Sterling crumbles on fear of Brexit, poor data and dollar strength.
The resignation of the Secretary of State for Work and Pensions, Ian Duncan Smith, sparked uncertainty in Prime Minister Cameron’s administration. The decision was interpreted as a possible challenge to Cameron’s effort to stay in European Union. New online poll has pointed to more people in favour of Brexit. We are still expecting the tug-of-war between “Brexit” and “Bremain” to continue, uncertainties will drive the volatility in the sterling leading up to the referendum in June. UK’s CPI came in at 0.3% versus consensus of 0.4%, core CPI stands at 1.2%, which is a distance from Bank of England’s 2% target. As it stands now, there are enough unknowns looming, it is unlikely for BOE to consider any changes to interest rates in the near future.
In short, the fall in Sterling last week is attributed to 3 reasons:
- Brexit fear
- Poor data
- Dollar strength
WTI Oil fell briefly below 39 before rebounding back and ended the week above 39. Saudi Arabia added weight to the meeting in Doha scheduled on 17 April. The expectation remains high and the outcome will determine if the WTI will stay above 40 or below.
Gold fell below 1220, lowest in March, on the back of dollar bet as well. The bullion should head lower when the prospect of the next Fed rate hike draws closer. We are bearish on Gold as long as Fed stays on track for 2 rate hikes in 2016.
Most of the western world will be observing Easter today; Europe session is likely to be quiet. This week is good for technical play as the amount of major data is limited. Most noticeable are the China Manufacturing PMIs (expected to remain below 50 as usual) and the US employment data. Traders will be looking at the employment numbers on Friday to get some clue on the likelihood of rate hike as early as April or June. In our perspective, good employment data means the average hourly earnings show positive growth, Non-farm Payroll stay above 200K & employment rate remains below 5%. Disappointment figures may result in the greenback losing its recent gains.
Our Picks
WTI Oil – Slightly bullish. A daily doji candle is formed after price failed to close below $40 a barrel; we expect the uptrend to continue. The near term downside risk is the dollar strength.
USDCAD – Slightly bearish. Oil and USDCAD is having a strong inverse correlation. Price may find resistance around 1.13, Fibonacci convergence(highlighted in chart). The near term upside risk is the dollar strength.
AUDNZD – Slightly bullish. As long as RBNZ remains more dovish than RBA, the upward pressure should stay. 1.13 is the major round number and looking tough to breach.
Top News This Week
US: ADP Non-Farm Employment Change. Wednesday 30th March, 8.15pm.
We expect figures to come in around 190K (previous figure was 214K).
China: Manufacturing PMI. Friday 1st April, 9am.
We expect figures to come in around 49.1 (previous figure was 49.0).
US: Non-Farm Employment Change. Friday 1st April, 8.30pm.
We expect figures to come in around 220K (previous figure was 242K).
Fullerton Markets Research Team
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