Forex Weekly News for Week of Apr 3, 2017
Sterling Momentous Week Ends Strongly: Market takes Brexit launch in stride.
Sterling Momentous Week:
There was a marked contrast in British Prime Minister Theresa May and the President of the European Council demeanor on Wednesday. The Prime Minister’s performance in the House of Common’s before and during her statement on the triggering of article 50 was almost Thatcheresque. Contrast that with a dour, almost downbeat expression of Donald Tusk.
May used phrases like; Britain’s best days are ahead, global vision and the United Kingdom will face this challenge united. Tusk, on the other hand used expressions like; damage limitation, no winners and emphasized the need for unity.
The pound gyrated during the week as would have been expected by with ample liquidity major support and resistance levels were only breached on very short term charts.
Sterling ended the week at 1.2549 having opened at 1.2493 versus the Dollar. Against the Euro it close at 0.8487 from an opening of 0.8676.
Of course, there were other influences than Brexit to drive currencies. A set of lower than expected inflation number for the Eurozone took any thought of a rate hike off the table.
However, it is perhaps significant that the Euro suffered most towards the end of Fridays trading following relatively hawkish comments from President Tusk regarding the separation of Brexit talks from an agreement on Britain’s relationship with the single market. Could the market have finally realized that the E.U. needs to have unfettered trade with the U.K. as much as the reverse?
Scots Mischievous demand for a second referendum has little effect
In Parliament following the Prime Minister’s statement, the leader of the Scottish Nationalists was vociferous in his criticism of the fact that there had been no agreement with the three devolved Parliaments about Brexit terms and that the trigger of article 50 should have been delayed.
Mrs May’s response disclosed the Government’s feelings saying that first the Government was acting in accordance with the will of the people. She also said that this was something that perhaps the Scottish Nationalists should consider since a desire to stay in the E.U. doesn’t equate to a wish to leave the U.K.
Trump puts Healthcare away for another day
In typical fashion, President Trump didn’t dwell too long on his inability to get, even to a vote, on his healthcare reforms. He signed two executive orders aimed at ensuring tariff and anti-dumping legislation is adhered to.
In the week ahead the U.S. will announce its trade deficit for March. Any significant increase on the recent average of around -48bn will likely draw a response concerning currency manipulation.
It is obvious Trump would emphasize his trade-linked concerns as he undergoes his first overseas visit this week, travelling to China to meet President Xi Jinping.
The Chinese Government stated this week that they have no intention of devaluing the Yuan.
Activity in China’s manufacturing sector unexpectedly expanded at the fastest pace in nearly 5 years in March, adding to evidence that the world’s second-largest economy has picked up momentum early this year, an official survey showed on Friday.
This piece of data gave a boost to the Australian dollar. Traders often use the AUD as a proxy for Chinese economics given the close link between the two countries fortunes. China is a huge user of Australian natural resources and Australian exports to China account for almost 40% of the total.
Employment report to provide further clue on Monetary Policy.
Following last month’s delayed employment report there is a similar wait this month. However, this is simply due to the vagaries of the Gregorian Calendar.
The headline non-farm payrolls will have probably grown by around 200k. This statistic is starting to lose relevance and it is the growth in hourly wages that is the prime driver for the FOMC.
Despite the FOMC raising rates twice already this year, wages growth has been stubbornly poor, rising at no more than 2.8% over the first quarter of 2017. This continues to dampen expectations of further tightening of monetary policy.