Daily Insights Report 23/01/17

• 31 Mar 2017

23 Jan 2017

With a new President of the United States financial markets begin the 100 day countdown to see how effective as a leader the new President will be. In the coming week, the general theme may be caution when buying US based securities. This is because the market may be very susceptible to Trump and his team’s policy announcements. As a result of this, people may delay buying US based securities, including currency. His inaugural speech repeatedly touched on the protectionist rhetoric, by relating to defense, manufacturing, trade, jobs, and in general the overall foreign policy. The strong USD runs almost against what the President’s trade policy suggests, which makes it more difficult to understand the policy as a whole.

Recent data from the Chinese economy showed that the economy continued to expand. It grew 6.7% in 2016, which is the lowest number since 1990. However, it is still within the government’s target of 6.5%-7.0%. Looking deeper into the data, on a quarterly basis the economy grew at 6.8%, which is higher than the expectations of 6.7%. This is due to consumers spending more and highly active bank lending practices. With the Chinese economies’ importance in the global marketplace, it is important to monitor the growth. If China’s economy starts to contract, it would have a big impact on the Forex market.

China’s economy is believed to be stable, even though the amount of growth is slightly lower. A possible reason for this drop is the reduction of the overall manufacturing industry. 2016 is the first year of China’s 13th 5-year plan which will end in 2020. The overall theme in this plan is to move China away from heavy industries and exporting goods. The goal is to make China a country which is less reliant on exports and a more technologically advanced economy.

Commodities

– Gold increased 0.4% to $1,214.96 an ounce

– Both Brent and West Texas Intermediate (WTI) crude rose by 0.11% to reach $55.55 and $53.28 respectively. The price of oil may rise in the short run because of a new agreement from OPEC members to monitor their compliance with the supply deal of last month. Currently, production has fallen by over 209,900 to 33.085 million barrels a day in December. The country’s that contributed most to the supply cut are Saudi Arabia and Nigeria.

Technical Analysis

EURJPY

Historically a low-yielding currency, the Yen has become a more attractive currency in recent times because of volatility coming from other currencies. Looking at this currency pair now, there is a moving average crossover in the process. The pair currently sits around the 122.15 level. Because of the 100-day and 200-day crossover in the moving average, and the stochastic indicators indicating a divergence. It suggests that the direction might flip and the Japanese Yen appreciate, going against the general trend, which is shown in the daily chart below.