18 May 2020               Weekly Analysis

GCMAsia Weekly Report: May 18 – 23

Market Review (Forex): May 11 – May 16

US Dollar

The dollar index which traded against a basket of six major currency pairs surged last week as Federal Reserve Chair Jerome Powell provided hawkish statement with regards of monetary policy while the fears upon the threat of a second wave coronavirus infections had also shifted the market sentiment toward safe-haven currency such as Dollar index. However, the gains experienced by the US dollar was limited over the backdrop of downbeat data from the United States. The Dollar Index was closing its price on last Friday session at the price of 100.275.

 

For last week, the economic data from United States were mostly dominated by dismal prospect. According to U.S. Bureau of Labor Statistics, the U.S. Core Consumer Price Index (CPI) for last month notched down from the preliminary reading of -0.15 to -0.4%, missing the economist forecast at -0.2% while the U.S. Producer Price index (PPI) for last month declined significantly from the previous reading of -0.2% to -1.3%, missing the market forecast at -0.5%. Similarly, Census Bureau organization reported that the U.S. Core Retail Sales for last month came in at -17.25%, missing the market forecast at -8.6%. Besides, the U.S. Initial Jobless Claims came in at 2,981K, missing the market forecast of 2,500K. Nonetheless, the U.S. Dollar edged higher following the Federal Reserve Chair Jerome Powell rejected to use negative interest rates as monetary tool in order to boost the economic progression in the United States, despite as he sounded a gloomy note about the economic growth.

 

On the coronavirus epidemic front, the U.S. death toll from the novel coronavirus spike up by 780 on Sunday, bringing the total number of fatalities to more than 90,978 people. Besides that, the Baltimore-based university had recorded that more than 1.527 million people had infected the coronavirus. On the other hand, the US Dollar received further bullish momentum as the escalated trade tensions between the U.S. and China, which prompting risk-off sentiment in the FX market while insinuating demand for the safe-haven currency. According to Reuters, the U.S. President Donald Trump reiterated that he was disappointed with China’s failure to handle the coronavirus cases. Besides, the Trump administration had blocked the chip supplies to Huawei Technologies, after China’s Global Times newspaper flagged possible retaliation. Nonetheless, at this time, investors would continue to scrutinize the latest updates with regards of the coronavirus as well as trade tension between the U.S. and China in order to receive further trading signal for the currency.

 

 

USD/JPY

Pair of USD/JPY was traded lower last week while ending last Friday session at the price of 107.08.  The safe-haven Japanese Yen received bullish momentum as the diminish risk appetite in the FX market as investors still fears the threat of the second wave of the coronavirus after few countries had reopened its economy. Besides, the trade tensions between the US and China had also spurred the demand for the safe-haven currency such as Japanese Yen. However, the gains experienced by the Japanese Yen was limited following the Japan’s Economy Minister Yasutoshi Nishimura claimed that the Japan’s economy contracted at an annualized rate of 3.4% in the first quarter of 2020 due to the coronavirus pandemic.

 

EUR/USD

Pair of EUR/USD slumped on last week while closing last Friday’s trading session with the price of 1.0814. The overall bearish momentum of the pair was mostly due to the strengthening in the rival currencies, especially in US Dollar. Moreover, the euro extend its losses over the backdrop of the negative data from the Europe region. According to Statistisches Bundesamt Deutschland, the Germany Gross Domestic Product (GDP) for last quarter slumped from the previous reading of -0.1% to -2.2%, which dialed down the market optimism toward the economic progression in the Europe. Nonetheless, investors would eye on the coronavirus development in the Europe region following a few countries such as German had reopened some of the economic sectors.

 

GBP/USD

The pair of GBP/USD slumped on last week while closing its market at 1.2115. The overall bearish momentum for the pair was mainly due to the depreciation of the US Dollar and diminishing risk appetite in the FX market, which spurring significant selloff for the riskier currency. Besides, the Pound Sterling extend its losses following the Britain and the European Union exchanged threats over a post-Brexit trade deal. Moreover, according to Reuters, the fears of hard-Brexit escalated following the British government reiterated its refusal to extend the Brexit transition period, which weigh on the demand of the Pound Sterling. Besides, the Bank of England said that the British economy had contracted by 5.8% in March while the contraction for the second quarter period could approach to approximately 25%, which could lead to the largest annual decline in more than three centuries. Such dovish statement had continually to spur significant selloff for the Pound Sterling.

 

Market Review (Commodities): May 11 – 16

GOLD

Gold price was traded higher in overall last week while closing its market on Friday at $1742.28 a troy ounce. The gold price surged to 7-year high following the Federal Reserve said that the stocks and asset prices could suffer a significant hit from the coronavirus pandemic, while they warned that the economic damage from the coronavirus would last very long. Besides, the safe-haven gold received further bullish momentum following the bleak data from the United States were released on last Friday. The U.S. Retail Sales and the factory output came in as the steepest declines on record in April. Moreover, the diminishing hope upon the resolution of trade war between the United States and China as well as the threats of the second wave of the coronavirus had also prompted a shift in market sentiment toward the safe-haven commodity such as gold.

 

CrudeOIL

The crude oil price surged on last week while closing last Friday session with $29.70 per barrels. The oil market was traded higher on last week as market participants expected that the oil production cut from OPEC and its allies which started on 1st May would able to tackle a supply glut due to the coronavirus crisis. Besides, the crude oil prices extend its gains following the world’s top exporter Saudi Arabia announced last week that they would cut an additional 1 million barrels per day in June. With regards of the inventory data, the Energy Information Administration (EIA) reported that the U.S. Crude Oil Inventories had massively declined from the previous reading of 4.590M to -0.745M, better than the market forecast at 4.147M.

 

 

Weekly Outlook: May 18 – 23

For the week ahead, investors would have to scrutinize the latest developments with regards of the outbreak of the coronavirus, trade tensions between U.S. and China and also crucial economic data such Initial Jobless Claims from the U.S. region in order to receive further trading signals.

 

As for oil traders, they will be eyeing on US inventories level reported by API and EIA to gauge the strength of crude demand for world’s largest oil consumer.

 

Highlighted economy data and events for the week: May 18 – 23

Time Market Event Actual Forecast Previous
Monday – 18th May 2020
07:50 JPY GDP (QoQ) (Q1) -1.2% -1.8%
Tuesday – 19th May 2020
09:30 AUD RBA Meeting Minutes
14:00 GBP Average Earnings Indeks +Bonus (Mar) 2.7% 2.8%
14:00 GBP Claimant Count Change (Apr) 150.0K 12.1K
17:00 EUR German ZEW Economic Sentiment (May) 33.5 28.2
20:30 USD Building Permits (Apr) 1.000M 1.350M
Wednesday – 20th May 2020
09:30 CNY PBoC Loan Prime Rate 3.85%
14:00 GBP CPI (YoY) (Apr) 0.8% 1.5%
17:00 EUR CPI (YoY) (Apr) 0.4% 0.7%
20:30 CAD Core CPI (MoM) (Apr) 0.7%
22:30 CrudeOIL Crude Oil Inventories 4.147M -0.745M
Thursday – 21st May 2020
02:00 USD FOMC Meeting Minutes
16:30 GBP Composite PMI 13.8
16:30 GBP Manufacturing PMI 32.6
16:30 GBP Services PMI 13.4
20:30 USD Initial Jobless Claims 2,981K
20:30 USD Philadelphia Fed Manufacturing Index (May) -45.0 -56.6
22:00 USD Existing Home Sales (Apr) 4.30M 5.27M
Friday – 22nd May 2020
14:00 GBP Retail Sales (MoM) (Apr) -16.5% -5.1%
15:30 EUR German Manufacturing PMI (May) 40.0 34.5
20:30 CAD Core Retail Sales (MoM) (Mar) -5.0% -15.6%
01:00

(23rd)

CrudeOIL U.S. Baker Hughes Oil Rig Count 258