FiboGroup Market Analysis 2018

[fibogroup.com]

The Australian dollar is making another run for the US80c mark in today’s trading session after another stellar jobs report which shows the local economy is in great shape.

Data released earlier today from Australia showed there were 34,000 which smashed expectations for a figure of 9,000 and marks the best yearly run for jobs growth since 2015

The unemployment rate rose from 5.4 to 5.5 percent but that was attributed to the number of people looking for work which also rose to a figure of 65.7 percent.

“The rise in the unemployment rate is actually a positive sign for the Australian labor market,” said Marshall Gittler, chief strategist at ACLS Global.

“That’s because it’s due to a rise in the participation rate. It means people are getting more confident about the labor market and so some people who were previously on the sidelines have decided to look for work. That’s good for the economy.” He added.

Wage growth in Australia is still a little slack but some predict this will soon will soon follow the rise in job figures which in turn will boost inflation which currently sits below the RBA’s target rate.

This will allow the Reserve Bank of Australia to begin lifting interest rates as the year unfolds.

“It’s An Encouraging Report For The Economy, Government And RBA. We’ll Need to See Some Further Declines In Unemployment And Underemployment, But If They Are Forthcoming, Wages Growth Should Begin To Lift And The RBA Will Likely Be Able To Remove Some Monetary Accommodation During 2018” Noted Ivan Colhoun, National Australia Bank

 

[fibogroup.com]

Since hitting a bottom of around US75c in the middle of December last year, the Australian dollar has made a stunning comeback which has seen the currency jump by around US8c and in today’s trading session is sitting comfortably above the US80c mark.

As we can see on the chart, the technical indicators are also impressive and the Aussie dollar has smashed through previous resistance levels which was US77c in November and US76.5c in December.

It tested another critical resistance level which is US80.29c reached earlier in December but was quickly rejected and is now trading near the lows of the day.

A possible government shutdown in the US later today may be the catalyst for the Aussie to make another run for this level and if in fact the US government does shut down, a clean break past this point is a real possibility

 

[fibogroup.com]

The gold price remains stable today after sizeable gains last Friday due to the government shutdown in the US but the volatility is expected to pick up later today in the American session when the senate votes on a measure to end the government closure.

The Senate will hold the vote to reopen the government by providing 3 weeks of funding and its far from clear whether the republicans will have the numbers to pass the measure as many democrats are likely to vote no.

A no vote is likely to boost the gold price further as investors exit the US dollar in search of safe haven assets.

“We are getting into a silly season in America, where we could be having a government shutdown, which will hurt the U.S. dollar and support gold,” Bart Melek, head of global strategy at TD Securities.

Gold is also likely to receive a boost over the coming months at the expense of bitcoin, which has tumbled about 40 percent in price over the last month which has left investors questioning the long term viability of the speculative currency.

Gold dealers reported a surge in gold bullion and coin purchases last week as investors who are not used to such volatility that happened so suddenly, cashed out of bitcoin and other crypto currencies

"Gold has a sustainable track record over decades and is an asset you actually hold in your hands. People are looking for something to touch rather than an investment where only the belief in it is the value," he said. "Bitcoin has proven one time more than it is based on speculation."

 

[fibogroup.com]

The Australian dollar was once again sharply rejected at the US80c mark in today’s trading session as senators in the US voted to end a government shutdown and Australia’s biggest export tumbled over 4 percent.

In a last minute deal, senators from both sides of the US congress joined forces and agreed to fund the government for the next 3 weeks which provided a much needed boost to the greenback at the expense of currencies such as the Australian dollar.

In what is now the 3rd straight day of resistance, the Aussie dollar has failed to hold above the psychological US80c mark with solid local data and good numbers out of China failing to support it

ING Group

At around US80c, the level of the Australian dollar is also bound to raise eyebrows for some board members from the Reserve Bank of Australia who remember all too well what happened the last time the Australian economy was in this situation.

When the Aussie dollar previously traded at such levels, industries such as the export sector began to suffer as Australian exports became more expensive and uncompetitive on the world stage and the RBA had to step in to bring the currency lower.

Some analysts predict that the central bank may once again intervene, and with this scenario the Australian dollar is likely to be sold off.

“We’re not overly surprised given that investors are likely to view this as the RBA’s threshold for increased currency jawboning – especially while local inflation remains benign.” Mr Patel added.

 

[fibogroup.com]

The British Pound continues to power ahead, and has now gained more than 3 percent over the last 2 weeks against its US counterpart which brings the currency back to levels not seen since before Brexit.

Most have attributed the recent gains to weakness in the US dollar rather than rather than positive data out of the UK.

With Brexit now moving along at a steady pace with deals being brokered between the UK and the EU, business and consumer confidence is likely to pick up which should filter through to positive economic data and may put pressure on the Bank of England to lift interest rates.

Such a move should see the pound move higher well above current levels.

“I think if we get some positive data coming through, if we get a Brexit transition deal, those two elements, some combination of that, that could see markets bring forward their expectations of a Bank of England policy rate hike potentially as early as May”. said NG currency strategist, Viraj Patel.

“That one-off sort of positive rated story could be taking the pound above 1.40. he added.

Since the start of the year, big players such as hedge funds and small investors have been increasing their exposure to the pound and the long positions as well as short coverings are growing by the day.

“In the week ended 16 January, leveraged funds increased GBP net longs from 30% to 39%, the highest level since the EU referendum. On the other hand, asset managers’ net short position in GBP was reduced from 40% to 33%," says Bilal Hafeez from Nomura.

GDP numbers due out on Friday from the UK will be closely monitored by the BOE and a round of positive numbers is only going to add to the case for a rate hike in the nearest future.

 

[fibogroup.com]

The Australian dollar has now broken through 4 previous strong resistance points in the last month to reach the highs of last year but looking at the charts, the Aussie may be getting a little ahead of itself and a reversal may be in the making.

The last time the currency had such a run was back in July of last year which created a negative RSI divergence outside of the main boundaries and although the price remained there for some time, it eventually pulled back sharply to fall back within the RSI range.

This time around the Australian dollar has remained outside of the RSI range for longer so we could be in for a downturn any day now.

 

[fibogroup.com]

The gold price made a solid attempt to remain above $1,358 mark in the last 3 trading sessions but each time there was a sharp rejection which looks like for the time being the rally may be taking a breather.

We saw a similar rejection at the same price in the beginning of September last year and was followed by a sharp reversal which saw the price plummet well below $1,300.

This is unlikely to happen this time around as the number of buyers waiting for a pullback to get into the market are plentiful. There is also a number of fundamental factors that are likely to save gold from any major retreat.

A reversal back to the last support level of around $1,328 is a distinct possibility as holders of long positions temporarily exit gold on the back of profit taking.

 

[DonCarleone]

What is your long-term recommendation? I'm considering opening a position in GBP, but I don't know what time-limits are to be set... I plan to attach my investment strategy to this Brexit talks. It would be great, if you recommended me a kind of event that can serve as guidance

 

[fibogroup.com]

After reaching a high of $1.4346 last Friday against its US counterpart, the British pound has now slipped back to be trading at $1.4064 in today’s session which just goes to prove how vulnerable the currency is to the uncertainties still surrounding Brexit and the current leadership of the UK government.

British Prime Minister Teresa may is expected to face a leadership challenge in the nearest future after losing the backing of some government ministers on her perceived softness on Brexit as well as a failure to remove government ministers who seem to have their own agenda on the conditions of Brexit.

The latest one to speak out is Chancellor Philip Hammond who said that there should only be “modest changes” when Britain leaves the EU which left ministers immediately accusing Hammond of pushing for a soft Brexit which would leave the UK with the wrong end of the deal and put the EU in the driver’s seat during negotiations.

Some Tory ministers are urging Prime Minister May to get rid of the Chancellor for not towing the party line ,

“He needs to go, he’s not being loyal to the Prime Minister.” Said Tory MP Nadine Dorries after Mr Hammond’s comments.

If there is a leadership challenge to May, the pound may fail to hold on to its recent gains as the government can ill afford such political uncertainty at a time when the immediate future of the country’s economy is at stake

“How long has the prime minister got? I am of the view that any sort of change in leadership is not helpful at the moment and I don’t support that but I do think the window is closing because politics can be quite a brutal game’’ said Tory MP Johnny Mercer.

 

[fibogroup.com]

After reaching a high of $1,366 last Thursday, the price of gold has slumped $20 as the US dollar makes a comeback while this week’s round of data from America looks to drive the gold price moving forward.

The action begins on Thursday with the release of the latest interest rate decision from the US Federal Reserve followed by a monetary press conference.

No changes in rates are expected and rates are expected to remain on hold at 1.5 percent but the following statement will closely followed by investors for signs of the next rate hike with most analysts currently penciling in a rate rise in March.

Although a March rate hike is largely factored into the market, any talk by the Fed of any further rate rises after this date is likely to hurt the gold price as traders move out of the precious metal and into the US dollar as an interest bearing investment.

Gold is only attractive as a capital gain investment, as it delivers no interest payments to the investor.

Friday’s release of the Non-farm payrolls figure from the US is expected to hit the market at 175k which is well up from last month’s figure while the unemployment rate is set to remain stable at 4.1 percent.

If the numbers come in on consensus, it will once again show that the US jobs market is powering ahead and give more than enough reason for the Fed to act aggressively towards raising interest rates

"On Friday, U.S. jobs data should confirm the strong picture for the U.S. economy, which speaks in favor of rate rises and a strong dollar, so in the short term gold is under pressure," said Mitsubishi analyst Jonathan Butler.

So although gold has had a great start to the year, the US dollar may be poised to temporarily put an end to that as the world’s most popular currency once again becomes the darling of investors.