Welcome to the weekly outlook of Feb 6th to Feb 12th, first let’s recap on what happened last week from Jan 29th to Feb 4th
The main catalyst last week was the executive orders from Donald Trump, particularly the immigration ban and his comments on currency manipulation from countries such as Japan, Germany and China.
USD had been sold off all week due to this risk off sentiment and uncertainty from the new President. Investors are worried about the future of USA.
Meanwhile, most datas from USA had been very promising from the manufacturings to employments, notably the NFP last Friday and ADP which both showed a positive surprise on the employment changes. However, the low wage growth had dragged USD down alone with the negative sentiment from Donald Trump.
FED has mentioned that only if the wage growth is faster than expected, they will hike the rate quicker. And since we did not have that, it means the March FED hike is very unlikely now.
For Eurozone, we continued to have positive datas from many countries, but regardless of the fundamental datas, ECB had once again reaffirmed their stance on the QE and contributing the high inflation to the high energy price.
If ECB is going to ignore the inflation and willing to let it go higher, then EURO will most likely stay low fundamentally due to the QE.
Sentimentally because of the bearish movement in USD, EUR had a good week because most money were flowing into it.
The 3 central banks of FED, BOJ and BOE all kept their rate unchanged, however, FED had also released a more dovish statement stating that the uncertainty was still high and the datas are still soft, they need more confirmation before they can raise the rate.
Then came with the softer than expected wage growth to reaffirm the possibility of not hiking in March.
For BOE, the statement was more dovish as well, contrary to what most traders believed, BOE is going to ignore the high inflation and will only raise the rate if the wage growths is faster than expected.
Moreover, BOE also considered to cut rate if the underlying economic condition deteriorates.
GBP had been largely sold off because of this reason.
Other notable datas were the soft employment data from NZD, strong trade balance from AUD and strong GDP from CAD.
The soft employment data from NZD had pressed NZD down as investors were waiting to the good employment data to match up with good GDP and inflation. However, that did not happen.
Meanwhile, AUD had a fantastic Trade Balance thanks to high commodity prices. This alone could also help the next quarter GDP although the overall economic of AUD is still unstable because of China.
China had unexpected raise the short-term interest rate last week in order to curb the debts and real estate bubbles, this of course will also pressure their manufacturing which had also reflected in the data already. And when the manufacturing slows, the demand for commodities also slows hence, another pressure for AUD.
CAD had released a positive GDP alone with the already positive labour market, and especially when USD had such a terrible week, these elements had sent a new strength into CAD regardless of the large built in Crude Oil Inventories last week.
Here is our current outlook for this week:
EUR (fundamentally neutral & sentimentally bullish)
There is no important datas for this week, and since the monetary policy is stable, the geopolitical element will be the only catalyst for EUR, notably the election from France.
However, that had not yet been causing too much volatility into EUR, so most likely EUR will be a bullish currency to trade against USD, GBP and the overall sentiment.
USD (fundamentally neutral & sentimentally bearish)
We continued the divergence of fundamental strength V.S sentimental weakness. Over the weekend the U.S Judge had stopped Donald Trump’s immigration ban and now the visitors from 7 banned countries are once again allowed to enter. However, Donald Trump immediately bashed the action of the judge and caused more volatility.
The sentiment is going to be volatile based on the new president’s behaviour, and this will be the main catalyst for USD now.
On the bright side, Donald Trump signed the executive order to curb the Dodd-Frank financial regulations. This has caused banking stocks to soar.
However, we don’t think this will add too much positive sentiment to the currency as we’re still overshadowing by the uncertainty of the leadership of this country.
On top of that, Friday’s low wage growth had also put down the hope for March hike for Fed, for now, so we think USD is going to be a currency to sell for this week.
GBP (fundamentally bearish & sentimentally bearish)
Followed by last week’s BOE decision, GBP’s positive sentiment had been pressured. Now since the rate hike is off the table, GBP had revert back to a fundamental bearish currency with the uncertainty over Brexit and the negotiation.
There are still many traders to bid up the price of GBP, but we think the major view for GBP is still do the downside based on BOE statement.
Of course, even though it’s a weak currency but we will not trade it against USD as they both are weak now.
CAD (fundamentally bullish & sentimentally bullish)
Last week’s positive GDP had help CAD well supported, and the best catalyst had been the weakness of USD. This not only helped CAD but also helped the oil market.
We saw the strength of oil market regardless of the high built in Crude Oil Inventories.
We think CAD continues to be well supported from the macro strength of oil market, the positive economic datas and the current weakness of USD.
The uncertainty still lies with the renegotiation of NAFTA and we will also have the employment datas this Friday.
AUD (fundamentally neutral & sentimentally bullish)
Due to the surprise number of the Trade balance, the negative employment data of NZD and the absence of USD, AUD had once again regained the crown of the currency.
AUD had been the best performing currency since 2017, but the risk around the unstable economy of its own and China is really something we need to watch out for.
RBA will release the rate decision on Monday which will give us a more clear direction.
If the rate is unchanged and even if RBA has a dovish outlook, we still think AUD might be outperform due to the weakness of USD.
however, if the rate is cut or if we have further commodity price pressures from China, then AUD might turn into downside.
NZD (fundamentally bullish & sentimentally bullish)
Last week’s soft employment data had given NZD a big blow, however, NZD still performs better than many other currencies. We also have RBNZ rate decision this week, and because of the positive inflation data that most likely RBNZ will keep the rate unchanged.
We have the same view as AUD, we think if RBNZ don’t cut, then even if they give a dovish tone, NZD might still outperform for the week.
On the other hand, if the rate is cut then the story is changed.
JPY (fundamentally bearish & sentimentally neutral)
BOJ kept the rate unchanged last week and continued their easing program. Moreover, Japan was under the fire from Donald Trump’s comment in regards to currency manipulation.
We think Yen still remain a weak currency but the occasional risk off sentiment especially the uncertainty from USD will always increase inflow into Japanese Yen.
CHF (fundamentally bearish & sentimentally neutral)
Swiss Franc is in the exact position as Japanese Yen, lack of any major news and economic updates, this currency is largely benefited by safe haven currency.
However, because of the stable outlook for EUR, we don’t think there is too much inflow into CHF.
Therefore, we will prefer to choose JPY if we are buying a safe heaven currency.
This Week Tradable Risk Event
Monday
AUD
RBA Cast Rate
expected number is 1.5%, so short if we have any surprise cut
Tuesday
CAD
Trade Balance
Max 1.5B
Min -1.5B
Wednesday
NZD
RBNZ Interest Rate
expected number is 1.75%, so short if we have any surprise cut
Friday
CAD
Employment Change
Max 10K
Min -30K
Unemployment Rate
Max 7%
Min 6.8%
Welcome to the weekly outlook of Feb 6th to Feb 12th, first let’s recap on what happened last week from Jan 29th to Feb 4th
The main catalyst last week was the executive orders from Donald Trump, particularly the immigration ban and his comments on currency manipulation from countries such as Japan, Germany and China.
USD had been sold off all week due to this risk off sentiment and uncertainty from the new President. Investors are worried about the future of USA.
Meanwhile, most datas from USA had been very promising from the manufacturings to employments, notably the NFP last Friday and ADP which both showed a positive surprise on the employment changes. However, the low wage growth had dragged USD down alone with the negative sentiment from Donald Trump.
FED has mentioned that only if the wage growth is faster than expected, they will hike the rate quicker. And since we did not have that, it means the March FED hike is very unlikely now.
For Eurozone, we continued to have positive datas from many countries, but regardless of the fundamental datas, ECB had once again reaffirmed their stance on the QE and contributing the high inflation to the high energy price.
If ECB is going to ignore the inflation and willing to let it go higher, then EURO will most likely stay low fundamentally due to the QE.
Sentimentally because of the bearish movement in USD, EUR had a good week because most money were flowing into it.
The 3 central banks of FED, BOJ and BOE all kept their rate unchanged, however, FED had also released a more dovish statement stating that the uncertainty was still high and the datas are still soft, they need more confirmation before they can raise the rate.
Then came with the softer than expected wage growth to reaffirm the possibility of not hiking in March.
For BOE, the statement was more dovish as well, contrary to what most traders believed, BOE is going to ignore the high inflation and will only raise the rate if the wage growths is faster than expected.
Moreover, BOE also considered to cut rate if the underlying economic condition deteriorates.
GBP had been largely sold off because of this reason.
Other notable datas were the soft employment data from NZD, strong trade balance from AUD and strong GDP from CAD.
The soft employment data from NZD had pressed NZD down as investors were waiting to the good employment data to match up with good GDP and inflation. However, that did not happen.
Meanwhile, AUD had a fantastic Trade Balance thanks to high commodity prices. This alone could also help the next quarter GDP although the overall economic of AUD is still unstable because of China.
China had unexpected raise the short-term interest rate last week in order to curb the debts and real estate bubbles, this of course will also pressure their manufacturing which had also reflected in the data already. And when the manufacturing slows, the demand for commodities also slows hence, another pressure for AUD.
CAD had released a positive GDP alone with the already positive labour market, and especially when USD had such a terrible week, these elements had sent a new strength into CAD regardless of the large built in Crude Oil Inventories last week.
Here is our current outlook for this week:
EUR (fundamentally neutral & sentimentally bullish)
There is no important datas for this week, and since the monetary policy is stable, the geopolitical element will be the only catalyst for EUR, notably the election from France.
However, that had not yet been causing too much volatility into EUR, so most likely EUR will be a bullish currency to trade against USD, GBP and the overall sentiment.
USD (fundamentally neutral & sentimentally bearish)
We continued the divergence of fundamental strength V.S sentimental weakness. Over the weekend the U.S Judge had stopped Donald Trump’s immigration ban and now the visitors from 7 banned countries are once again allowed to enter. However, Donald Trump immediately bashed the action of the judge and caused more volatility.
The sentiment is going to be volatile based on the new president’s behaviour, and this will be the main catalyst for USD now.
On the bright side, Donald Trump signed the executive order to curb the Dodd-Frank financial regulations. This has caused banking stocks to soar.
However, we don’t think this will add too much positive sentiment to the currency as we’re still overshadowing by the uncertainty of the leadership of this country.
On top of that, Friday’s low wage growth had also put down the hope for March hike for Fed, for now, so we think USD is going to be a currency to sell for this week.
GBP (fundamentally bearish & sentimentally bearish)
Followed by last week’s BOE decision, GBP’s positive sentiment had been pressured. Now since the rate hike is off the table, GBP had revert back to a fundamental bearish currency with the uncertainty over Brexit and the negotiation.
There are still many traders to bid up the price of GBP, but we think the major view for GBP is still do the downside based on BOE statement.
Of course, even though it’s a weak currency but we will not trade it against USD as they both are weak now.
CAD (fundamentally bullish & sentimentally bullish)
Last week’s positive GDP had help CAD well supported, and the best catalyst had been the weakness of USD. This not only helped CAD but also helped the oil market.
We saw the strength of oil market regardless of the high built in Crude Oil Inventories.
We think CAD continues to be well supported from the macro strength of oil market, the positive economic datas and the current weakness of USD.
The uncertainty still lies with the renegotiation of NAFTA and we will also have the employment datas this Friday.
AUD (fundamentally neutral & sentimentally bullish)
Due to the surprise number of the Trade balance, the negative employment data of NZD and the absence of USD, AUD had once again regained the crown of the currency.
AUD had been the best performing currency since 2017, but the risk around the unstable economy of its own and China is really something we need to watch out for.
RBA will release the rate decision on Monday which will give us a more clear direction.
If the rate is unchanged and even if RBA has a dovish outlook, we still think AUD might be outperform due to the weakness of USD.
however, if the rate is cut or if we have further commodity price pressures from China, then AUD might turn into downside.
NZD (fundamentally bullish & sentimentally bullish)
Last week’s soft employment data had given NZD a big blow, however, NZD still performs better than many other currencies. We also have RBNZ rate decision this week, and because of the positive inflation data that most likely RBNZ will keep the rate unchanged.
We have the same view as AUD, we think if RBNZ don’t cut, then even if they give a dovish tone, NZD might still outperform for the week.
On the other hand, if the rate is cut then the story is changed.
JPY (fundamentally bearish & sentimentally neutral)
BOJ kept the rate unchanged last week and continued their easing program. Moreover, Japan was under the fire from Donald Trump’s comment in regards to currency manipulation.
We think Yen still remain a weak currency but the occasional risk off sentiment especially the uncertainty from USD will always increase inflow into Japanese Yen.
CHF (fundamentally bearish & sentimentally neutral)
Swiss Franc is in the exact position as Japanese Yen, lack of any major news and economic updates, this currency is largely benefited by safe haven currency.
However, because of the stable outlook for EUR, we don’t think there is too much inflow into CHF.
Therefore, we will prefer to choose JPY if we are buying a safe heaven currency.
This Week Tradable Risk Event
Monday
AUD
RBA Cast Rate
expected number is 1.5%, so short if we have any surprise cut
Tuesday
CAD
Trade Balance
Max 1.5B
Min -1.5B
Wednesday
NZD
RBNZ Interest Rate
expected number is 1.75%, so short if we have any surprise cut
Friday
CAD
Employment Change
Max 10K
Min -30K
Unemployment Rate
Max 7%
Min 6.8%