Week Ahead: ECB Rate Meeting and China Trade Balance on Focus

 

  • Revised deadline for Brexit is this Friday with the Brexit crisis showing no signs of being resolved. Hard Brexit remains a strong possibility
  • Recent Friday’s US Nonfarm Payrolls came in at 196K, beating March’s estimates of 172K
  • Good news from US-China trade talks is boosting Risk-On sentiment, affecting the USD, JPY, AUD, NZD and CAD
  • Awaiting important CPI and trade balance data from China

Fundamental Analysis

Currency: GBP

Direction: Bearish
Confidence Level: ★★
Analyst Bias: It seems that the alliance between Theresa May and the labour party still require more time to break the UK deadlock. This Friday is the revised deadline for Brexit.  The Brexit crisis shows no signs of being resolved, as Prime Minister May has been unable to push her withdrawal agreement through parliament. Meanwhile, the delay plan was still criticized by some EU and home lawmakers. This means that a hard Brexit, which would hurt the economy, remains a strong possibility.

On the data front, this Wednesday will see the release of March’s GDP data. In February, the economy posted a strong gain of 0.5%, above the estimate of 0.2%. However, with the Brexit turmoil weighing on the economy, the markets are expecting a weak gain of 0.2% in March. We remain cautiously bearish for GDP due to the impact of Brexit on investment and manufacturing.

Currency: EUR

Direction: Bearish
Confidence Level: ★★
Analyst Bias: Last week, Euro was traded under pressure amid soft EUR data with last Monday’s Eurozone March CPI turning out softer-than-expected. Furthermore, Thursday’s German factory orders unexpectedly contracted by 4.2%, the most since 2009. Meanwhile, economic growth forecasts for 2019 were revised to the downside by the powerhouses of Europe. Along with that, this week’s  ECB could stick to its dovish tone and acknowledge more of the downside risks of the region’s economy. Lastly, German CPI data is likely to come below market consensus. Overall, we remain bearish on EUR for this week’s trading.

Currency: USD

Direction: Bearish
Confidence Level: ★★
Analyst Bias: 
USD strengthened on Friday with the March US nonfarm payrolls recovering back to 196K. However, the market was generally surprised on the downside as retail sales and durable goods orders posted declines and missed their forecasts. Nonfarm payrolls came in at 196K, easily beating the estimate of 172K in March. Still, this reading was significantly lower than the December and January releases, both of which were above the  300K level. We are forecasting some correction in the recent USD rally hence our bearish stance on USD for this week’s trading. The good news from the trade talk is boosting the risk-on sentiment, which could add to the upward pressure on USD.

Currency: JPY

Direction: Bearish
Confidence Level: ★★★
Analyst Bias: 
Last week, trade deal negotiations were going positive between US and China after Chinese delegates comprised of Vice Premier Liu He visited Washington. There were reports last week that an agreement is 90% complete, with the remaining issues including enforcement mechanisms and the removal of trade tariffs still in discussions. This could still benefit the risk appetite, though slightly weakly, and dent JPY slightly for this week’s trading.

Currency: AUD

Direction: Bullish
Confidence Level: ★★
Analyst Bias: 
Last week, trade deal negotiations were going positive between US and China after Chinese delegates comprised of Vice Premier Liu He visited Washington. There were reports last week that an agreement is 90% complete, with the remaining issues including enforcement mechanisms and the removal of trade tariffs still in discussions.

Recent signs have shown that China has some positive developments in the manufacturing sector, represented by recent upbeat PMI. It is likely that the slowdown can be transitory and China is coming back to its track gradually. This week we’re awaiting the release of important China data, including CPI and trade balance, which is likely to buoy AUD to some extent.  

Currency: NZD

Direction: Bullish
Confidence Level: ★★
Analyst Bias: 
Last week, trade deal negotiations were going positive between the US and China after Chinese delegates comprised of Vice Premier Liu He visited Washington. There were reports last week that an agreement is 90% complete, with the remaining issues including enforcement mechanisms and the removal of trade tariffs still in discussion. This could still benefit the risk appetite and can support NZD for this week’s trading. Good news from the trade talk and signs that China is coming back to its track are boosting commodity currencies including NZD.
 

Currency: CAD

Direction: Bullish
Confidence Level: ★★
Analyst Bias: 
The Canadian economy has been affected by the trade war between the U.S. and China, especially the manufacturing and export sectors. With talks between the two super-economies continuing, there is optimism that China and the U.S. will reach a deal, and that could boost the Canadian dollar. Oil rose as fighting in Libya raised the risk of supply outages. The risk-on sentiment, though in a week format on Monday morning, is likely to push CAD higher for this week’s trading.
 

Currency: US Equity

Direction: Bullish
Confidence Level: ★★
Analyst Bias: 
Wall Street stocks concluded another solid week on a positive note on Friday (April 5) after the March US jobs report showed steady employment growth. China and the US made progress toward a much-anticipated trade deal in their latest meetings, resulting in appetite for risky assets such as equities. China’s data is showing that the second largest economy is coming back to its track and recent US non-farm payrolls show that the job market is still solid, though not significantly impressive as December and January. The solid payroll number eases off the market’s concern on the economic growth after last week’s downside surprises. We remain bullish on the US equity amid the hope of an early conclusion on trade war and positive economic development in China and U.S.

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