FX market outlook

FX market outlook

Posted on Wednesday, August 23 2017 at 8:12 am GMT+0000

Trump yet again induces dollar weakness against yen; other majors edge down

President Trump has yet again induced weakness in the US currency with his remarks about a possible government shutdown to fulfill his campaign promises. The greenback weakened against the yen, but gained against other majors making the dollar index flat on the day. The release of flash PMI data out of the eurozone will attract some traction during early hours of European trading.

Speaking at a rally in Phoenix, President Trump said  “If we have to close down the government, we are building that wall”, sparking concerns among the investor community and sending the dollar lower against the yen. The President went further to signal a possible end of the NAFTA treaty with Mexico and Canada, just as the first round of interviews finished on Sunday. While there is still time before a situation of a possible government shutdown becomes serious, the forex market did take note of Trump’s remarks. Dollar/yen was trading lower at 109.37 ahead of the European open, though still above the four-month low it touched last week.

Other majors weakened during Asian trading, though most were trading in tight ranges in the wake of no economic data releases and many traders awaiting signals from the central bankers’ symposium in Jackson Hole. The aussie was down at $0.7887, while the pound edged lower at $1.2818, but traded in a very tight range against the dollar for most of the Asian session.

The kiwi plunged against its US counterpart (down 0.73% at $0.72224) due to the government cutting its growth outlook for this and the next fiscal year. The New Zealand Treasury reduced its forecast for the year to June to 2.6% versus the previously estimated 3.2%, and cut its growth projection of 3.5% in the year to June 2018 from 3.7% in the May budget update.

The only economic data release that could have a significant impact on forex markets during the European session is the release of flash PMIs for France, Germany and the eurozone. The euro traded in a very narrow range ahead of the first data publication and was standing at $1.1754. The common currency didn’t react much following the release of the French PMI, and was trading at $1.1752. France’s manufacturing PMI came in better than expected (a preliminary reading of 55.8 for August versus expectations of 54.5). The country’s services PMI disappointed slightly with a figure of 55.5, just below the expected figure of 55.8.

Later in the session, traders could be busy monitoring preliminary PMIs from the US, July figures for new home sales out of the States and crude oil inventories. More so, Federal Reserve Bank of Dallas President Robert Kaplan is due to speak today.

Oil prices fell during the first session of the day despite the API report showing a drawdown in crude inventories. The American Petroleum Institute released a report last night pointing to a drawdown of 3.6 million barrels last week, more than the expected 3.5 million barrels. Initially, oil prices rose but later gave up on those gains following news that the production at Libya’s Sharara field restarted after several disruptions. WTI was last trading at $47.67 a barrel and Brent was at $51.70.

Following dollar weakness against the yen, gold prices rose modestly. The precious metal was last trading at $1,286.09 an ounce.