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The new week will be the last in the outgoing month, quarter, and half-year. The focus of traders this week will be meetings of the RB of New Zealand and the European Council, as well as the publication of inflation indicators for the Eurozone and the United States.
This week investors will follow the meetings of the central banks of Switzerland and the United Kingdom, as well as the speeches of the heads of the central banks of Japan, Australia, the USA and the Eurozone. Attention of participants of the oil market will be riveted to the meeting of OPEC, in view of the expectations of important statements by OPEC regarding the mitigation of the oil production reduction program.
President of the United States Donald Trump refused on Sunday to approve the joint statement of the G-7, which was a complete surprise and again showed that there is no consensus between the US and the closest trading partners. The White House, in fact, is the initiator of the break of all previous agreements. The past summit revealed serious contradictions among participants in international trade. German Chancellor Angela Merkel said on Sunday that the lack of approval of the final communiqué of the G-7 summit by US President Donald Trump was "sobering and depressing".
The growing tension in US foreign trade relations may soon again be in the center of attention of investors and put pressure on the dollar. The White House does not intend to deviate from the introduction of import duties on steel and aluminum, despite the response from China, Canada, and the EU. Canada, as well as France, Germany, Italy, Japan and the United Kingdom, members of the G7, “share common fears and disappointments”. The focus of traders’ attention this week will be the RBA’s decision on interest rate, Eurozone GDP for the 1st quarter, data on the Canadian labor market.
The focus of traders this week will be the report on the US labor market for May, which will be released on Friday (12:30 GMT). The monthly report of the US Department of Labor will publish data on the unemployment rate, the number of jobs created outside the agricultural sector (NFP), but the dynamics of the average hourly wage of Americans will be of greatest interest in the report. The higher the salary, the higher may be the future inflation and the greater the impact this will have on the rhetoric and the actions of the Fed in relation to monetary policy.
The dollar continued to strengthen last week, gaining support from rising yields on 10-year US Treasuries. Last week their yield reached another maximum since 2011 at the level of 3.122%. The increase in the yield of US Treasury bonds strengthens expectations of accelerated rates of tightening monetary policy in the United States. The yield of US Treasury bonds exceeded the yield of bonds of other developed countries for the first time in almost 20 years. Higher rates attract investors looking for profitability to the US currency.
The main event of the past week was, perhaps, the statement of Donald Trump about the unilateral withdrawal of the US from the “nuclear deal” with Iran. The resumption of sanctions will lead to a reduction in Iran’s oil production, a key member of OPEC, and a reduction in world oil supply by at least 700,000 barrels per day due to Iranian oil. Trump’s statement stirred markets and led to a further rise in the price of oil. So, over the past week the barrel of Brent oil has risen in price by 2.8%, coming close to the level of 78.00 dollars. The dollar also continued to strengthen last week. However, lower yields on US government bonds and weaker-than-expected data on consumer inflation in the US, published on Thursday, provoked the closure of long positions in the dollar, which caused its decline at the end of the week.
The focus of the traders will be the meeting of the Bank of England on the topic of monetary policy, and the decision on the interest rate. It is expected that the Bank of England will raise the rate by 0.25% to 0.75%. However, the opinions of market participants on this issue were divided. If the rate still remains at the same level of 0.5%, then the pound is likely to fall under the sell-off.
Market participants are preparing for the most important events of the current week – publication of the Fed decision on the rate (Wednesday 18:00 GMT) and publication of data from the US labor market in April (Friday 12:30 GMT). An increase in the rate at this meeting of the Fed is not expected, however, an increase in the volatility of financial markets during the publication of comments by the Fed can not be avoided. The tough rhetoric of Fed Chairman Jerome Powell and a positive assessment of the prospects for the US economy will strengthen the dollar’s position.
The week will be full of important events. Perhaps the most important day of the week will be Thursday, when at 11:45 (GMT) the ECB will publish an interest rate decision, and at 12:30 (GMT) a press conference will begin, at which ECB President Mario Draghi will give explanations about the decision, and, perhaps, will point to the prospects for monetary policy in the Eurozone in the short term.
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