Global equity market traded in red as concerns of a Sino-U.S. trade war, a no-deal Brexit, a slowdown in Euro area economic activity and the possibility of another shutdown of U.S. government weighed down investor sentiment.
Summary: Equity and Forex instruments across the globe fell into bear’s territory on increased risk-averse trading activity. While market saw increased trading activity as most major Asian markets resumed business post-holiday celebrations, investor sentiment tanked as more investors grew wary of geopolitical events. Following the U.S. President Trump’s state of union speech, tensions peaked in the market over concerns on the outcome of Sino-U.S. trade talks and the possibility of another government shutdown in the U.S. Bearish pressure further increased in late Asian/early European market hours as investors took a cautious stance while waiting for updates on talks between E.U. officials and the UK Prime Minister Theresa May which will give a better picture on the direction in which Brexit is going to move ahead. Weak German macro data and European commission’s reduction of Italy’s growth forecast also weighed down investor sentiment, resulting in sharp declines of major assets in both equity and forex market space.
XAUUSD: Gold is seen trading positive in European market hours despite a sharp decline during Pacific-Asian market hours. Gold traded in global market is denominated with US Greenback. Strong US Dollar normally discourages participation from investors across the globe owing to a higher exchange rate. However, given a steady string of bearish headlines which hit the market, safe-haven demand limited Gold’s decline well above $1300 handle. Further increased risk-averse trading in European market helped Gold erase early losses and trade positive.
USDJPY: Strong US Greenback in the broad market caused the pair to test $110 handle early in the day. However, given the risk-averse trading activity in the broad market and cautious investor sentiment, safe-haven assets began to see increased demand, and this helped the Japanese yen – a popular safe-haven currency – erase early gains and gain the upper hand during European market hours. The pair is trading at $109.83 as of writing this article, and given cautious investor sentiment in the market, it is highly likely to fall below $109.70 handle before the trading session closes for the day.
AUDUSD: Following its sharp decline during yesterday’s market hours on comments from RBA Governor Lowe who hinted at the possibility of rate cuts, the pair is trading in a range-bound pattern. The pair hit two-week lows earlier in the day having declined below 0.7100 handle as disappointing NAB quarterly business survey data further added to bearish pressure on Australian Dollar. The pair now needs to recover above 0.7130 handle for AUD bulls to regain control over price action.
On the Lookout: Most high impact macro data outcome which investors were keen on has already hit the market. Moving forward, investors main focus is on UK PM May’s visit to the EU for negotiating chances to the Irish Backstop agreement in current Brexit deal. The EU stands firm on its stance that backstop agreement will not be removed, but PM May hopes to negotiate some level of changes to the agreement made in November 2018 in hopes of getting the deal approved in parliament or leave without any trade deal as previously announced, on March 29, 2019. On the release front, the day ahead will see the release of Initial Jobless Claims data from the U.S. followed shortly by a speech from FOMC member Clarida.
Trading Perspective: While risk-averse trading sentiment remains high in the market amid worries of another government shutdown in America, USD has managed to retain its strength supported by rebound in bond yields and aims to reach further heights in the forex market. Equity markets are expected to see sideways action over cautious investors amid political woes.
EURUSD: The pair continued to extend decline through European market hours as risk-averse trading added to US dollar’s strength in the broad market and dovish closing today will make it the sixth consecutive session of gains for Greenback. EU’s reduction of Italy’s growth forecast and disappointing Euro area macro data are major factors that led to concerns of an economic slowdown in the EZ area resulting in sharp declines. At the current rate of decline, EURUSD pair is likely to fall test 1.1300 by today’s American market hours, and fall below said level before the trading session closes for the week.
GBPUSD: Brexit remains the main driving force for British Pound and US Dollar has managed to gain the upper hand recently. Despite investors caution and reluctance to place major bets as they wait for updates from PM May’s visit to E.U. GBP saw a sharp decline as the BOE left interest rate unchanged but projected lower growth and inflation forecasts in Quarterly Inflation Report increasing bearish pressure on GBP resulting in pair falling below mid 1.28 handle. Moving forward, If headlines hinted at Brexit proceeding heading towards no-deal scenario, the pair is likely to suffer further declines as low as 1.2800 handle.
USD/CAD: The pair saw steady upward price action on strong US Greenback in the broad market. Dollar bulls are supported by risk-averse sentiment in the broad market and dovish price action in Crude oil market. However, gains were capped near mid 1.32 handle as Crude oil price managed to recover from intra-day lows as focus shifts back to supply disruption and glut scenario in the market. News that U.S. sanctions on Venezuelan Crude oil is having an impact on the price of crude oil added some strength to Loonie bulls curbing US Dollar’s positive price rally.