Weekly Market Update 01/08/16-05/08/16
Last week the US dollar lost ground against all the currencies in the major group. The Japanese Yen soared, not only against the Greenback, after Bank of Japan’s Kuroda disappointed the financial community. It was a very volatile session last Friday night as the daily drop of UsdJpy showed a more complicated price pattern intraday, where it is possible that algo traders made the bulk of the volume. The BoJ increased its ETF monthly purchases but kept the purchase of domestic sovereign bonds (JBG) and the main rate unchanged as well at 0.1%. This selloff probably was a catalyst that involved also long positions built on “Helicopter Money” expectations. The rate retraced after Kuroda excluded the option but many traders could have kept their long position open expecting the positive effect on the rate of the Japanese Fiscal Policy. Many of those position stop losses were triggered as the rate is only 300 pips away from its 2016 low. UsdJpy slid 400 pips to 102.01 (-3.92% weekly), with 324 pips loss just on Friday. Oceanic currencies rebounded after the correction of 2 weeks ago. NzdUsd rose 208 pips to 0.7209 (+2.97% weekly) and AudUsd gained 114 pips to 0.7596 (+1.89% weekly). The Swiss Franc soared after UsdChf found resistance in area 0.9955. The rate slid for 3 consecutive sessions and found support at 0.9692 (-1.80% weekly), down 174 pips. EurUsd soared 195 pips to 1.1167 (+1.78% weekly). The British Pound gained 114 pips against the Greenback, with GbpUsd at 1.3223 (+0.87% weekly). UsdCad slid 82 pips to 1.3040 (-0.63% weekly).
The broad selloff on the US dollar is the consequence of unchanged rate expectations in the US. Volatility in US indices crashed nearly 10% as risk appetite is very high. The S&P500 barely missed a new record high. The index closed at 2,173.6 (+0.16% weekly). There are buyers on weakness, thus many investors believe that the rally will continue. Fundamentals say that the S&P500 is a bit overpriced, from a P/E Ratio perspective. With a 26.95 multiple the ratio is near the level reached before the 2007-2008 crisis. The level reached on Black Tuesday the 1929 was just above 30. Many investors believe in the rally because the P/E Ratio is far below its top reached during the tech bubble, but then equities went into a bear market. The point is that the market can make a correction without creating a bear market and this would be healthy for the financial system as the boom-bust cycle would be avoided. Precious metals did very well as Silver rose 3.53% weekly and Gold gained 2.01% weekly. Crude Oil went into selloff but seems that it found support on its 200SMA. The commodity closed at 41.69 $/barrel (-6.36% weekly). On Monday at 14:00 GMT the ISM Manufacturing PMI will be released in US, expected at 53.3. On Tuesday the Asian session will start with Australian Trade Balance at 01:30 GMT followed by the RBNZ Inflation Expectations at 03:00 GMT. At 04:30 GMT the RBA will decide the Interest Rate level, now at 1.75%. An expected 25 bp rate cut, and Aussie dollar could be very volatile on Tuesday. On Wednesday the ECB Non Monetary Policy Meeting will be held at 07:00 GMT, then a series of Markit data regarding Eurozone and members of the shared currency as well. At 09:00 GMT Eurozone Retail Sales data and then at 14:30 GMT will be the turn of EIA Crude Oil Stocks Change at 14:30 GMT. On Thursday the Bank of England may cut interest rates at 11:00 GMT. At the same time the Minutes will be released and at 11:30 GMT BoE`s Carney will hold a speech. On Friday the most important events will be US Non Farm Payrolls and Unemployment Rate. At the same time US Trade Balance and Canadian Unemployment Rate will be released as well, thus intraday volatility around that time is expected to soar. US Consumer Credit at 19:00 GMT would be the last event in the economic calendar.
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