Weekly Market Update 04/07/16-08/07/16
Last week the British Pound was again the weakest currency in the major group. GbpUsd closed at 1.3246 (-3.03% weekly), down 414 pips. The rate did not close below its Brexit day low but another bearish wave should materialize below that technical level. From a fundamental point of view last week Bank of England Governor Mark Carney stated what the financial community expected: the BoE should cut interest rate soon and keep liquidity windows to prevent distress in the banking sector. That was the next monetary policy step but from the fiscal policy side George Osborne, the Conservative Chancellor, said that Brexit has demolished the 2020 budget surplus target. It should be considered relevant that several Eurozone countries may violate deficit ratios as the ECB is running short of tools. Mario Draghi cannot buy stocks like his colleague Kuroda did with the Bank of Japan. It seems clear that the currency war will evolve on fiscal ground as measures that brought monetary policy in unchartered territory produced prices deflation, weak grow and inflation of asset classes. The Greenback last week rose against the Japanese Yen as UsdJpy gained 27 pips to 102.46 (+0.26% weekly). It was not a confirmation of reversal of the bearish trend but the rate is trading at 2 years low and the Bank of Japan may adopt this time a strategy that will not disappoint the financial community. UsdChf rose 21 pips to 0.9727 (+0.22% weekly) , with the rate trading between its 2016 top and bottom.
The best performer against the US dollar was the Kiwi dollar, with NzdUsd up 51 pips to 0.7170 (+0.72% weekly). UsdCad lost 81 pips to 1.2907 (-0.62% weekly) and EurUsd rose 53 pips to 1.1136 (+0.48% weekly). AudUsd gained 27 pips to 0.7497 (+0.36% weekly). In the commodity market Silver had its best weekly performance in 3 years, and last Friday the commodity gained 6.62% and closed at 19.74 $/oz (+11.33% weekly). There is a massive flow to funds that invest in the precious metal as during the downtrend of both Gold and Silver, the latter had a more severe correction. Just to remember that on April 2011 Silver reached 50 $/oz thus retraced 73% from this high while Gold lost 48% from its high before to rebound. The shiny metal last week closed on a new 2016 high to 1,341.53 (+1.7% weekly). Crude Oil rose to 49.62 $/barrel (+3.44% weekly) as the risk appetite increased in the commodity market. Volatility fell sharply as in US the S&P500 index rose for 4 consecutive sessions gaining 65.54 points to 2,102.95 (+3.22% weekly);the gauge is only 20 points below pre-Brexit levels. In Europe FTSE Eurofirst 300 gained 43.95 points in five days to 1,313.45 (+3.46% weekly). The Japanese Nikkei 225 rose 730.46 points in 5 days to 15,682.48 (+4.89% weekly). The positive performance of equities was not the effect of short covering but the result of aggressive long position built by traders that expect dovish monetary policy by G10 Central Banks. Facts do not lie, as global growth was revised down by many international organization and global instability increased. The banking system of Eurozone member Italy is under stress, and if France and as well Germany would need to recapitalize some banks with weak ratios, public debt would reach new records. The Chinese index CSI300 stabilized above 3,000 to 3,154.2 but many Chinese investors had lost their wealth effect as GDP growth is kept to 6.7% YoY only thanks to massive fiscal and monetary interventions. Precious metals multiyear weak performance was backed by weak inflation data and expectations as well. But after precious metals commodities reached very interesting valuation investors realized that inflation would materialize sooner or later thanks to adoption of both aggressive monetary policy and fiscal policies out of control. The results of Federal Elections in Australia should make volatile the Aussie dollar as final results should be disclosed by Tuesday. Prime Minister Turnbull is confident that he will be able to form a majority government with his coalition, but the very tight results should make politicians more cautious. On Monday will be celebrated in US the Independence Day; indices will trade have reduced trade sessions in US but in the forex market the activity will be as usual. On Tuesday the Reserve Bank of Australia will decide the interest rate level, now at 1.75% and expected to remain unchanged. At 09:00 GMT will be the turn of Eurozone Retail Sales data. At 09:30 GMT in UK will be released the Financial Stability Report. On Wednesday at 07:00 GMT will be held a Non Monetary Policy ECB Meeting. At 12:30 GTM US Trade Balance data and then at 18:00 GMT will be the turn of the FOMC Minutes. On Thursday Bank of Japan Kuroda Governor will hold a speech at 00:30 GMT. The European session will start with Swiss CPI at 07:15 GMT and then at 11:30 GMT the ECB Monetary Policy Meeting Accounts. At 14:00 GMT will be the turn of British NIESR GDP Estimates. Crude Oil traders have to remember that this week EIA Stocks Change data will be released at 15:00 GMT on Thursday instead of Wednesday. On Friday will be released the Chinese FDI data (time n/a) and then UK Trade Balance at 08:30 GMT. At 14:20 GMT US Non Farm Payrolls, expected at 180k, and US Unemployment Rate. At the same time will be released Canadian Unemployment Rate. US Consumer Credit Change will be the last event in the calendar.
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