Daily Market Brief 5 May 2017

Euro at Six Month High

May 5th: Highlights

  • Expectation for a Macron victory
  • ECB likely to start tightening
  • Dollar weakens as commodities fall

French Election to calm concerns

There has been a genuine concern throughout the EU that the more radical and Eurosceptic countries could follow the U.K. and ask their population to decide on continued membership. The likely result in France that will see a confirmed European elected President is likely to calm some of those concerns.

The Euro had been “knocking on the door” of a move higher for several days finally exhausted the sell orders that had been holding it down yesterday. A combination of factors saw the single currency trade up towards the 1.1000 level against a weaker dollar and 0.8500 level against the pound. Sterling also rose against the dollar conclusively breaking the 1.2900 level, although there is major resistance ahead of 1.3000.

Macron and Le Pen continued to trade blows following the televised debate but the time for insults has almost passed and the electorate will have the final say. It is possible that once the result is confirmed on Sunday evening the Euro could correct a little as traders, fickle as ever, move onto the next story.

Considering your next transfer? Log in to compare live quotes today.

ECB Considering monetary tightening

Forward looking sentiment indices released recently in the Eurozone are starting to show that there is confidence building in the economy. This, coupled with stronger unified growth data and a slow but sure rise in inflation mean the ECB could be looking at a tightening bias at their next meeting. The next meeting will take place in Tallinn Estonia on 8th June.

Central Bankers (a conservative bunch at the best of times) are starting to believe in the sustainability of the recovery from the most devastating economic downturn in almost a century.

The U.S. is on a clear hiking bias. There have been two hikes in Q1 ‘17 with two more likely this year. BoE Governor Mark Carney faces further pressure at next week’s MPC meeting for a hike Even the Bank of Japan are becoming less dovish in their most recent monetary statement.

How aggressive the ECB and BoE can afford to be remains to be seen but the mere mention of a tightening bias could see long-term resistances finally broken.

Oil Prices fall as OPEC fails to act

The price of a barrel of Brent crude has fallen over the past few days as OPEC has failed to reach agreement on stemming the glut of oil being pumped.

OPEC has seen its significance fall over the past few years as members have flouted production numbers in a bid to “rush for growth”. Since Iran has seen sanctions lifted it has been selling onto the world market. When accompanied by IRAQ and Libya, free to sell on the open market a supply is starting to outstrip demand despite global growth improving.

Despite being a large importer, the U.S. is now a producer and a fall in the oil price is followed by a fall in the dollar as evidenced yesterday.

There is a lingering concern that a more generalized fall in commodity prices could be an early indicator that global growth is not as resilient as was thought. For me, that is fitting a story to the data rather than a cohesive analysis.

The Australian Dollar which is driven primarily by commodity prices traded at its lowest since early January yesterday. Analysts will be studying activity in China, which has so far been reasonably resilient, to see if there is any need for concern.

Today sees the release of employment data in the U.S. The expectation for the headline number is for 180k new jobs to have been added. However, the most interest will be in any revision of the March figure with was an outlier to recent releases.

Dollar climbs against JPY as risk abates

This is a market which thrives on headlines and “in your face drama”. It is prepared to accept that since there has been no major escalation the “Korean situation has gone away. It is doubtful that this is the case since the U.S. has just placed missile defence batteries close to Seoul in a show of support for it biggest ally in Asia after Japan.

Traders “short-termism” has allowed them to see a plot a path higher for the dollar against the Yen. This is a signal of “risk-on” as asset markets move higher. The dollar is some way from the peak seen in early March at 115.50 but on economic activity alone, the dollar should continue to make gains.

Tomorrow night’s BoJ meeting is sure to signal the continuation of its efforts to stimulate sufficient economic activity to ward off the spectre of deflation even if that means drawing the ire of President Trump.

Have a great day!

About Alan Hill

Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”