Trump’s Trade War and Dollar pain | Market Outlook, Mar 5, 2018

Market Outlook

Trump’s Trade War and Dollar pain

Last week Fed’s Powell in his maiden testifying session send markets into a spin as he rather surprisingly sounded rather hawkish raising hopes of more than the currently expected 3 rate hikes next year. He sounded optimistic about inflation too expecting it to reach the targeted 2% soon. Markets that were expecting a continuance to the cautious approach championed by Yellen was shaken by a rather hawkish sounding Powell.

Dollar was strengthened in the aftermath, USDJPY traded up but was hit by resistance at 108.00 that was support that was broken earlier. Follow up economic data from US wasn’t encouraging as bears took control again to drop USDJPY to 105.70.

Gold continued to be under pressure initially from a hawkish Fed and then by nervous liquidation as 1351 proved yet again to be a strong resistance. Gold found support at 1305 to later rally to end the week at 1322, just shy of resistance at 1326.

While the Fed took the hawkish route, ECB was in a dovish mood. As on Monday while addressing the European parliament Draghi sounded dovish, weighed in by a sluggish inflation figures. The speech was followed up by a weak German economic data that kept the pressure on EURUSD for the week. EURUSD briefly broke the 1.22 handle to quickly recover and to end the week at 1.2310

GBPUSD was troubled by new about infighting in May’s camp and no progress in Brexit negotiation.

USDCAD was hit by trade war rhetoric from Trump. He called out NAFTA to be the ‘worst deal ever’, reducing the already slim chance of NAFTA survival to near zero. Canadian dollar weakened with USDCAD hitting resistance at 1.2900.

With dollar taking all the limelight and Fed sounding hawkish, next week’s jobs data set to be released on Friday would take lot of attention. With economy near full employment the headline figure would be ignored with market concentrating on the average hourly earnings which would act as a leading indicator to inflation prospects.

Gold is precariously positioned at 1322. In spite of USDJPY weakening to 105.50 last week Gold still managed to close in red last week highlighting the inherent weakness in Gold. A test again of 1305 shouldn’t be ruled out next week, especially with USDJPY expected to make a slight recovery next week. However 1305 should be held as the prevalent risk off sentiment and nervous equity market should support Gold.

USDJPY is in a downtrend and is at the previous bottom of 105.50, a break of which opens up a move to 100.00. Resistance comes in at 106.20 and 108.00

EURUSD managed to regain 1.2200 support but will need to break above 1.2500 for the bulls to regain control. Immediate resistance for EURUSD comes in at 1.2350. On the political front two major event risks loom for EUR as Italy goes to poll with a fractured mandate widely expected and in Germany the government formation talks are in the last stages. If Merkel isn’t part of the new government in Germany, EUR would take a beating bringing 1.22 again under focus.

USDCAD has resistance at 1.2900 resistance which was tested three times previously. If Trump continues his trade war rhetoric this week too, 1.2900 won’t hold a chance.

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