Another week goes by and just like groundhog day we are left scratching our heads with confusion, one would be forgiven to expect tumultuous volatility this week – we had various talking Fed members that always give conflicting views, we had the uncertainty of oil production changes out of OPEC, and we had the end of yet another quarter.
Then we had further US data coming out and giving conflicting messages. According to the FOMC last week we heard that inflation is rapidly getting back to the 2% target, and this was evident in the PCE number, immediately afterwards we see both income data and consumer spending miss their targets by a pretty hefty margin. It leads you to ask the question that if wages are down and consumers are not spending where is the Fed going to get inflation from going forward. My opinion is that this sort of data leaves the Fed in a bit of a conundrum and I repeat my thoughts last week – I am hesitant to treat a rate hike in December as guaranteed.
The EURUSD continues to trade in a tight range, unbelievably it did manage to gain just over 1% over an entire quarter which illustrates how lacklustre it has been for this pair. It did close above a major 100 moving average level last week that goes back to 2014, I would be cautious going into Monday morning though as much of the good performance yesterday could have been a result of a 13% recovery in Deutsche Bank on Friday alone. None the less, the pair has been in a sideways pattern, perhaps we could get that much anticipated break next week.
The GBPUSD had a terrible quarter but that can be explained by the aftershocks of Brexit. On the week it was virtually unchanged with a total gain around 30 pips, for me this raises a red flag for the fact the buyers could not gain a foot hold in an environment where there were clearly few sellers. I continue to look for reasons to short this pair.
The commodity currencies did see a little action this week – although somewhat belated. Both the AUD and NZD were able to find support though but it does look as though we could be searching for reasons to short the pairs again in the coming weeks as metal prices look slightly under pressure for now. The CAD found some massive support thanks to the reduced oil production deal this week, we also saw that 1.3250 held again on the top side, as we see these production cuts buoy oil prices we could see a stronger CAD, over the medium term there is no apparent reason why we couldn’t drift significantly lower although next week may offer some more insight.
We do have a heavier economic calendar next week which should help shake off the cobwebs. Keep an eye out for the RBA rate decision next week but the highlight will undoubtedly be the NFP payroll numbers on Friday, a good number will of course see the Fed talking again; “we are likely to see tightening by year end,” – it’s all getting a little old now!
Our weekly ranges managed well in excess of 100 pips for a third consecutive week – don’t miss those ranges tomorrow afternoon.
Enjoy the weekend.
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