Today we started the London session with Construction PMI from UK which came out as slightly negative, however, because of the BOE decision later, the risk event was virtually muted.
BOE released their statement today which was as expected an unchanged result.
However, the statement did had a better GDP outlook with worse inflation.
The interesting thing is that BOE basically provided 2 scenarios for them to either raise the interest rate or cut.
If the wages grow faster than expected because of the economic boom and the inflation continues to rise up, then BOE will tighten the rate.
If the consumption and spending growth slow down significantly, then BOE will cut rate.
So basically, BOE was neutral and in the wait and see mode, it didn’t provide us with too much guidance.
As for the 2 scenarios, i honestly don’t want to make any assumption because the Brexit itself is already a historical new event, the 2 outcomes are all very possible. The economy did not go into recession after Brexit last year, as many economists’ predicted. The inflation also did not scare away the consumption in 2016, as many economists’ thought.
Furthermore, with the new deal negotiation between UK, U.S and the globe, we just don’t have any sheer of conviction as what UK is heading.
As mentioned, because of that it is best to trade GBP as a sentimental currency and don’t hold any bias too strongly.
GBP dropped significantly today because most people were expected a much hawkish statement from BOE, and as usual, market bought the rumour and later sold the fact.
Aside from this major catalyst, we also had non tier one data of U.S unemployment claims, as mentioned this data is usually not important but this week due to the NFP, this data had been quiet focused on. The result was another solid economic evidence for U.S labour market.
It does give us more conviction for tomorrow’s NFP to be a positive outcome.
Then finally in Asian session just now we had the Caixin Manufacturing PMI from China which was negative than expected and previous. As any worry sign of Chinese manufacturing slows down, it will be negative for global sentiment and particularly Australia.
China has also raised the short-term interest rate as a sign to control the debt issue and real estate bubble from speculation. This is a good sign that China has started to implement methods before everything goes out of control. However, this might also discourage the manufacturing and the demand for raw commodities which will effect AUD directly. On the other hand the demand for consumption might go up due to higher currency value.
It’s still too early to say anything but just a notable news, especially the first thing they’ve done after the Lunar New Year holidays.
Equity markets were red from Asian to European and all the way to U.S with mixed closing as Dow went down but S&P closed up.
WTI went up today but lost the momentum.
Here is my current view for the market:
For EUR (fundamentally bearish & sentimentally neutral)
there wasn’t much catalyst today aside from ECB continued to stress the headline inflation had increased due to energy prices. There is no mentioned of exit of QE. On the contrary, Germany continued to express their desire for ECB to exit QE.
I think the EUR is still neutral to fundamental bearish with no major changes should be done from ECB considering the April France election is still a major catalyst for Eurozone.
Sentimentally it still acts as counter parts for major currencies USD & GBP. It’s either a buy or sell.
For USD (fundamentally bullish & sentimentally bearish)
The labour markets have tightened up once again by today’s data to show a solid employment condition in U.S. The interesting thing is that Prelim Nonfarm Productivity q/q has dropped significantly.
This means the wages are going higher for the works and the average hourly earnings last release did go higher with the same working hours.
As the labour markets tighten up, the wages are expected to go even higher - which means the inflation will also go higher and hence, the higher interest rate for USD is inevitable.
Tomorrow the NFP will give us a certain confirmation of the U.S economy which has been very solid for now, and as mentioned, the only negative catalyst is form Donald Trump and his comments.
For GBP (fundamentally neutral & sentimentally neutral)
As i’ve written on top of this article, because BOE is going to maintain this wait and see mode, we really don’t have a sheer conviction for the future of GBP.
It can really go either way in accordance with different catalyst, my best advice is to trade them in much shorter term and respect the technical levels as they will work greatly when the currency is fundamentally and sentimentally neutral.
The psychology of the price action will tend to guide the market movement.
For CAD (fundamentally bullish & sentimentally neutral)
there is no major catalyst for CAD and it’s still a fundamental bullish currency due to the oil market strength from OPEC members for now. The recent USD weakness has also help CAD tremendously.
Finally, Canadian Energy Minister thought the energy sector will actually get a good deal from the renegotiation of NAFTA.
This is what we thought as well because as mentioned, U.S is benefited tremendously from the resources of Canada, especially now with the protectionism of Donald Trump, he will want to at least ally his closest neighbour, especially when the neighbour has great resources to offer.
For AUD (fundamentally neutral & sentimentally bullish)
Follow by yesterday’s positive data of Trade Balance, AUD had a great run today versus all other currencies regardless of the risk off sentiment of the market.
The continuous weakness of USD and the negative datas from NZD also helped AUD to climb the top of the high yield currency.
However, as Chinese starts to tighten their market, we already saw Asian equities dropped just now, and the tightening might further effect the commodity price, which will cause a direct impact for AUD.
Next Monday we also have RBA rate decision and based on the last soft inflation datas, mixed labour markets and large contraction of GDP to technical recession, the RBA still has chance to surprise the market for a cut.
For NZD (fundamentally neutral & sentimentally neutral)
The weakness of USD has helped to support NZD for this week, it has dropped significantly from the soft employment data report but soon regained strength.
We still like NZD as the fundamental outlook is still pretty good.
For JPY & CHF (fundamentally neutral & sentimentally bullish)
both currencies have no major catalyst but Japan is having more uncertainty as the direct impact from Donald Trump’s comments in regards to currency manipulation.
Abe is also scheduled to meet Trump soon and that should be very interesting.
Nevertheless, because of the current uncertainty, JPY & CHF are actually both sentimentally bullish to buy.
Next week we will have rate decisions from RBA, RBNZ, Brexit vote and more executive orders and comments from Trump.
I do expect the market to be volatile and any negative sentiment will be a great catalyst to buy CHF & JPY.
My current strategy is to have a much shorter timeframe for trading and i’m leaning toward
buying AUD & NZD if they’re on the attractive levels, but because both currencies are at very high levels, maybe not much opportunity for us to get in.
The commodity futures have already been sold off today due to the tighten rate from China, so we might actually find a good level to dip buy AUD & NZD.
buying JPY & CHF when they’re on the attractive levels, especially followings by optimism or risk on sentiment day. I think the overall market is still leaning toward a negative sentiment and getting into JPY & CHF will be a good probable trade.
buying CAD when it’s at good levels but watch out for the action of oil market.
I’m staying out of GBP, EUR, USD and will only use them as a counter part for the above currencies.
Today we started the London session with Construction PMI from UK which came out as slightly negative, however, because of the BOE decision later, the risk event was virtually muted.
BOE released their statement today which was as expected an unchanged result.
However, the statement did had a better GDP outlook with worse inflation.
The interesting thing is that BOE basically provided 2 scenarios for them to either raise the interest rate or cut.
If the wages grow faster than expected because of the economic boom and the inflation continues to rise up, then BOE will tighten the rate.
If the consumption and spending growth slow down significantly, then BOE will cut rate.
So basically, BOE was neutral and in the wait and see mode, it didn’t provide us with too much guidance.
As for the 2 scenarios, i honestly don’t want to make any assumption because the Brexit itself is already a historical new event, the 2 outcomes are all very possible. The economy did not go into recession after Brexit last year, as many economists’ predicted. The inflation also did not scare away the consumption in 2016, as many economists’ thought.
Furthermore, with the new deal negotiation between UK, U.S and the globe, we just don’t have any sheer of conviction as what UK is heading.
As mentioned, because of that it is best to trade GBP as a sentimental currency and don’t hold any bias too strongly.
GBP dropped significantly today because most people were expected a much hawkish statement from BOE, and as usual, market bought the rumour and later sold the fact.
Aside from this major catalyst, we also had non tier one data of U.S unemployment claims, as mentioned this data is usually not important but this week due to the NFP, this data had been quiet focused on. The result was another solid economic evidence for U.S labour market.
It does give us more conviction for tomorrow’s NFP to be a positive outcome.
Then finally in Asian session just now we had the Caixin Manufacturing PMI from China which was negative than expected and previous. As any worry sign of Chinese manufacturing slows down, it will be negative for global sentiment and particularly Australia.
China has also raised the short-term interest rate as a sign to control the debt issue and real estate bubble from speculation. This is a good sign that China has started to implement methods before everything goes out of control. However, this might also discourage the manufacturing and the demand for raw commodities which will effect AUD directly. On the other hand the demand for consumption might go up due to higher currency value.
It’s still too early to say anything but just a notable news, especially the first thing they’ve done after the Lunar New Year holidays.
Equity markets were red from Asian to European and all the way to U.S with mixed closing as Dow went down but S&P closed up.
WTI went up today but lost the momentum.
Here is my current view for the market:
For EUR (fundamentally bearish & sentimentally neutral)
there wasn’t much catalyst today aside from ECB continued to stress the headline inflation had increased due to energy prices. There is no mentioned of exit of QE. On the contrary, Germany continued to express their desire for ECB to exit QE.
I think the EUR is still neutral to fundamental bearish with no major changes should be done from ECB considering the April France election is still a major catalyst for Eurozone.
Sentimentally it still acts as counter parts for major currencies USD & GBP. It’s either a buy or sell.
For USD (fundamentally bullish & sentimentally bearish)
The labour markets have tightened up once again by today’s data to show a solid employment condition in U.S. The interesting thing is that Prelim Nonfarm Productivity q/q has dropped significantly.
This means the wages are going higher for the works and the average hourly earnings last release did go higher with the same working hours.
As the labour markets tighten up, the wages are expected to go even higher - which means the inflation will also go higher and hence, the higher interest rate for USD is inevitable.
Tomorrow the NFP will give us a certain confirmation of the U.S economy which has been very solid for now, and as mentioned, the only negative catalyst is form Donald Trump and his comments.
For GBP (fundamentally neutral & sentimentally neutral)
As i’ve written on top of this article, because BOE is going to maintain this wait and see mode, we really don’t have a sheer conviction for the future of GBP.
It can really go either way in accordance with different catalyst, my best advice is to trade them in much shorter term and respect the technical levels as they will work greatly when the currency is fundamentally and sentimentally neutral.
The psychology of the price action will tend to guide the market movement.
For CAD (fundamentally bullish & sentimentally neutral)
there is no major catalyst for CAD and it’s still a fundamental bullish currency due to the oil market strength from OPEC members for now. The recent USD weakness has also help CAD tremendously.
Finally, Canadian Energy Minister thought the energy sector will actually get a good deal from the renegotiation of NAFTA.
This is what we thought as well because as mentioned, U.S is benefited tremendously from the resources of Canada, especially now with the protectionism of Donald Trump, he will want to at least ally his closest neighbour, especially when the neighbour has great resources to offer.
For AUD (fundamentally neutral & sentimentally bullish)
Follow by yesterday’s positive data of Trade Balance, AUD had a great run today versus all other currencies regardless of the risk off sentiment of the market.
The continuous weakness of USD and the negative datas from NZD also helped AUD to climb the top of the high yield currency.
However, as Chinese starts to tighten their market, we already saw Asian equities dropped just now, and the tightening might further effect the commodity price, which will cause a direct impact for AUD.
Next Monday we also have RBA rate decision and based on the last soft inflation datas, mixed labour markets and large contraction of GDP to technical recession, the RBA still has chance to surprise the market for a cut.
For NZD (fundamentally neutral & sentimentally neutral)
The weakness of USD has helped to support NZD for this week, it has dropped significantly from the soft employment data report but soon regained strength.
We still like NZD as the fundamental outlook is still pretty good.
For JPY & CHF (fundamentally neutral & sentimentally bullish)
both currencies have no major catalyst but Japan is having more uncertainty as the direct impact from Donald Trump’s comments in regards to currency manipulation.
Abe is also scheduled to meet Trump soon and that should be very interesting.
Nevertheless, because of the current uncertainty, JPY & CHF are actually both sentimentally bullish to buy.
Next week we will have rate decisions from RBA, RBNZ, Brexit vote and more executive orders and comments from Trump.
I do expect the market to be volatile and any negative sentiment will be a great catalyst to buy CHF & JPY.
My current strategy is to have a much shorter timeframe for trading and i’m leaning toward
buying AUD & NZD if they’re on the attractive levels, but because both currencies are at very high levels, maybe not much opportunity for us to get in.
The commodity futures have already been sold off today due to the tighten rate from China, so we might actually find a good level to dip buy AUD & NZD.
buying JPY & CHF when they’re on the attractive levels, especially followings by optimism or risk on sentiment day. I think the overall market is still leaning toward a negative sentiment and getting into JPY & CHF will be a good probable trade.
buying CAD when it’s at good levels but watch out for the action of oil market.
I’m staying out of GBP, EUR, USD and will only use them as a counter part for the above currencies.