The Day So Far…

Fairly quiet on the Western front with a theme of broader USD weakness helping support both major pairs. The USD movement in general confirms the recent trend lower weighed by a trifecta of verbal intervention, repricing of fiscal implementation from Trump, which consequently has led to a reassessment of near-term inflationary pressures. Whether this will last is difficult to judge as the French election is looming and carries a large tail risk of a sharp depreciation of the EUR in the scenario that neither Macron or Fillon qualify for the 2nd round run-off. Outside probabilities aside then one would think that Trump’s intention to keep the US competitive on the global trade front will mean that for now he is unlikely to change his rhetoric and with the likes of Vice-Chair of the Fed Stanley Fischer re-emphasising the ‘gradual’ policy approach of the Fed the USD index looks comfortable under the 100 level for the time being.

Elsewhere, much has been made of the dramatic collapse of oil last night post the release of the latest inventory report. Although one can find bearish factors in the gasoline stockpile, US output continuing to rise, and the fact that developed nations inventories are now higher than before the OPEC cuts, I think it’s important not to draw to many conclusions with the move exacerbated by a combination of the above but also with technical levels being breached and short-term speculators jumping in on the S-T momentum. The interesting part now is that with the price back towards $50 both OPEC and non-OPEC nations have already ramped up their verbal intervention in order to counter the decline, making strong hints that there is a growing consensus across all nations that an extension to the existing agreement will be rolled over. Moving forward, I would foresee $50 being a strong level of psychological support barring any unexpected shocks as participants will likely be unwilling to sit in a short position for too long on the fear of getting caught out by headline noise as producers become more vocal at these levels.

The Day Ahead

The regular weekly US jobless claims are due later this afternoon but I would anticipate limited reaction to the release. Separately, Philly Fed Manufacturing will come at the same time which maybe more interesting given the extremely high levels the data set has been tracking in the previous two months. Additional there are two Fed speakers to come, including voting member Jerome Powell (voter) who speaks directly on the economy at 1pm London time. Overall, the next two days maybe relatively subdued as bigger players sit on the side-lines awaiting the outcome of the 1st round of the French election so I would suggest factoring that into your strategies for the rest of this week.

 

Anthony Cheung
Anthony is a leading market commentator with a decade of experience accumulated as Head of Market Analysis at a leading news and analysis organisation, and now Senior Associate of Amplify Trading.