bank of canada, Governor Wilkins, Liquidity

Brexit Concerns & Caution Ahead of ECB Meeting Influenced Mixed Price Action

bank of canadaEuropean market today saw dovish price action as investors took cautious tone owing to standstill scenario in Brexit and dovish expectations for ECB meeting tomorrow while strong USD influenced bearish action in forex markets.

Summary: Financial markets in Asia and Europe are seeing mixed activity today. Wall Street equities continued to trade with bearish bias for second consecutive trading session yesterday despite macro data in USA seeing better than expected outcome. Asian equities opened subdued on cues from US Wall Street and Japanese & Singapore market closed in red for the day. However, Chinese equities traded and closed on positive note over headlines influenced momentum. While Chinese parliament downgraded growth target for 2019 to lowest in over 30 years, stimulus plans announced to improve economic condition in China and hopes for positive resolution in trade talks between two nations inspired positive price rally in Chinese equity market. Meanwhile European market continued to most of major indices and stocks trade in red as lack of stable progress in Brexit with deadline nearing by weighed down investor sentiment. Further, expectations of further delay in ECB’s rate hike plans for 2019 also weighed down investor sentiment resulting in mixed price action in major European markets. In Forex markets, strong dollar and dovish investor sentiment has led to major global currency pair crossed against USD seeing range bound activity with dovish incline.

Precious Metals: Following two consecutive sessions of dovish price action in global equity market and today’s session seeing mixed activity, precious metals recovered from multi-week low. But there is still some level of risk appetite in broad market and US Dollar in which the precious metals are denominated remains strong in broad market and this limited gains and upside move of gold and silver in broad market.

AUD/USD: The AUDUSD pair today saw sharp fall in early Asian market session post which the pair has entered a consolidative price action near intra-day lows. Australian GDP data released earlier today saw worse than expected readings resulting in increased concerns of slowdown in economy. As China suffers from trade war with U.S., the slowdown has also seeped into Australian market owing to high level of connection between the two economies. The pair is expected to see further downside price move depending on US macro data outcome.

USD/JPY: The pair is trading range bound today as it failed to breach 112 handle once again during Pacific- Asian market hours. Given mixed price action of equity markets over last two trading sessions, there has been some level of demand for safe-haven currencies. While USD remains strong in broad market it has failed to make a breakout against JPY as lack of details on Sino-U.S. trade talks and dovish performance of Wall Street equities adds some level of bearish pressure on USD resulting in today’s range bound price action.

On The Lookout: During American market hours today, price action is expected to remain mixed in equity market again owing to lack of further updates on Sino-U.S. trade talks and no-details from past meetings haven’t hit market either. Positive US macro data doesn’t seem to have any visible effect on performance of Wall Street equities. On the release front tonight, US calendar sees release of ADP Non-Farm Employment data, Trade balance data and speech by FOMC members Mester and Williams while Canadian Calendar sees the release of Bank of Canada’s interest rate decision and Ivey PMI updates. Also during Pacific-Asian market hours, Australian calendar is scheduled to see release of retail sales data and these are expected to keep price action highly volatile during America-asian market hours ahead.

Brexit scenarioTrading Perspective: Mixed cues from Asian and European market hours are expected to influence risk averse trading activity resulting in range bound action in major US indices. Meanwhile, forex markets are likely to continue bearish decline owing to strong USD in broad market.

EUR/USD: The pair fell below 1.13 handle in early Asian market hours owing to concerns of lack of progress in brexit and caution ahead of tomorrow’s ECB meeting when forward guidance is expected to be announced and investors are expecting delay in rate hike plans for 2019. However, Euro gained some strength later in the day resulting in pair moving back above 1.13 handle and trading range bound as traders look to US ADP non-farm employment data for short term profit opportunities.

GBP/USD: Lack of progress in Brexit front with trade talks between EU-UK remaining at a standstill caused GBP to lose ground in the broad market. Despite Mark Carney hinting at possibility of rate hike earlier than expected depending on proceedings of Brexit talks, GBP has failed to gain momentum while strong USD in broad market continues to exert downside pressure on the pair. Depending on the outcome of tonight’s ADP NFP data the pair is likely drop below 1.30 handle where it is likely to trade range bound for rest of the day’s trading session.

USD/CAD: As crude oil price fell following API US crude oil data released earlier today, CAD lost the last bit bullish influence. This resulted in the pair taking on sharp upside move and hitting new 3-week tops. Investors now await EIA crude oil data and US ADP NFP data for directional cues ahead of which the pair is likely to trade range bound near intra-day highs. A build in EIA inventory data will lead to crude oil price falling further helping USD test 1.3400 handle during American market hours today.