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Mystery PM Announcement Has Cable Under Pressure

Market Drivers April 18, 2017
RBA cast a dour note
Cable takes out 1.2600
Nikkei 0.31% Dax -0.33%
Oil $52/bbl
Gold $1286/oz.

Europe and Asia:
AUD RBA Minutes

North America:
USD Building Permits 8:30
USD Housing Starts 8:30
USD Industrial Production 9:15

The quiet lull of FX dealing was ruptured today in morning London trade when the PM May office announced that it will make a statement at 11:15 local time. No specifics were given as to the nature of the announcement but traders reacted quickly selling the pound down to 1.2520 from 1.2600 within a matter of minutes. There was some speculation that Ms. May may call an early snap election, but her office quickly quashed those rumors.

For now cable remained above the 1.2500 mark but the pair was sure to see more volatility once the news is released.

The dollar remains under pressure as US yields have compressed significantly over the past week, driven lower by disappointing economic data, geopolitical tensions with North Korea and legislative chaos in Washington DC. With little evidence on the horizon that any of these problems will be solved soon, the greenback could remain depressed for the rest of the week, with short still targeting the 108.00 figure as their initial target.

Meanwhile in Australia, the Reserve Bank of Australia minutes cast a dour note on Asian session trade, as the central bank expressed concerns about the labor market conditions in the country. Although Australian monetary authorities acknowledged the recent improvement in the headline numbers, they noted that pick up in job has not resulted in increase in household consumption – a fact that clearly worried policy makers. The central bank even dropped, “Looking forward, year-ended growth was expected to pick up gradually to be above its potential rate over the forecast period” statement, signaling that it was concerned about growth going forward.

The minutes weighed on the Aussie which drifted lower all night long falling to a low of .7538 in early London dealing after being above the .7600 figure yesterday. It remains to be seen if the RBA worries are simply a short term phenomenon that will be assuaged by the recent blowout labor data numbers, or whether this cautious attitude will persist for the rest of the year. For now the market sees the central bank as firmly neutral, with little chance of changing its posture anytime soon and that should cap any rally in AUDUSD to the .7600 figure for the foreseeable future.

In North America today, the docket carries only second tier data with Housing starts, Building permits and Industrial Production on the calendar. Nevertheless, the reports could have impact on dealing, especially if they miss expectations and confirm the recent market consensus that US growth is stalling.

Kathy Lien

Ms. Kathy Lien is Managing Director of FX Strategy for BK Asset Management and Co-Founder of BKForex.com. Having graduated New York University's Stern School of Business at the age of 18, Kathy has more than 13 years of experience in the financial markets with a specific focus on currencies. Her career started at JPMorgan Chase where she worked on the interbank FX trading desk making markets in foreign exchange and later in the cross markets proprietary trading group where she traded FX spot, options, interest rate derivatives, bonds, equities, and futures. In 2003, Kathy joined FXCM and started DailyFX.com, a leading online foreign exchange research portal. As Chief Strategist, she managed a team of analysts dedicated to providing research and commentary on the foreign exchange market. In 2008, Kathy joined Global Futures & Forex Ltd as Director of Currency Research where she provided research and analysis to clients and managed a global foreign exchange analysis team. As an expert on G20 currencies, Kathy is often quoted in the Wall Street Journal, Reuters, Bloomberg, Marketwatch, Associated Press, AAP, UK Telegraph, Sydney Morning Herald and other leading news publications. She also appears regularly on CNBC – US, Asia and Europe and on Sky Business. Kathy is an internationally published author of the best selling book Day Trading and Swing Trading the Currency Market as well as The Little Book of Currency Trading and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game – all published through Wiley. Kathy’s extensive experience in developing trading strategies using cross markets analysis and her edge in predicting economic surprises serve key components of BK’s analytic techniques.