favoured the Greenback over the Kiwi with very little significant economic data out of New Zealand. The rate began the week making its weekly high of 0.7046 on Monday as New Zealand observed a bank holiday with no significant data out of the United States. The pair continued its slide on Tuesday after mixed U.S. economic numbers. On Wednesday, the pair extended its losses after mixed U.S. housing and consumer confidence data. The rate the made its weekly low of 0.6847 on Thursday despite dismal U.S. Durable Goods Orders data. Friday saw the pair consolidate at a slightly lower level after New Zealand ANZ Business Confidence printed at 11.0 versus a previous reading of 11.3. NZD/USD closed at 0.6859, with a net loss of -2.4% from its previous weekly close.


The week ahead

AUD The Australian economic calendar is somewhat active this coming week, featuring the RBA Rate Decision on Tuesday. Monday offers nothing notable, so Tuesday starts the week’s highlights off with the RBA’s Cash Rate Decision (unchanged at 1.50%) and the RBA Rate Statement. Thursday then offers the Trade Balance (3.33B) and a speech by RBA Governor Lowe, while Friday’s important data then concludes the week with the RBA’s Monetary Policy Statement. Resistance for AUD/USD is seen at 0.7718/0.7834, 0.7583/0.7679 and 0.7490/0.7524, with support noted at 0.7439/72, 0.7369 and 0.7222/0.7310.

CAD The Canadian economic calendar is sparse this coming week, only featuring the Trade Balance (0.3B) and a speech by BOC Governor Poloz on Thursday, followed by the Employment Change (20.0K), the Unemployment Rate (6.70%) and Ivey PMI (62.3) on Friday. Resistance for USD/CAD is seen at 1.4689, 1.4001 and 1.3696, while support shows at 1.3534/1.3638, 1.3367/1.3495 and 1.3263/1.3312.

EUR The Eurozone economic calendar is fairly active this coming week, featuring jobs data on Wednesday. Monday will be a French, German and Italian Bank Holiday. In addition, it will offer the release of the EU Economic Forecasts to start the week’s highlights off. Tuesday’s key events include Spanish Manufacturing PMI (54.3), while Wednesday offers the Spanish Unemployment Change (21.3K), German Unemployment Change (-10K) and the EZ Preliminary Flash GDP (0.50%). Thursday then concludes the week’s highlights with a speech by ECB President Draghi. Resistance for EUR/USD is seen at 1.1122/39, 1.1038/45 and 1.0946/64, with support showing at 1.0850/1.0905, 1.0774/1.0828 and 1.0617/1.0718.

GBP The UK economic calendar is quite peaceful this coming week after Monday’s Bank Holiday, only featuring Manufacturing PMI (54) on Tuesday; Construction PMI (52.1) on Wednesday; and Services PMI (54.6) and Net Lending to Individuals (4.5B) on Thursday. Resistance to the topside for GBP/USD shows at 1.3120, 1.3057 and 1.2965, while support for the pair is expected at 1.2902/14, 1.2864 and 1.2774.

JPY The Japanese economic calendar is peaceful this coming week, featuring no notable data. Also, Wednesday, Thursday and Friday will be Japanese Bank Holidays. Resistance for USD/JPY currently shows up at 114.95/115.49, 112.55/113.79 and 111.44/112.19, with support indicated at 110.08/26, 108.12 and 106.94/107.48.

NZD The New Zealand economic calendar is rather quiet this coming week, only featuring the GDT Price Index (last 3.10%), the Employment Change (0.80%) and the Unemployment Rate (5.10%) on Tuesday, as well as Inflation Expectations (last 1.90%) on Friday. The chart for NZD/USD shows resistance at 0.7236/46, 0.6934/0.7172 and 0.6896. On the downside, technical support is expected at 0.6847/61, 0.6707/38 and 0.6674.

USD The U.S. economic calendar is quite busy this coming week, featuring key jobs data on Wednesday and Friday. Monday starts the week’s highlights off with a speech by Treasury Secretary Mnuchin, Core PCE Price Index (-0.10%), Personal Spending (0.20%) and ISM Manufacturing PMI (56.6). Wednesday then offers the ADP Non-Farm Employment Change (178K), ISM Non-Manufacturing PMI (56.1), Crude Oil Inventories (last -3.6M), the FOMC Statement, the Federal Funds Rate Decision (unchanged at <1.00%). Thursday features Weekly Initial Jobless Claims (246K), Preliminary Nonfarm Productivity (0.10%), Preliminary Unit Labor Costs (2.50%), the Trade Balance (-44.9B) and Factory Orders (0.60%). Friday’s important data then concludes the week with Average Hourly Earnings (0.30%), Non-Farm Payrolls (194K), the Unemployment Rate (4.60%) and speeches by FOMC Members Fischer and Evans, as well as Fed Chair Yellen.

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