Daily Insights Report 25/01/17

• 31 Mar 2017

25 Jan 2017

On Monday, the president withdrew the US from the TPP (Trans Pacific Partnership). The agreement cannot be ratified because of the US’s withdrawal from the agreement. Markets will try to understand what this means when considering it is more protectionist than before. Some may argue that this is good for emerging markets as gives them a chance to grow. Others argue that the trade agreement would have produced many positive outcomes. Thus far, into the first week of a new president – protectionist policies have not had a strong negative impact on currency markets.

Exports were expected to grow by 1.2% for Japan in the month of December, on a year to year basis. However, data showed that Japan’s exports actually rose by 5.4%, heavily beating market expectations. It is the first time that that this figure has been a raise in 15 months. This is likely due to greater exports to China, where people’s disposable incomes are growing.

Commodities

– The price of gold fell on Tuesday by 0.8% to reach $1,207.41.

– Brent crude oil rose 0.4% to reach $55.44 a barrel West Texas Intermediate (WTI) crude oil on the other hand rose by 0.1% and settled at $52.97 in yesterday’s trading session. Oil prices may remain stable in the future, even after OPEC’s supply cuts. This is because of the recent approval of the Keystone XL and Dakota Access pipelines in America. Part of the condition that the president has stated is that the pipes be made from American steel – ensuring that more jobs are created in the steel industry (this was verbally stated, and not written in the paperwork). Should US steel be made for the pipelines, it would take longer than having steel imported from abroad for the pipelines. The multi-billion Dollar pipelines will take crude oil from the oil sands of Alberta, Canada to the US (Illinois, Texas, and Oklahoma). The Canadian Dollar saw gains as a result of this decision as it could increase the demand for the currency in the future. USDCAD fell from 1.3288 to 1.3105 as a result of this decision.

New Zealand Dollar (NZD)

Consumer Price Index

Quarterly data will be released about inflation in New Zealand for the last quarter of the year. It is likely that inflation grew slightly to 0.3% in Q4, compared with 0.2% from Q3. On a yearly basis, it means that the price level grew 1.3%, which falls in the range of the target of the Reserve Bank of New Zealand. Part of the growth comes the increase in oil prices.

United States Dollar (USD)

Leading Economic Indicators Index (LEI) (December)

This index, which compiles ten different indicators and forms an average. Since it is an average, it represents a smooth picture and would likely not be able to show volatility shown in some of the individual components. This data is likely going to show a robust increase of 0.5%. With equity markets growing at the same time of consumer confidence, it will be the largest gain seen in five months. Since it is a lagging indicator, the next few months will be critically important for this data as it will show if public attitudes have changed as a result of the Trump administration – and if so, which direction. Wages continuing to grow is another factor that could keep this data growing as well.

Technical Analysis

USDCHF

Looking at an hourly chart of the USDCHF pair, we say the pair declining through a band that goes back a few weeks. The stochastic indicator suggests that the pair is nearing a level to suggest it is overbought. While the currency pair crossed over the 1.000 level last year, it may be headed back towards the parity level where both currencies are equal to one another. Should the USD weaken in the near future, the value would reach 1.00 level. If someone believes the USD will actually strengthen in near the future then parity will not be reached.

Looking at the Dollar index, the Dollar has lost about 60% its most recent gains, showing that the Dollar was overpriced. This information favors that the USD may weaken in the near future as markets and investors get used to the new administration.