Week in Review: U.S.-China Trade Talk and Antipodean Interest Rate Meetings on Focus

  • U.S.-China Trade talk to start the 11th round next week
  • RBA and RBNZ to hold interest rate meetings
  • U.K. GDP to be released on Friday

Skip to: USDGBP | EURJPY | AUD | NZD | CAD

Currency: USD

FUNDAMENTAL ANALYSIS ON USD

USD moved sideways this week as US data continues to display a mixed picture. The dollar dropped at the beginning of the week due to low inflation data and weak Chicago PMI. Later this week the dollar was saved by better-than-expected ADP unemployment number and a more neutral Fed. Factory order numbers for March were stronger than expected up 1.9% m/m, easing the worries over manufacturing sector growth. Tonight the non-farm payroll is to be released and could strengthen the USD. However, next week we’re set to see the release of PPI and core CPI, which could still show low price levels and put upward pressure on USD for the rest of the week.

Currency: GBP

FUNDAMENTAL ANALYSIS ON GBP

Pound edged higher this week after Brexit deals seems to be coming to a compromise with Theresa May and her arch political rival Jeremy Corbyn talking up prospects for a compromise plan. Meanwhile, May signaled that she could move on one of her key red lines and allow the U.K. to sign up to some kind of permanent customs union with the EU; similar to what the Labour Party wanted. Anticipation of a hawkish tone and an unchanged interest rates from BOE also caused the currency to strengthen. Meanwhile, the economic data on Markit construction PMI also added bullish pressure to thee currency with the actual numbers coming in at 50.5, ahead of 50.3 estimates. However, the strong economic data along with a potential rate hike by the BOE might have been priced in with the currency gains this week. Moving forward, the political uncertainty surrounding Brexit and lack of market's response to a potential rate hike by BOE showed that investor's confidence remained dented in the economy. We will also be keeping a close watch on the GDP and PMI data which will be released next week.

KEY TECHNICAL LEVELS ON GBPUSD

This week we can see that price has crossed above the descending resistance-turned-support line and has also crossed above the Ichimoku cloud. There is an overlap support at 1.3006 which is the 1st support. Intermediate resistance is at 1.3124 followed by the 1st resistance at 1.3287

Currency: EUR

FUNDAMENTAL ANALYSIS ON EUR

EUR edged higher this week on strong economic data with this quarter's GDP recording a 0.4% growth, exceeding estimates of 0.3%. President Mario Draghi indicated that the industrial sectors were going through a rough patch caused mainly by one-off factors such as disruptions in Germany's automotive sectors and trade tensions between US and China and he may be right. Given the recent PMI data, it seems that the Eurozone manufacturing slowdown is easing, with Italy, France, and EU PMI numbers coming in ahead of estimates while Germany's PMI fell just slightly short of its estimates of 44.5, coming in at 44.4. Meanwhile, there is no sign that the labor market getting weaker; The region’s unemployment rate fell to 7.7 percent in March from 7.8 percent in February, hitting the lowest level in more than ten years. These improvements, alongside rising wages, will continue to help the services sector, which is more dependent on domestic spending. This might bring about a reassessment of the decision to delay the first hike in interest rates to at least the start of 2020, boosting the currency. However, most of this bullish sentiment might have been priced in this week and the recovery might not be sustainable with Germany’s weak retail sales and PMI data. Moving forward, there might be a bearish pressure for EUR on the upcoming PMI and retail sales numbers.

KEY TECHNICAL LEVELS ON EURUSD

EURUSD is facing bearish momentum in its bearish channel. We can see a descending resistance line (dotted) which price has reacted strongly off. 1st resistance sees multiple elements lining up at the 1.1246 level. The 1st support is down at 1.1058 which has 2x 100% FIbonacci extensions. RSI has correspondingly reacted off the descending resistance line too.

Currency: JPY

FUNDAMENTAL ANALYSIS ON JPY

JPY has benefited from the capped risk appetite this week with China-US trade talks being the main potential reason. Unlike the previous negotiations, the 10th round of high-level economic and trade negotiations which concluded on Wednesday had fewer details about specific discussions and results. This has left many to wonder whether the two economic powers have hit an impasse and could explain recent downtick in the stock market. The trade talks will resume next week and the market still holds weak optimism that a deal could be concluded by next Friday. The JPY, which is a safe haven currency, could edge higher lacking clarity on the trade talk progress.

KEY TECHNICAL LEVELS ON USDJPY

USDJPY is seeing an ascending support line coinciding with the 1st support at 110.89. The first resistance is at 112.16 which has seen 2 swing highs react off that level. Stochastic is also approaching major support at 8.04% which corresponds with the 1st support level we’re seeing at 110.89.

Currency: AUD

FUNDAMENTAL ANALYSIS ON AUD

AUD was placed under pressure this week as China's manufacturing PMI results and its own domestic results were due for release. China's data came in weaker than expected, thus sending the AUD down as risk sentiments eroded. However at midweek, a CNBC news release about positive US-China trade talks and a possible deal by next Friday helped lift the AUD. This morning, Australia's building permits data came below expectations again, causing it to fall as much as 0.2% to 0.6985, the lowest since Jan. This helps reinforce the message that the housing weakness is a significant factor and more of a nudge it makes toward an RBA rate cut. Next week sees an important week for the AUD as retail sales, inflation expectations and the RBA statement are due for release. Although a chance of a rate cut  happening as soon as next week is relatively low, additional pressure could be continuously applied on the currency.

Currency: NZD

FUNDAMENTAL ANALYSIS ON NZD

NZD was dragged down equally with disappointing data from China at the start of the week. Following that, an unexpected slip in the nation's employment continued to add pressure on the currency as bets of an interest rate cut as soon as next week started to spur. The market now sees a more than 50% percent change that rates could cut to 1.5% at next Wednesday's policy review, in particular after soft inflation, economic growth and jobs data. We have NZ’s inflation expectations, official rates and RBNZ statement due during the upcoming week which can limit any upside potential for the currency.

KEY TECHNICAL LEVELS ON NZDUSD

NZDUSD bounced off the 1st support and reacted off the 1st resistance from last week. This week we can see that it is facing bearish pressure from its bearish channel and also the Ichimoku cloud which it reacted off.

Currency: CAD

FUNDAMENTAL ANALYSIS ON CAD

The signal that Wall Street sends about the US economic outlook tends to be an important driver of the loonie because Canada sends about 75% of its exports to the US. However, investors are paying more attention to domestic economic headwinds than signs of improved prospects for the US economy. The BoC last week slashed its GDP forecast from 1.7% to 1.2%, blaming a slowdown in country's oil sector, weaker housing sector and negative impact of global trade policies. This week, GDP data came in weak and falling oil prices pressed the loonie down further. Next week, trade balance data are due for release and a possible weaker than expected could add further bearish pressure on the currency.

 

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