Fibogroup Market Analysis 2017

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The Australian dollar is taking a rest today after breaking through the US80c mark again last Friday and some analysts predict that the bull trend could continue and US85c is not out of the question.

At 10.31am (GMT) the Aussie dollar was trading at US79.69c, slightly down from US79.82c at close of trading last Friday.

Over the last 3 weeks, the Aussie dollar has gained more than 5 percent against its US counterpart and while some predict that a selloff is imminent, others believe that there are still further gains to come as the market is underestimating the current strength of the Australian economy,

"I keep talking to people who are so bearish on Australia and they're blind to the actual numbers coming out," said Greg Gibbs, head of Amplifying Global FX Capital.

"The market's not particularly long the currency and dismissive of some fairly positive data coming out of Australia." He added.

Mr Gibbs also noted that people were underestimating the current economic and political situation in the US, which could come to the forefront at any time and cause investors to further dump the US dollar.

“You've got [Janet] Yellen last week, the inflation numbers are horrible, then you've got the politics side of it and that could really become a kicker for the US dollar. The market confidence around the politics could fall over as soon as the market feels that rate rises aren't really on the agenda," Mr Gibbs added.

The Australian dollar may face some volatility tomorrow with the release of the latest interest rate decision from the RBA followed by a monetary press conference.

No Changes are expected but the following monetary statement will be of particular interest to investors as there are concerns the current level of the Australian dollar is affecting industries such as exports, which is the backbone of the economy.

Even if the RBA takes a dovish stance and talks down the Aussie dollar it may not be enough to halt the rise.

 

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As we noted in last Friday’s report the gold price would make a charge for the next resistance level of is $1,265 which it has comfortably broken over the last 2 trading session and has now become the new support level.

With the political uncertainty surrounding the Trump administration at the moment such as staff being fired or resigning by the day, and rumors that US Secretary of State Rex Tillerson is also contemplating bailing on Trump , gold should remain well supported until this situation becomes clear.

There is also the rift between Russia and the US, which is escalating by the day, with Russia ordering the removal of more than 700 US consular staff out of the country as retaliation for extra sanctions placed on them.

Gold is now poised to make a run for the next resistance level around $1,275 but may retest the support level of or even temporarily did down below the current support level of $1,265 as traders take profits.

 

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The Australian dollar is failing to find a direction today after yesterday’s loses on the back of a speech from the Reserve Bank of Australia but some say this is temporary and the bull trend is set to continue.

At 9.40am(GMT) the Aussie dollar was trading at US79.65c virtually unchanged from yesterday’s close.

As expected yesterday, no changes were made in the RBA’s latest interest rate decision so all eyes were on the following monetary policy statement from RBA Governor Philip Lowe.

Mr Lowe tried to talk down the Australian dollar by noting that the sudden rapid appreciation will do more harm than good to the Australian economy in a number of areas including inflation and the jobs market.

“The Australian dollar has appreciated recently, partly reflecting a lower US dollar. The higher exchange rate is expected to contribute to subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast” Lowe said in a monetary speech.

Although the Australian dollar retreated after the speech, it largely brushed off the comments from the RBA governor and some say it will take more action such as the threat of an interest rate cut to stop the Aussie dollar’s rise towards US85c.

If it does head towards this number, the RBA is expected to come out fighting and “jawbone” the currency,

"It was a quite a neutral statement, If the Australian dollar pushes up toward US85 cents, then that would get the RBA more concerned." said Nader Naeimi from AMP Capital.

 

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The British Pound is trading higher for a 6th straight session today as the market awaits the latest interest rate decision from the Bank of England followed by a monitory press conference.

At 11.14am(GMT) the British currency was trading at $1.3238 against its US counterpart, up from $1.3223 in yesterday’s close.

No changes in rates are expected from the BOE today, but investors will pay attention to how many board members vote to raise rates as this may set the stage for a rate hike next time round.

Last time the central bank met regarding rates, 3 board members voted the lift them and if the number of votes comes in less, the pound may be sold off bringing its winning run to an end

“With likely only two members to vote to raise rates after MPC Member Kristin Forbes’ departure, the risk may be to the downside for the pound unless the Bank is more hawkish than expected.” Noted Alexandra Russell-Oliver,currency markets analyst at Caxton

The BoE seems set to keep policy on hold given recent slower wage growth and modest economic growth. While inflation remains well above the Bank’s 2% target rate, it unexpectedly slowed in June. She added

 

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The gold price remains under pressure today following on from last Friday’s losses after the release of solid employment numbers from the US

The latest non-farm payrolls figure hit the market at 209,000, well above analysts’ expectations for a number of 183,000 while the unemployment rate fell from 4.4 percent to 4.3 percent.

This is now the 2nd month in a row that employment numbers have beat expectations with the US currently sitting near full employment,

The news left investors piling into the US dollar at the expense of gold, which was heavily sold off

"The job data was very good; gold is pressured. There is not much other geopolitical uncertainty in the world, no extreme events. That's why risk-aversion is subsiding and gold prices aren't doing well." Noted Richard Xu, a fund manager at China's biggest gold exchange-traded fund, HuaAn Gold.

The market is now pricing in around a 50 percent chance that the Fed will once again raise interest rates this year and the percentage is set to rise if this week’s inflation figures due for release out of the US also hit the market above expectations.

"The strong rise in non-farm payrolls together with the drop back in the unemployment rate to a joint 16-year low suggests the Fed will still need to raise rates again later this year, even if inflation remains subdued," said Simona Gambarini, commodities economist at Capital Economics.

 

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The oil price remains steady today as Opec and Non Opec members such as Russia sit down for a two day meeting in Abu Dhabi to discuss the recent efforts in cutting supplies.

A deal was brokered in late 2016 between the various Opec and Non Opec members to reduce oil supplies in order to boost the price but it seems that all is not well with the deal and countries such as Libya who are exempt, are pumping oil at record levels which is keeping pressure on the oil price.

Some say history shows that deals to cut production have a history of falling apart through non compliance and this time will be no different.

“The reality is OPEC has no way of enforcing the production caps,” said Gao Jian, an analyst at SCI International.

“That has been the problem of the cartel for many years now.” He added.

The Key for higher oil prices could be Venezuela with US president Donald Trump promising tough sanctions should the political instability continue with Venezuelan President Manduro attempting to seize total control

"Even limited new US-imposed sanctions or discussion of broader sanctions could be a catalyst for Venezuela defaulting on its upcoming debt payments, which would put upward pressure on oil prices and help tighten light-heavy spreads." Noted Warren Russell from Barclays.

 

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The gold price is powering ahead today, racking up its fourth straight day of gains as political tensions boil over between the US and North Korea with the later threatening to strike the US Territory of Guam.

The news sits well for gold as investors rush to the precious metal as a safehaven and with the potential war like situation expected to continue, further gains are expected,

"Amid all the sabre-rattling, we expect gold prices to continue to move higher and likely cross the $1,300 an ounce mark in relative short order," said INTL FCStone analyst Edward Meir.

From a technical side, gold has found a solid base at $1,276 which was yesterday’s closing price and we expect gold to make a run for the $1,285 mark today or tomorrow which was formerly a resistance level.
This will become the support level as it makes its way to $1,300 and around this mark it may be time to exit long positions and book in some profits.

 

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As we predicted yesterday, gold has hit the $1,285 mark in today’s trading which we also noted would become the new support level on its way to $1,300 and beyond.

While the threat of nuclear war between the US and North Korea is going to keep gold well supported as a safehaven asset, CPI figures from the US later today may be just what gold needs to push significantly higher.

. A disappointing figure is likely to leave the market predicting that the US Federal Reserve is finished with their rate hiking cycle this year, which is bound to benefit gold and should see it make a higher top beyond $1,294 and from a technical point of view will be very bullish.

If the CPI figures surprise on the upside we may see the price pull back to the former resistance level of $1,279 over the short term before reversing and continuing the uptrend.

 

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The gold price hit strong resistance at the $1,290 mark on Friday and the weakness has continued in today’s trading session but some predict it’s only a matter of time for the uptrend to continue with a break above $1,300.

Tensions between the USA and North Korea eased down over the weekend which may have led to some profit taking in gold, but not everyone expects this situation to last for long and once again investors will move into gold as a safe haven,

"Maybe geopolitical tensions are easing so it's natural for gold to come down a bit, but it's very unpredictable because prices could rise to another high because of some change," said Richard Xu, a fund manager at China's biggest gold exchange-traded fund, HuaAn Gold.

Mr Hu also noted that besides the war of words between the US and North Korea, gold was fundamentally in a good position which will also provide support for the price.

"After the sharp selloff in the dollar, over the weekend nothing happened so I guess the threat from the (Korean) peninsula is low, but we think gold fundamentals are strong," he said

Another boost for gold is the US dollar, which is expected to come under further pressure in the weeks ahead after inflation figures hit the market below expectations and at 1.7 percent, are still well short of the US Federal Reserve’s target figure of 2 percent.

It may force the central bank to hold off raising rates in the US for the foreseeable future which will add to the appeal of gold.

 

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The British pound is under pressure today after the latest round of inflation figures all but killed chances for a rate hike from the Bank of England this year.

Consumer price index figures from the UK earlier today hit the market at 2.6 percent against analysts’ expectations for a figure of 2.7 percent and marks the 2nd straight month of declines.

The lack of consumer confidence may be worries about the ongoing Brexit negotiations which seem to be going nowhere from the British side with the government still seemingly without a plan on what to do.

"The EU have consistently said that no future talks would start until the exit arrangements are made clearer. Something that he is also reported to suggest could be delayed past the soft deadline of October if the current pace of negotiations continues as they are." Said

The uncertainty is bound to keep the British pound under pressure against the major currencies and some are predicting that the Euro will be the biggest beneficiary, and will be trading 1-1 with the British pound before too long.

“In euro-sterling we’ve had a very strong conviction and it’s one of the biggest forecasts I ever remember making on a major currency,” said David Bloom, HSBC’s London-based global head of currency strategy

“That’s a 20 percent move and that’s quite something. It’s very unusual that we make such, what was at that time, an outrageous forecast, but we are roughly half way there and we believe in it,” he added.

Also hurting the pound today was the release of the latest producer price index figures that came in at 0.1 percent against expectations for a figure of 0.2 percent and shows that business, as well as consumer confidence is suffering the effects of Brexit.