Active USD Expected Alongisde Trump Inauguration
Trump takes over at the White House next week, so an active USD expected. UK spotlight on Tuesday’s PM May speech. US holiday on Monday.
Despite starting off with a US holiday on Monday (Martin Luther King day), next week is full of even risk, with the incoming President set to take over the White House on Friday. Ahead of his inauguration, there has been plenty of criticism over his press conference this week, but with the US data still on a strong footing, UST yields hold up well, with Fed members sticking to the 2-3 25bp hike projections for 2017 also supporting.
Today’s US retail sales figures improved from Nov to Dec, but missed on expectations, but PPI also increased on the month to suggest some resilience to the stronger USD. Next week’s data stateside includes inflation and industrial production, keeping some of the focus on the economy rather than hopes of fiscal policy plan by the inbound D. Trump.
It will also be a significant week for the pound, with yesterday’s news that PM Theresa May is to make a major speech on Brexit taking the market by surprise, and curtailing what looked to be a more meaningful recovery in the ailing pound. That Cable has just about held 1.2000 may prove (very) temporary, but there has been good buying interest at the lows, with the nature of the pullback (to just) above 1.2300 showing an overstretched market.
Even so, the question of hard or soft Brexit is driving sentiment, and despite the healthy data series of late, bearish projections continue to dominate. EUR/GBP is back testing the highs again as a result, and grappling with offers in the mid .8700’s as we head into the weekend. Inflation data on offer in the UK also, as well as the latest jobs report – accentuated by BoE Saunders today – along with retail sales.
Inflation rising in the EU zone also, and this has given rise to verbiage over accommodative monetary policy by German officials. Thursday’s ECB meeting will naturally cover this, but expect questions on tapering to be scrutinised in light of this. Midweek sees the final CPI readings in Germany and EU wide, preceded by the ZEW in Germany the day before. These developments have helped stabilise the EUR, to some degree, but USD and GBP drivers have distorted the moves to some degree in the respective pairings. Political concerns seem to have abated, with EUR/USD trade to be dictated in the near term by risk and USD sentiment.
For the commodity currencies, we have seen some key levels tested in all of the AUD, NZD and CAD spot rates. 1.3000 has drawn in strong demand in USD/CAD, but USD hesitancy along with WTI maintaining a firm foothold above USD50.00 keep the pair off 1.3200 for now. AUD and NZD are also maintaining pressure on their respective resistance levels – notably the former as .7500-25 sellers seem unable to shake off dip buyers looking to healthy commodity prices.
Copper has been strong based on anticipated demand out of China. The China trade surplus narrowed significantly this week, but all the risk pairings deflected this to highlight the resilience. Australian employment data due midweek, but China GDP also to be released. NZD/USD is following on the coattails of AUD, but the mid .7100’s are drawing in sellers near term. For Canada, the BoC meeting focus will be on the accompanying policy review.