US Trade Momentum Faltering to the Downside
The stunning drop in the US trade deficit yesterday while on paper positive, is signaling another round of global financial weakness as evidenced by falling imports and exports. Although exports were clearly impacted by a stronger dollar, the drop in imports was more indicative of a downgrade to US first quarter growth expectations. While some of the drop in imports can be attributed to the port shutdown on the West Coast, lower oil imports were also the culprit with US production hitting multi-decade highs in the first quarter. On the positive side, initial jobless claims fell further, coming in at 268,000 with the 4-week average falling to 285,500. Equity indices managed to crawl back from losses earlier in the week, posting modest gains with the S&P 500 trending 0.35% higher ahead of the Good Friday market holiday.
Greece is continuing to plan for a potential exit despite the positivity in Greek Parliament with New Democracy’s Samaras offering an olive branch to embattled Prime Minister Alexis Tsipras. The overarching goal is to remember a member of the Euro, however, the government is presently planning for a reintroduction of the Drachma if enough funds cannot be scraped together to repay the IMF on April 9th. Failure to repay will likely devolve into further chaos and a disorderly exit as Greece runs out of cash to honor obligations. Although a pivot to Russia is on the table, it is added noise and confusion ahead of major repayments due next week. The European Central Bank increased its emergency lending support to Greek banks, but this is unlikely to stem the pace of deposit outflows in the short-term.
The announcement of an Iranian nuclear framework deal late yesterday sent oil prices tumbling as expectations that the outline would lead to a lifting of sanctions sent shudders through energy markets. Although the deal has not been finalized, the latest negotiations pave the way towards the June 30th deadline for reaching a finalized accord between Iran and the P5 1. There has been some early outrage to the latest understandings, but without a final agreement, sanctions relief will not come ahead of the June cutoff date. The conflict in Yemen continues to spiral with rebels making progress in their attempt to overrun the port city of Aden. Although the Saudis have yet to launch a ground invasion, the probability of an incursion is likely after skirmishes on the border with insurgents. Oil has retraced some of the earlier weakness on the heels of the announcement, presently at $49.40 per barrel.
GBPUSD Downward Trending Channel Trading Opportunity
With markets largely closed today for the Good Friday holiday, volume in currency markets will likely prove limited ahead of the nonfarm payrolls announcement from the United States later in the session. GBPUSD continues to trend downwards despite stronger manufacturing and GDP data from the UK. Anticipation of the US raising rates ahead of the UK has seen dollar strength persist, with the currency pair trending within an equidistant channel for the last two weeks. Any beat of the nonfarm payrolls estimates will see the pair continue to trend within the channel while a large miss to expectations might see the pair breakout to upside. Any move outside the channel lines should be viewed as a breakout trade to be accompanied by increased volume and momentum. However, if trading the trend, the optimal strategy is short positions as the upper channel line to be closed at the lower channel line.