Market Outlook

Market Outlook

Trump administration was in the news for all the right and wrong reasons last week.

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.

Gold was under pressure last week as treasury Yields and Dollar both rose in anticipation of the tax reform bill passing in the senate. Gold made a low of $1269.60/oz. couple of dollars above the 200dma before buyers returned. Reports of Flynn’s submitting a guilty plea and Mueller accepting it send Gold soaring $20/oz. to $1290/oz. as political commentators even discussed Trump’s impeachment as a possibility. Chances of tax reform bill passing kept a lid on the rally as Gold finally settled at $1279.90/oz.

EURUSD had another good week, backed by strong economic data from Euro mainland and Merkel’s improved chances to form government in Germany. EURUSD started the week on a weak note but found support at 1.1800 level which held twice to rally then to make a weekly high of 1.1940 and end the week at 1.1897.

GBPUSD rallied 300 pips from week’s low as UK and EU reportedly came to an agreement on the ‘divorce bill’ for around £50bn. GBPUSD was also supported by positive results from BoE’s bank stress tests and an uptick in manufacturing activity that hit the highest level since 2013.

USDJPY tracked US treasury yields and Trump’s fortunes as it held the lows of 111.00 to end the week at 112.16.

USDCAD had tracked strong dollar and moved to 1.2900, when the jobs data came out with bumper figures. Canada was set to add 10,000 new jobs, but added nearly 8 times that figure, with unemployment falling to 5.90%, a 9 year low. CAD was also helped by firmer oil price after OPEC agreed to extend the production cut to end of 2018. The net result was USDCAD losing 230 pips to end the week at 1.2677.

A lot can be expected to happen this week. An always important NFP is due this Friday, progress of Mueller’s investigation into trump’s Russian connection will keep the traders busy.

Gold continues to track US interest rate hike prospects and trump’s political fortunes for direction. Till now neither has given it a clear direction but that could soon be coming to an end. Short term support for Gold exists at $1267/oz. and resistance at $1296/oz. Any more bad press regarding trump’s Russian connection would cancel off the positive vibes his tax reform progress has made. And regarding the tax reform bill, even though the initial reaction was dollar positive, the $1.40 trillion hole that it’s going to blow in the US budget needs to be addressed urgently.

EURUSD has a relatively light economic calendar to look ahead with Monday’s Euro group meeting and Tuesday’s services PMI as the relatively important ones. EURUSD has built a base at 1.1800 and it should be held for this week barring any major scare.

GBPUSD would look forward to the meeting between UK PM May and her EU counter parts on Monday. Any news positive or negative on Brexit would be tracked by GBP. Also on the economic releases front UK construction and services data is set for release on Monday and Tuesday respectively. On charts GBPUSD has been difficult to read but the target above that he bulls aim for would be 1.3650.

USDCAD has the BoC interest rate decision on Wednesday to look forward to. It would be interesting to see the language BoC uses after Friday’s rather strong job’s data. Only recently did BoC warn the markets about the need to go slow. On charts, USDCAD has support at 1.2650 and 1.2570 and after a rather bearish closing pullbacks can be expected with1.2730 acting as immediate resistance.

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