Brexit Referendum

Brexit Hopes & Crude Oil Rebound On Sino-U.S. Trade Optimism Boosts Risk Appetite

Brexit ReferendumWhile equity markets continue risk averse trading activity, forex markets are trading with mixed outcome following conflicting Sino-U.S. talk related headlines which boosted risk appetite in broad market to some extent.

Summary: Global market has entered a phase of bearish price action owing to cues from geo-political and economic issues which have resulted in most major assets losing a significant portion of gains made earlier this month. Trade war waged by US with China & European markets play a major role in ongoing bearish rally but there are also other factors in play such as economic slowdown owing to internal political wars in major European nations and IMF’s growth forecast for economic activity in 2019 that support market bears. However, conflicting headlines relating to Sino-U.S. trade negotiations that hit market during American market hours is the main reason behind today’s bearish price action. Risk off trading activity is expected to continue across the day and probably for rest of the week as investor await further details on Sino-U.S. trade negotiation ahead of meeting between key representatives from both nations for high level talks in U.S.Alater this month.

Precious Metals: Gold and Silver have been experiencing steady demand across the week on prevalent risk averse trading activity in broad market. With each passing day seeing new headlines that further aggravate demand for safe haven assets and given the fact that US dollar is unable to gain upper hand owing to bearish influence from U.S.A, precious metals which are viewed as inflation proof assets are trading positive and are expected to continue bullish price action for rest of the month.

USD/JPY: US dollar regained upper hand against Japanese yen in Asian market hours today and is aiming to head towards monthly highs hit last week. Japanese Yen lost ground owing to disappointing Japanese export data which showed the biggest fall in over two years and a downward revision of BOJ‘s inflation projections during today’s Monetary Policy Statement which was released earlier in the day. However further gains are unlikely as partial shutdown in US government and dovish fed rate hike plans for 2019 continue to pressure US dollar bulls.

AUD/USD: Australian dollar which traded in red for last two days, caught some positive bids in Asian market hours on cues from wall street. US market saw conflicting headlines on Sino-U.S. trade negotiations last night which ended on positive note as Larry Kudlow, head of the National Economic Council claimed reports from earlier in the day on rejection of talk offers from China was false. Hopes of positive outcome in trade talks between the two nations underpinned demand for Chinese proxy – Australian dollar but broad based risk averse trading activity limited sharp upside move.

On The Lookout: Macro data updates eyes for short term profit opportunities while main focus continues to remain on  key events such as ECB MPC update, Brexit & Sino-U.S. trade talks. Given the fact that major part of bearish market influence came from European markets across the month, investors await tomorrow’s ECB press conference for forward guidance data. Any indication from members which align with dovish comments from ECB Draghi’s speech earlier this month will increase risk averse trading activity. Meanwhile investors are also on lookout for further headlines relating to Sino-U.S. trade talks as this is another factor that plays major role in global investor sentiment. In immediate future, investors await U.S. API weekly crude oil stock, Canadian Retail sales data for short term profit opportunities.

Trading Perspective: Risk averse trading activity in prevalent in equity markets, however forex markets show signs of mixed price action as risk appetite in market saw slight boost following comments of Larry kudlow on Sino-U.S. trade talks. Further given the fact that US dollar’s gains are capped owing to cues from US market, high risk forex pairs are likely to trade range bound with bullish bias.

EUR/USD: EURO continues bearish price action as bulls lack strength to sustain momentum above critical resistance level of 1.1363 handle. Further EURO is pressured by broad market risk averse investor sentiment and political tensions in Euro area. However downside is limited as US dollar also suffers bearish pressure owing to dovish fed stance and partial shutdown in US government. Investors now await ECB MPC for forward guidance update before placing major bets as ECB Draghi and IMF expressed concerns of economic slowdown in European markets. If ECB update shows dovish signs the pair will see sharp decline, while a relatively neutral update will see the pair get some breathing space following recent bearish price rally.

GBP/USD: British Pound hit a fresh 2 month high against US Dollar earlier today as momentum in pair is influenced by Brexit proceedings. The pair got bullish boost yesterday on upbeat UK employment data and breached mid 1.29 handle over weak US dollar in American market hours. Now that investors are pricing in possibility of second EU Referendum and no-deal scenario being taken off the table as Jeremy Corbyn seems to push for an amendment that will lead to either of these two situations during upcoming parliament vote, GBP breached 1.30 handle and hit two month high post which it is consolidating its gains. The pair is expected to continue positive price action across the night even if it falls from intra-day highs as USD lacks strength to create sharp decline.

USD/CAD: Canadian Loonie gained some positive price action following overnight headlines in US which saw conflicting reports on Sino-U.S. trade talks pushing US equities and dollar lower in broad market. Further Loonie bulls were supported by rebound in crude oil price action. Crude oil price received support on news that Chinese government would step up fiscal spending this year to support its economy which is interpreted in broad market as hopes for steady demand of crude oil in China, the biggest importer of crude oil. A positive price action in crude oil is positive for Loonie which helped it drag the price action back to 1.33 price region.