Slowing global economy worries continue to put pressure on risky assets around the globe. Wall Street indices extended their slump as investors braced for an interest rate hike by Federal Reserve on Wednesday. The Nasdaq Composite dropped 2.27% and the S&P 500 lost 2.08% to hit its lowest since October 2017. The Shanghai Composite index dropped 1%, as did Australia’s S&P ASX . In Tokyo the Nikkei 225 index was 1.6% lower and in South Korea the Kospi dropped 0.4%. Hong Kong’s Hang Seng lost 0.9 percent.
European shares started the day in negative territory, DAX gives up 0.32 percent, the CAC is down 0.60 percent and FTSE in London loosing 0.11 percent.
Chinese President Xi Jinping offered no fresh comments to open or stimulate the world’s second-biggest economy in a keynote speech. Xi assured markets that China will control risks to the economy and will improve economic structures, expand domestic demand and support the development of the non-state economy.
On-the-Lookout: UK Prime Minister Theresa May delivered a fresh round of talking points on Brexit before the UK’s parliament on Monday, but little new developments were delivered. Italian newspaper Il Sole, reported that Italian government slashed the GDP growth estimates in the latest budget proposal for next year from 1.5% to 0.9% – 1.0%.
The Reserve Bank of Australia (RBA) board agreed that the next move in the cash rate is more likely to be an increase than a decrease but also believed there is no strong case for a near-term adjustment in monetary policy, minutes of the December 2018 meeting released soon before press time revealed. RBA increased the Expected Q3 GDP growth to be above 3 pct for the year (vs actual 2.8 pct). Meanwhile, Australia HIA New Home Sales (MoM) rose from previous -0.8% to 3.6% in November.
Trading Perspective: Markets will be focused on the pace of any further Fed tightening in 2019 as well as the FED’s assessment of the economy amid a trade conflict with China.
EURUSD commenced European trading day in positive mood and trading at the daily highs around 1.1370. US dollar weakness across the board helped the single currency to rebound from two week lows. Easing concerns regarding Italy’s budget crisis, as represented by the narrowing spread between the 10-year Italian government bond yield and its German counterpart could also put a bid under the EUR. Looking at the hourly chart, the pair reiterated the short term bullish outlook today breaking above the 200h moving average. EUR/USD will face a strong resistance at 1.14 a level that rejected the pair twice the last two weeks. On the flipside yesterday’s low at 1.1302 is the first support, and then 1.1265 previous week low will attract some buyers.
AUDUSD is trading in 30 pips narrow trading range, between 0.7170 – 0.7203 as the RBA minutes earlier failed to inspire any moves. The 100 day moving average at 0.7221 is the most important level for the pair, we are looking for a clear break above that level to enter a long position. Failure to break above the key daily moving average means that sellers remain in short -term control and it would require stronger conviction for buyers to hold a break above and justify shifting the bias in the pair to being more bullish instead.
GBPUSD is also building momentum about FOMC decision, Karen Jones, analyst at Commerzbank, comments: “While rallies remain capped by the 20 day ma at 1.2711 we will regard the market as vulnerable on the downside. Below 1.2477 targets the 78.6% retracement at 1.2109. Above the 20 day ma lies the 1.2840 current December high but while capped by the resistance line at 1.2933 it will remain offered. Only a rise above the July, September and October highs at 1.3258/1.3363 would put the June high at 1.3473 on the cards.”
Pressure on UK PM Theresa May continues to increase as Jeremy Corbyn of the UK labour party has now threatened to call for vote of ‘no confidence’ in her following her statement that MPs would not vote on her Brexit deal until the week of 14 January.”