FX market outlook

FX market outlook

Posted on Friday, May 19 2017 at 8:06 am GMT+0000

Dollar set for weekly losses; oil at 3-week high.

The US dollar is on course to end the week lower against most major counterparts after coming under pressure from US political concerns amid controversy concerning President Donald Trump. Safe haven assets like the yen and gold had a strong week. With a light economic calendar in Asia, markets digested the events of the past few days.

The greenback’s decline against the yen was cushioned by some upbeat US economic data on Thursday which showed weekly initial jobless claims fell despite expectations for them to rise. A strong Philly Fed business sentiment index also improved sentiment for the dollar yesterday, helping it move out of the 110-yen handle to trade back above 111.10 yen today.  The dollar started the week above 113 yen.

The euro outperformed this week against the dollar and hit a fresh six-month high. It started the week at $1.0860 and hit as high as $1.1171 on Thursday, the strongest level since November 9. Aside from a broadly weaker dollar, improving Eurozone economic data and abating political risk in the region helped give an added lift to the euro. Eurozone inflation data and the German ZEW report this week were quite encouraging.

Sterling breached the key $1.3000 level for the first time in almost eight months after better-than-expected UK retail sales data released yesterday helped ease concerns about the British economy. The sharp rise in cable led to some profit-taking and the pair fell back below $1.3000 to trade around $1.2950 in today’s Asian session.

In commodities, oil prices extended gains on optimism that producers will agree to extend an OPEC deal at a meeting next week, to limit output until at least March 2018. WTI oil hit a three-week high of $49.84 a barrel in Asia today, while Brent crude reached $52.96 a barrel.

Gold pulled back slightly to trade around $1245 – $1250 an ounce after a strong rally this week that took prices to $1264.93. It is up 1.7% on the week so far. Gold is seen as a safe haven asset and so it benefitted from the elevated risk aversion in the markets this week.

The economic calendar for the rest of the day is relatively quiet, with Canadian inflation and retail sales being the only major releases.