Following Powell’s comments last night on unresolved geo-political issues and their impact on US economy, global market saw renewed concerns of economic slowdown in major economy. Investors now await update from EU leaders summit for Brexit deadline extension which will provide short – medium term directional bias.
Summary: Asian & European equity markets are seeing contrasting price action once again. US Wall Street last night saw major indices decline sharply on more dovish than expected Fed forward guidance. Powell’s comments suggested that there will be no rate hikes for the year ahead. While Asian market saw equities trade positive, near the end of Asian session investor sentiment took a turn for worse as risk appetite was overshadowed by concerns of global economic growth. Fed Chair Jerome Powell had downgraded economic growth, inflation and unemployment forecast stating mixed signals from US macro data owing to impact of ongoing Sino-U.S. trade talks & Brexit uncertainties on US economy as reason. Investor sentiment in European markets was further weighed down as aside from concerns of economic slowdown, caution ahead of Bank of England’s forward guidance and EU leaders summit outcome which is likely to seal fate of Brexit deadline extension came into play. Meanwhile, forex market is also seeing range bound price action despite weak USD as caution ahead of key events caused investors to hold back from placing major bets.
Precious metals: Precious metals are trading positive in both Asian and European market hours today. The positive price action is underpinned by weak USD as well as increased safe haven demand in broad market. Following comments of Fed Chair Powell, there have been increased concerns on global economic slowdown. Further investors also await outcome of EU summit which will decide Brexit deadline extension requested by UK. These factors gold hit 3-week high and maintain steady hold above $1300 handle.
Crude Oil: Crude oil price gained positive momentum in spot market today. The price hit new 2019 highs and moved above $60 per barrel for first time in 4 months/18 weeks as US weekly crude oil stockpile data posted the biggest decline in stockpile since July 2018. Also healthy supply to demand ration influenced by OPEC enforced production & supply cuts and US sanctions on Venezuelan & Iranian crude oil added fundamental support to Crude oil bulls facilitating today’s positive price action.
DAX: DAX index continued to decline for second consecutive trading session today. German market continued to suffer dovish price action today on lingering influence from yesterday’s court ruling against Bayer Pharmaceuticals. Also caution ahead of EU leaders summit outcome which will help gain some clarity in ongoing Brexit uncertainties added to bearish pressure resulting in German equities seeing dovish price action and DAX index moving down by more than 0.70% on the day.
On The Lookout: The main focus of investors today is now on EU leaders summit as the update will provide some directional bias for Brexit. Earlier today, the much anticipated BOE interest rate decision saw monetary policy committee keep interest rate unchanged but and displayed an overall neutral projection. While the MPC’s speech displayed their concerns on Brexit development stating that Brexit uncertainties are affecting their rate hike plans, the comments suggested that rate hike plans will just be delayed to latter half of year and not cancelled in case of increasing Brexit woes. Investors now await updates on outcome of EU leaders’ summit for their decision regarding UK’s request for article 50 deadline extension. Headlines hinting at EU’s decision will be first bit of clarity gained in ongoing Brexit mess. Aside from events in European market hours, investors are also on lookout for outcome of Philadelphia Fed manufacturing index and inflation data from Japan & Australia for short term profit opportunities.
Trading Perspective: Investor sentiment in global market is laced with caution and dovish sentiment as Powell’s comments last night renewed worries on global economic slowdown and lack of progress in key geo-political issues. Mixed cues from international market is also likely to weigh down price action in Wall Street tonight along with concerns of reduced economic forecast for USA.
EUR/USD: The pair saw steady downside decline on US market hours as EURO lacks fundamental support to maintain rally. EURO bulls were weighed down by concerns of global economic slowdown and lack of resolution in Sino-U.S. trade deal. Further, investors caution ahead of updates from EU leaders’ summit on their decision for article 50 deadline extension also weighed the common currency resulting in decline below 1.1400 handle. Investors now await updates from EU leaders’ summit and US macro data updates for short term profit opportunities and directional bias.
GBP/USD: The pair saw dovish price action early in the day pressured by Brexit woes. However, news of PM May’s visit to EU to request leaders to provide a deadline extension and Bank of England’s decision to keep plans for rate hike late this year regardless of prolonged Brexit uncertainties helped improve investor sentiment surrounding British Pound. This resulted in the pair staging recovery rally while awaiting updates on EU leaders decision regarding UK’s request to extend Brexit deadline which will provide directional bias for the pair’s short to medium term price action.
USD/CAD: The pair traded positive for majority of the day despite US dollar’s decline early last night on dovish Fed update. CAD was initially unable to establish a rally against USD despite the US Greenback declining in broad market but hike in crude oil spot price above $60 handle helped CAD bulls find strength to cap USD’s gains resulting in corrective price action ahead of US market hours.