Forex Trading Update

We ended up last week with softer than expected April US retail sales and consumer prices. As a result, the US Dollar, which had had a very good week, gave back almost half of its gains of the week.

By the time you are reading this, our week of trading will have already started. Retail sales q/q for New Zealand was out late last night and beat the forecasted figure by 0.4%. Retails sales rose 1.5% against estimate of 1.1% on Q1. China Industrial Production was out at 3am as well and that was y/y release.

Today should be a typical Monday with no news. Traders coming back to their desks and assessing what happened over the weekend and preparing their week ahead. We should experience thin liquidity thanks to no important Fundamental Events happening throughout the day. We only have Theresa May who is Due to participate in Facebook’s Live Q&A hosted by ITV News, via satellite;

Due to Brexit talks which are going not so well at the moment plus a General Election in the UK on June 8th, this speech should affect the British Pound in the morning as investors will have their eyes and ears plugged on any clues the UK Prime minister may give on her plans for Brexit negotiations and the future of the country.

The British Pound is one of the Major currencies which should be most affected this week with CPI Y/Y on Tuesday, Average Earnings Index3m/y on Wednesday and Retail Sales m/m on Thursday. All being released @ 9:30 GMT on their respective days.

France has now its new president Emannuel Macron who was sworn as President yesterday with the difficult task of transforming electoral success into political strength in a society tormented by unemployment and divided by anger.

There is not much to say in terms of fundamentals as the bigger picture haven’t changed much in the past few weeks and the market is quite indecisive at the moment. It looks like the summer doldrums may be starting to have its effects . For the time being the biggest mover is the USD/JPY and that could easily be a “buy the rumours sell the news” run fuelled by the idea that the FED will hike next month at its next meeting.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

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FOREX Friday

Friday May 12th will see the release of a set of crucial US data for April at 13:30 BST; retail sales, retail sales excluding autos, CPI and core CPI. Please be aware that it will likely affect USD and USD crosses along with commodities.

The dollar index has rebounded over the past four trading sessions after hitting a low 6-month low of 98.40. Gold prices saw a rebound on Thursday, and has now touched a three-day high of $1228.98 on Friday during early European session.

US retail sales (MoM) saw a downtrend over the past three months mainly caused by the decline in auto and petroleum sales. The consensus for the April figure is an optimistic forecast of 0.6%. However, sales in April for the two automobile tycoons, Ford and GM, saw a further falling of 7.1% and 5.8% respectively. The declines will likely weigh on the upcoming data. US retail sales outlook seems to be a bit gloomy before auto sales see a recovery.

Retail sales excluding autos also saw a downtrend over the past three months with the reading for March falling into zero growth, not seen since August 2016.

US CPI (YoY) has seen a healthy upswing since August 2015; staying above the Fed’s 2% target since December 2016. Core CPI has been oscillating steadily in the range between 2.1% – 2.3% since January 2016.

The Bank of England (BoE) announced that; interest rates remain unchanged at 0.25% and the asset purchase programme also remains unchanged at £435 billion which are both in line with market expectations. The BoE sees inflation to be above their 2% target for the next three years due to weak GBP. Consumption will continue to experience a slowdown; however, this will be balanced by rising trade and investment. Wage growth is expected to be quicker in 2018.

The BoE forecasts interest rates are likely to remain at the current level until late 2019. However, monetary policy may need to be tightened more than the markets expect over the next three years. The BoE also predicts the Brexit process to be smooth.

The BoE holds a positive outlook on inflation and wage growth and overly optimistic about the Brexit negotiation process. The EU is unlikely to make the process easy for the UK, to avoid encouraging other member states leaving following Brexit.

GBP/USD fell from 1.2940 after the UK data was released, holding above the significant support line at 1.2900. This support level was breached following the BoE announcement with GBP/USD hitting a 1-week low of 1.2848.

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Feeling Gilty ?

The Bank of England could surprise markets by lowering its inflation projection for 2017 and that will be positive for gilts, according to Mike Riddell, a U.K. fixed-income portfolio manager at Allianz Global Investors.

This would go against the consensus in a survey for Thursday’s Inflation Report, where only economists from NatWest Markets and Intesa Sanpaolo among the 20 polled agree with Riddell. Of the rest, five see the BOE keeping its inflation outlook unchanged for this year and 13 see it upgrading the forecast. Oil prices have fallen and sterling has moved higher since the BOE’s last report in February, supporting his case.

“The market seems to be expecting a hawkish rhetoric from the Bank of England and I expect it’s more likely we see the opposite,” said London-based Riddell, whose firm manages 480 billion euros ($522 billion). He said on Wednesday he did “actually go a bit long again” on gilts, as they now offer “better value.”

Gilts have traded in a narrow range this year, amid uncertainty over the country’s exit from the European Union and the potential response from the central bank as U.K. economic data takes a turn for the worse. Ross Walker, head of European economics at NatWest, is another who sees a “fractionally lower” outlook for prices because of slower GDP growth, a stronger pound and muted wage inflation.

With U.K. snap elections less than a month away on June 8, it is unlikely the BOE will want to surprise the markets, said John Wraith, head of U.K. macro rates and strategy at UBS Group AG in London, but he agrees it will refrain from lifting inflation projections for 2017.

Riddell said he had changed his view on gilts from a month ago, largely linked to the BOE meeting, where he sees it also announcing a downward revision to its growth forecast. The yield on 10-year gilts rose two basis points on Thursday to 1.19 percent, after reaching its highest since March on Tuesday.

“If we get to 1.10 percent I will probably start fading it again,” Riddell said. “My biggest concern for bond markets and why I am not super long and super bullish is that the Fed is clearly very keen to hike rates and this is not yet fully priced in by the markets.”

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.