The return of the commons this week is set against the backdrop of a Prime Minister who is
under increasing pressure to resign. The news that at least 70 local Conservative party
associations want her gone is not yet something that might deliver her departure, but if
nothing else, it at least gives a good indication of the grass roots level of her popularity.
This is all weighing on the pound still, which closed below 1.30 versus the dollar on Thursday
and that technically negative close ensured that the price slipped further yesterday. The
GBPEUR has also continued to edge lower after it broke down through that 1.1550 support
level last week too. So far though the downside move has been modest and 1.1500 has held
firm. That’s largely down to the continuation of relative weakness for the EUR versus the
USD I think and certainly no indication of relative GBP strength.
Indeed, that dollar strength transpired into a move higher against all but the JPY yesterday
as the EURUSD dipped below 1.12 and the GBPUSD edged ever closer to 1.2900. In fact, the
USD index did pop briefly above that 97.71 level I have been highlighting for quite some
time now. However, and despite lifting to as high as 97.77 there was surprisingly no real
impetus to the move and the USD index simply edged backwards again into the US close
yesterday- more on the dollar in a second.
Overnight the latest Australian CPI report has dented the AUD after inflation down under
missed the mark to the downside. This has led to several calls for the RBA (Reserve Bank of
Australia) to now make its next policy move a cut in its benchmark rate. Those calls fly in the
face of just the opposite from many corners only a week or two back.
For the past couple of weeks there have been concerns raised over the potential for some
spurious moves in the JPY during the upcoming Japanese ‘Golden Week’ holidays, which this year sees the markets closed there for an almost unprecedented 10 straight days, from their close on 26 th April until the 7 th May. The lions share of those concerns in the FX space seem to be centred around the US/Japan value date window, which occurs each night on the US close at 10pm BST.
This would normally be when the Japanese market makers take over from their US
counterparts. However, with those absent during this extended period, there is the
possibility for some price ‘gaps’ to occur. It may not happen of course, but as I have been
discussing this for a while now with contacts and colleagues I think it only right to mention it
The major economic events this week are likely to centre on the Bank of Canada policy
decision (due out at 3pm today) and then on the latest US Q1 GDP print at 1.30pm on
Friday. The Bank of Japan policy decision on Thursday isn’t going to matter much I don’t
think as its almost a 100% certainty that nothing will change there. There’s little in the way
of any important UK data due out this week so once again and with parliament returning, its
back to the ‘same old’ on the Brexit front I guess.
Turning back to whatever the Bank of Canada does or doesn’t deliver later today; the
expectation is that they will leave their current 1.75% benchmark rate on hold once again.
Meanwhile, the CAD certainly isn’t really gaining any traction versus the USD, in fact just the
opposite, as the USDCAD pushes above 1.3450 this morning.
This is against a backdrop of another lift in the price of WTI which rose above $66 a barrel
yesterday. So, as usual it will probably be down to whatever the BOC has to say about the
economic outlook that will hold the key to any reaction in the CAD. The latest inflation news
from down under is probably good reason to expect the BOC to remain somewhat cautious I
Turning briefly back to the GBPUSD and the EURUSD. Both are approaching important
technical support levels this morning at 1.2911 and 1.1187 respectively. The move to as low
as 1.1192 on the EURUSD yesterday was just ahead of that 1.1187 Fibonacci support point I
have mentioned previously. So, if we do see a clear break of this, then I think it will tie in
with a more sustained upside break on the USD index. For whatever its worth I think we will
see that unfold albeit, even if rather slowly by the looks of it.
The move higher in crude oil prices did eventually have an impact on the equity markets
yesterday, but it certainly didn’t help the gold price, which looks like its still trying to push
lower, perhaps towards its 200 Daily Moving Average, currently around $1251.50. Naturally
the continuing positive equity market backdrop is also not doing the metal any favours
In that regard I am continuing to keep a very close eye on the S+P 500 which got very close
to that important 2940 level that I have noted many times here previously. However, given
the failure of the USD index to make any significant headway yesterday after what was an
important technical breach, I am also wary of something similar unfolding on the S+P.
That’s because the month end will be upon us soon and with that in mind I think its
important to see if this 2940 level holds as we head into May because if it does then
perhaps the old adage might ring true this year? The jury is certainly out on that for now,
but from what I can tell there’s still little indication of any ‘FOMA’ in the market- Fear of
Missing Out. Pretty soon though, I think we will find out if that remains the case or not.
Important Economic Releases Due This Week
24/04- 9.00am German April IFO Business Climate Index
24/04- 3.00pm Bank of Canada Monetary Policy Decision
(1.75% Benchmark Rate expected Unchanged)
25/04- 3.30am Bank of Japan Monetary Policy Decision
(0.10% Benchmark Rate Expected Unchanged)
25/04- 1.30pm US March Durable Goods Orders
26/04- 1.30pm US Q1 Revised GDP Estimate