Weekly Market Update 12/06/2016 – 18/06/2016
The performance of the US dollar was mixed last week against the major group of currencies . The Kiwi dollar was the best performer against the Greenback as Graeme Wheeler, the Governor of the Reserve Bank of New Zealand, decided to keep unchanged the cash rate at 2.25%. The Bank cut 25 basis points last March and then held this level at the April meeting, but given both Gross Domestic Product downtrend from 2014 and subdued inflation, it’s likely that a dovish monetary policy will be maintained if underlying domestic and international conditions won`t change. NzdUsd rose 98 pips to 0.7050 (+1.41% weekly). The Reserve Bank of Australia also left the cash rate unchanged at 1.75% but the performance of the Aussie dollar was much weaker on Thursday and Friday as AudUsd gave back almost all the gains of the previous 3 sessions. The rate closed last Friday at 0.7372 (+0.15% weekly) and Glenn Stevens, the RBA Governor, without mentioning explicitly Brexit, said that “Attention is now turning to some particular event risk”. Both RBA and RBNZ stressed the recent uptrend in commodity prices, the volatility in China and global growth that slowed its pace. The Canadian dollar rose 158 pips against the Greenback as UsdCad closed at 1.2772 (-1.24% weekly); the loonie is considered a commodity currency alongside Oceanic currencies and Unemployment Rate data at 6.9% (May) that beat the consensus (7.1%) could help the formation of another bearish wave of UsdCad.
EurUsd lost 115 pips and closed at 1.1246 (-1.01% weekly). Eurozone Gross Domestic Product data at 1.7% YoY (the consensus was at 1.5%) could not lift the rate above the last month high in area 1.16. The Swiss Franc did well against the US dollar rising 111 pips with UsdChf closing at 0.9640 (-1.15% weekly). The British Pound, down for the second consecutive week versus the Greenback, lost 261 pips. GbpUsd closed at 1.4251 (-1.80% weekly). Referendum day which decides whether The UK will leave the European Union increased the volatility of the British Pound to its 5 year high. The possibility that a lack of liquidity will materialize across the board made the brokerage industry prudent, as it could be possible to see a price pattern similar to the one made by the Swiss Franc on January 2015. During that event many traders were unable to execute their stop losses if they were on the wrong side as a huge gap allowed them to close the position only when their equity was negative. Deleveraging in these situations is one precious tool for both traders and brokers for several reasons. An exposure that could bring losses above deposits would not allow brokers/dealers to pay winning clients, thus contagious effect could bring the broker or the dealer to bankruptcy. In the case of the broker its debt would be with liquidity providers, usually banks that permit leverage to traders. If the counterparty of the trade would be the dealing desk the effect would be the inability of the dealer to collect money from losing clients and with the consequences of capital erosion. The Swiss franc debacle harmed both business models and thus the industry decided that a temporary deleverage was important not only for the survivorship of the business, but also for the reliability of the financial system. Volatility was the best performer among commodities as the VIX index, a measure of the implied volatility on options of the S&P500 index, rose 18.85%. The S&P500 failed to rise above its record high made last year thus trading range strategies prevailed on breakout strategies. The index retraced its intraweek gains and closed at 2,096.07 (-0.03% weekly). The German DAX (-2.93% weekly) did even worse and the Nikkei rose 0.09 weekly. Gold closed at 1,276.3 $/oz (+2.69% weekly) and may test soon its 2016 high after the static support in area 1,200 was not crossed. Crude Oil at 49.37 $/barrel (+0.53% weekly) made an intraweek 2016 high. On Monday the most relevant events in the economic calendar will be released during the Asian session. At 02:00 GMT Chinese Retail Sales data and Industrial Production would be the compass for risk appetite on Monday. On Tuesday at 08:30 GMT UK CPI will be followed at 09:00 GMT by Eurozone Industrial Production. At 12:30 GMT US Retail Sales data. On Wednesday the Bank of Japan will hold a press conference (time n/a) and at 09:00 GMT Eurozone Trade Balance data. At 14:30 EIA Crude Oil Stock Change and then the most important event of the day, the FED Interest rate decision. Its seems more likely a July rate hike but the FED`s Monetary Policy Statement will offer precious information for day trading and position trading as well. At 22:45 GMT New Zealand GDP data will test the positive momentum of the kiwi dollar seen recently. Thursday will be a day rich of events: at 01:30 GMT it’s the turn of the Australian Unemployment Rate and then at 03:00 GMT the BOJ will decide the interest rate level and will release a Monetary Policy Statement. At 07:30 the Swiss National Bank Interest Rate decision and press conference. At 11 GMT the Bank of England will decide the interest rate level and will release Minutes. At 12:30 GMT US CPI. On Friday the Canadian CPI and the ECB Draghi speech at 15:00 GMT would be the most important events of the day. The US Baker Hughes Oil Rig Counts at 17:00 GMT will be the last event in the calendar. Several G10 Central Banks will decide the interest level and would release Minutes regarding their monetary policy thus volatility spikes could be frequent. The combined effect of deleveraging in the financial system and technical price patterns could bring weakness on equity indices and perhaps only a dovish FED would help breakout traders that are looking for new highs.
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