Weekly Market Update 05/6/2016-10/06/2016
Last Friday was the most volatile day in 2 months for the US dollar and thus its daily performance had a considerable weight in the weekly performance. The catalyst was the Non Farm Payroll data, with 38,000 jobs added last Month compared with a Consensus of 164K (Previous month data at 123K). Jobs data has sharply decreased the probability of a June (and July) FED rate hike, sending the dollar south. The Greenback last week gained against the British Pound as the Brexit probability seems quite underestimated in the sports market thus there are traders that are building short positions on GbpUsd considering that in the fx options market the price of protection against a Sterling devaluation is already high. GbpUsd lost 101 pips to 1.4512 (-0.69% weekly). The Kiwi dollar was the the best performer against the Greenback as NzdUsd rose 262 pips to 0.6952 (+3.91% weekly); UsdJpy dropped 365 pips to 106.54 (-3.43% weekly) and is not trading far from its 2016 low. AudUsd gained 182 pips to 0.7631 (+2.53% weekly) and rose above its 200SMA. The most traded pair, EurUsd, gained 252 pips to 1.1362 (+2.27% weekly) as many traders that shorted the rate a few days before last Friday on technical signals had to cover fueling the momentum that followed the Jobs data. The Swiss Franc rose as well, and the parity of UsdChf is more difficult to reach now as the rate closed at 0.9751 (-1.92% weekly). UsdCad went below the psychological area 1.3 and closed at 1.2930 (-0.72% weekly). NFP data was a game changer for several reasons: it may justify the current FED fund rate until the next year if macro data will continue to be weak. Also in the currency war framework, Unites States will decrease persuading other G20 members against Central Banks interventions.
During the last G7 held in Japan, “Abenomics” have been under pressure as the Bank of Japan is increasing its balance sheet with a target to maintain cheap exports and increasing domestic prices. An export growth economy considering that unless Japan will see a shift in its demographic structure, the local market would be focused on elderly citizens. The country has a Public Debt GDP ratio of 229.2% and clearly in the long term if measures aren`t adopted to reduce this ratio interest rates will soar, reducing lending with negative effects on economic activity. The 10th of July Japanese people will vote for the upper house election and it will be interesting to monitor Kuroda actions as it is likely that the BOJ will intervene if UsdJpy trades near 100. There are not only Brexit, FED and Yen trades in the agendas of macro traders. US elections, that are held on the 8th November, are not yet priced into the market as traders are more focused on monetary policy. The third and last quarter could be quite volatile in US indices and Gold may consolidate above 1,300 $/oz. The commodity closed last Friday at 1,244.45 $/oz (+2.45% weekly). Crude Oil slid and closed at 49.13 $/barrel (-0.87% weekly). The S&P500 index in US made several bullish spike and thanks to a prolonged dovish monetary policy, it may not only rise above its 2016 highs but this month could also make an historical high if balanced portfolios would see an increase in equities after. The bond market could be mispriced as the low yields do not reflect the credit risk, thus better to shift to equities as the Federal Reserve avoided many stop losses on long positions to be triggered. On Monday the most relevant event would be the ECB targeted LTRO at 09:30 GMT and on Tuesday during the Asian session the Reserve Bank of Australia at 04:30 GMT will decide the interest rate level, now at 1.75%. At 09:00 GMT it’s the turn of Eurozone GDP data. On Wednesday Chinese Trade Balance data (time n/a) would have an impact on intraday risk taking positions. At 14:00 GMT UK NIESR GDP data Estimate and then at 14:30 GDP EIA Crude Oil Stocks Change data. At 21:00 GMT the Reserve Bank of new Zealand will decide whether to make a 25bp cut or to keep interest rates at 2.25%. On Thursday the Swiss Unemployment Rate data would be the most relevant event of the day. On Friday at 13:30 GMT Canadian Unemployment Rate data followed by the Reuters Michigan Consumer Sentiment Index data that will be released at 14:00 GMT.
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