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Weekly EUR/USD Outlook: 2017, March 19 - March 26 (based on the article)
EUR/USD had a positive week, taking advantage of the Fed’s dovish hike and the favorable outcome of the Dutch elections. What’s next?
Dollar Index - "The week ahead is thin on top-tier data flow, putting the spotlight on a packed docket of scheduled commentary from Fed officials. Comments from Chair Yellen and Neel Kashkari – the President of the central bank’s Minneapolis branch that dissented from the decision to raise rates last week – are likely to take top billing. Besides that, seven other Fed policymakers are due to speak. Fiscal policy remains a wildcard however. Treasury Secretary Mnuchin is making his international debut at a meeting of G20 finance ministers and central bank heads in Germany. A draft communique from the sit-down that surfaced Friday was relatively tame but the heretofore ubiquitous opposition to protectionism was absent. The final message after the meeting ends on Saturday may yet unnerve the markets."
GBP/USD - "At this week’s BoE rate decision, we saw the first vote for a rate hike post-Brexit, and this came from Ms. Kristin Forbes. The meeting minutes indicated that other members may vote for a rate hike in the coming months, and the reaction since that rate decision has been GBP-strength. In her testimonial, Ms. Forbes says that while Brexit will continue to dominate the news and public debate, the BoE remains steadfast towards their mandate of 2% inflation. She remarked that inflation is already very close to the bank’s target today; but the BoE forecast of 2.7% inflation within a year warrants attention. For the next week, the forecast on the British Pound will be held as neutral. More signs of confirmed inflationary forces will need to be seen before a bullish forecast can be initiated."
USD/JPY - "Nevertheless, the Bank of Japan’s (BoJ) Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control may continue to instill a long-term bullish outlook for USD/JPY as the central bank retains a dovish tone and pledges to keep the 10-Year yield close to zero. Indeed, Governor Haruhiko Kuroda warned the benchmark interest rate can be reduced further as the committee struggles to achieve the 2% inflation target, and it seems as though the BoJ will continue to expand its balance sheet for the foreseeable future as officials note ‘the year-on-year rate of change in the CPI is likely to increase from about 0 percent and become slightly positive, reflecting developments inenergy prices.’ The comments suggest the BoJ will also look through the recent pickup in price growth due to the transitory nature, and the bar seems high for the BoJ to move away from its wait-and-see approach as officials continue to monitor the impact of the non-standard measures. As a result, the broader outlook for the Japanese Yen remains bearish as the BoJ sticks with the slew of non-standard measures, but the dollar-yen exchange rate may continue to track the broad range from earlier this year as market participants gauge the future pace of the Fed’s normalization cycle."
AUD/USD - "For the moment, AUD/USD is holding on to most of its Fed-inspired gains. But it’s still unable to close the gap between this year’s peaks and the highs it fell from right after the US Presidential election last November ushered in the “Trump trade.” The pair has failed at those peaks twice this year, and the coming week offers little obvious sign that it can break through them, even if it offers few clear hazards either."
USD/CAD - "Meanwhile, the main economic event in Canada in the week ahead is the Federal budget but that is unlikely toinclude any major tax reforms or additional stimulus measures above and beyondthoseannounced in last year’s budget. The economy is growing at a respectable pace, with GDP expected to expand by around 1.8% annualized in the first quarter. Yet the Bank of Canada is unlikely to turn hawkish while the shadow of US President Donald Trump’s trade policies hang over it."
USD/CNH - "In China, curbing financial risks, especially the risk of price bubbles, become the PBOC’s main focus after NPC. This may not add much direct volatility to the Yuan but will weigh a lot on China’s monetary policy: when the economic growth slows down, more dovish policy is normally preferable as it will better support the economy. However, rising prices in property, commodities and other financial products have become major obstacles for China to introduce easing measures. On March 17th, the PBOC issued a joint announcement with other regulators to further tighten regulations on home purchases: The down payment for buying a home in Beijing, the capital city where soaring prices were seen frequently, has been lifted to 60% for either a second-home purchaser or a purchaser who has already applied for mortgage before. This means that despite home loans dropped in February, regulators still see significant risk of housing price bubble. Before this concern is fully eased, China’s monetary policy will most likely stay neutral."
GOLD (XAU/USD) - "Gold prices are higher this week with the precious metal up more than 2% to trade at 1229 ahead of the New York close on Friday. The rally marks the first weekly advance this month and comes alongside a sharp sell-off in the greenback and while the near-term picture may see prices struggle, the technical implications suggest gold may have turned a corner. However with the committee’s outlook broadly re-affirming expectations for three rate hikes this year, the greenback seems to be faltering - for gold prices, a softer dollar and an uptick in the central bank’s Core PCE (Personal Consumption Expenditure) projections were just the trigger needed to fuel a recovery as prices responded to a key support zone noted last week. Looking ahead to next week, event risk simmers down a bit with February Existing Home Sales & Durable Goods Orders highlighting the U.S. economic docket."
Brent Crude Oil - "The recent drop in price could be due to hedge funds getting out of the market reducing their extreme long positions relative to institutional hedges. Given the large buying volume possibly exiting the market, it’s fair to ask what would cause them to re-enter the market? Many are counting on hopes of rising demand and an OPEC-cut extension, but it may require a larger shift in the supply-demand imbalance despite OPEC’s recent efforts as the average US Crude Stockpiles have gained steadily due to Shale production. Hedge funds are likely to require much lower prices before accumulation begins again or a shock higher in Bullish Momentum, which has currently vanished."
Dax Index - "The DAX will not embark on a big move by itself, material moves will unfold in other parts of the globe not called Germany. Looking to potential catalysts, we are left wanting as nothing of significance is penciled in on the economic calendar. This doesn’t mean, however, that the market can’t move on its own accord and unforeseen catalysts don’t show up."