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After several days of volatile FX markets, currencies yesterday moved within quite a limited range.
GBP was the best performing G10 currency, but even it didn’t gain much. News that Japan’s Takeda Pharmaceutical had increased its bid for UK drugmaker Shire increased pound value, but not by much. Market participants are waiting for Friday’s Q1 Gross Domestic Product (GDP) figure to see how the UK economy is holding up and get a better feel for what the pace of rate hikes is likely to be.
CHF on the other hand was the biggest loser. This is just technical as some traders are probably trying to push EUR/CHF through 1.20 again. It broke through on Friday 20th of April 2018 but was unable to hold the gains. It briefly hit 1.1991 yesterday.
The commodity currencies were generally lower as metal prices generally fell in continued reaction to the US softening sanctions against United Co. Rusal.
EUR was slightly stronger even though the German Ifo business climate index missed the consensus estimate and fell to 102.1, its weakest level since Q1 2017 (but still indicative of a continued expansion). After revisions, the Ifo index has now dropped for five consecutive months since peaking in November 2017. While current conditions remain historically robust, expectations indices have dropped to two-year lows. When combined with recent manufacturing data from European Purchasing Manager Indexes (PMIs), the data seems to confirm the recent seemingly self-contradictory statement from European Central Bank (ECB) President Mario Draghi that, “nothwithstanding the latest economic indicators, which suggest that the growth cycle may have peaked, the growth momentum is expected to continue.” That is, growth may not be as strong in the future as it has been recently, but a recession is by no means likely either.
USD was little changed overall even though US 10-year Treasury yields finally broke through 3.0% and closed at exactly that level.
No major economic indicators today. The only thing coming out today are the usual Wednesday indicators, such as the Mortgages Bankers Association (MBA) mortgage applications and the US Department of Energy’s weekly oil inventory data.
The US Department of Energy figures out later today are expected to show a modest decline in inventories, but oil prices dropped overnight when the American Petroleum Institute (API) version of those numbers showed an increase (see graph below).
The discrepancy isn’t that unusual. Going back to April 2016, the two series disagree about the direction of inventories about 40% the time. Yet over time, the differences average out and the two series are almost identical. For example, here’s what it looks like if you take a three-month moving average of both series to smooth out the differences:
According to the International Energy Agency (IEA), OECD commercial oil inventories in February 2018 declined by 26mn bbl to 2.841bn barrels, just 30mn bbl above the five-year average. Product stocks are already in deficit, they said.
The Fundamental Analysis is provided by Marshall Gittler who is an external service provider of Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.
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