Hail to the King 17Nov17


· Hail to the King

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· Saudi Arabia gets new king next week

· US Thanksgiving will suck liquidity out of FX markets for most of the week

· USDCAD extending gains on data and bullish technicals

The man who will be king. Photos: Saudi Gov. / Shutterstock

By Michael O’Neill

“Hail to the king, hail to the one, Kneel to the crown, stand in the sun.” Avenged Sevenfold might not be the first choice of Saudi Arabian officials to herald the arrival of a new King, but if the song fits, sing it. Next week, 81-year-old King Salman is reportedly going to retire and hand the keys to the kingdom to his son, thirty-two-year-old Crown Prince Mohammed Bin Salman.

The young, soon-to-king, is also Saudi Arabia’s First Deputy Minister, the Minister of Defense and the President if the Council for Economic and Development Affairs. He is the power behind Vision 2030 and the proposed sale of Aramco shares. He is the man behind the arrests of over 200 Royal family members, government ministers, military officers and influential businessmen on corruption charges. Saudi Arabia wants the return of “ill-gotten gains and, according to CNBC, willing to accept cash and assets, for freedom.

A cynic would argue that King-to-be Mohammed Bin Salman is merely removing his competition and solidifying his power base. The Game of Thrones in Saudi Arabia has a ripple effect across the G10. Saudi Arabia is waging war with Yemen and is in a war of words with Iran. If the war of words becomes one of bombs and bullets, oil prices could skyrocket, equity markets crash, derailing economic growth prospects and higher interest rates.

Loonie heading south

The Loonie appears to be heading south for US Thanksgiving. It should be careful. Nearsighted Americans could mistake a plump Loonie for a Turkey and stuff it in an oven at 350 degrees.

USDCAD rallied after US data surprised to the upside. Canadian inflation data was exactly as forecast, but the October 1.4% increase was lower than Septembers 1.6% gain. Today’s data doesn’t do anything to encourage a more hawkish stance from the bank of Canada. Firm and rising oil prices will act as a drag on USDCAD gains.

The USDCAD technicals are bullish while prices are above 1.2705. Today’s break above resistance in the 1.2770-90 area suggests a retest of the 1.2910 level with 1.3000 playing the role of magnet.

Chart: USDCAD 4-hour

Source: Saxo Bank

The week ahead

Next week, will be a “lights are on, but nobody’s home” moment. There is plenty of important data but the US Thanksgiving holiday will put a damper on trading for a large part of the week.

Major Events: Federal Open Market Committee minutes from the November 1 meeting are released on Wednesday. The FOMC policy statement was as expected and benign suggesting that the minutes will not offer any surprises and not impact FX markets.

Reserve Bank of Australia policy meeting minutes from November 7 are released Tuesday.

AUDUSD could come under pressure if the minutes show that the RBA was more doveish than neutral

A UK budget update is due on Wednesday which could have a negative effect on GBPUSD if economic forecasts are lowered.

Major Data

US Durable Goods will be released Wednesday but a lot of US traders will be missing in action due to Thursday’s holiday.

UK GDP data is released on Thursday as well as Preliminary Eurozone PMI data.

The week that was

Monday, there was plenty of talk and not a lot of action unless you traded sterling. Then there was plenty of talk and even more action. GBPUSD tanked in early Asia trading after reports that 40 MP’s signed a letter of “no-confidence” in Theresa May’s government. GBPUSD dropped from 1.3180 to 1.3065.

The data cupboard was bare. Bank of Japan governor said that inflation would reach the target in 2018. Wall Street stayed positive, overlooking news that GE cut its dividend by 50%. The ongoing US tax debate was kindling for risk aversion sentiment.

Tuesday, the data cupboard was replenished, fuelling a lot of price action, but little US dollar direction. Weaker than expected China Retail Sales and Industrial Production data undermined NZDUSD and AUDUSD. Firm Australia consumer Confidence data was lost in the noise.

EURUSD caught a bid, supported by strong ZEW data and as expected Eurozone GDP data. It blew through resistance at 1.1750 to touch 1.1804 in New York. The US dollar weakness helped Sterling shrug off weak Retail Sales and PPI data. Oil prices slid on rumours that API would report a large increase in crude inventories. The rumour was true. A lack of progress on US tax reform led to Wall Street closing with losses.

Wednesday, sliding oil prices and a lack of quality data in Asia and Europe, tipped FX markets into “risk-off” selling. The US dollar opened in New York with losses against the majors except for Sterling (which was unchanged) and Aussie. Sterling was whipped around by employment data. AUDUSD got spanked when Wage Price data was below forecasts.

Zimbabwe got a new government. The Army is in charge, the former president in “safe-keeping”, but a local general said it was not a coup. The “risk-off” sentiment dissipated after the US Retail Sales and CPI reports were as expected. The US dollar recouped its overnight losses and finished with small gains against the majors.

Thursday, Australia employment data supported AUDUSD even as the US dollar gained against the other currencies albeit in fairly narrow ranges. GBPUSD opened in New York with a small gain after a choppy UK session. A rash of second-tier US data was positive for the greenback, but traders didn’t care. USDCHF was the big gainer after the Swiss National Bank President said that the Fed was helping the SNB with the overvalued Swiss franc. Wall Street had rallied and recouped all of the week’s losses. The US dollar finished the New York session close to flat for the day.

Friday, subpoenas by Special Counsel Robert Meuller to many Trump’s campaign officials. led to US dollar selling in early Asia trading. Strong US housing and building permits data lifted the greenback in New York.

– Edited by Clare MacCarthy

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