Daily Insights Report 13/01/17

• 31 Mar 2017

13 Jan 2017

– The Dollar was down 0.7% against the Yen at 114.58 per Dollar. The currency is on course for a 1.8% gain this week. The Yen saw its strongest week since July.

– The Euro was up 0.4% to reach $1.0620.

Commodities

The US currency’s decline helped push commodity prices higher across the sector. Oil enjoyed the gain in addition to other supply related data.

– West Texas Intermediate (WTI) crude oil settled around $53.01 a barrel in New York’s trading markets. This comes after news of Saudi Arabia reducing supply by more than what was required in the recent OPEC deal. Brent oil increased 1.7% in trading and reached $56.01 a barrel. While Brent crude is a combination of 15 different oil field’s oil in the North Sea, and is less light and sweet, it is still good at making gasoline.

– Gold prices fluctuated between gains and losses. Gold briefly pushed above $1,200 an ounce for the first time in over seven weeks. A long time horizon of the price of gold is below with the major events listed.

United States Dollar (USD)

Retail Sales (December)

With incomes rising and gasoline prices rising, there should be an almost certain increase for retail sales for the last month of the year. Sales rose 3.8% in the three months ending in November. The forecast for this data is 0.4% overall but 0.5% excluding auto sales. While auto sales are important for the economy, they often distort the trend because demand is more volatile.

University of Michigan Consumer Sentiment

This survey, which measures consumer sentiment might reach its highest level in over a decade as the optimism from the election results continues to settle in. The forecast for the data is 99.0 which is the highest level in over a decade. Even though fuel prices are uncertain of what direction they are going, it may slightly weigh down confidence. At the same time, it may increase inflation expectations. The graph below shows how the value has fluctuated over the past 10 years.

Producer Price Index

Higher fuel costs could take the Producer Price Index higher for a second month in a row. This can be seen to show the end of a disinflationary period. In the recent weeks of the Dollar’s appreciation after the presidential election, inflation can be curbed slightly and therefore accelerate slower. A higher reading on this index gives more of a reason to the Federal Reserve to tighten monetary policy.

Euro (EUR)

Italy – Industrial Production

Italy’s industrial production should have slightly increased for the month of November. Looking at the PMI, output growth accelerated in December because of stronger output, new export orders, and employment. Markit PMI showed manufacturing was at a 6-month high at 53.2 which was a rise from November’s reading of 52.2. Even though industrial production may show a rise, it may not be the start of an upward trend.

The rejected referendum on constitutional change is likely to increase political anxiety, which will make it more difficult for industrial production to grow in the new year. Even though this weakens the overall sentiment, a weaker Euro encourages more production. Similarly, Trump’s expansionary fiscal plan can bring out higher Italian production. With the recent events concerning Brexit and announcements by leaders in the UK – there is now more uncertainty with what will happen. This undermines Britain’s economic growth, and consequently leaves Italian exports vulnerable as well.

Technical Analysis

EURUSD

The potential for a long trade at current levels on this currency pair may be profitable since some evidence is shown for an uptrend. Recent data releases, press conferences, and technical analysis support these findings.

Looking at the graph below at the ascending triangle. It seems that there is a chance to reach the 1.0700 mark, though there is some resistance. A more cautious trade would be to wait and see if the pair will fall towards the 50% retracement (1.0570) before entering this pair.