Mark Carney

Equities Mixed But Forex Pairs Trade Positive, Positive Macro Data Underpins Risk Appetite

The global market is seeing mixed price action in the equity market, but forex assets trade positive as risk appetite improved on positive Chinese and US macro data updates.

Summary: Equity markets today opened on a positive note in the Asian market, supported by positive influence from upbeat US GDP data and positive Chinese industrial sector data. However, lingering concerns of global economic slowdown put a dent on positive price momentum resulting in Asian markets seeing a divided close in major stock exchanges. European equity markets are also seeing dovish price action with benchmark indices and equities from all key markets and major European exchanges trading in red. However, the fundamental scenario in European markets seems to be seeing some level of improvement as Spanish PM Pedro Sanchez managed to narrowly win the elections while S&P global affirmed Italy’s sovereign credit rating which improved performance of Italian bonds in the global market. While the US Dollar had been rallying on fears of global economic slowdown, healthy demand for major global currencies and positive fundamentals in Asian and European markets underpinned investor’s risk appetite resulting in major forex pairs trading positive in the global market.

Precious Metals: Both gold and silver are trading range bound with slight dovish bias across Asian and European markets today. Positive price action in forex markets and positive macro data updates from US & Asia are viewed as strong fundamentals supporting investors risk appetite. This resulted in subdued demand for precious metals which are considered safe-haven assets resulting in range bound activity.

Trump reaches out to OPEC members

Crude Oil: Crude oil price traded lower in Asian market hours on news of Trump reaching out to OPEC member nations to boost crude oil output. However, crude oil price rebound on news that European refineries stopped importing Russian crude having found them to be contaminated and fresh un-contaminated supply from Russia is unlikely for the majority of the week. Also, lack of announcement from OPEC’s over-duration of supply cut suggests Trump’s attempt is unlikely to bear fruit in the near future underpinning crude oil bulls in the broad market.

Emerging Market FX: Emerging market currencies from Asia saw positive price action in the forex market today as the US GDP update saw a better than expected outcome on Friday. Positive macro data outcome from China and US helped to underpin risk appetite in the global forex market which when combined with subdued US Dollar helped Asian currencies such as Korean Won, That Bhat, Malaysian Ringgit, Taiwan Dollar and Philippine Peso trade positive.

On The Lookout: Tensions remain high in the market despite positive influence stemming from the US and Chinese macro data updates as the holiday season in major markets the week ahead is expected to affect trade volume and price volatility in major global market. The Japanese market is closed across the week while the Chinese market is expected to be closed in the latter half, and major European markets are likely to be closed on Labor Day. This leaves little space for geopolitical events to have actual influence on price action unless the update has a significant impact. The price activity across the week is likely to be influenced by major macro data updates and central bank forward guidance updates. On the release front today, the European calendar is silent aside from speech by Bank of England’s governor Mark Carney. The US calendar will see the release of PCE deflator, Core PCE price index and personal spending data while later in the Pacific-Asian market hours, Chinese calendar will release the Manufacturing and Non-manufacturing PMI updates.

Trading Perspective: Prevalent risk on investor sentiment and positive fundamentals are likely to influence positive price action in US Wall Street today. The outcome of earnings update from Alphabet inc., Google’s parent company will dictate the directional flow of price action later in the day.

EUR/USD: The common currency gained some positive momentum in early trading session today as Spanish PM Pedro Sanchez’s narrow victory in election, S&P global’s credit rating update of Italy helped improve EURO’s strength in the broad market while USD’s weakness also added strength to rally. However, the pair declined from intra-day highs and entered consolidative price action ahead of US macro data update for short-term trading and directional cues.

GBP/USD: Despite slight positive price action in early Asian market hours, the pair resumed declines as Brexit woes continues to pressure British Pound into dovish price path. Aside from Brexit woes, strong resistance near 1.30 handle and lack of Pound bull’s strength to hold a steady positive price rally ahead of this week’s key events also added dovish pressure to the British Pound. Investors now await US macro data updates for short-term trading and directional cues.

USD/CAD: Despite prevalent weakness surrounding USD in the global market, the pair which opened flat near previous session lows saw steady upward price action across the day. While dovish crude oil price initially supported USD, a rebound in crude oil price later in the day helped CAD gain some strength resulting in the pair seeing consolidative price action near intra-day highs awaiting US macro data updates for further trading cues.