GBP/USD – British pound edges higher, investors eye UK job numbers

The British pound has recorded slight gains in the Monday session. In North American trade, the pair is trading at 1.3266, up 0.24% on the day. On the release front, British Rightmove HPI surprised with a decline of -0.1%, its first decline since December. In the U.S, core retail sales dropped to 0.4%, matching the estimate. Retail sales dropped to 0.5%, edging above 0.4%. On Tuesday, BoE Governor speaks before the Treasury Select Committee, and the U.K will release wage growth and unemployment rolls. In the U.S, Federal Reserve Chair Jerome Powell testifies before the Senate Banking Committee.

The U.S economy is firing on all cylinders and received a vote of confidence from the head of the Federal Reserve. On Thursday, Powell said that the economy is “in a really good place”, pointing to President Trump’s massive tax cut scheme and increased spending as key factors in boosting economic growth. Powell did not address monetary policy and said he was uncertain as to the effects of the current trade disputes which has embroiled the U.S and its trading partners. The Fed will likely press the rate trigger in the second half of the year, but it is an open question as to whether we’ll see one hike over the next six months. The Fed is projecting growth of 2.8% in 2018, compared to 2.3% in 2017. Powell will be in the spotlight next week when he appears for his semi-annual testimony before Congress.

Trade policy is not part of the Federal Reserve’s mandate, but Fed policymakers continue to voice concern about the escalating trade war between the U.S and its major trading partners, particularly China. On Friday, Dallas Fed President Robert Kaplan said he would have to downgrade his outlook if the tariff battle continues. Kaplan said that U.S tariffs on steel and aluminum imports had dampened capital expenditures plans and further trade tensions could lead to currency fluctuations and geopolitical instability.

As the Brexit deadline creeps ever closer, both sides are making contingency plans for a ‘hard Brexit’, in the event that the parties fail to reach an agreement. On Thursday, the British government released a white paper, which is a blueprint for trade arrangements with the EU when Britain leaves the club in March 2019. The proposal suggests that the UK and the EU will enter into an “association agreement”, which maintains current agreements with regards to goods but not services. This could have a significant negative impact on London’s financial hub, which is already facing the loss of hundreds of financial jobs from London to the continent. Prime Minister May is facing strong opposition from hardliners in her cabinet, who argue that the white paper leaves the EU too much control over British trade policy and could hamper British trade deals. Will the Europeans buy what May is selling? EU policymakers are reviewing the white paper and if it is rejected, investors could get panicky and send the pound lower.

  Trade ,earnings ,teapots and the US dollar

China Q2 GDP growth as expected, though lower than Q1

 

GBP/USD Fundamentals

Sunday (July 15)

  • 19:01 British Rightmove HPI. Actual -0.1%

Monday (July 16)

  • 8:30 US Core Retail Sales. Estimate 0.4%. Actual 0.4%
  • 8:30 US Retail Sales. Estimate 0.4%. Actual 0.4%. Actual 0.5%
  • 8:30 US Empire State Manufacturing Index. Estimate 20.3. Actual 22.6
  • 10:00 US Business Inventories. Estimate 0.4%

Tuesday (July 17)

  • 4:00 BoE Governor Mark Carney Speaks
  • 4:30 British Average Earnings Index. Estimate 2.5%
  • 4:30 British Claimant Count Change. Estimate 2.3K
  • 4:30 British Unemployment Rate. Estimate 4.2%
  • Tentative – British NIESR GDP Estimate
  • 9:15 US Capacity Utilization Rate. Estimate 78.4%
  • 9:15 US Industrial Production. Estimate 0.5%
  • 10:00 US Federal Reserve Jerome Powell Testifies
  • 10:00 US NAHB Housing Market Index. Estimate 69
  • 16:00 US TIC Long-Term Purchases. Estimate 34.3B

*All release times are DST

*Key events are in bold

 

GBP/USD for Monday, July 16, 2018

GBP/USD July 13 at 10:25 DST

Open: 1.3235 High: 1.3293 Low: 1.3224 Close: 1.3266

 

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.3088 1.3186 1.3263 1.3494 1.3613 1.3712

GBP/USD posted small gains in the Asian and European sessions. The pair is showing little movement in North American trade

  • 1.3263 has switched to a support level after gains by GBP/USD on Monday. It is a weak line
  • 1.3494 is the next of resistance
  • Current range: 1.3263 to 1.3494

Further levels in both directions:

  • Below: 1.3263, 1.3186, 1.3088 and 1.2996
  • Above: 1.3494, 1.3613 and 1.3712

USD/CAD- Canadian dollar subdued as U.S retail sales within expectations

The Canadian dollar is almost unchanged in the Monday session. Currently, USD/CAD is trading at 1.3145, down 0.07% on the day. On the release front, Canadian Foreign Securities Purchases dropped sharply to C$2.18 billion, well short of the estimate of C$7.03 billion. This marked a 5-month low. In the U.S core retail sales dropped to 0.4%, matching the estimate. Retail sales dropped to 0.5%, edging above 0.4%. 

In the U.S, the focus is on consumer spending reports, with both retail sales and core retail sales expected to drop to 0.4%. On the manufacturing front, Empire State Manufacturing Index is forecast to drop to 20.3 points. On Tuesday, Federal Reserve Chair will testify before the Senate Banking Committee and Canada releases Manufacturing Sales.

The U.S economy is firing on all cylinders and received a vote of confidence from the head of the Federal Reserve. On Thursday, Powell said that the economy is “in a really good place”, pointing to President Trump’s massive tax cut scheme and increased spending as key factors in boosting economic growth. Powell did not address monetary policy and said he was uncertain as to the effects of the current trade disputes which has embroiled the U.S and its trading partners. The Fed will likely press the rate trigger in the second half of the year, but it is an open question as to whether we’ll see one hike over the next six months. The Fed is projecting growth of 2.8% in 2018, compared to 2.3% in 2017. Powell will be in the spotlight next week when he appears for his semi-annual testimony before Congress.

Trade policy is not part of the Federal Reserve’s mandate, but Fed policymakers continue to voice concern about the escalating trade war between the U.S and its major trading partners, particularly China. On Friday, Dallas Fed President Robert Kaplan said he would have to downgrade his outlook if the tariff battle continues. Kaplan said that U.S tariffs on steel and aluminum imports had dampened capital expenditures plans and further trade tensions could lead to currency fluctuations and geopolitcal instability.

  Trade ,earnings ,teapots and the US dollar

China Q2 GDP growth as expected, though lower than Q1

Monday (July 16)

  • 8:30 Canadian Foreign Securities Purchases. Estimate 7.03B. Actual 2.18B
  • 8:30 US Core Retail Sales. Estimate 0.4%. Actual 0.5%
  • 8:30 US Retail Sales. Estimate 0.4%. Actual 0.4%
  • 8:30 US Empire State Manufacturing Index. Estimate 20.3
  • 10:00 US Business Inventories. Estimate 0.4%

Tuesday (July 17)

  • 8:30 Canadian Manufacturing Sales
  • 9:15 US Capacity Utilization Rate. Estimate 78.4%
  • 9:15 US Industrial Production. Estimate 0.5%
  • 10:00 US Federal Reserve Jerome Powell Testifies
  • 10:00 US NAHB Housing Market Index. Estimate 69
  • 16:00 US TIC Long-Term Purchases. Estimate 34.3B

*All release times are DST

*Key events are in bold

USD/CAD for Monday, July 16, 2018

USD/CAD, July 16 at 8:35 DST

Open: 1.3157 High: 1.3167 Low: 1.3137 Close: 1.3145

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.2831 1.2970 1.3067 1.3160 1.3292 1.3436

USD/CAD posted small losses in the Asian and  European sessions. The pair has posted slight gains early in the North American session

  • 1.3067 is providing support
  • 1.3160 was tested earlier in resistance. It remains a weak line
  • Current range: 1.3067 to 1.3160

Further levels in both directions:

  • Below: 1.3067, 1.2970 and 1.2831
  • Above: 1.3160, 1.3292, 1.3436 and 1.3530

EUR/USD – Euro gains ground despite soft eurozone surplus

EUR/USD has posted gains in the Monday session. Currently, the pair is trading at 1.1707, up 0.18% on the day. In economic news, the eurozone trade surplus slipped to EUR 16.9 billion, short of the estimate of EUR 17.6 billion. This marked the lowest surplus since January 2017. In the U.S, the focus is on consumer spending reports, with both retail sales and core retail sales expected to drop to 0.4%. On the manufacturing front, Empire State Manufacturing Index is forecast to drop to 20.3 points. On Tuesday, Federal Reserve Chair will testify before the Senate Banking Committee.

The U.S economy continues to perform well in 2018, and received a vote of confidence from the head of the Federal Reserve. On Thursday, Powell said that the economy is “in a really good place”, pointing to President Trump’s massive tax cut scheme and increased spending as key factors in boosting economic growth. Powell did not address monetary policy and said he was uncertain as to the effects of the current trade disputes which has embroiled the U.S and its trading partners. The Fed will likely press the rate trigger in the second half of the year, but it is an open question as to whether we’ll see one hike over the next six months. The Fed is projecting growth of 2.8% in 2018, compared to 2.3% in 2017. Powell will be in the spotlight next week when he appears for his semi-annual testimony before Congress.

Trade policy is not part of the Federal Reserve’s mandate, but Fed policymakers continue to voice concern about the escalating trade war between the U.S and its major trading partners, particularly China. On Friday, Dallas Fed President Robert Kaplan said he would have to downgrade his outlook if the tariff battle continues. Kaplan said that U.S tariffs on steel and aluminum imports had dampened capital expenditures plans and further trade tensions could lead to currency fluctuations and geopolitcal instability.

  Trade ,earnings ,teapots and the US dollar

China Q2 GDP growth as expected, though lower than Q1

 

EUR/USD Fundamentals

Monday (July 16)

  • 4:04 Italian Trade Balance. Estimate 3.25B Actual 3.38B
  • 5:00 Eurozone Trade Balance. Estimate 17.6B. Actual 16.9B
  • 8:30 US Core Retail Sales. Estimate 0.4%
  • 8:30 US Retail Sales. Estimate 0.4%
  • 8:30 US Empire State Manufacturing Index. Estimate 20.3
  • 10:00 US Business Inventories. Estimate 0.4%

Tuesday (July 17)

  • 9:15 US Capacity Utilization Rate. Estimate 78.4%
  • 9:15 US Industrial Production. Estimate 0.5%
  • 10:00 US Federal Reserve Jerome Powell Testifies
  • 10:00 US NAHB Housing Market Index. Estimate 69
  • 16:00 US TIC Long-Term Purchases. Estimate 34.3B

*All release times are DST

*Key events are in bold

 

EUR/USD for Monday, July 16, 2018

EUR/USD for July 16 at 7:05 DST

Open: 1.1686 High: 1.1722 Low: 1.1676 Close: 1.1721

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.1434 1.1553 1.1637 1.1728 1.1829 1.1916

EUR/USD was flat in the Asian session and has edged higher in European trade

  • 1.1637 is providing support
  • 1.1728 is a weak resistance line

Further levels in both directions:

  • Below: 1.1637, 1.1553, 1.1434 and 1.1312
  • Above: 1.1728, 1.1829 and 1.1910
  • Current range: 1.1637 to 1.1728

Trade War and Trump European Trip Boost US Dollar

The US dollar was higher across the board against major pairs on Friday. Trade war concerns rose heading into the weekend and the comments from US President Donald Trump during the week sparked a rally of USD buying. Trump has been outspoken on NATO, trade and the Brexit deal while economic indicators and the US Fed have been supportive of the greenback. The Trump administration has said that it would add 10 percent tariffs on additional $200 billion Chinese goods if the Asian nation retaliates. U.S. Federal Reserve Chair Jerome Powell highlights the week with his semi annual testimonies.

  • US retail sales expected to slow down
  • Fed Chair Powell to testify before congress and senate committees
  • Canadian inflation and retail sales data out on Friday

**Dollar Firmer on Trade Tensions and Fed Comments **

The EUR/USD fell 0.80 in the last five sessions. The single currency is trading at 1.1648 after the EUR lost ground int he first four days of the week, only to mount a half hearted recovery on Friday. The pair started the week trading at 1.1763 and will close at 1.1685. Hawkish Fed member rhetoric and strong inflation indicators in the US did their part on the fundamental side, but with geopolitics playing such an important part the focus of investors was on the ongoing trade war with China. The USD became a safe haven and attracted flows looking to hedge against uncertainty.



The U.S. Federal Reserve has lifted interest rates twice already in 2018 and Fed members have been out in numbers endorsing one or two more additional hikes. The tone of the testimonies from Chair Powell to the congress and senate committees will guide the currency.

European inflation data will be released on Wednesday and is expected to remain steady at 2.0 percent. US retail sales data is expected to drop to a small gain of 0.4 percent but the emphasis will be on Fed Chair Powell’s testimony alongside other member comments during the week. The G20 financial summit will be held in Buenos Aires starting on Friday, July 20 which will be interning as trade spats have escalated to tariff wars but have yet to fully impact global markets.

Yen Loses Safe Haven Appeal

The USD/JPY gained 1.83 percent during the week. The currency pair is trading at 112.47 with the yen one of the biggest losers against the USD in the past five sessions. The Japanese currency shed its safe haven status as a major source of its exports has been targeted in the trade wars (auto) and the US yield curve flattening making the greenback a more attractive destination.



Bank of Canada Hike Can’t Compete with Trade Concerns

The USD/CAD gained 0.65 percent in the last five days. The currency pair is trading at 1.3174 even after the Bank of Canada (BoC) made the benchmark interest rate 25 basis points higher on Wednesday. The official rate is now 1.50 percent, closing the gap with the Fed funds rate alongside some hawkish forecasts of the economy by Governor Poloz.


Canadian dollar weekly graph July 9, 2018

The main headwind for the loonie has been the current geopolitical climate, trade in particular. The Canadian economy is heavily dependant on its relationship with the US and the Trump administration has been pushing for a deep NAFTA renegotiation in exchange to exempt Canada form other tariffs.

The loonie got little support from oil prices with West Texas Intermediate falling since the higher than expected supplies coming online. The weekly inventories posted a large drawdown, but ends of disruption in Libya and a softer stance on Iranian oil by the US is pushing crude prices down. US officials are considering dipping into the oil receiver to prevent a sharp price increase.

Brexit Pressure and Trump Comments Take Down Pound

The GBP/USD lost 0.81 percent in the last week. The currency pair is trading at 1.3178 in the aftermath of a softer Brexit plan drafted by Prime Minister Theresa May was published. The strategy has already resulted in multiple resignations from hard line Brexiteers in May’s government but so far has been short on details. The EU withdrawal bill will be voted next week and then the UK government will sit down with the EU to keep hashing out the Brexit negotiation



UK data will be released that could end up putting the Bank of England (BoE) August rate hike out of reach. Labor data, inflation and retail sales are all due during the week. The Brexit negotiation continues to be a bumpy ride and that is only on the domestic side, EU negotiators might not agree with May’s promises back home regardless of the political cost.

Sunday, July 15
10:00pm CNY GDP q/y
Monday, July 16
8:30am USD Core Retail Sales m/m
USD Retail Sales m/m
6:45pm NZD CPI q/q
9:30pm AUD Monetary Policy Meeting Minutes
Tuesday, July 17
4:30am GBP Average Earnings Index 3m/y
4:30am GBP BOE Gov Carney Speaks
10:00am USD Fed Chair Powell Testifies
Wednesday, July 18
4:30am GBP CPI y/y
8:30am USD Building Permits
10:00am USD Fed Chair Powell Testifies
10:30am USD Crude Oil Inventories
9:30pm AUD Employment Change
Thursday, July 19
4:30am GBP Retail Sales m/m
Friday, July 20
8:30am CAD CPI m/m
8:30am CAD Core Retail Sales m/m

US Import Prices Fell 0.4% in June

U.S. import prices fell the most in more than two years in June as prices for petroleum products fell and a strong dollar weighed on the costs of other goods, pointing to benign import inflation pressures.



The Labor Department said on Friday import prices dropped 0.4 percent last month, the largest decline since February 2016. Data for May was revised to show import prices increasing 0.9 percent instead of rising 0.6 percent as previously reported.

Economists had forecast import prices edging up 0.1 percent in June. In the 12 months through June, import prices increased 4.3 percent after advancing 4.5 percent in May.

via Reuters

Goldman Puts Probability of Higher Tariffs on Chinese Goods at 60%

Goldman Sachs economists said on Friday they placed a 60 percent chance the Trump administration would impose duties on an additional $200 billion worth of Chinese imports that were recently targeted.



“While very uncertain, we would expect the tariffs could be imposed as soon as late September but possibly not until after the election,” they wrote in a research note.

via Reuters

Kuwait Could Reach Emerging Market Status

Kuwait has long been nicknamed the Sleeping Giant of the Gulf, and it is not exactly intended as a compliment. Kuwait is considered one of the least interesting of the Mideast regional economies and has done little to attract foreign investment. But that reputation might be set for a change.

Kuwait’s stock market is being considered for a bump-up to emerging markets status by major index providers, and that would be a significant reclassification within the world of investors. Index funds tracking emerging markets benchmarks, and active fund assets benchmarked against emerging markets indexes, are far larger in size and popularity than frontier markets portfolios.


West Texas Intermediate graph

There are 30 exchange-traded funds tracking EM benchmarks, and the three largest ETFs tracking the MSCI and FTSE emerging markets indexes have roughly $135 billion in assets between them. There are two frontier market ETFs with a total asset base of roughly $600 million. Kuwait is the largest country weight in the MSCI and FTSE frontier markets index, at over 21 percent and 19 percent, respectively.

In June, MSCI said it would place the MSCI Kuwait Index under review for a potential reclassification from frontier markets to emerging markets status in 2019. Rival index provider FTSE Russell hasn’t classified Kuwait historically, but starting September of this year, it will be classified as a secondary emerging market — it also has an advanced emerging market group.

via CNBC

Oil Ends Week Lower on End of Supply Disruptions

Oil prices were set for a second straight week of decline on Friday after Libyan ports reopened and on the view that Iran might still export some crude despite U.S. sanctions.


West Texas Intermediate graph

Brent crude LCOc1 was down 10 cents at $74.35 per barrel by 1308 GMT, having fallen earlier by 1.3 percent. It was heading for a weekly fall of around 3 percent.

U.S. benchmark West Texas Intermediate crude CLc1 was up 10 cents at $70.43, and was on course for a weekly decline of around 4 percent.

Oil approached $80 in late June and early July due to Libyan and Venezuelan supply disruptions and fears the United States would press all buyers of Iranian oil to cut imports to zero from November.

But prices weakened in recent days as OPEC member Libya reopened its ports in the east and U.S. Secretary of State Mike Pompeo said Washington would consider granting waivers to some of Iran’s crude buyers.

via Reuters

Chinese Firms Exported More to US Ahead of Tariffs

China’s trade surplus with the United States swelled to a record in June as its overall exports grew at a solid pace, a result that could further inflame a bitter trade dispute with Washington.

But signs exporters were rushing shipments before tariffs went into effect in the first week of July suggest the spike in the surplus was a one-off, with analysts expecting a less favorable trade balance for China in coming months as duties on exports start to bite.



The data came after the administration of U.S. President Donald Trump raised the stakes in its trade row with China on Tuesday, saying it would slap 10 percent tariffs on an extra $200 billion worth of Chinese imports, including numerous consumer items.

China’s trade surplus with the United States, which is at the center of the tariff tussle, widened to a record monthly high of $28.97 billion, up from $24.58 billion in May, according to Reuters calculations based on official data going back to 2008.

The record surplus “won’t help already sour relations and escalating tensions”, Jonas Short, head of the Beijing office at Everbright Sun Hung Kai, wrote in a note.

via CNBC

USD Rises on Trade War Concerns

The euro fell to a nine-day low on Friday after data showing a record Chinese trade surplus stirred worries about a deeper United States-China trade conflict, encouraging investors into the safety of the dollar.



The Chinese yuan, which has suffered in the past six weeks on concern that U.S. tariffs on Chinese goods will eventually hit its economy, reversed earlier gains in Asia and fell half a percent in offshore markets CNH=.

U.S. Treasury Secretary Steven Mnuchin said on Thursday that the United States and China could reopen trade talks, briefly easing concerns about the trade dispute.

But data showing China’s trade surplus with the United States swelled to a record in June as exports grew could further inflame tensions. Trump this week pledged to impose tariffs on $200 billion more of Chinese imports and Beijing has vowed to retaliate.

via Reuters