Complex Made Simple

Will market volatility pick up in the week ahead?

Last week was unusually quiet for the financial markets in terms of volatility and with the economic calendar relatively light over the next couple of days, the week ahead might be similar. It is a bit early to attribute the lower levels of market movements to a possible summer lull being upon us and instead, I would credit this to traders being on the right side of the trade in regards to the recent French elections and not needing to make any sudden moves in reaction to the event.

It is important to also bear in mind that there are two major event risks over the next couple of weeks, including the OPEC meeting on 25 May in Vienna and the UK general elections scheduled for 8 June. This should ensure that investors remain alert towards possible developments, preventing traders from taking their foot away from the pedal with summer fast approaching.

China making further steps towards globalization

One of the major financial stories to have gathered attention over the weekend has been the news that China’s President Xi Jingpin has pledged $124bn to the Belt and Road global trade project, which provides further indications that China is taking steps towards embracing globalization. While populism and initiatives to move away globalization are still seen as threats in some advanced economies, China seems to be going full steam ahead with embracing the concept and proving itself as a reliable superpower in the global economy.

The news around the China’s $124bn investment in the Belt and Road initiative falls sharply on the heels of the headline late last week that the United States and China have signed their own trade agreement. Under the agreement, it is thought that the Chinese market will be open to US credit rating agencies and credit card companies, while Chinese banks can also enter the US market in return.

This move does go some way towards supporting the previous indications of late that diplomatic relations between China and the United States are warming, which should gradually improve the public perception of President Trump in mainland China and also cool down the fears from late last year that China would suffer under a Trump presidency.

GBPUSD to remain under pressure with UK inflation ahead?

The Pound/Dollar found itself on the end of two days of successive losses to conclude the previous week, after investors found encouragement to drag the pair lower from its recent 2017 high narrowly below 1.30 following the Bank of England (BoE) downgrading its growth forecast for the UK economy this year.

For those looking for a recovery in the pair from here, it is worth pointing out that the BoE repeating its negative views on price pressures might weigh on investor sentiment with the latest UK inflation reading scheduled for this coming Tuesday.

Will upcoming data from Europe continue to suggest the Euro is undervalued?

Now that the French elections are out of the way and with Europe appearing like it has fared better than the United States and United Kingdom in defeating populism, I am expecting for more arguments to be made that the EU currency is undervalued.

Most headlines around Europe over the past couple of months have ignored macro-economics and instead focused on the several political events that have been scheduled around the continent. While this makes sense with the shock results of the EU referendum and US elections, it has completely slipped under the radar that the EU economy has been picking up momentum in 2017.

I do feel that investors should now start paying closer attention towards the economic data coming out of Europe, and I am firmly bullish on the Euro over the medium and longer-term.

(By Jameel Ahmad, VP Market Research at FXTM)