Weekly Fundamental Analysis Review
Market was in a correction frenzy last week as investors watched global equity markets melt, although there was no single defining factor for the sell-off, most investors credit this across the board risk off sentiment to the combination of: Lack of new stimulus from China, no immediate QE from ECB, diminished market expectation for a sooner than expected rate hike out of the Feds, and of course, the ongoing tension between Russia and rest of the world. By the end of the week, the DJIA fell 2.3%, S&P fell 2.6%, and NASDAQ dropped 3.1%
In U.S., the Fed Minutes caused quite a market stir as members were concerned that markets might get ahead of themselves as inevitable rate hikes creep closer. Several members voiced their concerns that the market might mistakenly take the dot chart as hawkish given several members moved their dots up a notch despite soft recent data; as a matter of fact, the FOMC Minutes anticipate keeping the target rate below levels viewed as normal in the longer run, even after employment and inflation get close to the mandated levels.
In Europe, Eurozone officials were very active this week on the subject of QE in order to fight the dropping inflation. The overall tone from the ECB was that the governing council is not ready for QE, but at least for now it’s on the table. ECB Vice President Constancio echoed his boss Draghi by again saying that April data might show inflation returning to growth, obviating the need for measures, and as a result EURUSD jumped to the 1.3900 level during mid-week.
In Japan, BoJ policy statement on Tuesday maintained its economic assessment for the eighth time in a row, stating that the “economy is recovering moderately” and only made a passing reference to “fluctuations” related to the sales tax, and as a result, no new stimulus were announced. During the Post-Rate press conference, Governor Kuroda reiterated the that the BoJ does not believe additional easing is warranted at this time and that conditions remain sufficient to achieve the 2% inflation target in the specified 2-year time frame. Market was mildly disappointed which led to JPY firming up.
In China, market reacted to the second consecutive disappointing trade balance, only this time around the government was unable to blame seasonality around the Lunar New Year. Although March trade recovered from the deficit seen in February with a surplus of $7.7B, both imports and exports fell, spoiling expectations of a modest y/y increase. Separately, March CPI came in line with consensus at 2.4%, reversing a trend of five consecutive months of slower price growth. China premier Li addressed the Boao Forum on Thursday, reiterating the state council would sacrifice its 7.5% GDP target to achieve stable employment. Li also announced that Beijing would not undertake significant stimulus measures to deal with short-term market volatility, thus adding more selling pressure to the already heavily risk-off driven market.
In conclusion, USD is likely to remain range-bond as traders evaluate the market. Considering that tons of quarterly reports from major corporations are scheduled in the coming weeks, market will surely use extreme caution. EUR may have reached a top for the time being, with ECB Draghi intensifying his stance on QE over the weekend (if the exchange rates were to increase), we are likely to see traders sell EUR on rally. GBP will be driven by news scheduled out of UK this week, therefore I’d pay attention to those reports closely. CAD, AUD, and NZD are going to follow risk sentiments closely, thus its probably best to trade them considering scheduled releases (NZ CPI, CA BOC, etc…) and the general market sentiment. For instance, I would be going LONG on AUD and NZD in the short to medium term, but I would be looking to SELL CAD instead. CHF should follow the direction of the EUR, therefore I am going to SELL on rally. JPY is finding plenty of support at the current level, and since it is too soon to gauge the effects of sales tax hike, JPY could remain in a tight range, so perhaps it’s best to Sell on rally and Buy on dips, play the ranges.
Forex Calendar April 14 ~ 18, 2014
Fundamental Analysis Review Forex Calendar April 14 ~ 18, 2014
April 14, 2014 by 2 Comments