The week ended with the dollar declining against other major currencies on Friday which was its biggest fall since June in reaction to the remarks by U.S. Treasury Secretary Steven Mnuchin hailing a feebler dollar. The U.S. dollar index, that reckons the dollar’s might against six major currencies, fell 0.36% at 88.87 late Friday.
The week ended with a shutdown hitting US government as the senators failed to agree on the budget for the wall. Trump in spite of having a majority couldn’t get enough votes to prevent the shutdown highlighting the troubles he is facing. Trump’s adamant stand on immigration being the crux of the divisions with GOP. Talks are underway even on Sunday to extend funding until Feb 6th.
Dollar has got off to a very bad start this New Year. Rate hikes that were expected has been done away with and a sloppy inflation outlook won't rush the Fed into raising rates soon. Gold continues its late last year rally into 2018 as it end last week at $1338/oz., longest rally seen in a while. Resistance comes in at $1350/oz. and $1365/oz. With no major dollar related event expected next week a correction in the rally can be expected from a technical perspective.
The week got off to a slow start as markets awaited the big 3 central banks. Fed kicked off things on Wednesday as Yellen raised rates as expected but sounded more dovish than expected. Markets were poised for a more hawkish tone as they expected Yellen to sound more optimistic in her last fed press briefings, but she stuck to her guns.
Brexit stole the headlines last week as it played out a “deal or no deal”. During the first meeting on Monday between UK and EU nothing concrete happened dampening hopes of a deal that saw GBPUSD hitting a low of 1.3320 by Thursday. It was not until Friday that the rays of hope started emanating of a deal getting done. Pound rose 200 pip to hit a high of 1.3520 only for sellers to remerge as many crucial questions on Brexit remained unanswered, Irish border being the main concern.
Trump’s previous security advisor Flynn submitted a guilty plea to Special counsel Mueller for lying to the FBI, Trump moved quickly to disown him and labelled him as part of ‘Obama’s old team’. To make things even, Republican senators managed to pass the Tax bill in the senate after a very close vote to give Trump a boost.
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.
Last week was packed with political events and economic releases from the big economies.Gold benefited from an uptick in risk off sentiment as it tested $1296 resistance on Friday as news outlets reported that Special Counsel Thomas Mueller investigation Trump’s collusion with Russia has requested for more documents from Trump’s electoral team. Also helping Gold was difference of opinion from Senate with respect to Trump’s tax reform bill.