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Forextime.com Daily Market Analysis

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Forextime.com Daily Market Analysis

Fed outlook turns hawkish

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The US economy was thrown back into the spotlight today as the FOMC minutes were released and the dovish FED of the past certainly looked a thing of the past, with some of the most upbeat and hawkish minutes that have been seen in a long time. Almost all of the officials present in the meeting expected that with Trumps appointment growth was expected to pick up in line with his expansionary policies. One thing that also stood out was the FED's own expectation around inflation with expectations that it will increase to the magic 2% mark in the medium term, and the recent lift in quarterly inflation was further credit to this theory. Regardless of the trump effect the FED looks to be singing the same tune as the market and that can only be positive for the bulls in the short term. The real question will be around what Trump can actually do with congress in order to get the US economy moving again and the economy expanding further - even when it's almost at full capacity when it comes to employment.

Regardless of how you viewed the FOMC minutes, the recent economic data out of the US has been positive with the construction spending m/m lifting to 0.9% (0.5% exp) and ISM manufacturing PMI also lifting to 54.7 (53.8 exp). All of this has boded well for traders and the markets have responded accordingly with the S&P 500 lifting back up to a strong level of resistance in anticipation of tomorrows economic data due out on the employment sector and the services sector as well. Even with resistance currently sitting at 2272 the expectation of further highs is fresh on traders' minds and they will be looking to push the boundaries further in the current climate. A push upwards to 2300 is very much on the cards if the market sees further positive US economic data tomorrow.

One thing that is also worth watching out for in tomorrow's trading is oil markets, previously they have been moving quite rapidly in the low volume trading and volatility is certainly ever traders friend. The recent build up in private storage showed that perhaps oil markets still needed a little more time to correct and we saw prices fall accordingly down to the 20 day moving average before finding dynamic support. Expectations are for a decline in overall oil inventories, but after the recent private reading the market may have altered its expectations.  

Technically speaking though oil is looking very strong with resistance sitting tight at 54.46, to get past this level we would need to see a large drawdown in crude oil inventories, and this may be a bit of an ask just after Christmas. Any further falls are also likely to struggle past the 20 day moving average, and even more so the 50 day moving average which is acting as dynamic support for market movements at present. 


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By Alex Gurr, Guest Analyst
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Edited by FXTM Official

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Forextime.com Daily Market Analysis

Asian equities retreat as investors shift to cautious mode

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After a strong start for the year, equity markets started to cool down in the second trading week of 2017. Most Asian major indices are in red today, as Wall Street failed to make new highs and the Dow retreated further from the key psychological 20,000 mark, while oil suffered a steep selloff on Monday. 

Investors who built their positions based on Trump’s victory are likely to start cashing out for the time being and shift their focus on fundamentals with the earning season kicking off later this week when U.S. big banks release their fourth quarter results. I’m not confident to call a correction yet, but certainly many investors got ahead of themselves betting on fiscal stimulus, and while business usually tends to under promise and over deliver, this doesn’t seem to be the case with the U.S. new President.   

Although Kuwait’s Oil Minister Essam Al-Marzouk who is chairing the committee to oversee compliance of OPEC’s output assured the markets that OPEC and non-OPEC members will abide to the planned cuts, still both oil benchmarks dropped 4% on Monday.  This clearly indicates that it’s not just an OPEC game, and the expected increase in U.S. and Canadian supplies are likely to threaten the oil rally. Data from the U.S. on Friday showed rig counts rose for ten consecutive weeks and it’s just about some time for this to translate into additional production, suggesting that downside risk may remain in play, and rather than just focusing on implementations of OPEC production cuts, investors should be looking at the bigger picture on whether supply will meet demand in the second half of 2017.

The U.S. dollar fell for a second day, extending its slide from the 14-year high hit on January 3. The pull back in the dollar came despite hawkish speeches from Fed officials suggesting that the central bank is getting closer to achieving its dual mandate. Both Fed presidents, Charles Evans and Patrick Harker aren’t ruling out three rate hikes in 2017, while Eric Rosengren called for stepping up the pace of interest rates hikes to prevent inflation from overshooting. However, traders are still not yet completely convinced and pricing in only two hikes for 2017 according to CME’s Fed Watch. With no tier one economic data on the calendar until Friday, U.S. bond yields will remain to be the key driver for the greenback.

The Pound remained under pressure after Monday’s steep selloff on comments from UK’s Prime Minister Theresa May which intensified fears of “Hard Brexit”. Although the pound looks undervalued, the risk of further selloff may remain in play as we get closer to triggering article 50. Meanwhile comments from Scotland’s First Minister on BBC that she’s not bluffing about her vow to hold a second referendum on Scottish independence if Britain leaves the single market is another factor to worry about on the medium-term.   


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By Hussein Sayed, Chief Market Strategist (Gulf & MENA)
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Forextime.com Daily Market Analysis

President-elect leaves dollar bulls unimpressed

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The long-awaited first press conference by President-elect Donald Trump left many investors with more questions than answers as he failed to justify the current premium priced in the dollar and equity markets.

We already knew that Trump wants to build a border wall with Mexico, bring back U.S. production onshore, and that he’s willing to be the best job creator America ever knew, but what’s his plans on corporate tax reforms? How and when is he planning to spend on roads, bridges, and other infrastructure projects? Is he going to impose tariffs on imported goods from China, Mexico and the rest of the world? Unfortunately, no updates were revealed.

Thus, the greenback was dragged, falling against all major currencies on Wednesday with the dollar index falling to lowest levels since Dec 14 at 101.28. The selloff continued until early Thursday suggesting that dollar bulls are no more willing to price any additional premium until we get more clarity on his promised fiscal plans.

The continued fall in U.S. treasury yields is another factor dragging the dollar. U.S. 10 year yields have been in a down trend since Dec 14, losing 11.8% in value after spiking 42% since the election results were revealed.

U.S. stocks were less impacted, and managed to close higher despite the volatility and sharp selloff in pharma stocks which were attacked by Trump. Whether the rally can be sustained will depend on two factors, earning growth and actions from Trump’s administration as his words and tweets are clearly starting to show less influence.

The combination of dollar weakness, lower U.S. yields and doubts in Trump's policies offered gold a boost, with the yellow metal posting a high of 1,199. So far gold has recovered 6.8% from December lows, and trader higher in 11 out of 13 days. Fed Chair Janet Yellen’s speech will probably decide whether we’re going to see a break and hold above 1,200 today. 

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By Hussein Sayed, Chief Market Strategist (Gulf & MENA)
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Forextime.com Daily Market Analysis

Volatility elevated ahead of May’s Brexit speech; Pound recovers

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It’s Sterling’s day.

Financial markets are anxiously awaiting U.K.’s Prime Minister Theresa May speech later today where she will lay out a detailed divorce plan from the EU. Lot of reports were leaked since Sunday on what to expect her to say, and the most interesting part is that she has no interest in partial departure which suggests we’re heading towards a “Hard Brexit”. Traders were very fast to react, sending the pound 1.6% lower on Monday to trade below 1.20. However, the recovery in early Asian trade Tuesday indicates that lot of the bad news are already priced in, and for the pound to fall substantially lower it requires more than just signs of a hard Brexit plan.  

If the Supreme court decided that May needs to secure the consent of Parliament before triggering article 50, potentially delaying Brexit for couple of months, this is likely to provide sterling a boost by unwinding many short positions. Traders should be aware that sterling won’t be a one way play and volatility could be elevated to extreme levels.

On the data front, UK CPI is expected to hit 1.4% in December, up 0.2% from November and 0.5% from October’s reading. This will not only mark the highest inflation rate since mid-2014 but the pace of inflation escalation is pulling U.K.’s real interest rates even lower.  Of course, this is going to be a challenge for the BoE, but if it indicates anything, it’s interest rates next move is only upward, leaving monetary policy with very few options to support the economy if needed.

The safe haven Yen is the major beneficiary of the heightened uncertainty over U.K.’s Hard Brexit scenario and Trump’s policies. USDJPY has fallen for the seventh straight day, and declined by more than 4.3% from January 3 peak. The fall in bond yields worldwide will continue to lend some support for the Yen, but whenever this trade is over I expect the Yen to weaken again.

The U.S. dollar is falling against all its major peers with the index dropping below 101. There’s no fundamental reason for the selloff and I don’t think the dollar’s rally is over yet, but the “Trump trade” has clearly cooled down in the past couple of days as markets still have many answered questions regarding future fiscal policies. Let’s hope we get some answers on Fridays inauguration. 

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By Hussein Sayed, Chief Market Strategist (Gulf & MENA)
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Forextime.com Daily Market Analysis

Aussie dollar cracks major levels


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The Australian dollar swung heavily today as US bulls finally looked to sell off in the wake of economic uncertainty around the United Kingdom. Volatility was most certainly the key player for the day, and traders took full advantage. Yesterday there were strong comments that the AUD was currently overvalued, but it would seem that the market had other ideas as it raced up the charts knocking out some key levels along the way. The market is further poised for today consumer sentiment, which will give some indication if the Trump effect has spread to Australia in the wake of recent events. Expectations have previously been very low and I would expect this to be the theme going forward but with the possibility of a surprise in economic data as we have previously seen.

For the AUDUSD traders resistance was not a problem today as it smashed through 0.7531 on the charts and looked to climb even higher, coming up just short of 0.7567. The 0.7567 level is very strong and I would expect to see some stiff resistance unless we see some positive fundamental data come out in the next few hours. In the event of a pullback I would expect that the 100 day moving average could act as dynamic resistance if it is a strong pullback, otherwise I would anticipate that former resistance level at 0.7531 looking to hold out in the long run.  

One of the interesting things about a stronger USD has been the flow on effect to metals, none more so than silver which has so far seen a solid bullish trend appear in the short term and has briefly pushed through resistance at 17.133. The strong sell off today in USD certainly had a big impact in helping making this progress, but the real test is set to come as it sizes up resistance at 17.308, which I would expect to be a very strong level. The 200 day moving average is also intersecting with this strong level of resistance and has previously acted as a strong dynamic level for market movements. However, the trend is certainly your friend and this could be the case as silver looks to climb higher in the build up to Trumps inauguration on Friday.

Lastly, the NZDUSD has managed to also climb up the charts, but recent reports around the dairy auction paint a messy picture that shows that New Zealand's economy may not be as strong as recent economists had predicted. The jump higher today to resistance at 0.7222 has shown there is strong demand during patches of weakness, however this level has proved time and time again to also fight back and push prices lower.

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By Alex Gurr, Guest Analyst
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Forextime.com Daily Market Analysis

Aussie dollar cracks major levels


emergisrs.jpg


The Australian dollar swung heavily today as US bulls finally looked to sell off in the wake of economic uncertainty around the United Kingdom. Volatility was most certainly the key player for the day, and traders took full advantage. Yesterday there were strong comments that the AUD was currently overvalued, but it would seem that the market had other ideas as it raced up the charts knocking out some key levels along the way. The market is further poised for today consumer sentiment, which will give some indication if the Trump effect has spread to Australia in the wake of recent events. Expectations have previously been very low and I would expect this to be the theme going forward but with the possibility of a surprise in economic data as we have previously seen.

For the AUDUSD traders resistance was not a problem today as it smashed through 0.7531 on the charts and looked to climb even higher, coming up just short of 0.7567. The 0.7567 level is very strong and I would expect to see some stiff resistance unless we see some positive fundamental data come out in the next few hours. In the event of a pullback I would expect that the 100 day moving average could act as dynamic resistance if it is a strong pullback, otherwise I would anticipate that former resistance level at 0.7531 looking to hold out in the long run.  

One of the interesting things about a stronger USD has been the flow on effect to metals, none more so than silver which has so far seen a solid bullish trend appear in the short term and has briefly pushed through resistance at 17.133. The strong sell off today in USD certainly had a big impact in helping making this progress, but the real test is set to come as it sizes up resistance at 17.308, which I would expect to be a very strong level. The 200 day moving average is also intersecting with this strong level of resistance and has previously acted as a strong dynamic level for market movements. However, the trend is certainly your friend and this could be the case as silver looks to climb higher in the build up to Trumps inauguration on Friday.

Lastly, the NZDUSD has managed to also climb up the charts, but recent reports around the dairy auction paint a messy picture that shows that New Zealand's economy may not be as strong as recent economists had predicted. The jump higher today to resistance at 0.7222 has shown there is strong demand during patches of weakness, however this level has proved time and time again to also fight back and push prices lower.

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By Alex Gurr, Guest Analyst
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Forextime.com Daily Market Analysis

The Week ahead: Politics to take center stage

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Donald Trump is finally in power, a new era has arrived, and his policy plans in the first couple of weeks will override fundamentals. Markets spent more than two months pricing in growth policies promises, lowers corporate taxes, and deregulations, now it is time to deliver as markets will no more move on words but actions.

U.S. dollar bulls were not really impressed in the new Presidents’ inauguration speech, as it was focused more on protectionism and lacked any concrete plans to drive growth. Repealing Obamacare, building a Mexican border wall, and withdrawing from the Trans Pacific Partnership are not the kind of news investors want to hear, they need to know when pro-growth fiscal policies will come into play and more importantly whether congress will approve them.

The days and weeks ahead will likely see volatility increase in equities, fixed income, and currency markets. Investors are already buying exchange-traded products that track volatility, this explains the level of expected uncertainty going forward.   

The week ahead will also see U.S. earnings season move into high gear with more than 20% of S&P 500 companies reporting fourth quarter results including Alphabet, Amazon, Microsoft, McDonald’s, Verizon, Johnson & Johnson, Boeing, EBay, and AT&T. According to Factset, 61% of the companies that reported results so far managed to beat profit estimates, while only 47% managed to beat on revenues.

On the U.S. economic data front, all eyes will be on Friday’s U.S. Q4 GDP release. Growth is anticipated to slow significantly from Q3 3.5% to only 2.2%, as net trade expected to turn negative. Homes sales, services PMI’s, trade balance, and durable goods are also on the agenda for next week.

It will also be an interesting week for sterling as U.K.’s supreme court will eventually deliver its ruling on Tuesday on whether Prime Minister Theresa May can activate the process for Brexit without parliamentary approval. We highly expect that the court will rule in favor of Parliament’s approval to trigger article 50, but any spike in sterling likely to be short lived.

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By Hussein Sayed, Chief Market Strategist (Gulf & MENA)
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