Month-End Flows to Drop USD
This week is set for a slow start, but volatility should pick up as the days progress given the important economic releases scheduled later in the week. Monday will mark the end of the month, and that means the month-end flows will be a focus for traders as they unwind their positions and reenter the market (might not be a slow start after all). The end of the month is set for Dollar weakness as we are bound to see traders closing their positions after the great rally.
Central Bank Bonanza
Last week, we saw the European Central Bank (ECB) and its president Mario Draghi, leave interest rates as they are at 0.00%. However, following his press conference, it was learnt that there the ECB sees solid and broad-based growth expectations for the euro-area for the rest of year, this meant good news for the EUR. However, this week, not one but two central banks will be delivering their decision on interest rates.
On the forefront is of course the one and only Federal Open Market Committee, whose President Jerome Powell is giving markets a run for their money. Just last week, it has been speculated that Powell will not “bail the market out” further driving the damaged assets down, who were already weak because of the 10-year yield which has reached 3.0% for the first time since 2014. The expectation this time around is to keep rates as they are at <1.75% as="" the="" statement="" will="" surely="" shed="" light="" on="" what="" is="" going="" inside="" FOMC’s="" head.
In the background, but no less important, there is the Australian Central Bank, whom are also scheduled to release their interest rate decision or “Cash Rate” along with their statement. The expectation is the same almost of every central bank nowadays and that is to keep rates as they are until they are able to see significant increase in the economy, which is understandable to a point, after which it just becomes rather predictable.
PMI for Days
The beginning of the month means one thing, PMI data will riddle the Economic Calendar for the first week. The Purchasing Manager’s Index is a leading indicator and hence released at the beginning of each month to see whether the managers of companies are wary of the coming month or not. The British, Chinese, and the U.S. are all scheduled to release PMI data for their respective countries and will surely have an effect on their respective currencies.
If the FOMC was the main risk event of this week, then in a close second place would be the unemployment report in the U.S. As always, the ADP Non-Farm Employment Change will be released on Wednesday of this week, followed by the Government’s version of the Non-Farm Employment Change on Friday. This is going to be important to the FOMC whom look at this metric in order to assess the economy of the country.
“Geopolitics, Geopolitics Everywhere”
We can’t forget the ongoing tensions between the U.S. and Iran over the nuclear deal, and the ongoing trade tensions between the U.S. and China. The Nuclear deal is the most troublesome to the global economy, especially because Iran was on the wire last week, following French President Macron and U.S. President Trump’s meeting as they discussed the revamping of the nuclear deal, saying that they are not going to support any new nuclear deal that is served to appease Trump, further escalating the probability of further sanctions on the middle-eastern country.
Over in China, Treasury Secretary Steven Mnuchin is said to travel over there and discuss the trade disputes between the two countries. However, Donald Trump is sending the cavalry with him in the shape of Kudlow and Lighthizer, who are two senior members of staff in the Trump Administration. The outcome will either confirm the billions of dollars’ worth of tariffs on China Tech products or not.
68-Year War Comes to an End
Ever since 1950, the two Koreas have been at war as it was a proxy battle between North Korea (with the support of China and the Soviet Union) and South Korea (with the support of the United States). However, between 1951 and 1954, the two countries where in a stalemate and there was no clear outcome, which lead to the signing of a ceasefire, meaning that the two countries were still technically at war.
This all ended when Kim Jong un became the first North Korean Leader to visit South Korea on April 27. He held talks with his South Korean counterpart, Moon Jae-in, together reaching an agreement to put an end to hostilities this year.
This all preludes the meeting between the North Korean Leader and the U.S. President, which is expected to happen in June of this year. President Trump was cautiously optimistic about the meeting.
The two most important assets in the trading community at the moment are the WTI futures and the Gold Spot commodity. The WTI Active Contract is clearly enjoying good momentum as it trades +5.00% for the month of April rallying from $65 to $68 as it tries to break above the all important $70 level.
Breaking above that level will surely give the contract increased bullish momentum and could lead to higher prices for the commodity. However, there are several risk factors that will be affecting this instrument, most notably are the potential sanctions on Iran if the nuclear deal gets dismantled. Moreover, the increased sanctions on Russia, could drive oil higher. There is also Trump’s tweet early last week when he targeted the OPEC and its allies saying that keeping the price of oil “artificially high” is bad and that “it can’t go on anymore”. This serves as negative risk for the commodity accompanied by the potential (even though a little) of the U.S. and Iran working things out.
Gold seems to be trading in a mixed fashion for the past couple of weeks, as it looks to be in a consolidation mode on the weekly chart. The range is quite the large one trading between the 1,300 as a lower boundary and 1,365 as an upper one. However, a closer look at the movement, shows that gold is seen to be a somewhat of a downward movement in the short-term leading the lower boundary before rallying from there.
The 1,300 seems to be a strong support for the metal and there are some pips to be had on the bounce from that level.
Month-End Flows to Drop USD