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The Rand is expected to remain vulnerable while economic growth in South Africa is likely to accelerate during 2018 according to analysts at Brown Brother Harriman. 

Key Quotes: 

“The improving South African economy will be hampered in 2018. Its GDP rose 1.5% y/y in Q4 2017, and is expected to accelerate at around 2.0% y/y in Q1 2018. But capital investment remains weak despite improved business sentiment following the change in South Africa’s president from Zuma to Ramaphosa.”

“South African inflation continues to ease as core CPI slowed to 4.1% y/y, which is the lowest level since December 2011. SARB remains vigilant and sees CPI rising 4.9% in 2018 and 5.4% in 2019. A strong rand and limited increase in the electricity tariff would stem inflation, while high oil prices and hiking VAT and the sugar tax would boost inflation pressures. The survey by the South African government indicates its inflation expectations in 2018 marginally declined to 5.7% from 5.8% in 2017, remaining close to the upper end of the target range.”

“The rand is expected to remain vulnerable to the prospect of a credit rating downgrade and possible risk-off sentiments generated by political developments.”
 

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Gold reversed sharply after approaching 2018 highs. 
The slide from the top of the current range, signals a potential test of a key support. 

The yellow metal opened the week with a strong positive tone. It peaked on Wednesday at $1,356/oz but then revered sharply, changing the short-term outlook. From the top lost more than $30 in two days. 

Yesterday price bottomed at $1,321 the lowest since March 21.  It moved modestly off lows and finished at $1,324 posting a weekly loss of 1.70%. A stronger US dollar was the main driver of the move. 

Reversal and a test of 2018 lows? 

The retreat from the key resistance area around $1,355/65 signals that price is not strong enough yet to break that area and the wide consolidation range. The last time gold traded above $1,370 was back in July, 2016, and on top of $1,376 March, 2014. 

The speed of the decline weakened the short-term technical outlook for gold. It even fell below the 20-day moving average ($1,329). On a wider perspective, it continues to move sideways, unable to break $1,360 while to the downside, $1,310/00 remains a key support. 

If the bearish tone persists, a test of the bottom of the range seems likely. A daily close significantly below $1,310 would expose $1,300 increasing the odds of more losses. 
 

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The Consumer Price Index for the Eurozone is scheduled next Wednesday at 9:00 GMT.
The EUR/GBP is steady and bulls are targetting the 0.88 level.

The EUR/GBP is trading at around 0.8775 virtually unchanged on Good Friday as most of the market participants are away from their desks on the long Easter weekend.

The macroeconomic calendar is rather light and in observance of the Easter break, the financial markets are shut down in the US, Europe, Australia and New-Zealand. While the US and Canadian markets will reopen on Monday, Europe, Australia and New Zealand markets will only re-open next Tuesday. 

Next week on Wednesday, the Eurozone inflation numbers are going to be released with the preliminar CPI numbers for March while on Thursday the Governing Council will release its ECB Monetary Policy Meeting Accounts’ report. Both piece of news can greatly impact the European currency.

EUR/GBP daily chart

The first part of March saw a selloff in the EUR/GBP which then reversed a few pips shy of the 0.8650 level. The market is now evolving in a small bull channel. Earlier in the week, the bulls made an attempt at the 0.88 handle which is acting as a key resistance level. If the bulls manage to break above it, then the 0.8850 level should become the next bulls’target. As a confluence, the 100-period simple moving average is also very close, at the 0.8850 level. Support levels to the downside are seen at 0.8733 swing low made on March, 28, followed by the 0.87 handle psychological level. The RSI and the Moving Average Convergence Divergence (MACD) indicators are rather constructive to the upside.  

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Next week, economic data to be released in Canada includes the March jobs report, January trade balance and the PMI.  According to analysts at National Bank of Canada, there is no reason to expect a sharp drop in employment.

Key Quotes:

“In Canada, March’s labour force survey will attract the most attention. After wild gyrations between November and January, job creation returned to a more normal path in February with 15.4K jobs added in the month. Such a performance is roughly in line with what we expect to be the monthly average for the rest of the year. Considering that hiring intentions remained high among Canadian businesses in March, there is no reason to expect a sharp drop in employment. Consequently, we are calling for a 20K increase in the month, a development that should leave the unemployment rate unchanged at 5.8%.”

“We’ll also get data on January’s merchandise trade balance. Energy exports may have shrunk in the month in light of falling prices. The resulting negative impact on the overall trade balance may have been compounded by an increase in nominal imports after the largest monthly drop in six months in January (- 4.3%). All in all, the trade deficit may have widened to C$2.50 billion. Markit’s manufacturing PMI for March will also be released this week.”
 

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Analysts from Brown Brother Harriman, point out that the Mexican economy slowed down amid a prudent fiscal policy and monetary tightening. NAFTA and the presidential elections in July could weigh on the peso (MXN). 

Key Quotes: 

“The Mexican economy has slowed due to monetary and fiscal tightening. Its GDP has been below 2.0% y/y for three straight quarters. Monthly data in Q1 suggests that the economy has been stagnant mainly due to manufacturing.”

“Inflation has started to ease finally. February Mexico CPI slowed to 5.34% y/y, which is the lowest reading in one year, in spite of high oil prices. Previously implemented monetary tightening and appreciation of the Mexican peso has lowered inflation pressures, while medium- and long-term inflation expectations stay around 3.5%.”

“The Mexico central bank, Banxico, has continued to hike rates since December 2015. The policy rate reached 7.5% in February 2018, with a total increase of 450bp since December 2015.”

“The Mexican government has kept the fiscal policy prudent.”

“The political situation remains unclear. Andres Manuel Lopez Obrador (AMLO), who leads the left-wing party, Morena, is still leading with around 30% support. PAN leader Anaya is following AMLO with around 20% support. Former Finance Minister Meade, who is the PRI presidential nominee, has slipped to the third position with 16% support. The next government is likely to push fiscal stimulus as fiscal austerity has been unpopular under current Mexican President Peña Nieto. If AMLO is expected to win, markets would react negatively.”

“NAFTA renegotiations with the US have been delayed without significant progress on contentious issues, and could continue to weigh on the peso. The seventh negotiating round will be held in April in Washington, DC.”

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   •  Catches some fresh bids near 1.2865-60 region, 3-day old trading range support.
   •  Traders unwind bearish bets amid holiday-thinned liquidity conditions.
   •  Next week’s important macro releases to provide some fresh impetus.

The USD/CAD pair has managed to recover early lost ground to a three-day-old trading range support and is now looking to move back above the 1.2900 handle.

Despite a subdued US Dollar demand, the pair once again managed to gain some positive traction near the 1.2865-60 region and prompted traders to cover their short position from an immediate support. 

Meanwhile, the uptick lacked any obvious catalyst and hence, it would now be interesting to see if the pair is able to build on the momentum or traders look at the move as an opportunity to lighten their bullish bets. 

With global market shut to celebrate the Easter long weekend, the pair seems more likely to hold on to its recent trading range and wait for next week’s important macro releases, including the keenly watched NFP, for some fresh directional impetus.

Technical levels to watch

Any subsequent up-move might continue to confront some fresh supply near the 1.2935-40 region, above which the pair seems all set to aim towards reclaiming the key 1.30 psychological mark. On the flip side, sustained weakness below the 1.2865-60 immediate support now seems to prompt some aggressive selling and drag the pair back towards retesting the 1.2810-1.2800 support region.
 

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Crude oil WTI rebounds at $63.72 with buyers eying the high of the year and beyond.
Crude oil WTI bears are looking towards the $62.30 level.

Crude oil futures are trading at around $64.91 slightly up on Good Friday as most market participants are on the Easter long weekend.

The main event of the week in the oil markethas been talks between Saudi Arabia and Russia about a 10 to 20-year alliance in order to support oil prices. Many analysts referred to it as an “unparalleled oil deal.”  

Earlier in the week, the key indicator for oil, the EIA Crude Oil Stockpile  report, showed a build of 1.643 million barrels against a draw of -0.287 million forecasted. On Tuesday the less popular data from the American Petroleum Institute (API) also showed an increase in the number of barrels to 5.321 million from previous readings. Usually, an increased number of oil barrels from the previous week or a build, is  considered as bearish as it might indicate that the oil supply is higher than the demand. On Thursday the US Baker Hughes Oil Rig decelerated to 798 from 804 last week. 

Crude oil WTI daily chart

The market closed the day pretty much unchanged on Thursday. The bears brought the market down to $63.81 and the bulls managed a v-shaped recovery creating essentially a doji bar on the daily chart and a small double bottom with the March 21 low. Bulls’ initial target is $65.50, followed by the $66 handle; further up, $66.66 is the high of 2018. If the bulls can’t break above $65.50 supply zone in the next sessions, the pullback down may continue and $63.81 swing low becomes the support; if this level gets successfully broken, the next scaling point is seen at $62.30 previous demand zone. The long term-trend on oil is bullish but market participants will need to decide what happens after the double top made on March, 26.  

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Viraj Patel, Foreign Exchange Strategist at ING, suggest that all the cards are falling into place for GBP/USD to post a bullish move to 1.45 in 2Q18, which is where ING’s conviction continues to lie.

Key Quotes

“Looking at GBP’s report card in March – Brexit politics, UK economic data and the Bank of England policy outlook have all turned into short-term positives for GBP  – helping it to retain its status as the ‘Comeback Kid’ in FX markets.”

“We’re now back to good old-fashioned data watching in the near-term – given that this will dictate the pace of GBP’s cyclical recovery. Under the status quo on the global economic backdrop (and trade wars is a big question mark here), it looks like a May Bank of England rate hike is in the bag. Were the UK economy to regain some of its ‘cyclical swagger’ – and the data outperform the broadly low expectations of investors – we would expect sentiment for two BoE rate hikes in 2018 to gain further traction. This will be the cue for GBP to post another bullish move higher.”

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