Daily Insights Report 17/01/17

• 31 Mar 2017

17 Jan 2017

The Pound fell below the $1.20 mark on Monday. This is the first time the currency has been trading at this level since 1985. This is because of the uncertainty of the UK Prime Minister’s speech. It is expected that this speech will signal that the UK will fully break from the EU’s common market area – akin to what is referred to as Hard Brexit. The Prime Minister’s recent press conferences have caused more uncertainty among participants in the foreign exchange market, which is why the value has changed so much recently.

The Bank of England governor made a speech on Monday night. What should have been a highly anticipated event for the Forex market had barely any effect. There is some room for appreciation of the Pound since comments were made by the US President-Elect that the Trump administration would be open to a bilateral trade deal with Britain following Brexit. Because of this, the value of Pound recovered some of its losses and then reached around $1.2066. More developments on this would come after the President-Elect formally joins.

– The Dollar hit a five-week low against the Yen of 113.65, before going back to 114.10 per Dollar.

– The Euro was 0.4% weaker against the Dollar at $1.0602.

– The Dollar index, which is a basket of currencies measured against the US Dollar is currently 101.57, not far from the 14 year high of 103.82 that was reached on January 3rd. The Dollar’s value has been of great importance in recent months because of the election and the new president. This Friday is the ceremony where Donald Trump will formally assume the position of president, which is not likely to be a market-moving event. However, this will begin the first 100 days of a presidential term. This is used to measure the successes and accomplishments of a president during the time their power and influence is at its greatest.

Commodities

– Oil prices has been fluctuating more recently due to the market participants not sure about the extent to which the members of OPEC and non-members will change their supply. Data that has been released this week has shown a conflicts between what was planned, and what was actually cut in production. Brent was up 0.4% at $55.68 at the same time that West Texas Intermediate (WTI) crude increased by 0.5% to reach $52.64.

– Gold increased 0.2% to $1204.90, extending its rally for six straight days. With the Dollar increasing slightly, it was not enough to stop gold’s price from increasing further.

British Pound (GBP)

Consumer Price Index (December)

UK annual headline CPI inflation likely accelerated to 1.5% in December. This is because higher import prices more than likely made their way to consumer prices. Since the vote in June, the Pound has depreciated by more than 19% against the Dollar and about 12% against the Euro. This has made it more difficult for UK companies to import goods from abroad. While some companies may have had taken measures to defend against the currency depreciation, these are likely to have started fading away or being used up. Therefore, to maintain their profit margins, they would have to increase the price. This can be seen in the latest Markit PMI survey which shows an increase in the average purchase price. The service sector which is a major part of the economy showed it had the highest increase in selling prices since April 2011.

With the price of oil to have recently started increasing, the Bank of England’s target inflation of 2% may be reached very soon.

Australian Dollar (AUD)

Home Loans

Because housing demand slows down slightly, the number of loans being taken for the purpose of housing has slowed as well. Even though low interest rates encourage people to take out mortgages, slow wage growth and higher requirements on the lender have reversed the effect. Housing prices have also been seen to be decelerating since early in 2016, but still growing. Housing demand is expected to slow down in the coming year. This comes at a time where interest rates are expected to increase as well. If interest rates rise, this would increase the borrowing costs and perhaps make some more reluctant.

Technical Analysis

USDCAD

Looking at the currency pair, we can see that there is a chance for some appreciation. The currency pair is lurking above the 1.310 level. The US Dollar is expected to strengthen in the short run and this would push the value higher, but likely keep it within the band. This can be seen in the daily chart below. Looking at the RSI, we can see that this currency pair is neither overbought nor oversold, so a good time to join this pair.

This currency pair of the Canadian Dollar and US Dollar is a popular pair because of so much cross border trading that occurs between the US and Canada. The CAD is considered to be a commodity currency because so many natural resources are extracted and then traded with the US.