Fri, Jul 19, 2019 @ 08:00 GMT
There are a couple of developments to note in the forex markets last week. Firstly, Dollar ended as the strongest major currencies as markets firmed up the expectation of a June hike by Fed. However, the greenback tumbled sharply against Euro and Swiss Franc before close after weaker than expected inflation data. The dollar index was rejected from 55 day EMA and closed lower at 99.19. That was also accompanied by steep decline in 10 year yield which closed at 2.335. Overall development suggests that the greenback would turn weaker against Euro again as the post French election pull back ends.
There were a lot of happenings in the financial markets last week. The more hawkish than expected FOMC announce was supposed to give Dollar a strong boost. But it was the resilience of Euro that's much more convincing. New Zealand Dollar ended as the strongest one leading up to Saturday's election. Kiwi traders should be given a relief after the ruling National Party won the election, even though without outright majority. On the other hand, Canadian Dollar ended as the weakest as recent consolidation continued. Yen and Swiss Franc followed as the next weakest in an era of global monetary stimulus exit.
Risk appetite in the global financial markets was pretty strong last week. DOW, S&P 500 and NASDAQ shrugged off the much weaker than expected non-farm payroll report from US and all closed at record highs. Strength was also seen in other markets with FTSE 100 in UK and DAX in Germany hitting records too. In Japan, Nikkei also closed above 20000 handle for the first time since 2015. The sharp fall in US yields following NFP argues that markets could be starting to bet on a relatively slower tightening path by Fed and that could be a reason for the strength in US stocks. Eurozone sentiments, on the other hand, was lifted by optimism on easing political risks and improving economic outlook. Meanwhile, UK stocks are riding on the weakening Pound, in particular against Euro.
Sterling ended last week as the weakest major currency. The Conservatives' losing of majority in the parliament created much uncertainty on politics, economic policies and Brexit negotiation. While the selloff in the Pound was steep, it's so far holding on to key support level against Dollar, Euro and Swiss Franc. And it seems like traders are still holding some of their bets to watch the developments in near term. Euro ended as the second weakest major currency for the week as traders were not satisfied with the tiny hawkish move in ECB's language. And the general weakness in European majors also dragged the Swiss Franc.
British Pound ended as the strongest major currency last week as boosted by hawkish BoE announcement. A November rate hike by BoE is now a real possibility. Kiwi ended as the second strongest in spite of some volatility ahead of generally election. Dollar followed on revived speculations of a December Fed hike. Meanwhile, Yen ended as the weakest as markets on return of risk appetite. US equity indices made records highs while strong rebounds were seen in DAX and CAC. FTSE was the exception due to BoE rate expectation. Yen is also additionally pressured as markets are back looking at diverging global interest rates.
US equities ended Friday mildly higher but closed the week down as US president Donald Trump's inauguration provided little inspiration to the markets. DJIA closed at 19827.25 comparing to prior week's close at 19885.73. S&P 500 closed at 2271.31 comparing to prior week's close at 2274.64. Treasury yields, however, were notably higher. 10 year yield closed at 2.467 comparing to prior week's close at 2.309. Dollar ended the week mixed, closing higher against Yen and Canadian but down against all others. Dollar index gyrated around 101 last week, where the 55 day EMA sits. In other markets, Gold hit as high as 1218.9 but lost momentum above 1200 handle. WTI crude oil stayed in recent range and closed at 53.24.
Dollar staged a strong rebound towards the end of the week as boosted by an overall set of solid job data. While the greenback still ended lower against Euro for the week, it's now looking likely that the greenback has found a short term bottom already. It's still early to confirm a trend reversal for Dollar yet. And we believe the key lies in the yet to be confirmed fiscal policy of US President Donald Trump. But for now, Dollar will probably gyrate higher in the early part of this week until CPI release on Friday. On the other hand, while Euro ended the week as the strongest currency, its rallies against Dollar, Yen and even Swiss Franc are starting to look tired. Sterling ended the week generally lower after markets perceived the BoE Super Thursday as a dovish one. But commodity currencies were even weaker with Canadian Dollar starting to pare back the strong gains in the past two months.
Dollar closed broadly higher last week, and closed as the strongest as boosted by a couple of factors. Firstly, House approved Senate's version of budget blueprint, and cleared an important procedural step for getting the tax cuts done by the end of the year. Secondly, markets responded positively to news that Fed chair Janet Yellen is out of the race for a renewal. Instead, Fed Governor Jerome Powell and Stanford University economist John Taylor are now the front runners. Powell is reported to be slightly more favored by US President Donald Trump and is seen as a less hawkish candidate. But after all, there is still a possibility of Powell/Taylor combination for chair/vice of Fed. And either one seems to be more welcomed by the markets than Yellen. Thirdly, Q3 GDP came in at an impressive 3% annualized growth, despite the impacts of hurricanes.
There were some major surprises in the markets, much volatility and some interesting developments, last week. Dollar ended the week as the weakest major currency as markets were clearly disappointed by the outcome of the dovish FOMC rate hike. Technical developments in Dollar index and treasury yields suggest there more down would be seen in the greenback in near term. There were some good reasons for Euro to surge last week. Those factors include speculations of ECB rate hike by the end of the year, as well as the Euro-friendly results of Dutch elections. But the common currency did end up as the second weakest one. In particular, the sharp pull back of EUR/CHF from as high as 1.0823 to close at 1.0718 indicates that traders are still concerned with political uncertainties ahead. On the other hand, Australian dollar ended as the strongest major currency last in spite of weak employment data. Sterling followed as the second strongest major currency after hawkish BoE minutes. Also, FTSE 100 closed at new record high despite all the Brexit and Scexit news.
Worries on geopolitical tensions and US policies were the two main forces driving the markets in a holiday shortened week. Yen surged broadly and the relative strength to Swiss Franc argues that worries are mainly on the tensions in Korean Peninsula. The rally in Yen was also accompanied safe haven flows into US treasuries. Long term yields tumbled sharply to the lowest level this year, breaking key near term support levels. Gold surged to as high as 1290.7 and is having its sight on 1300 handle. WTI crude oil also extended recent rise before losing some momentum ahead of 55.24 resistance. In the currency markets, Dollar ended as the weakest major currency as talked down by US President Donald Trump, and dragged down by falling yields. Euro ended as the second weakest ahead of French presidential election and dragged down the Swiss Franc.
Risk aversion was the dominate theme last week on reverse Trump trade. DJIA suffered the biggest decline this year and lost -317.9 pts or 1.51% to close at 20596.72. S&P 500 dropped -34.27 pts or 1.44% to close at 2343.98. Treasury yield followed with 10 year yield losing -0.101 to close at 2.400. Dollar index dive through 100 handle to close at 99.62, down from prior week's close at 100.31. In the currency markets, Yen was the biggest winner last week on risk aversion and falling yields. Swiss Franc closely followed as the second strongest major currency. Dollar weakened against European majors and Yen but ended up against Aussie and Canadian Dollar. The two were the weakest major currencies last week. In other markets, Gold extended recent rise from 1194.5 and closed at 1248.5, but kept below resistance at 1264.9. WTI crude oil continued to stay in sideway consolidation between 47/50.
Dollar survived the geopolitical risks in Korea peninsula, damage of hurricane Harvey, and a set of disappointing non-farm payroll data, to end the week "mixed". While the pull back in EUR/USD caught much attention, we'd like the point out that Dollar ended the week lower against Canadian Dollar, Australian Dollar and Sterling. Indeed, the pound ended as the third strongest major currency, next to Canadian Dollar, even though the third round of Brexit negotiations ended with no concrete progress but more verbal exchanges between EU and UK officials. On the other hand, as risk aversion came and went quickly, Yen and Swiss Franc ended as the weakest ones, just next to Kiwi. Traders could take a brief rest on Monday as US and Canada will be on holiday. But three central bank meetings, RBA, BoC and ECB promise much volatility ahead.
Risk aversion was again the main theme in the financial markets last week. But this time, commodity currencies ended as the strongest ones. Sterling was hardest hit as disappointing inflation reading further killed the chance of an early BoE hike. Euro followed on report that ECB President Draghi won't address monetary policy in the upcoming Jackson Hole symposium this week. Also, the common currency was pressured as ECB minutes showed worries on Euro overshooting its strength. Dollar suffered much on the political turmoil in the White House but it ended slightly higher against most except Canadian Dollar and Australian Dollar. Meanwhile Yen and Swiss Franc failed to capitalize on risk aversion and ended the week mixed.
Risk aversion dominated the markets last week as tension between US and North Korea suddenly intensified on verbal exchanges of the leaders. DOW initial made new record high at 22179.11 but ended the week down -234.49 pts or -1.06% at 21858.32. S&P 500 closed down -35.51 pts or -1.43% at 2441.32. European indices were harder hit with DAX closed down -283.66 pts or -2.31%. FTSE closed down -201.75 pts or -2.69%. Japan was on holiday on Friday but Hong Kong HSI closed the week down -2.46%. US yields was further hit by tame CPI and PPI data with 10 year yield closed at 2.189, taking out 2.225 near term support decisively. In the currency markets, Yen and Swiss Franc ended as the strongest ones on risk aversion. Commodity currencies ended as the weakest ones, followed by Sterling. Gold surged on risk aversion and Dollar weakness and closed up 2.4% at 1295. WTI crude oil traded like a passerby and struggled to regain 50 on another attempt.
Yield treasury yield suffered sharp selloff on Friday. 30 year yield closed below 3.000 handle at 2.955, down -0.068. 10 year yield also lost -0.071 to close at 2.317 and carried near term bearish implications. Markets are getting increasing dissatisfied on the lack of progress from US president Donald Trump's administration regarding fiscal stimulus. There was no detail on the so called "phenomenal" tax reform yet. Instead, Trump just continued his attack on media, intelligence agencies and other countries like China. There were talks that Trump could eventually deliver virtually no fiscal stimulus that has an impact of this year's growth. All eyes will turn to his address to Congress on February 28. And reactions could be even more apparent if Trump fails to deliver anything concrete. Dollar also suffered and ended the week mixed.
It has been a rather volatile week. We were partly correct in expecting strong impact from politics on the markets. But the reactions to central bank news and economic data surprised us. Dollar was clearly weighed down by FOMC minutes and CPI miss and ended as the weakest one. Meanwhile, Euro reversed early gains and ended mixed on rumors about ECB's tapering plan. There was practical no impacts from US President Donald Trump, North Korea and not even Catalonia. Markets also ignored UK Prime Minister Theresa May. Nonetheless, politics did play a role in the extraordinary volatile in Sterling, which ended as the strongest one. Aussie and Kiwi followed as boosted by China data.
While US equities surged to new record high last week, other markets didn't follow. Dollar ended mixed in spite of a chorus of hawkish comments from Fed officials, including chair Janet Yellen. A batch of stronger than expected data also provided little support to the greenback. Instead, Dollar was dragged down by treasury yields, which failed to break out from recent range and reversed during the week. Political uncertainties could be a major factor in triggering safe haven flows to US bonds. And such sentiment could also be seen in the broad based weakness in Euro, which closed as the second weakest major currency next to Sterling. Swiss Franc decouple from Euro and Sterling and ended as the second strongest currency. And overall risk aversion on European situation could be the factor in driving up the Japanese Yen, which ended as the strongest major currency.
Euro surged broadly last week and led European majors higher on expectation that pro-EU centrist Emmanuel Macron will have an easy win in French presidential election this Sunday. Traders seemed to have ignored the news about hacking attack on Macron's campaign. With 20 pt lead over EU-sceptic far-right Marine Le Pen, there should be enough safety margin for Macron. The focus is now on the reactions in that markets on the results during the initial part of next week. As Macron's win should be well priced into the markets, there is prospect of a setback in Euro after the facts. However, judging from the strength in European indices, it's believed that there is solid underlying optimism in the European economy. And, strategy could indeed be "buy-pull-back" rather that "sell-on-news".
Dollar ended last week as the weakest currency as markets took Fed Chair Janet Yellen's testimony as a dovish one. Traders further pared back bet on a rate hike in September. And the development was accompanied by surge in stock indices to record highs. Canadian Dollar ended as the second strongest as lifted by BoC rate hike and rebound in oil prices. But it was outshone by Australian dollar which soared on iron ore prices. Sterling followed as markets continued to adjust their expectations on a near term BoE hike after central banker comments. Euro and Swiss Franc followed Dollar as the weakest ones ahead of ECB meeting this week. Meanwhile, Yen traded mixed as focus is turning to BoJ meeting.
There wasn't a unified theme in the forex markets last week. Movements in the major currencies were driven by different factors. But a trend to note is that markets attentions were generally back to central banks, from politics. The divisions in Fed and BoE boards were very apparent and showed that the overall policy stances of both central banks could be shifting. Euro was mixed as it's awaiting economic data to push ECB officials to recede from being too dovish. Meanwhile, Canadian Dollar failed to extend the BoC inspired rally as rate hike bets cooled after tame inflation readings. The extended rout in oil price also added some weight to the Loonie and Aussie. New Zealand Dollar, on the other hand, ended as the second strongest one, next to Swiss Franc, on a mild RBNZ hawkish turn.
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