Greenback buoyed; for now anyway

19 May, 2017

Our prop desk has been battling against some short EUR/USD and short US equity index positions in the last few hours, which have disappointed although these trades do remain open. A series of shorts against the NZD have however proved to be significantly more profitable with many being closed out yesterday afternoon.

The fundamentals in the day ahead are once again looking rather thin on the ground, meaning that the next steps from Washington have the potential to remain the most significant drivers for the market in the short term. The storm clouds over Donald Trump seemed to ease a little yesterday, but anything that looks like a resurgence here will likely knock sentiment both for the dollar and for equity markets – with Wall Street taking the lead.

The Aussie Dollar failed to hold onto its gains over the greenback yesterday despite that upbeat Australian employment report. Admittedly inflation was less than impressive, softer commodity prices are also putting pressure on AUD and there’s little in the way of fresh economic data due from the country next week, either. As a result downside pressures could well be sustained, and any break below 0.7410 would have the potential to push the pair back down to the month’s lows around 0.7330.

The political uncertainty has been helping drive USD/CAD lower over the last two weeks, although support is being found here just below the 1.3600 level. However we have Canadian inflation data due for release at 12.30pm GMT and this could offer some fresh insight. Given the other tail winds the loonie is finding right now – namely the questions being asked over Donald Trump’s future as President and the rising oil price – even just an ‘in-line’ inflation print may be sufficient to see the pair break below the support line that has formed over the last 48 hours.

Oil production from the US continues to rise apace and there’s little to suggest this won’t be sustained given the fact that Opec plus a number of other non-member nations seem set to agree next week to extending those production cuts. Front month crude is toying with $50 mark for the first time in almost four weeks and even if we see more US rigs coming on stream in the Baker Hughes count that will be released at 5pm GMT, so long as the narrative ahead of the Opec meeting in Vienna next week remains generally positive then there’s every chance that the up trend for prices can be sustained.

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