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Extra Forex Markets Research by rahul.khanna

The AUD has been a clear winner this week with GBP and SEK number nine and ten among the G10 currencies. GBP weakness was largely driven by the harakiri caused by PM May which ensured that the UK had a hung parliament. That said, PM May is still the most likely to form the government with support from the Democratic Unionist. In our view, Brexit talks are going to be tough for Britain given a minority Conservative government. Also, PM Theresa May own position is tenuous and this will weigh on GBP. In terms of data, next week is big for GBP with UK CPI and unemployment rate due on ...

USDJPY

Date: 05th June 2017

Currency: USDJPY

Buy around 110.45-110.52 for 110.80, stop below 110.34

Support 1: 110.43 Support 2: 110.34 Support 3: 110.13

Resistance 1: 110.80 Resistance 2: 111.01 Resistance 3: 111.19

USD consolidated at the start of the week but we have seen sharp sell-off since the last trading day of May. The sell-off is partially due to the US NFP miss and a lack of US positive catalyst as June rate hike is fully priced in and there is still three more US jobs report between September rate hike and now. The US 10 year yield is also now at its lowest since mid-November 2016. That said, the market is still under pricing a December rate hike by 50% and hence, USD medium-term outlook doesn’t look too bad.

GBP was choppy throughout the week with Sterling swings ...

GBPUSD

GBP has come under attack as polls have narrowed ahead of the UK General Election on the 8th of June 2017. The Conservatives have gone from a lead of 18 points over

G10 FX

USD has recovered slightly after having a bad start early on in the week. The USD index is up 0.8% from Monday’s low trading at 97.50 at the time of writing. This was partially due to improved risk sentiments and surprised revision of the first quarter GDP from 0.7% to 1.2%. In our ...

The US DoE crude inventory data showed a change of -4.43mn compared to -2.4mn expected; the Brent crude front-month jumped testing $54.60 but we haven’t yet seen a break as the DoE data is on the similar lines as API data last night. We don’t see much correction as risk seems ...

OPEC

The tentative timeline for the OPEC meeting on Thursday.

USD INDEX

USD has recovered overnight with the S&P 500 and Nikkei 225 also closing higher. The US 10 year yields also rallied late last night to close above 2.27%. Fed’s Harker last night was bullish and the probability of a Fed rate hike still remains high ...

Brent Future

The OPEC meeting is now due on Thursday and the market is now expecting a 9-month extension to the OPEC/non-OPEC producer deal. The Saudis have built market expectations by stating that almost all of the members are on board with either the 9-month extension or deeper ...

Brent Future
Brent Crude Continuation Daily chart

The Brent front month fell more than 2% following news that the US is planning to sell part of its Strategic Petroleum Reserve (SPR). The plan is to sell the reserve from October 2018 but given that the US holds around 668mb, ...

G10 FX

USD continues to fall as risks from the Trump scandal continues to affect the reserve currency. That said, we saw some improvement in the equity space with S&P 500 and DAX recovering from Thursday’s low. Thursday started in a panic mode but things have gradually calmed with the US ...

Donald Trump

Trump Impeachment is increasingly seen by the financial market as a possible tail risk that can’t be ignored. The risks have increased after James Comey agreed to testify to the US senate next Wednesday (he had declined earlier). The online betting agencies have also started to provide ...

Rahul Khanna
May 12, 2017 - 02:32
7M

USD recovered from its multi-week lows at the start of the week following French election victory for Macron. However, weakness in S&P 500 and a weaker than expected US inflation rate and retail sales have pushed USD sharply lower. We still see Fed June rate hike to go ahead as failing to hike rates in June will push market volatility higher something the Fed will not desire. Also, Fed speakers have so far supported market expectations of a rate hike.

GBP initially reacted positively to a Macron win but GBP fell immediately post the BoE as the market was disappointed by ...

S&P 500 hit a record high of 2405.8 in NY trading hours on Tuesday only to get rejected back to close just above the the 2400 handle. There was chatter over a possible bubble with the data showing that for last 10 weeks data prior to this week the top 1% of stocks listed on the S&P ...

The RBNZ will meet on Wednesday at 2100 GMT scheduled for a monetary policy meeting on Wednesday and there is now talk that the RBNZ may surprise to the upside; with short NZD positioning and improved risk appetite, we see risk to NZD skewed to the upside.

The OCR is expected to ...

USD Index now bouncing off key medium-term support line.

Rahul Khanna
May 05, 2017 - 01:59
7M

USD is likely to be restricted ahead of Fed Vice Chair Fischer and Fed Chair Yellen speeches at 1530 and 1730, respectively. There is a good chance that they will give a hawkish message but downside risk to USD now comes from not providing a forward guidance past the June rate hike. The US NFP data came in largely positive with 211K print compared to 185K expected. The unemployment rate fell to 4.4% but this was slightly helped by a dip in the labour force participation rate. The average earnings also grew more than expected at 0.3% compared to 0.2% expected. Overall this result is ...

The EUR trade-weighted index improved and the gap between the German and French 10-Year bond yields narrowed following French elections TV debate on Wednesday where Emmanuel Macron came up trumps against Marine Le Pen consolidating his already strong lead. A quick opinion poll also found Macron more convincing (63%) than Le Pen in the TV debate.

The latest opinion poll by Ipsos Sopra Steria surveyed on 4th May shows that Macron has gained 2.5% points to lead of 61/39 over Le Pen since April 30-01 May poll. This demonstrates that TV debate has had a positive impact on Macron ...

Federal Open Market Committee Preview

FED to remain on hold. Current Probability of a June rate hike at 70% No press conference or economic projections. Recent economic data such as US NFP, GDP, CPI, and retail sales have been fairly weak. In our view, Fed is likely to reiterate that recent soft patch is temporary but is unlikely to signal a June rate hike. Fed Chair Yellen and Vice-Chair Fischer will speak on Friday and may be the likely mechanism for Fed to provide forward guidance. US NFP data on Friday may confirm that the recent economic data was a soft ...
Rahul Khanna
Apr 27, 2017 - 11:35
7M

The ECB rates decision and press conference is due at 1145GMT and 1230 GMT, respectively. Changes to the main refi rate and deposit rate are not expected but the market is expecting a slightly hawkish message from the ECB and Draghi during the press conference. The market is currently pricing in a no rate hike by the end of 2017 but the 3/4th of a rate hike by 2018. The recent strength in data suggests that this pricing are very conservative but as we have seen in the past the ECB prefers to err on the dovish side and is very reluctant when it comes to a hawkish message. We will need ...

USD has started to rise from recent lows as the US President Trump has said that he will make a major announcement on tax reforms and tax reduction on Wednesday. The USD has reacted positively to this news as some believed that Trump announcement will bring some clarity on tax reforms and will help the dollar rally higher. We see a number of problems with this belief as it is very unlikely that we will be able to see any detail of the promised tax reforms which were earlier scheduled to be finalised after summer. We consider two scenarios to assess the impact of Trump’s ...

Rahul Khanna
Apr 21, 2017 - 02:16
7M

USD started the week on a softer note but has since recovered as there is now chatter in DC that Trump administration may make some progress on health care and tax front. Also, there is some risk stemming from the French elections this weekend which is helping the dollar slightly.

The EUR initially rallied but has started to move sideways as focus turn on the French elections (first round) this Sunday. With polls running close we look at its impact on EUR. Our base scenario is that Macron/Le pen will be the winners of the first round, in that order, and EUR will react ...

The French elections get underway this weekend and with polls running close we look at its impact on G10 markets. The first round will get underway on Sunday with three possible outcomes;

Our base scenario is that Macron/Le pen will be the winners of the first round, in that order, and EUR will react favourably to Macron coming in on top. Second, a less likely scenario will be Macron/Fillon advancing to the second round, again EUR positive. Third, the least likely scenario is Le Pen/Melenchon advancing which will be EUR negative.

Outcome of First Round of French ...

USD has continued its fall seen post-Fed Chair Yellen’s comments on Monday night; though she was upbeat on the outlook she did not offer any insight on rate hikes or on balance sheet matters. The market saw this as a slight dovish signal and the probability of June rate hike fell subsequently from 70% to the 60% mark. Also what has not helped USD is Trump confusing stance on many policy aspects; US President Trump suggested that the dollar is “too strong” in an interview to the WSJ late on Thursday and this subsequent to an interview to Fox where he said that tax ...

Rahul Khanna
Apr 07, 2017 - 10:25
8M

The data from the US this week has been fairly positive with the Adp employment numbers showing a gain of 263K jobs well above the market expectations of the 187K job. The trade data, manufacturing PMI and initial jobless claims all showed that the economy is on the path to recovery and the FOMC minutes also revealed that there was some discussion on unwinding the $4.5 trillion balance sheet. All of these developments are USD positive but we haven’t seen a sharp rise in the reserve currency. This can all change if we see a strong US jobs report on Friday. On the political front, ...

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