Here is our weekly recap for the week of Feb 13th - Feb 19th
The biggest event last week were the testify by Janet Yellen in front of the Congress which she surprised the market with a hawkish tone for the future rate policy. It was not a usual stance for the dovish Yellen and on top of that, U.S continued to release strong fundamental datas to back up the policy. The inflation datas, retail datas and manufacturing index were all very positive to support a strong USD.
Meanwhile, the President had meeting with Canadian PM, Israel PM and also held an unschedule press conference, basically things were much neutral compared to previous few weeks when Donald Trump attacked everyone and every nations in the daily basis.
We saw a much unison relationship so far from Donald and other global leaders.
The tax plan also gave the market huge anticipation as the U.S equity markets continued to make new high.
The currency market was generally in an up/down mode last week with no particular catalyst.
This week is a light economic calendar week without too much important fundamental datas. We think the sentiment will still be the main player and we might have another up/down week, or it depends on what’s about to happen in the White House administration.
Our current view for the Market
For EUR (Fundamentally bearish & Sentimentally bearish)
Regardless of the better inflation and economic strength in 2017, EUR is still a bearish currency as the market has reacted heavily in front of the French election in April & May. The current poll still shows a lead by La Pen, and most likely the election volatility will continue all the way until the actually voting day. Meanwhile, ECB has also showed their commitment for the QE and will most likely to maintain the outlook after the French election. Newest comment by Draghi also stated that Euro area outlook remains to the downside and ECB council is prepared to alter asset purchases if inflation becomes less favourable. Finally, the recent GDP data was not all positive to support the previous fundamental momentums.
For USD (Fundamentally bullish & Sentimentally neutral)
The fundamental strength of USD is a strong fact by all the positive datas previously. USD is the only currency that has the potential for a rate hike in next quarter or so. Meanwhile, the change of stance from dovish to hawkish by many Fed members particularly the chair Yellen has provided yet another stronger push for the dollar. Yellen has stated that waiting too long to tighten would be unwise and that Fed is sticking to forecast of 3 hikes in 2017. Again, the biggest risk and uncertainty of USD is from the President himself and his unpredictable actions. However, there are still some good sentiment from the White House administration and notably the Tax Reform will be a great push for the market as we have already seen the new highs from U.S equity markets.
For CAD (Fundamentally bullish & Sentimentally bullish)
The OPEC members continued to show their commitment to the agreement and the data of compliance has been quiet promising. However, the U.S shale producers also showed a continuous of inventory built in the past 3 weeks. Most likely OPEC & U.S shale producers are going to hedge out each other and OPEC should still have more influence over the oil market to boost the price upward. The biggest risk is really not the supply but the low demand globally. If China and other emerging market can increase the economic growths, the oil demand will resume - but it is unlike as all global demand has slowed down. We think the oil price is still going to go up due to the short-term artificially curb and this will be beneficial for Canadian dollar, meanwhile the economic strength of Canada has also reflected in its positive GDP and strong labour market recently. The biggest risk of NAFTA deal also seem to be mitigated by the friendly meeting between Donald Trump and Justin Trudeau. However, traders need to be aware that the oil price is not sustainable if the real demand does not pick up, and the NAFTA is still up in the air.
For GBP (Fundamentally bearish & Sentimentally Bearish)
The retail sales were a big blow last week for UK. Now what the economists have predicted back in 2016 after Brexit have slowly become a reality for UK. The Sterling effect will most likely continue to pressure consumption and BOE will have to cut interest rate further. Moreover, the article 50 is about to be trigger in less than a month and the volatility over the uncertainty will cause money to flee out of UK. The future of UK is really depended on the politicians now and UK has never been in such vulnerable position.
For AUD (Fundamentally neutral & Sentimentally Bullish)
Aussie always had this tendency to go over itself and that was what we have seen last week by the large up/down movement. As the best performing currency in 2017, AUD enjoys the strong high yield, stable political environment, strong commodity prices and the overall positive economy from itself and China. The growth of economy has slowed down and the many risks of low GDP, soft labour markets and inflations are still here, but the strong backup and confidence by RBA has been the backbone for Aussie for now. The key will really be the next GDP because if the high commodity price has failed to lift it up, then Aussie will be in deep trouble and RBA will have a hard time to explain the technical recession. The next GDP is due on Feb 28th.
For NZD (Fundamentally bullish & Sentimentally neural)
NZD is in a much better fundamental position than AUD. The 3 major fundamental indicators - GDP, Labour markets and inflation datas have all picked up quiet well recently. However, the attempt to talk down its currency by RBNZ has worked out well last week, but we saw a strong support in NZD and the falling had stopped in many NZD pairs. At the end of day the market is still going back to its fundamentals and because of that, we’re still confidence toward NZD due to its high yield, stable political environment and strong fundamental datas.
For JPY (Fundamentally bearish & Sentimentally neutral)
The meeting between Trump and Abe had calmed the market down for Japan and there were no more mentioned of currency manipulations afterward. Japan is back on its track to work on the economy and continues its QQE programs. Yen is still a weak currency as it’s part of a necessity in order to create the export oriented economy of Japan. However, we did see how strong Yen can react in front of global risk sentiment so always be careful on the short side.
For CHF (Fundamentally bearish & Sentimentally neutral)
Swiss is in the same spot as Yen but personally I will also favour more with Yen because of the larger movement, stable outlook and less sudden intervention by the central bank. Also the volatility of Eurozone will effect CHF so even if money wants to flow into safe heaven, Yen will be a much better choice.
Here is our weekly recap for the week of Feb 13th - Feb 19th
The biggest event last week were the testify by Janet Yellen in front of the Congress which she surprised the market with a hawkish tone for the future rate policy. It was not a usual stance for the dovish Yellen and on top of that, U.S continued to release strong fundamental datas to back up the policy. The inflation datas, retail datas and manufacturing index were all very positive to support a strong USD.
Meanwhile, the President had meeting with Canadian PM, Israel PM and also held an unschedule press conference, basically things were much neutral compared to previous few weeks when Donald Trump attacked everyone and every nations in the daily basis.
We saw a much unison relationship so far from Donald and other global leaders.
The tax plan also gave the market huge anticipation as the U.S equity markets continued to make new high.
The currency market was generally in an up/down mode last week with no particular catalyst.
This week is a light economic calendar week without too much important fundamental datas. We think the sentiment will still be the main player and we might have another up/down week, or it depends on what’s about to happen in the White House administration.
Our current view for the Market
For EUR (Fundamentally bearish & Sentimentally bearish)
Regardless of the better inflation and economic strength in 2017, EUR is still a bearish currency as the market has reacted heavily in front of the French election in April & May. The current poll still shows a lead by La Pen, and most likely the election volatility will continue all the way until the actually voting day. Meanwhile, ECB has also showed their commitment for the QE and will most likely to maintain the outlook after the French election. Newest comment by Draghi also stated that Euro area outlook remains to the downside and ECB council is prepared to alter asset purchases if inflation becomes less favourable. Finally, the recent GDP data was not all positive to support the previous fundamental momentums.
For USD (Fundamentally bullish & Sentimentally neutral)
The fundamental strength of USD is a strong fact by all the positive datas previously. USD is the only currency that has the potential for a rate hike in next quarter or so. Meanwhile, the change of stance from dovish to hawkish by many Fed members particularly the chair Yellen has provided yet another stronger push for the dollar. Yellen has stated that waiting too long to tighten would be unwise and that Fed is sticking to forecast of 3 hikes in 2017. Again, the biggest risk and uncertainty of USD is from the President himself and his unpredictable actions. However, there are still some good sentiment from the White House administration and notably the Tax Reform will be a great push for the market as we have already seen the new highs from U.S equity markets.
For CAD (Fundamentally bullish & Sentimentally bullish)
The OPEC members continued to show their commitment to the agreement and the data of compliance has been quiet promising. However, the U.S shale producers also showed a continuous of inventory built in the past 3 weeks. Most likely OPEC & U.S shale producers are going to hedge out each other and OPEC should still have more influence over the oil market to boost the price upward. The biggest risk is really not the supply but the low demand globally. If China and other emerging market can increase the economic growths, the oil demand will resume - but it is unlike as all global demand has slowed down. We think the oil price is still going to go up due to the short-term artificially curb and this will be beneficial for Canadian dollar, meanwhile the economic strength of Canada has also reflected in its positive GDP and strong labour market recently. The biggest risk of NAFTA deal also seem to be mitigated by the friendly meeting between Donald Trump and Justin Trudeau. However, traders need to be aware that the oil price is not sustainable if the real demand does not pick up, and the NAFTA is still up in the air.
For GBP (Fundamentally bearish & Sentimentally Bearish)
The retail sales were a big blow last week for UK. Now what the economists have predicted back in 2016 after Brexit have slowly become a reality for UK. The Sterling effect will most likely continue to pressure consumption and BOE will have to cut interest rate further. Moreover, the article 50 is about to be trigger in less than a month and the volatility over the uncertainty will cause money to flee out of UK. The future of UK is really depended on the politicians now and UK has never been in such vulnerable position.
For AUD (Fundamentally neutral & Sentimentally Bullish)
Aussie always had this tendency to go over itself and that was what we have seen last week by the large up/down movement. As the best performing currency in 2017, AUD enjoys the strong high yield, stable political environment, strong commodity prices and the overall positive economy from itself and China. The growth of economy has slowed down and the many risks of low GDP, soft labour markets and inflations are still here, but the strong backup and confidence by RBA has been the backbone for Aussie for now. The key will really be the next GDP because if the high commodity price has failed to lift it up, then Aussie will be in deep trouble and RBA will have a hard time to explain the technical recession. The next GDP is due on Feb 28th.
For NZD (Fundamentally bullish & Sentimentally neural)
NZD is in a much better fundamental position than AUD. The 3 major fundamental indicators - GDP, Labour markets and inflation datas have all picked up quiet well recently. However, the attempt to talk down its currency by RBNZ has worked out well last week, but we saw a strong support in NZD and the falling had stopped in many NZD pairs. At the end of day the market is still going back to its fundamentals and because of that, we’re still confidence toward NZD due to its high yield, stable political environment and strong fundamental datas.
For JPY (Fundamentally bearish & Sentimentally neutral)
The meeting between Trump and Abe had calmed the market down for Japan and there were no more mentioned of currency manipulations afterward. Japan is back on its track to work on the economy and continues its QQE programs. Yen is still a weak currency as it’s part of a necessity in order to create the export oriented economy of Japan. However, we did see how strong Yen can react in front of global risk sentiment so always be careful on the short side.
For CHF (Fundamentally bearish & Sentimentally neutral)
Swiss is in the same spot as Yen but personally I will also favour more with Yen because of the larger movement, stable outlook and less sudden intervention by the central bank. Also the volatility of Eurozone will effect CHF so even if money wants to flow into safe heaven, Yen will be a much better choice.