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Dollar Falls to 7-Month Lows

Daily Analysis - 21/05/2017

Euro and Precious Metals Climb as US Currency Sinks

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As US President Donald Trump embarks on his first foreign tour, malaise back at home is weighing on the US currency following a combination of political woes and worsening data.  With the dollar under pressure, risk-aversion assets like gold have seen demand return as the Euro capitalizes on the current spell of dollar weakness.

Last Week


After reaching fresh records earlier in the week, US equity benchmarks spent the remainder of the week retreating on the heels of disappointing economic data and the ongoing turmoil in the nation’s capital.  The anxiety led to a pronounced selloff in the dollar, sending the currency to a 7-month low which helped spur gains in precious metals while driving the EURUSD pair to the highest point in months.  In addition to the political fracas, the housing sector is beginning to show signs of weakness as evidenced by housing starts fall to 5-month low alongside a decline in building permits.  In the energy space, the US oil rig count continues to surge, rising to 720 last week according to Baker Hughes.

Crude oil stockpiles continued to drawdown spurring additional gains in WTI futures ahead of the upcoming OPEC meeting.  Shifting gears, Japanese growth edged higher to 2.20% on an annualized basis according to a preliminary reading on first quarter gross domestic product.  Other positive mentions came from Australian joblessness which managed to fall to 5.70% as the comparable UK figure slid to 4.60%, marking the lowest level of unemployment since 1975.  To cap off the week, Canadian core inflation surprisingly dipped to 1.30% for the 12-months ended in April as headline consumer prices remained on hold at 1.60%.

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The Week Ahead


Starting off with the United States, the US Federal Reserve is set to release the minutes from the last FOMC Meeting on Wednesday, with investors hoping to glean important details about the path for interest rates.  Apart from the Fed, the second reading of first quarter US GDP is due on Friday, with figures forecast to show a pickup in expansionary momentum on a quarterly and annualized basis.  The main concern will be housing numbers pertaining to new and existing home sales, both of which are expected to decline for the period.  Should they mirror the contraction in housing starts and building permits, more trouble could be in store for the US housing sector.

In Asia, data will be centered on Japan which is set to announce the latest trade balance and inflation figures.  Core inflation is expected to double to 0.40% for the period compared to 0.20%, highlighting an improving outlook for the Bank of Japan.  European data kicks off with German GDP which is forecast to remain on hold at 0.60% for the first quarter with annualized expansion firm at 1.70%.  UK Inflation Report Hearings will be held on Tuesday before a second reading of first quarter GDP which is expected to show growth momentum unchanged at 0.30% quarter over quarter and 2.10% on an annualized basis.

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