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GBP Slips on Weak Data, EUR up as Italy Pledges No Euro Exit

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US Market Snapshot via IG: DJIA 0.04%, Nasdaq 100 -0.1%, S&P 500 flat

Major Headlines

  • G7 Communique was backed by all countries apart from the US
  • UK Factory Output saw its largest monthly fall since October 2012
  • Italian Economy Minister stated that Italy has no intention of abandoning the Euro

GBP: The Pound fell sharply following a raft of weaker than expected economic data points. UK Manufacturing Output saw its largest monthly fall since October 2012, falling 1.4% vs. expectations of a 0.3% rise amid continued slowing of international demand and a subdued domestic market. Construction Output fell 3.4%, sharpest decline since August 2012, while the UK posted its second widest deficit on record at £14bln. Consequently, this does not bode well for the BoE and rate hike expectations as this suggests that underlying economic factors remain week. GBP back to the mid-1.33 vs. the greenback, having pushed through 1.34. EURGBP looking at last week’s high situated at 88.38, a break could set up a move towards 0.8900.

EUR: The Euro has cheered remarks made by the Italian Economy Minister over the weekend, stating that Italy has no intention of abandoning the Euro. This has led to a narrowing of bund-BTP spreads, which in turn has underpinned EUR gains. Elsewhere, focus will be on the ECB meeting, where council members will discuss the process of exiting its current QE program. EUR buying likely to continue in the run up to the meeting, EURJPY looking for a break of 130.25 in order to open up a move towards 134.

CAD: The Loonie is the worst performing G10 currency amid the G7 row between President Trump and PM Trudeau. Subsequently, this has raised fears that the Trump administration could potentially scrap NAFTA negotiations altogether. Additionally, the weakness observed in oil markets have also contributed the softer CAD, which has now moved past 1.30 against the USD.

Oil: WTI and Brent crude futures are leaking lower this morning amid reports late last week that Russia and Saudi Arabia had increased output by 100k bpd with the latter planning to raise output again. This also comes ahead of the OPEC-Non-OPEC meeting on June 22nd where it is expected that Saudi Arabia will try to persuade other members to boost production. On the US front, drilling activity continued to be upped with oil rig counts rising for a third consecutive week, according to Baker Hughes, subsequently raising concerns of a flood of US oil supply.

DailyFX Economic Calendar: Monday, June 11, 2018 – North American Releases

US AM Digest: GBP Slips on Weak Data, EUR up as Italy Pledges No Euro Exit

DailyWebinar Calendar: Monday, June 11, 2018

US AM Digest: GBP Slips on Weak Data, EUR up as Italy Pledges No Euro Exit

IG Client Sentiment Index: GBPUSD Chart of the Day

US AM Digest: GBP Slips on Weak Data, EUR up as Italy Pledges No Euro Exit

GBPUSD: Data shows 70.4% of traders are net-long with the ratio of traders long to short at 2.38 to 1. In fact, traders have remained net-long since Apr 20 when GBPUSD traded near 1.42303; price has moved 5.8% lower since then. The number of traders net-long is 6.6% lower than yesterday and 5.0% lower from last week, while the number of traders net-short is 10.7% lower than yesterday and 7.7% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBPUSD-bearish contrarian trading bias

Five Things Traders are Reading

  1. Euro Forecast: Euro Rebound Faces Test with ECB Meeting on Thursdayby Christopher Vecchio, CFA, Sr. Currency Strategist
  2. Weekly CoT Update for AUD, GBP, Euro, Oil, Copper, and Others”by Paul Robinson, Market Analyst
  3. GBP Faces a Challenging Week of Heavyweight Data; Brexit Vote” by Nick Cawley, Market Analyst
  4. GBPUSD Plunges as Factory Output Posts Largest Monthly Fall Since Oct’12” by Justin McQueen, Market Analyst
  5. Bitcoin & Litecoin Charts – Broken Support to Lead to More Breaks” by Paul Robinson, Market Analyst

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX



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Forex

A Complete Lack of a Cohesive Government Blights Sterling

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GBP Forecast: A Complete Lack of a Cohesive Government Blights Sterling

Fundamental Forecast for GBP: Neutral

Sterling (GBP) Talking Points:

  • No Meaningful Vote. No Leadership. No EU Concessions. No Brexit.
  • Year-end market conditions make Sterling positions foolhardy.

The DailyFX Q4GBP Forecast is available to download.

In current market conditions, and with the total lack of a cohesive Brexit plan, trading Sterling is nigh on impossible to recommend from a risk- reward stance, leaving our outlook neutral even though the path of least resistance for the British Pound is pointing lower.

Over the past week, the meaningful vote in Parliament for PM May’s Brexit plan was cancelled, the Prime Minister won a vote of confidence – although 117 of her party voted against her – and her visit to Brussels to ask for more concessions to help solve the Irish backstop impasse were roundly rejected by the EU.

As we stand there are a few scenarios that may play out in the short-term, nearly all damaging for the British Pound. The calls for the PM to resign may be listened to by Theresa May, unlikely but still a possibility – the opposition may call for her to step-down, more likely but the Labour Party is currently divided on its Brexit stance – the EU offers some meaningful concessions to help the bill get through Parliament, again highly unlikely – no agreement and the UK goes to WTO rules, looking possible – and finally another Brexit Referendum, a view now gaining traction and a real possibility. While a second Brexit Referendum, and a likely win for Remain, would boost Sterling, the run-up to this break with democracy will weigh heavily on the British Pound.

In a nutshell – if a Government is unable to lead and inspire confidence, putting a value on its currency is impossible.

GBPUSD Four-Hour Price Chart (October – December 14, 2018)

GBPUSD Four-Hour Price Chart

IG Client Sentiment data show 62.8% of traders are net-long GBPUSD. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests that GBPUSD prices may continue to fall. However, the combination of recent daily and weekly positional changes give us a mixed trading bias.

— Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

Other Weekly Fundamental Forecasts:

Japanese Yen Forecast – USD/JPY Rate Fails to Test Monthly-High Ahead of Fed Rate Decision

Oil Forecast – Crude Oil Prices Swamped by OPEC Cuts, Global Growth Fears, Fed



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Forex

Is Gold Posed to Lose its Luster?

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Is Gold Posed to Lose its Luster?

GOLD PRICE FUNDAMENTAL FORECAST: NEUTRAL

Talking Points:

  • Gold’s recent bullish breakout may come under pressure despite strong safe-haven demand
  • A strong US Dollar notching year-to-date highs to limit further advances in gold
  • Prospect of a Federal Reserve rate hike pause could shoot the precious metal higher

GOLD PRICE FUNDAMENTAL FORECAST: NEUTRAL

Over the last 5 days of trading, XAUUSD declined 0.72% as investors anxious over slowing global growth sent the US Dollar higher. Although risk-off sentiment should send the precious metal higher, gains in the Greenback overpowered bullish bids for gold. A higher US Dollar makes purchasing gold denominated in America’s currency relatively more expensive thus limiting upside.

Looking to next week, focus will shift to the Federal Reserve as markets await the highly anticipated decision by the central bank’s Federal Open Markets Committee on monetary policy. Markets are currently pricing a 77 percent chance that the Fed will raise its benchmark policy interest rate for the fourth time this year according to the futures market implied probability.

In general, Gold has an inverse relationship with interest rates due to the precious metal not yielding any cash flows like debt instruments. Higher rates result in weakened demand for the commodity as alternative assets such as US Treasuries provide a higher rate of return. If the Fed surprises markets and pauses next week or makes any material downward change to the Fed’s dot-plot, gold could ascend quickly on back of lower future interest rate expectations.

Eyes will also closely watch for the release of several key economic indicators out of America next week. If actual results miss expectations, risk-off sentiment should continue and further boost demand for gold. However, fears over a slowing global economy will incite further rotation of capital from stocks to bonds with investors flocking to the safety of US Treasuries.

For a list of global economic events and data releases, check out our real-time Economic Calendar.

As international buying of Uncle Sam’s bonds increases, foreigners must convert their currency into US Dollars. This drives up demand for the Greenback which becomes a headwind for gains in gold due to the inverse relationship between the two assets.

A third key driver to take note of that will determine gold’s next move higher or lower will be the performance of the Chinese Yuan. As the damaged Asian economy continues to experience downward pressure amid worsening economic data due to the ongoing trade war with the United States, the Dollar may appreciate further against its Chinese counterpart.

The importance of USDCNY to gold is seen in their strong negative correlation. Trade talks between the world’s largest economic powerhouses will largely drive returns for the currencies with the CNY benefiting from any progress President Xi can make with President Trump towards de-escalation tension or reaching a deal.

Is Gold Posed to Lose its Luster?

Due to the mixed event risks and waning bullish technical indicators, the forecast for XAU will be neutral over the week of December 17. Take a look at client sentiment for insight on client positioning and trader bearish or bullish biases.

–Written by Rich Dvorak, Junior Analyst for DailyFX

–Follow Rich on Twitter for real time market updates @RichDvorakFX

Other Weekly Fundamental Forecasts:

Japanese Yen Forecast – USD/JPY Rate Fails to Test Monthly-High Ahead of Fed Rate Decision

Oil Forecast – Crude Oil Prices Swamped by OPEC Cuts, Global Growth Fears, Fed

British Pound Forecast – A Complete Lack of a Cohesive Government Blights Sterling

US Dollar Forecast –US Dollar May Rise as the Fed Checks Slide in 2019 Rate Hike Bets



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Forex

Euro Shorts in Charge on Tri-break

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EUR/USD Technical Highlights:

  • Triangle finally broke, has Euro rolling downhill
  • November low, Nov ’17 t-line initially targeted
  • Must be cautious once at support, may put in floor

Let us help you. DailyFX has guides ranging from forecasts to trade ideas to education all in one location – DailyFX Trading Guides.

Triangle finally breaks, has Euro rolling downhill

Friday’s breakdown finally put the Euro outside of the triangle it had been forming over the course of the past month. It’s been an anticipated event, but confirmation was needed first before running with a more aggressive short bias.

Looking lower there is support not too far away. First up is the November low at 11215, followed by the lower trend-line extending over from November of last year; resides around roughly 11180. The way EUR/USD has been trading we’ll want to pay close attention to how it reacts once support is met.

The moves over the past few months haven’t been sustained for very long and this could be another unsustainable drive lower. With that in mind, from a tactical standpoint if the Euro starts to turn up from one of the aforementioned levels then it may be best to call it a wrap as a quick counter-trend bounce could develop.

If, however, selling pressure increases and a break below support unfolds, then perhaps a little momentum may kick in towards near 11100 or worse. It seems unlikely we will see too much power given not only the Euro’s behavior in past months but also because there is only about a week left in the year of full market participation before we go into ‘holiday’ mode. However, even as such, watch and follow the price action first.

Traders are generally long EUR/USD, see the IG Client Sentiment page to see how this acts as a contrarian indicator and is supportive of lower prices.

EUR/USD Daily Chart (Levels, lines to watch)

EUR/USD

EUR/USD 4-hr Chart (Triangle broke Friday morning)

EUR/USD

—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at@PaulRobinsonFX

Other Weekly Fundamental Forecast:

Australian Dollar Forecast – AUD Prices May Fall Into 2019, AUD/CAD at Risk to Reversal Pattern

British Pound Forecast – Seven Weekly Bear Candles Dominate

US Dollar Forecast – Dollar Hits an 18-Month High as Anti-Currency Demand Fights Liquidity

Equity Forecast – Technical Forecast for Dow, S&P 500, FTSE 100, DAX and Nikkei

Oil Forecast –Crude oil may See Light in Tunnel As Oncoming Train

Gold Forecast – Price Rally Pulls Back ahead of FOMC



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