Weekly Fundamental Forecast: Can the Risk Rally and EUR/USD Range Persist?
There were two prominent and dichotomous trends this past week. One the one hand, the S&P 500 extended a run to record highs. On the other, EUR/USD held a tight range. Can this contrast in direction and activity level hold?
The Dollar has maintained a remarkably tight range for three week range for three weeks running. The 80-point range on USDollar below 12,050 is equivalent to the average daily range of the index on a 20-day rolling basis.
The British Pound strengthened for only the second week of the past seven as a key surprise out of the Bank of England and positive political developments eased financial market tensions.
European Union leaders have some tough decisions ahead of them with respect to saving the Italian banking system, and implicitly, preventing a European financial crisis on the scale of US-borne 2008 crisis.
USD/CAD may continue to give back the advance carried over from the previous month as the Bank of Canada (BoC) softens its dovish outlook for monetary policy, but the fresh data prints coming out of the region may dampen the appeal of the loonie as the central bank warns ‘the output gap will close somewhat later than estimated in April, towards the end of 2017.’
This weekend saw a stark change-of-pace in price action trends around Japanese markets. After Shinzo Abe’s coalition won a super-majority in the upper-hours of Japanese parliament, resistance has been lessened for the push for constitutional reforms and additional economic stimulus.
The New Zealand Dollar surprised a lot of G10 currencies last week as the seven-week uptrend continued. One reason that the New Zealand Dollar held firm was that doubts are creeping in as to whether the Reserve Bank of New Zealand will be able to cut rates as the housing prices surge.
The Australian Dollar is at the mercy of risk appetite trends once again, with post-Brexit spillover fears and geopolitical jitters threatening the sentiment-linked currency.
Both onshore and offshore Yuan retraced against the US Dollar this week: the onshore Yuan (USD/CNY) closed at a slightly more bullish position, at 6.6810 following four consecutive drops on a weekly basis; the offshore Yuan (USD/CNH) touched 6.7076 on Monday and then pulled back after Yuan liquidity was tightened in the offshore market.
Gold prices are sharply lower this week with the precious metal down more than 2.8% ahead of the New York close on Friday. The losses snap a six-week winning streak that stretched into two-year highs and come amid continued strength in global equity markets with both the Dow & S&P hitting fresh record highs.
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