WEEKLY OUTLOOK 3-7 April 2017

A QUICK LOOK AT GLOBAL FINANCIAL MARKETS

EMERGING MARKETS

Trump - Xi Jinping meeting on Thursday will top the agenda in Asian and global financial markets this week. President Trump’s tweet regarding critical meeting "The meeting next week with China will be a very difficult one in that we can no longer have massive trade deficits and job losses. American companies must be prepared to look at other alternatives." warned markets that the meeting might be a tough one. Trump blames China for US trade deficit and job losses hence his statements that reveals that he is uncomfortable with China’s currency dominated policy are likely to be the focus of the meeting. China sees the meeting as a new starting point but Trump on Friday is expected to instruct the Commerce Department to complete a country-by-country, product-by-product assessment of the causes of U.S. trade deficits within 90 days to find out the hurdles in front of free trade.

Apart from widely expected meeting between China and US leaders, market will follow FX reserves in China.  FX reserves which is widely followed to assess the fragility of Chinese economy slid below $3.0 trn in January and it stays at $3.0 trn by February. There is no market consensus but market will react negatively should it remains below that level. Data will be announced on Friday at 11:00 a.m. and will be important as Chinese policy to protect the value of Yuan leads to an erosion in FX reserves. Hence, further drop in reserves will raise the concerns over excessive decline in Chinese reserves and may create market volatility.

India’s rate decision will be another important agenda this week in Asia. Policy rate is currently 6.25% and RBI will announce its decision on Thursday at 2.30 p.m. (GMT+5:30). Market expects no change as RBI has turned to more neutral approach from an accommodative one. Note that Finance Minister Arun Jaitley on Saturday said that India is likely to grow between 7.2% and 7.7% in the new financial year 2017-18. However, fiscal deficit which surpassed annual target between February-April is source of a concern.

Data for March manufacturing activity in India will be released by Markit on Monday at 10:30 a.m. There is no market consensus but in February, the Nikkei Manufacturing PMI had edged up to 50.7, rising from 50.4 in the preceding month.  Service PMI by Markit will be announced on Thursday at 10:30 a.m. Index level stood at 50.3 in February, rising from 48.7 a month earlier.

Manufacturing activity in Indonesia will also be announced on Monday at 8:30 (GMT+8). Nikkei manufacturing PMI stood at 49.3 in February and although there is no market consensus for March, market will seek a hint over whether the index will exceed critical threshold 50. Inflation will be announced at the same day at 12:00 p.m. It is expected to stay at 0.2% in m-o-m terms while y-o-y inflation is expected to pick up to 3.84% from 3.83% a month ago. Market consensus is a pickup in core inflation to 3.51% from 3.41%, thanks to rising demand. The central bank aims to keep the headline inflation within a 3-5% target range.

Another manufacturing index data will be announced for Russia on Monday at 9:00 a.m. (GMT+3). There is no consensus for March data but the index stood at 52.5 in February. Services PMI to be announced on Wednesday at the same time was 55.5 in February. Any realization better than previous month would be considered positive for Russian economic activity.

Inflation will be closely followed on Wednesday at 4:00 p.m. week. Y-o-Y inflation is expected to further ease to 4.3% in March, from 4.6% a month ago. No rate change is expected from Russia Central Bank in the next few meetings and deceleration in inflation may support the currency.

In Turkey, CPI inflation will be the main market mover of the week. Market consensus for March inflation is 0.6% which stands for 10.8% in y-o-y terms. February inflation was 10.13%. There is no consensus for PPI inflation however it will be quite important as cost push factors have carried domestic PPI inflation to 15.4% in February. Any realization higher than market consensus will trigger a sell off in both lira and bond yields.

MAJOR MARKETS

Brexit concerns after the initiation of Article 50 exit process have been the main agenda in global financial markets. EU’s response that suggests three-year limit on transition arrangement and no free trade agreement in next two years are likely to have reverberations this week. Additionally, Trump-Xi Jinping meeting will also be widely followed amid a quite heavy data agenda.

Data in US will be more important as indicators showing a sound economic recovery would prompt Fed for faster and maybe with larger moves in Fed funds rate. ISM and labor data will be the main market movers this week. ISM manufacturing to be announced at 10:00 a.m. Eastern Time is expected to drop to 57.0 in March from 57.7 a month ago. ISM service will be announced on Wednesday, same day with ADP employment change. The latter will be announced at 8:15 a.m. and is expected to come down to 200K from 298K a month ago. Additionally, ISM service to be announced at 10:00 a.m. is also expected to decline to 57.0 from 57.6 in February. If all data come in line with market consensus this would drag down both Dollar index, DXY, and US bond yields.

FOMC minutes will be announced the same day at 2:00 p.m. and market will follow whether Fed Governors are committed to further Fed rate hikes. Initial jobless claims on Thursday will come out at 9:30 a.m. is expected to be 250k, which points to a little ease from previous week’s 258k. Yet, markets will focus whether jobless claims is pointing to a lower plateau. Note that 4w moving average jobless claims is 254.2K.

Finally, non farm payrolls to be announced on Friday at 8:30 a.m. is expected to decline to 180k from 235k a month ago and unemployment rate is expected to remain flat at 4.7% compared to a month ago. Any realization better than market consensus will further boost DXY and US bond yields which are already triggered by Yellen’s guidance about rate hike in March. Average hourly earnings in the meantime is expected to be 0.2%, same as previous month.

In Eurozone, unemployment, PMI and retail sales will be the main releases of the week. Manufacturing PMI will be announced on Monday at 8:00 local time and is expected to further pick up to 56.2 in March from 55.4 a month ago. Service PMI on the other hand will be announced on Wednesday at 8:00 a.m. and also is expected to rise to 56.5 from 55.5 within the same period. Better than expected realizations would provide support for EUR/USD parity.

Unemployment rate will be announced on Monday at 9:00 a.m. local time. Market expects unemployment rate to ease to 9.5% in February from 9.6% a month ago. This may also carry EUR/USD higher as it will hint recovery for meager economic activity in Eurozone.

Finally, retail sales for February will be announced for Eurozone on Tuesday at 10:00 a.m. local time. Monthly realization is expected to be 0.5%, up from -0.1% in the previous month, which will push y/y retail sales increase to 1.4% from 1.2% a month ago. This would provide another support for EUR/USD parity should realization comes in line with consensus estimate.

In UK, PMI manufacturing and service for March as well as industrial production will be the important releases of the week. The former to be announced on Monday stood at 54.6 in February and is expected to remain flat in March while service PMI is expected to edge up from 53.3 to 53.5. Additionally, industrial production in February will be announced on Friday at 8.30 a.m. and is expected to accelerate to 3.7% from 3.2% a month ago.  Any strengthening  in the index amid Brexit concerns would be considered positive for British economy.

 

PMI data will be followed in Japan this week. Manufacturing PMI in Japan which will be announced on Monday at 9:30 local time (GMT+9) is above critical threshold at 50, pointing to ongoing economic recovery as of March. Yet, market consensus is signaling a weakening from 53.3 to 52.6 which may drag down Yen against USD. Service PMI will be announced on Wednesday at 9:30 but there is no consensus about the data which stood at 51.3 in February.

Technical Analysis EURUSD - The EURUSD pair showed a profit taking action from the key resistance level of 1.0885 and closed last week below 1.0666. If the pair sustains below the 1.0666 resistance level, the profit taking action may gain momentum and we will face support levels at 1.0625 and 1.0555. On the other hand, if the currency find buyers, the next resistance level will be at 1.0730. Support: 1.0625 – 1.0555 – 1.0510 Resistance: : 1.0666 - 1.0730 – 1.0780 GBPUSD - The GBPUSD pair closed last week above 1.2448 key support level. As long as the pair sustains on daily basis above 1.2448, we think the sterling gain move value against the dollar. At this point, we will follow resistance levels at 1.2580 and 1.2685. On the orter hand, if the pair drops below 1.2448 the next support level will be at 1.2345. Support: 1.2448 – 1.2345 – 1.2250 Resistance:  1.2580 – 1.2685 – 1.2775 USDJPY - The USDJPY pair moved up to the 111.90 resistance level and then pulled back below that level last week. As long as the pair remains stable on a daily basis below 111.90, we think the JPY may gain more value against the greenback and we will face again 110.90 and 109.75 as support levels. However, if the price goes beyond 111.90, the next resistance level will be at 112.75. Support: 110.50 – 109.75 – 108.90 Resistance: 111.90 – 112.75 – 113.60 GOLD - Gold found sellers from the 1255 key resistance level and showed a profit taking action last week. In order for the bullish view to dominate again, it needs to increase and remain above 1255. Otherwise, the profit taking action may continue and we will face support levels at 1236 and 1226. Support: 1236 – 1226 – 1210 Resistance: 1255 – 1273 – 1286 US OIL - The U.S. Oil showed an upward trend from the 47.15 main support level and closed last week just above 50.75. As long as the price sustains on a daily basis above the 50.75 key support level, we expect the upward trend may accerelate and we will follow resistance at 51.15 and 51.55. On the other hand, if the price falls below 50.75, the next support level will be at 50.45. Support: 50.75 – 50.45 – 50.15 Resistance: 51.15 – 51.55 – 52.10

06 Jul 18 (Fri)

06:42 am


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