Hatches Firmly Battened

The market is entering into a “perfect storm” where a number of factors will drive volatility. FXPIG will remain by our partners' side throughout... did we mention that PIGs are loyal? Yeah, we probably did, once, or maybe twice.

Economic, Political and Interest Rate decisions are set to provide guidance to a market that has been worryingly directionless (other than growing dollar strength) since the start of the year.

Last week it became evident that traders concerns over the U.K. economy that were borne of fears over Brexit but no tangible evidence are starting to be proven correct.

A gradual slowdown in consumer activity is being evidenced in a second straight month of falling household spending. Services activity which measures growth in the U.K.’s major export since manufacturing was itself exported fell to a five-month low of 53.3. As long as the activity is above 50, the sector is expanding but the effect of last month’s 20% rise in input prices is yet to fully feed into the data. A minor source of optimism is that service managers remain optimistic about growth in the sector over the next twelve months. However, traders are starting to become more swayed by actuality than abstract views on future developments

A number of speeches from Fed. Officials culminating in one from Chair, Janet Yellen on Friday all but confirmed a rate hike when the FOMC meets next week. Advance guidance is a curious thing! While there was speculation that rates would be hiked, the dollar rose. As soon as it was all but confirmed, the dollar corrected as weak longs took their profit.

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In the coming ten days there will be so much to consider when making trading decisions. Interest rate decisions will be made in China, Australia and The Eurozone followed by, “ the big one”, The  U.S.

Chinese and Eurozone data points to unchanged rates.

Germany is fast becoming a “special case” but can expect no help from the ECB whose mandate is Eurozone-wide with no reference to individual economies.

How about GEXIT as a potential black swan?

Inflation is going to break 2% this month and is on track for 3% - 3 ½ % by year end. Germany faces a unique set of circumstances not originally envisioned when the EU experiment was started. Chancellor Merkel was quoted recently as saying Germany could do with a stronger Euro... dreams are a wonderful thing... until you wake up.

In Australia, rates are at an all-time low, and the Central Bank has signaled that the economy is performing adequately. Successive record trade surpluses driven by high commodity prices cannot continue so the AUD could see further weakness.

Data releases this week also have the potential to shake markets out of the “well-trod” ranges. China releases trade, inflation, and foreign exchange reserves. Foreign exchange reserves will give an indication of just how serious the Chinese are about currency manipulation and supporting the value of the Yuan. Trade will have a major effect on the Australian dollar since that is seen as a proxy for Chinese activity.

Eurozone GDP will likely show a rise of just 0.4%, unchanged from Q4’16 and not sufficient to give any solace to Germany whose industrial production, trade and factory orders data will all point towards higher inflation.

A delayed employment report will be released on Friday in the U.S. preceded by Factory activity data. This number has become more and more difficult to predict, presumably due to the irregular growth of the recovery that is patchy across a number of States.

Anything more than the trend average of 175k news jobs will add the final confirmation to an interest rate hike, although a large downward revision to last month's report or a fall in average earnings could cause some uncertainty.Finally, Politics, The Dutch election will take place on 14th. More on that next week. The French election will clearly be influenced by the performance of the Right Wing Populist/Nationalist vote. The first vote in France is not until April 24th, and there is time for further gyrations but this week centrist reformer Emmanuel Macron (thankfully scandal free for now) has established a lead over the National Front Candidate, Marine le Pen.