Trump to set the agenda | Market Outlook, Mar 12, 2018

Market Outlook

Trump to set the agenda

Last week was hectic.

President Trump raised the threat of trade war yet again this time threatening China and India with reciprocative taxes a week after imposing the same on steel imports. He though reprieved Mexico and Canada until NAFTA talks are concluded. On the other hand reports emerged of North Korea expressing willingness to talk and Trump and NK leadership is set to meet in May.

Gold was under pressure after failing at $1340/oz. Friday’s NFP added to the chaos as the data showed conflicting signals, average hourly earning a leading inflation indicator was lagging while jobs growth continued to be robust. Economists are more convinced now of US is now a Goldilocks economy. Goldilocks economy is one that has low inflation, strong jobs growth, rising asset prices and steady GDP growth. Gold broke through the 1319 support to hit a low of 1312.70 after the jobs data but later recovered to close at 1323.

EURUSD began the week strongly after Merkel got reelected as the German chancellor and Italian elections went away without any worries. On Thursday EURUSD was briefly given a phillip by ECB’s monetary statement that stated ECB not planning to extend the asset purchases, with this hawkish tone only lasting till the ECB press conference. Doves finally reigned supreme when Draghi while addressing the press said asset purchases would continue, EURUSD was sold off heavily to end the week at 1.2303.

GBPUSD had a rather non eventful week as it continued to loiter around the 1.3800 mark.

USDJPY rallied towards the end of the week as rumors of Trump and NK meeting in May started going rounds, improving the risk sentiment that weakened Yen against dollar. USDJPY broke the down trending resistance line at 106.50 to end the week at 106.80.

USDCAD touched 1.30 last week before Trump’s last minute olive branch to wait until NAFTA talks are finished to decide whether to impose tariffs on Canadian imports.

Gold will look to what sets the agenda next week to decide on the direction it takes as it’s stuck in the 1305-1340 range. Trump’s talk with NK would be a risk on event while reciprocative tariffs from China and EU would be a risk off event. Next week sees US inflation and retail sales getting released on Tuesday and Wednesday respectively. With Friday’s NFP data being non conclusive about the inflation, Tuesday’s data would be of added significance.

EURUSD continues to be bogged down by its inability to clear the 1.25 handle with 1.22 giving it strong support down under. EURUSD should be expected to trade within this band with a positive bias.

GBPUSD is lackluster on the back of lack of Brexit news. Next week is thin on economic data releases from UK and GBP should look to global developments for direction. GBOUSD has resistance at 1.3910 and support at 1.3600.

USDJPY should trade with a stronger bias after breaking the downtrend in place since January. With North Korean tensions easing and trump set to talk to NK in May and tariff war set to get uglier Yen should weaken against US dollar. Resistance for USDJPY comes in at 107.50 and support should be found near 106.20.

USDCAD was weak and is very close to the support at 1.2800, a level that should be held for another attempt at 1.3000.

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