STO Fundamental - G20 meeting looms

We still seem to be finding some risk-on trades coming to the fore after the Dutch election result, but the G20 meeting now offers the next big opportunity for currency market volatility. Given the unpredictability of what the US team may be looking to table, markets are likely to be somewhat nervy going into the weekend break. USD/JPY could prove to be a key pair worth watching, given the criticism that may be directed towards Japan over currency weakness, whilst any reaction to recent gains posted for the Euro will also be worth watching.

The Traders’ View

Our prop desk has been placing its support behind long Euro positions with an exceptionally well timed buy on EUR/USD early yesterday afternoon yielding some good results. Interest is also being shown in long GBP/JPY trades with some already having been closed out, again for profit.

Fundamental Analysis – G20 meeting looms


Finance ministers from the G20 countries are about to kick off two days of meetings in Germany and the big overhang here is Donald Trump’s intentions over global trade. There has been no shortage of talk about border taxes and even the threat in isolation has been sufficient to repatriate some jobs to the US, but the detail is still unknown and this has the potential to create a tense atmosphere. Requests could be forthcoming from the US for Japan and China to both strengthen their respective currencies in a bid to level the playing field, but given the phase of policy tightening that the Federal Reserve is now engaged with, the fundamental challenge is that bit harder. It is perhaps the clues this meeting may hold over future US trade deals that will provide the most meaningful direction.

The Bank of England issues its latest quarterly report at 12pm GMT, which may serve to expand on yesterday’s moderately hawkish bias in the MPC meeting minutes. The next move in rates seems certain to be higher as inflationary pressures creep into the equation, but whether that will be see before the year is out is still open to debate. However, the inevitability of these rate hikes suggests that a floor may have been drawn underneath at least GBP/USD – anything that quickens the tempo in today’s BoE report may only serve to exaggerate upside potential.

Opec is reported to be considering extending its production cuts, impressed by the ability the move has had in throttling output. Although prices remain some considerable way below the $100+ per barrel that many traditional producer nations are said to need to balance the books, a 5% cut for a 40-50% uplift in price is clearly seen as a fair trade. The big question remains just how much upside potential there is in the US, specifically in terms of shale oil production. Today’s Baker Hughes rig count data at 6pm GMT will be under scrutiny here to give a blunt assessment as to just how many more fields are being tapped and another jump here could serve to suppress prices further. The April crude futures settle on Tuesday 21st March, so again expect further price volatility early next week.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

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