2017 gets off to a mixed start for financial markets, particularly the currencies and with the main interest apparently looking to be in the stock indices. After their pre-Christmas Santa rally to all time highs, they have since turned lower as the markets begin to take a more sober look towards the incoming Trump administration, ahead of his inauguration as the 45th President of the United States which will take place on Friday, January 20. From a technical perspective, further downside momentum seems to be in store in the next few days, and then it remains to be seen if he fully intends to carry out the various policies that he has promised, including the ominous possibility of a new trade war. Whatever happens, it will not be dull!
2017 will not be all about Trump either. Do not forget the EU elections due in a host of EU countries, including France, Holland and Germany. Should Marine Le Pen of the anti-EU, anti-euro, anti-immigrant Front National win the French election in April/May (unlikely but not impossible) that could then have a huge domino effect, potentially leading towards the disintegration of the single currency and even the EU. Angel Merkel is not going to have an easy ride in Germany either.
Back to the markets, currencies were mixed over the holiday period, with the US$ initially giving back some of its pre Christmas gains, particularly against the Euro and Chf, which saw both briefly spike sharply higher (1.0650/1.0036) in nonexistent liquidity in early Australian/NZ trade on Dec 30. Those gains have now evaporated and the dollar has had a strong session, in very thin conditions on Monday, closing near trend highs against the EU majors and the commodity bloc. The Yen has moved largely sideways over the holiday period, while Cable managed to recover from 2 month lows seen on 28 Dec (1.2200), but remains vulnerable to further Brexit issues. Overall I prefer to buy dips in the US$.
The commodity bloc currencies look set to remain under pressure. Both the Aud and the Kiwi (and the Cad) appear vulnerable – particularly against the US$ – to the possibility of further divergence in the monetary policies of the various central banks. Monetary policy aside, the level of Chinese demand for commodities will be an ongoing theme in deciding the direction of these currencies. Selling rallies remains the theme here.
The commodities themselves look largely set to trade at the whim of the US$ although WTI has a positive technical outlook which could see it head a fair bit higher in coming weeks – as long as 50.00 holds on the downside.
In terms of Economic data, the week’s main events will be:
T: Caixin China Manufacturing PMI (Dec), German CPI, US ISM Mfg/Prices Paid (December)
W: EU Provisional CPI (exp 0.8%mm, 1.0%yy), FOMC Minutes
T: ECB Minutes
F: EU Economic Sentiment Indicator, Industrial Confidence, Services Sentiment, Business Climate, US Jobs/NFP/Average Hourly Earnings data (December; exp 4.7%, +175K, +0.3%), Trade Balance (Nov; exp -$42bio).
We will be running a partial service this week with full technical analysis to begin next week. Until then, any directional bias can be found in the trending table.
|INDICES / COMMODITIES|
|ASX SPI: 5630|
|OIL (WTI): 53.87|