Daily Insights Report 17/03/17

• 31 Mar 2017

17 Mar 2017

The Bank of England kept the Bank rate a record low of 0.25%. This was expected, but the minutes of the meeting suggested a hawkish tone. Similarly, the stock of purchased assets also remained fixed at GBP 435 billion. Policymakers suggested that there might be a slowdown in demand during this year and inflation may surpass the 2.0% target in the coming months. A look at how the interest rate has behaved in the UK can be seen below.

– The Dollar saw some losses as the Federal Reserve’s decision to increase the interest rates on Wednesday. US stocks saw many sales, and yields on T-Bills saw a minor rebound. The Federal Reserve has stuck to its original forecast of three interest rate increases in this year and three more in 2018.

– The GBP gained against most of the majors, following the Bank of England’s decision to keep interest rates unchanged. In addition to the GBP, the CHF was the only other currency of the Group-of-10 currencies that was trading higher against the Dollar. The Pound was trading at $1.2365 as a result of these combined effects.

Commodities

– Gold rose as the Dollar dipped slightly. Gold was trading at $1,226 per ounce on the spot market. Gold futures for delivery in April also increased, by 2.2% to reach $1,227.10 per ounce. The precious metal is heading towards its first weekly gain since February 24.

– West Texas Intermediate (WTI) crude fell slightly to reach $48.75 a barrel. Brent crude on the other hand suffered as a result of downward pressure and fell to close at $51.74.

United States Dollar (USD)

Industrial Production and Capacity Utilization (February)

The forecast for industrial production is 0.2% increase, and the capacity utilization to be 75.5%. Industrial production is looking to grow in February after January’s decline in the utility sector was the weighing factor. Manufacturing has shown to be having positive results, since it has increased in four out of the last five months up to January. It is unlikely that the manufacturing sector will get any further aid from the auto sector as production since November has slowed down.

University of Michigan Consumer Sentiment (March)

Consumer sentiment from the survey may be the same as February’s – which itself was a three-month low. Even though the overall index may show a decline. A sub index about the assessment of current economic conditions suggests a different story. This sub index has not changed by much since December’s 11-year high. If hiring and income continue to grow in line with confidence – consumers will continue to spend, which would eventually feed into sustainable GDP growth.

Leading Economic Indicators Index (February)

Equity Markets have performed well in the month of February. Combined with the reduction in unemployment claims, it is likely that this index will continue to grow for a sixth straight month. Much of the optimism is coming from the expectation of corporate taxes being cut under the new president’s administration. This implies that stocks are not necessarily improving because of economic reasons, but rather on the potential of cost cuts that may be seen in the future.

Technical Analysis

GBPJPY

Looking at the daily chart of this pair, we can see what looks like a bullish pennant nearly completed. The 100-day SMA has crossed the 200-day SMA. In the past, it can be seen from the chart that in the past the crossover of the SMAs changed the direction of the pair. While the past behavior may not be seen as an indicator for the future, there is a chance that it happens again. If this were to happen, it may be profitable to open a trading position in this pair. A shorting strategy with a target of 136.50 may be viable.