FiboGroup Market Analysis 2018

The Euro is proving itself to be a pretty resilient currency in light of recent events and come tomorrow the currency may be in for a further boost, depending on the tone of the ECB.

The recent Italian elections, which divided the Italian population and ended in a hung parliament threatens to turned into a drawn out process and possible new round of elections which in theory should have had investors exiting the Euro in droves as political uncertainty never does any favours for a currency.

Instead the market has taken this situation in its stride and has decided to wait for further clarity on what exactly will happen in regards to a future Italian government.

"The reaction in FX fixed income markets to the eurosceptic shift in Italy so far has been muted, as investors await more clarity on the composition of the next government," Danske Bank said in a note on Monday morning.

It seems as if investors are paying more attention to tomorrow’s events and in particular a speech by ECB president Mario Draghi who will lay out the plans of the European central bank in the nearest future.

If they remove the – easing bias statement the Euro is likely to surge as investors start to position themselves for possible rate hikes later in the year.

"A removal of the easing bias at this meeting is likely to strengthen the euro," said Kjersti Haugland, chief economist at DNB Bank.

"The guidance was kept unchanged at the meeting in January, but the accounts from the January meeting confirmed that the Governing Council still expects to revisit the guidance 'early this year'," Haugland added.
 
The gold price is under pressure today after news that Donald Trump has agreed to meet North Korean President Kim Jong Un which marks a huge step in what many say is the beginning of denuclearization of the North Korean peninsula.

Gold has benefited greatly in recent times on the threat of war between the US and North Korea as investors snapped up the precious metal as a safe haven asset and now those gains are under threat in light of the planned meeting.

Some say however it is too early to Jump to conclusions as North Korea has a history of failing to keep to promises and President Trump is likely to put stringent demands on the North Korean leader that he will not want to abide by

"The US will be pushing for total denuclearization and South Korea has also said that it is their main objective," said Bruce Bennett, an analyst at the RAND Corporation.



"But it's important to remember that Mr Kim has said over and over again that they will not give up their nuclear weapons." He added.



If the talks breakdown or no agreement is reached some predict that the situation will become much worse than where we stand today and gold will quickly rebound as the threat of war becomes bigger than ever.



“A word of warning to North Korean President Kim Jong Un, the worst possible thing you can do is meet with President Trump in person and try to play him,” noted Republican Senator Lindsey Graham

“If you do that, it will be the end of you - and your regime.” He added.

The short term focus for gold is the release of the non-farm payrolls figure and unemployment rate due for release from the US later today.

A strong number will guarantee the US Federal Reserve will lift interest rates later this month and a disappointing figure may cast doubt over a potential rate hike which may give gold a temporary reprieve.
 
The Australian dollar is continuing to climb in today’s trading session, following on from last Friday’s surge after news surfaced that a meeting between US president Donald Trump and his North Korean counterpart Kim Jung Un was due to take place in the nearest future.

The Aussie dollar has suffered in recent times as investors chose to avoid the riskier currencies in favour of the US dollar and Swiss Franc among others.

If the meeting goes well and North Korea agree to begin the process of denuclearization the Australian dollar is likely to fall further out of favor with the market and more losses are expected.

The latest jobs report released last Friday is also bound to put the Australian dollar under pressure because after the release, the chances of the US Federal Reserve hiking interest rates this month grew to over 90 percent.

The non-farm payrolls figure released to the market showed the number of new jobs added the US economy sharply increased by 313,000 in February, according to the US Labor Department which marks the biggest increase in over 1.5 years.

Apart from lifting rates this month, the news is bound to keep the Fed on track to lift rates a total of 4 times this year which will boost the US dollar at the expense of currencies such as the Australian dollar.

"Although the unemployment rate ticked up and average hourly earnings growth slowed, the most important takeaway is that these numbers are strong enough for the Federal Reserve to raise interest rates later this month," said BK Asset Management managing director of FX strategy Kathy Lien
 
Gold has pushed higher in today’s trading session after the release of key data from the US and a shock move by US President Donald Trump to dismiss his secretary of State.

Inflation figures released from the US some hours ago hit the market at 1.8 percent which was largely in line with expectations but still below the Fed’s target rate of 2 percent which many agree is the benchmark for a more aggressive rate hiking cycle.

Although a rate hike this month is fully priced in to the market, the amount of rate hikes for the rest of the year is now in doubt and this could lend some support to the gold price as the year unfolds.

“Although inflation appears to be improving, it has remained well below target for an extended period of time, and we anticipate that the Fed will not be keen to increase real rates aggressively,” said Bart Melek, head of commodity strategy with TD Securities.

“As such, money managers have been reluctant to reduce their exposure to the shiny metal, and with a ‘go-slow’ approach from the Fed, we could very well head back above $1,350 in the latter half of the year.”

In a move that caught the world by surprise, US President Donald Trump has fired secretary of State Rex Tillerson and replaced him with the CIA Director Mike Pompeo and has recommended that Gina Haspel to lead the CIA which will mark the first ever woman to head the agency.

Gold benefited on the news as the move adds more instability to the current presidential administration and it seems as those Trump has very few friends left as Tillerson is one of a number of people who have left the Trump administration in recent times
 
The British pound is trading higher for a 4th straight day against the greenback after another round of disappointing data from the US cast doubt on how many times the Fed can raise interest rates this year.

Retail sales from the US released earlier today hit the market at -0.1 percent against expectations for a figure of 0.3 percent and follows on from yesterday’s inflation figures which also disappointed investors as they currently still sit below the Fed’s target rate.

This marks the 3rd straight month of declining retail sales and may give the US central bank something to think about as higher rates are likely to have a negative effect and cause consumers to rein in spending even further.

Although this latest release is not expected to interfere with the Fed’s move to lift interest rates this month which is more than 90 percent priced into the market, it has cast doubt on the number of further rate hikes this year with many predicting that there will be a total of three rate hikes instead of four.

All the above is likely to support the British pound against its US counterpart in the near term and especially since the Bank of England is also preparing to continue their interest rate hiking cycle to reduce inflation from the current 3 percent down to 2 percent.

The danger is that the expected rate hikes are already factored into the Pound Sterling’s recent gains so if data out of the UK doesn’t live up to expectations we may see rate expectations cut back which will prove negative for the pound.

"With the market now pricing one and a half rate hikes from the BoE before year end and recent data disappointing expectations, we think it will be difficult for monetary policy to provide much more support from here," said Deutsche Bank strategist George Saravelos
 
The Australian dollar has now slumped for a 2nd straight day after comments from the White house that tariffs against China where are real possibility in the nearest future which left investors fleeing riskier currencies such as the Aussie.

China is Australia’s biggest trading partner and any moves directed towards the world’s 2nd largest economy are seen as negative for the Australian dollar as it may lead to a slowdown in trading goods.

White House trade adviser Peter Navarro noted yesterday that countries such as China had been getting away with unfair trade practices for years and the time had come for the presidential administration to take a stance.

"In the coming weeks, President Trump is going to have on his desk some recommendations," said Navarro in an interview

"This will be one of the many steps the president is going to courageously take in order to address unfair trade practices." he added.

The Australian dollar took a hit last time around when Trump announced tariffs on steel and aluminum but this time the effect may prove bigger as the measures are directly targeted at China and further losses are likely on the cards.

"The Australian dollar had been resilient during this month's tensions, suggesting that the very bullish global growth narrative is yet to be really shaken," said Westpac senior currency analyst Sean Callow.

"But should the US-driven trade tensions deepen in the months ahead, the Australian dollar is likely to be one of the currencies hardest hit, given Australia's current account deficits and its heavy reliance on China for commodity exports."

Another Trump advisor also made comments favoring a higher US dollar that gave a boost to the greenback at the expense of other currencies and precious metals such as gold.

New economic advisor Larry Kudlow made his personal view clear that he “would buy King Dollar and sell gold”.
 
The British pound has jumped back through the $1.40 mark against its US counterpart after a transition deal between the UK and the EU was reached earlier today.

Both sides have agreed to a 21 month transition period after the UK officially leaves the EU next year but the former will have to follow European Union rules during the transition period and have no say in future EU policy.

Although a deal in principle was reached, which also included the rights of British citizens living in the EU and EU citizens living in the UK, the issue of the border between Northern Ireland and Ireland remains unsolved and if an agreement can’t be reached, the chances of the transition deal unravelling remain high.

“There is a lot of optimism about the transition deal. The market thinks it’s a done deal and the general expectation is that a deal is going to be contingent on the Irish border issue,” said Alvin Tan, an FX strategist at Societe Generale.

The short term focus for the pound this week will be the release of local data which kicks off tomorrow with CPI figures, followed by Average earnings numbers on Wednesday and then the all-important interest rate decision from the Bank of England on Thursday.

No Changes in rates are expected with this week’s decision but the data released earlier will be closely monitored and in particular the wage growth figures on Wednesday.

Inflation is already running well over the BOE’s preferred target rate so if the wage figures come in strongly it should set the stage for a rate hike in the coming months.
 
Gold has now failed to find a direction for the past 3 trading sessions as investors remain wary about taking positions in the precious metal ahead of this week’s Federal Reserve board meeting which could determine the fate of gold for the foreseeable future.

With the market mow pricing in a 100 percent chance that the Fed will increase rates on Wednesday, the main focus will be on the following monetary statement, and how many more rate hikes the central bank has planned as the year unfolds

The consensus floating around is the Fed will signal 3 more rate hikes are on the horizon this year taking the total to 4, but some predict they will take a softer tone in light of recent events which may give a reason for gold to break out to the upside.

“The probability of another rate hike is being priced at nearly 100%, noted Bart Melek, head of commodity strategy at TD Securities

“Given the current equity market weakness, recent lackluster economic data and trade war rhetoric getting louder, we judge that a hawkish tone is not warranted at this time.

Mr Melek also noted that US President Donald Trump’s trade tariffs will benefit gold and we may be in for a rally towards the highs seen near the end of January once the dust settles.

Protectionism would no doubt be perceived to hurt global growth as the international flow of goods shrinks, could be very helpful to gold. Weaker-than-expected global growth would lower real interest rates and be a negative for equities, which should get the yellow metal to move above the current trading range to test recent highs of above $1,366 he added.

In a final note directed at short term traders Mr Melek noted that gold followed a similar pattern after the 5 previous rate hikes from the Fed and there is a strong possibility the same will happen this time around.

“Gold sold off ahead of the move, (an increase in interest rates) only to rally strongly once the rate increase was announced,” Melek noted.
 
The British pound received another boost today against its US counterpart after a round of solid local data which follow’s on from news earlier in the week on the agreement of a transition deal between the UK and the EU.

Job figures released earlier today showed the unemployment rate falling to 4.3 percent from a previous figure of 4.4 percent which marks the lowest level since 1975.

The most important figure for the market was the wage growth figures which hit the market at 2.8 percent which was up from 2.5 percent from the previous period.

The number also beat analysts’ expectations who were expecting a figure of 2.6 percent.

The pound pushed significantly higher on the news as many now predict it has paved the way for the bank of England to lift interest rates over the coming months without having to worry about overall wage growth which seems to have kept them from raising rates earlier.

"January’s labour market figures provided clearer signs of a revival in earnings growth, suggesting that it won’t be long before we start to see sustained rises in real pay," says Ruth Gregory, a UK economist at Capital Economics.

"Overall, today’s figures add further weight to our view that the next interest rate hike will occur in May." He added.

Yesterday’s CPI figures which came in below expectations will also relieve some pressure on the BOE if they lift interest rates as the fear of pushing inflation higher subsides
 
Gold is continuing to rally today following on from yesterday’s rise after a somewhat dovish statement from the US Federal Reserve regarding the amount of rate hikes they will deliver this year.

As the market expected, the Fed hiked interest rates by 25 basis points so the following statement it what set gold on its path higher.

In the press conference the Fed noted that the economy was moving along quite nicely and especially the jobs market which should warrant another 2 further hikes before years’ end.

The speech caught the market off guard as it had been widely expected that there would be 3 more rate rises this year so on the news investors exited the US dollar into other assets such as gold which was one of the biggest beneficiaries.

“The FOMC statement was more dovish than we thought warranted. At some stage, the Fed will have to grasp the nettle, but the danger is that in doing so, it will bring forward a credit crunch,” said Alasdair Macleod, head of research with Toronto-based Gold money Inc.

“These are good conditions for gold, because we can expect the dollar to weaken.” He added.

Not all analysts are overjoyed about gold’s sudden rally and predict that the market is underestimating the Fed and its future moves with regards to rates.

Caroline Bain, chief commodities economist with Capital Economics believes the US central bank will be more aggressive with tightening monetary policy than was led to believe in yesterday’s statement and when that filters into the market the gold price could suddenly reverse.

“The one commodity which will not be insulated from any negative impact of Fed tightening is gold,” she said

“Although the consensus is coming round to our view that the Fed will tighten four times this year, we do not think this has been factored into the gold price.” Mrs Bain added.
 
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