Market Outlook

Market Outlook

A curtailed trading week was still not short of news and volatility.

Monday started off with the news that Merkel has lost support of her coalition partner FDP denting her chance to form the 4th consecutive government in Germany. EURUSD sold off immediately to hit a low of 1.1713, to later rally strongly to end the week at 1.1930 on the back of renewed optimism on the German situation. .SDP showed willingness to work with Merkel and the market optimism that Merkel will gain if a re-election would be held helped EURUSD rally.

Gold was unable to break above the 1296 resistance level and continued to be range bound. Even a falling dollar didn’t help Gold bulls.

GBPUSD was well supported last week as market remained optimistic about a “workable” Brexit deal soon, although nothing concrete was reported. GBPUSD traded up 119 pips to end the week at 1.3337. Last week saw Chancellor Phillip Hammond presenting the budget in which he highlighted the need to stimulate housing industry and announced a widely appreciated tax breaks for younger home buyers.

USDJPY sold off this week after FOMC minutes showed more members worried about inflation not picking up. US economic data was mixed to good but inflation continues to be well below the Fed’s target of 2.0%. USDJPY closed the week at 111.55 after it had made a low of 111.06 during the week.

USDCAD lost 52 pips in last week’s trading as a weak dollar a weak retail sales data took its toll.

With German impasse almost solved and strong economic growth being reported from around Euro area, EURUSD should have a clear path to 1.2100. Next week sees a host of German and Euro area data getting released, Thursday’s EU CPI being the pick of the lot.

Gold lacks a trigger at the moment that can get it out of the range it stuck in. On charts Gold has managed to break to the upside a short term wedge formation, but the bulls will have to take out the $1296 level pretty soon for the rally to sustain.

Next week will show how much progress Trump’s tax reform has made as senate decides on its fate. Voting is tight and Trump will have to act very smart to get the deal done. It’s not impossible to think that Trump might give into a few of the demands made by Senate to get the deal done. Tensions continue to brew in the Middle East, as a “missing” Hariri first flew to Paris and then to his home Lebanon where he denounced Hezbollah and their supporters. Saudi crown prince MBS’s no hold bar actions can throw up any surprise/shock in the Middle Eastern political landscape and that might be exactly the trigger the gold bulls are waiting for.

GBPUSD is still not out of the woods as Brexit deal continues to drag on. On charts 1.3340 is crucial resistance a break of which brings 1.3430 into picture. More than technical, GBP now tracks news coming from Brexit negotiators and continues to be on a weak footing.

USDJPY took out the 38.2 retracement and 100 & 200dma at 111.70 last week, next support comes in at 110.35. Japan releases a host of crucial data’s next week, with Friday’s CPI being the pick. Also important would be Thursday’s PCE index released from US that should show the way inflation is moving.

USDCAD would have Thursday’s OPEC meeting to look forward to as CAD fortunes lies with crude oil prices. An extension of the production cut deal is the minimum market expects and if OPEC delivers that USDCAD should break the 1.2660 support.

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