JAKARTA, NNC - Optimism on Indonesia's economic outlook increased following reports stating that retail sales jumped 4.1 percent in April compared to a year earlier.
The impressive achievement of retail sales in April was supported by increased demand for fuel, food and beverages, and tobacco.
"Retail sales continue to strengthen so that Indonesia's growth prospects remain very promising as domestic consumption contributes more than half of Indonesia's GDP," said Lukman Otunuga, Research Analyst from FXTM, Tuesday (06/12/2018).
Surprisingly, the rupiah weakened following this positive economic report. The price was slightly above IDR13,850 when this report was written. There is speculation that Bank Indonesia may raise its benchmark interest rate again, so the rupiah may remain strong.
Steady market ahead of the G7 summit
Investors may be cautious ahead of the 44th G7 summit to begin on Friday.
The market volatility may also decline slightly due to anticipation of possible scenarios when Donald Trump meets with the G7 in Quebec.
National Economic Council Director Larry Kudlow said Trump would maintain a firm and robust position on trade, so expectations of this week's resolution deal remain slim.
Nevertheless, investors should always be ready for any unforeseen circumstances in connection with the Trump's administration that often gives surprises. The signal that the United States might reduce steel and aluminum tariffs for Canada and the EU could slightly ease concerns about the trade war.
Buying sentiment against euro skyrocketed after ECB's Chief Economist Peter Praet raised expectations that the ECB will cut back on stimulus programs.
According to Praet, healthy economic growth has boosted optimism that inflation will hit a two percent target. The hawkish comments sparked speculation that the ECB will uncover more information on its bond-buying program from next week, so the Euro may continue to strengthen. While improving European economic conditions can support the Euro exchange rate, political risks can threaten this increase.
From a technical point of view, EURUSD rose to new two-week highs above 1.1810 as of this report. Break firmly above 1.1820 could pave the way for an improvement towards 1.1930. Conversely, if the price fails to conquer 1.1820 then it can again weaken to 1.1750.
Commodities - WTI Crude Oil
The oil market is likely to remain stagnant in anticipation of an OPEC meeting to be held on June 22.
The depreciation of oil in recent weeks continues to highlight that geopolitical risk factors are unable to maintain a bullish rally. Markets are more worried about oversupply and this is clearly illustrated in negative price action.
Expectations are growing that OPEC and its partners will reduce production restrictions in response to declines in Venezuelan and Iranian production, so WTI may decline further.
It is important to remember that increased production of Russia and OPEC as well as an increase in US shale oil production could exacerbate the oversupply problem and ultimately undermine investor interests in this commodity.
From a technical perspective, WTI crude is depressed on daily charts. A repeated decline below $66 may cause further depreciation towards $64.30 then to $64.00.