US comes out swinging at G20, markets largely unmoved

We have a relatively quiet start to the week in terms of the fundamentals, but traders will be left raking over the outcomes of the weekend’s G20 meeting to see what direction this may be able to offer. Critically, gold prices were edging higher running into the weekend break and any uncertainty over how international trade may fare in the future could add further support to the precious metal. The clock is also ticking on the French presidential elections, with polls released yesterday showing that the centrist candidate Macron had pulled level with Le Pen, which could help drive a relief rally for the Euro and also bolster treasury yields across the trading bloc.

The Traders’ View

Our Prop desk has been buying up NZD/USD positions since the end of last week with some mixed success. Support for gold is also being seen, whilst there’s still some short interest on US equity indices.

Fundamentals – US comes out swinging at G20, markets largely unmoved

If there’s one story of interest coming out of the weekend’s G20 finance meeting, it’s perhaps the actions of the US – and the reactions of the other members – as the world’s largest economy pushed for abandoning a pledge to resist protectionism. The response seems to have been not to push back and instead play a waiting game ahead of the G20 leaders’ meeting in July, and the major currency pairs appear to have been largely unaffected by this stance. However this could weigh on USD/JPY in particular – the BoJ has certainly played an active role in terms of past interventions and they may be a little less willing to engage now. The pair may look oversold, but runs much higher may struggle to maintain momentum.

It’s a relatively quiet day in terms of economic data but we do have some Eurozone wage data due for release at 10am GMT. This does reflect the situation back in Q4 of 2016, but given the scarcity of other fundamentals, we may find something of a reaction off the back of this. Critically it can be seen as an indicator of inflationary pressures, so anything that looks too hot here will once again call into question the ultra-lax policies that have been adopted by the ECB. EUR/USD may have seen some reasonable appreciation over the last couple of weeks, but there’s still room on the upside here before we run into those psychological levels like year to date highs.

Oil prices remain under pressure with Friday’s US Baker Hughes Rig Count showing another 21 units coming on stream over the last week. With the break even price for shale oil extraction having almost halved from around $60 in 2014 to just $30 today – and in some places this figure is as low as just $15 – the appetite for pumping more oil from the US is going to continue to grow. The new US President certainly isn’t going to stand in the way of production, but there’s growing speculation that the current Opec deal to constrain production won’t be extended into the second half of 2017. Further word of this will have the potential to quickly accelerate the decline in oil prices.

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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