Hawks in Control of White House | Market Outlook, Mar 27, 2018

Market Outlook

Hawks in Control of White House

Last week saw Trump ramping up tensions on trade and geopolitics. He imposed tariffs on $60bn worth of Chinese imports with Chinese threatening to reciprocate by imposing tariffs on imports from the US, mainly pork and Soybeans. Trump also removed his National Security Advisor (NSA) and appointed Bolt has his new NSA. Bolt is a noted policy hawk which might put the Iranian nuclear deal under jeopardy. Trump since coming to power has been critical of the Iranian deal, and with his friends in Israel and Saudi against the deal, his criticism has only grown. Now that he has filled up chairs around him of neocon hawks, it’s just a matter of time before the US walks away from the Iranian deal.

Fed met last week as well, having decided to raise rates by 25bps as anticipated, but stuck to set the dot plan of 2 more hikes this year. Dollar bulls were left disappointed as they hoped Powell to sound more hawkish and hint at 3 more hikes. Powell sounded optimistic about the economic conditions and confident about inflation achieving the set target of 2% but was unwilling to raise rates ‘too fast’.

Gold managed to break the $1241 resistance and now has eyes set on the $1255 resistance. With USDJPY below 105.50, gold shouldn’t find it tough to break through on the upper side. However, Gold bulls might be nervous as Gold has failed here many times. Outside chart indicators all support s Gold – geopolitics and trade wars.

EURUSD rallied to end the week at 1.2350, but remained confined within the 1.22-1.25 band. Rising tensions of trade war and Trump sounding his anger on large scale auto imports from Europe should keep EURUSD’s gains limited.

GBPUSD closed the last week in green too, benefiting from a weak dollar. Bank of England met last week and decided to keep the rates on hold, but the vote was surprising as MPC voted 2-7 against the expected 0-7.

USDJPY was weak as Yen, a safe haven strengthened on raising tensions. USDJPY broke through the 105.50 support as it made a low of 104.64. A pull back can be expected as stochastics are in oversold territory but the gains should be limited. 105.50 that acted as support on the way down should be the first level of resistance. USDJPY now looks set to target 103.20.

USDCAD fell off the rising trend channel after optimism about NAFTA and strong Canadian inflation strengthened CAD. USDCAD had support around 1.2890 exactly where it closed last week. Further support exists at 1.2800 with resistance coming in at 1.2950.

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