Weekly Review..USD surges despite Feds mixed tone
Its strange how markets take what they want from events when on another occasion they could do the opposite. That was the case with Fed minutes which lifted the USD on news that several members were looking for a rate hike as soon as June. Never mind some were suggesting 2016 and that employment data will have to get back on track , bullish USD sentiment continued to dominate.
- EUR. The weakest major losing 3.3% on the week and saw us close very close to recent lows at 1.0603. I was somewhat surprised as the Greek situation seems to be less confrontational although Tsipras’s continued demand for German war reparations are surely not helping build any bridges. I still expect a solution even if its temporary and that could lift the Euro from the doldrums. Having said that German 10 YR. yields of 0.16 % and negative yields out to 7 years now is hardly supportive. Personally I wont chase EUR/USD down from here and expect a reaction any time.
- GBP… The pound at least rebounded against the weaker EUR although it lost close to 2% against the USD closing at a low of 1.4632. I still consider GBP has more ground to lose pre election and recent data showing overseas sales of Gilts does point to trouble ahead. I still target 1.40 this year but quite possibly 1.30 should we get that Fed hike. GBP strength against the EUR has taken its toll on the trade deficit but barring a Grexit we may well have seen the best of GBP against the EUR for some time.
- JPY..USD/JPY 120.17 but JPY weakness has been fairly muted and any turn in the USD which I favour should see the JPY strengthen again.
- Emerging Markets..The fall out of Fed hike expectations has waned a little although there has been no bounce from most EM currencies and fears of a liquidity crunch are still well founded as far as I am concerned. However, a repeat of last months weaker employment data could change that so once again we will be waiting that vital data this month.
Forex..EUR/USD slips most to 1.0603 as EUR yields slipped and US yields ticked up again. GBP was second weakest at GBP/USD 1.4633 and I prefer to stick with USD longs there. AUD was the strongest gaining 0.6% against the USD at 0.7675 as RBA didn’t cut and AUD yields saw flows from EUR and GBP. USD/JPY back over 120 but JPY strength certainly against GBP.
Equities .. Bad news is good news as is good news and stock indices look poised for further gains whether its justified or not.
Bonds..US yields ticked up lending support for the USD ( 10 YR. 1.9491% ). That may be it until the next set of employment data though.
Next Weeks Trading strategy.
- No major news on Greece is expected so that issue will continue to weigh on the EUR until solved even temporarily . ECB meeting is not expected to through up any major issues provided Draghi confirms QE is all going to plan.
- Chinese GDP could through up a shock although its not likely that any surprise number will emerge. Recent trade data from China and the US doesn’t quite match the view that the EZ is gaining momentum on a surge in Trade. One way or another we will find out just how strong the recovery in the EZ is. In the UK it could be that the best of the data has passed and weaker data will add to the GBP woes which I continue to see as the best horse to back in any forex positions. Beyond that I expect some consolidation of the USD and a EUR rally only when a Grexit is off the list of possible outcomes.
- Apologies for the lack of updates to any regulars but a severe dose of Flu took its toll.