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24 May 2021                           Weekly Analysis

GCMAsia Weekly Report: May 24 – 29

Market Review (Forex): May 17 – 21

US Dollar

The dollar index which traded against a basket of six major currency pairs hovered near two-year lows on last week amid market participants anxiously awaited a key reading of US inflation data this week for guidance on future monetary policy. A high reading of the core inflation data would likely lower the value for the US Dollar while prompting investors to shift their portfolio toward another region. Nonetheless, the losses experienced amid the hawkish statement from the Federal Reserve. The Dollar Index was closing its price on last Friday session at the price of 90.05.

 

According to Federal Reserve Meeting Minutes, several Fed officials commented to discuss with regards to tapering its bond purchasing program while scaling back its massive asset purchases if US economy recovers significantly from the Covid-19 pandemic. Meanwhile, economists suggested that if the economy continued to make rapid progress toward the committee’s goals, it might be prompting Fed to start and talk about contractionary monetary policy plan in coming months. Back then, the suggestion of the reduction in bond purchases would send panic into global bond markets and also affect the US Dollar. Besides, a couple of Fed members had commented on the risk of inflation pressures in future. Many economists highlighted the important for the committee clearly communicating its assessment of progress toward its longer-run goals while maintaining its inflation rate at stable state. Nonetheless, the overall statement from the Federal Reserve remained vague while investors would be suggested to focus on the future inflation data from the US region as well as the updates with regards of Federal Reserve statement in order to gauge the likelihood movement for the US Dollar.

 

On the US economic data front, the US Dollar received further bearish momentum over the backdrop of negative economic data. According to Federal Reserve Bank of Philadelphia, US Philadelphia Fed Manufacturing Index had notched down significantly from the previous reading of 50.2 to 31.5, worse the market forecast at 43.0. Besides, US Existing Home Sales came in at only 5.85M, which fared worse-than-expectation at 6.09M.

 

USD/JPY

The pair of USD/JPY received bearish momentum on last week while ending last Friday session at the price of 108.95. The overall bearish momentum for the pair was mainly due to the depreciation of the US Dollar. Besides, the spiking numbers of the Covid-19 and the implementation of Covid-19 restriction in Asia region had insinuated risk-off sentiment in the FX market, which prompting investors to shift their portfolio toward the safe-haven Japanese Yen.

 

EUR/USD

The pair of EUR/USD surged throughout the week while ending last week session at the price of 1.2180. The overall bullish momentum for the pair of EUR/USD was mainly due to depreciation of US Dollar. Besides that, the Euro received further bullish momentum over the backdrop of the upbeat economic data from the European region. According to Markit Economics, the Eurozone Manufacturing Purchasing Managers Index (PMI) and Eurozone Services Purchasing Managers Index (PMI) came in at 62.8 and 55.1, which both fared better than market expectation at 62.5 and 52.3 respectively.

 

GBP/USD

The pair of GBP/USD was surged on last week while closing its market price at 1.4100.  The overall trend for the pair of GBP/USD remained bullish on last week amid positive prospect for the Covid-19 vaccination in UK region, which dialing up the market optimism toward the economic progression. On the economic front, the UK economy is bouncing back strongly from months of lockdown slump and the onslaught of Brexit, with key economic indicators surging as restriction are eased following the Covid-19 cases in UK region declined significantly. According to Office for National Statistics, U.K. Retail Sales for last month had notched up significantly from the previous reading of 5.1% to 9.2%, exceeding the market forecast at 4.5%. Similarly, U.K. Manufacturing Purchasing Managers Index (PMI) and U.K. Services Purchasing Managers Index (PMI) had both came in at 66.1 and 61.8, which also better than the market forecast at 60.7 and 60.1 respectively. According to Reuters, the UK Central Bank forecast that the economy would grow by 7.25% this year after slumping by nearly 10% in 2020.

 

Market Review (Commodities): May 17 – 21

GOLD

Gold price surged tremendously throughout last week with the price of $1880.00 per troy ounce amid the hopes upon the massive economic stimulus plan from the United States and also expansionary monetary policy from Fed had spurred higher probability of inflation risk in future, which insinuating the market demand for the safe-haven commodity. Higher inflation would normally tend to reduce the value of currency. Hence, when inflation remains high over a longer period, gold had become an effective tool in order to hedge against the inflationary condition. On the other hand, the massive volatility in the cryptocurrencies market amid the worries associated with a crackdown in China had spurred risk-off sentiment in the financial market while prompting investors to shift their portfolio into safe-haven gold.

 

CrudeOIL

The price of crude oil slumped significantly last week while closing last Friday session with the price of $63.60 per barrel amid the spiking numbers of the Covid-19 cases in Asia region had diminished the appeal of the crude oil demand. According to The StraitsTimes, Taiwan, Thailand, Vietnam and Malaysia have been seeing a sudden surge in cases in recent weeks. On last Friday, Taiwan’s Central Epidemic Command Centre (CECC) reported 312 new locally transmitted cases and three imported ones. Besides, Taiwan had announced its Level 3 mandates in order to curb the Covid-19 pandemic. Nonetheless, the losses experienced by the crude oil commodity was limited over the backdrop of upbeat inventory data from EIA last week. According to Energy Information Administration (EIA), the U.S Crude Oil inventories came in at 1.321M, less than the market forecast at 1.623M.

 

Weekly Outlook: May 24 – 28

For the week ahead, investors would continue to focus on crucial economic data such as German GDP and also Covid-19 development in order to determine further direction. Besides that, the ongoing situation with coronavirus will also be in the eyes of investors.

 

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 24 – 28

Time Market Event Actual Forecast Previous
Monday – 24th May 2021
N/A
Tuesday – 25th May 2021
14:00 EUR German GDP (QoQ) (Q1) -1.7% -1.7%
16:00 EUR German Ifo Business Climate Index (May) 98.1 96.8
22:00 USD CB Consumer Confidence (May) 119.0 121.7
22:00 USD New Home Sales (Apr) 975K 1,021K
Wednesday – 26th May 2021
10:00 NZD RBNZ Interest Rate Decision 0.25% 0.25%
10:00 NZD RBNZ Rate Statement
11:00 NZD RBNZ Press Conference
22:30 USD Crude Oil Inventories 1.321M
Thursday – 27th May 2021
20:30 USD Core Durable Goods Orders (MoM) (Apr) 0.7% 2.3%
20:30 USD GDP (QoQ) (Q1) 6.5% 6.4%
20:30 USD Initial Jobless Claims 425K 444K
22:00 USD Pending Home Sales (MoM) (Apr) 1.1% 1.9%
Friday – 28th May 2021
N/A