Given recent mixed price activity in equity market, investor sentiment had taken a dovish tone and caution ahead of today’s ECB interest rate update led to further risk averse trading activity resulting in forex and equities being painted in red.
Summary: Global market is seeing mixed price action for fourth consecutive trading session this week with bias favoring bearish price action in general in both equity and forex assets. While headlines at start of the week hinted influenced a positive investor sentiment, updates and reports started taking on dovish tone in all key markets and this renewed concerns of slowdown in global growth and economic activities. While weekend headlines suggested that China and USA are close to signing a trade deal towards the end of the month when both presidents meet face to face, no further headlines pertaining to progress on trade talks between two nations hit the market. This caused the impact from headlines to wane slowly, meanwhile disappointing macro data from China and reduction of Chinese economic growth target for 2019 to 30-year lows added bearish sentiment in market. Wall Street had gotten Fed up with lack of solid details and news reports just beating around bush repeating same headlines that both nations were close to signing a deal resulting in dovish equities despite strong macro economic data. Positive macro data boosted US T.Yields supporting USD bulls and this has kept price action range bound in forex market. Caution ahead of today’s ECB meeting further limited activity in global market today resulting in mixed price action with high level of bearish bias dominating market across the week.
Precious Metals: While US Dollar remains strong in broad market supported by positive performance in US bond market, dovish global equity and forex market performance gave precious metals much needed break from corrective rally yesterday. Further, as precious metals price hit multi-week lows in spot and futures markets, risk averse trading sentiment in today’s market gave precious metal bulls a nudge resulting in range bound action with positive bias ahead of ECB interest rate decision update and press conference.
DAX: A lack of progress in Brexit talks with deadline approaching closer and dovish cues from US & Asian markets were already adding significant dovish pressure into German equity market from start of the week. Investors and analysts expected ECB to delay rate hike plans for 2019 and announce timeframe for TLTRO debut and this has caused investor sentiment to turn cautious resulting in dovish price action in DAX index.
USD/JPY: The pair has been moving in a consolidative tone since yesterday’s trading session. The pair hit new 2019 highs earlier this week post which it has been in consolidative price action slightly lower to yearly highs. Further, risk averse trading activity in global market has resulted in Japanese Yen seeing some level of demand resulting in both sides currently fighting for control over price momentum ahead of tomorrow’s US Non-farm payroll data update.
On The Lookout: As week approaches close, investors continue to focus on key macro data updates owing to lack of any major geo-political events and relevant headlines. For the day ahead, main focus of investors is on European Central Bank’s interest rate decision and monetary policy committee’s forward guidance. Investors are expecting ECB to delay rate hike plans for 2019 and comment of plans for initiating TLTRO despite having ended its previous quantitative easing just last December. Such an outcome is viewed as dovish proceedings and will lead to dovish price action in European markets during rest of trading session the week ahead. In US and Pacific-Asian market hours, investors focus is on Q4 Non-farm productivity and unit labor costs, Initial Jobless claims data from US and Japan’s Q4 GDP update. The macro data updates are expected to keep price action highly volatile but market is likely to continue trading range bound awaiting US NFP data for directional bias.
Trading Perspective: As investors await US non-farm payroll and employment data scheduled to release tomorrow, and market is currently seeing high level of risk averse trading activity, macro data updates from American market hours are expected to provide short term profit opportunity but keep price action mostly range bound.
EUR/USD: The EURUSD pair is trading range bound ahead of ECB interest rate update. Strong US dollar in the broad market continues to pressure EURO but caution ahead of today’s ECB update has resulted in subdued price action. While dovish expectations had already been priced in by most investors, there is still chance for sharp decline depending on the outcome of ECB press conference today.
GBP/USD: While British Pound traded positive early in the day in hopes for some headlines relating to Brexit, lack of progress in Brexit front continued to weigh down GBP resulting in pair losing edge obtained from last night rebound. The pair fell in European session as Dollar remains strong in broad market but pair could see further sharp decline depending on outcome of US macro data scheduled to release during late European-early American market hours.
USD/CAD: Following 9-week high hit last night, the pair entered consolidative price action in Asian market hours. As the crude oil price gained in broad market today CAD bulls found some support and resulted in slight decline during European market hours but depending on the outcome of US macro data scheduled to release today the pair could erase all early loss and close on positive note for the day.