Risk off Sentiment following another round of bearish Chinese macro data amid ongoing geo-political issues influenced major FX and equity markets to take on bearish price action.
Summary: Equity markets opened for 2019 on positive note in Asian hours and US futures traded on positive note as well over cues from headlines on Sino-U.S. trade negotiations hinting at positive progress boosted investor sentiment. However liquidity remained thin as owing to New year celebrations till yesterday and Japanese holiday which combined with weak Chinese macro data resulted in US futures and Asian indices taking a sharp bearish dive erasing all gains made in early half of today’s Asian market hours. Cues from Asian market combined with cautious investor stance over ongoing crisis in European markets caused European indices to trade bearish as well. European macro data came in line with expectations but failed to have any visible impact on price action of European equities. This bearish sentiment is also visible in Forex markets as major currencies are hurt over ongoing geo-political issues but downside remains limited as Greenback is also hurt over partial shutdown in US government greatly boosting performance of safe haven assets today.
Emerging Markets Asian FX: Most Asian currencies fell on Wednesday, shrugging off broad U.S. dollar weakness as gloomy factory surveys added to worries about cooling regional and global growth. Factory activity weakened across much of Europe and Asia in December as the U.S.-led trade war and a slowdown in demand hit production in many economies, offering little reason for optimism as the New Year begins. Leading declines in the region, the Indonesia rupiah lost over 0.70% followed by Korean Won and Thai Baht which dropped by 0.30% in Asian hours, but Korean won & Indian rupee managed to contain early loss and trade with neutral/ positive tone in late European market hours.
USD/JPY: Japanese yen rose against the dollar during today’s market hours despite Japanese markets being closed for the day as safe haven demand remain high owing to geo-political and economic issues which continue to escalate with each passing day. The renewed buying bias around the Japanese currency is now dragging USD/JPY to fresh multi-month lows in the vicinity of 108.70, levels last seen in May 2018 as the pair trades bearish for fifth consecutive session against the backdrop of declining US T.Yields and Partial US government shutdown.
AUD/USD: The AUD/USD pair has managed to reverse its early fall to near three-year lows and is currently placed in neutral territory, around the 0.7040 region. The pair met with some fresh supply on the first trading day of the year and dropped to test the key 0.7000 psychological mark for the first time since February 2016 following the disappointing release of Chinese manufacturing data. However, expectations of a dovish Fed in 2019, coupled with partial US government shutdown kept the US Dollar bulls on the defensive and helped limit further downside helping pair rebound over 40-pips from session lows.
On The Lookout: Moving ahead with trading session for rest of the week, investors are focused on US markets which will offer many high impact headlines in days to come. US President Donald Trump has invited Republican and Democratic congressional leaders to a border security briefing scheduled to occur later today which is some progress when partial government shutdown is taken into account. Meanwhile new Congress is expected to come into power tomorrow following announcement of mid-term election results conducted late last year. Investors are also focused on Fed Chair Jerome Powell’s speech scheduled to occur on Friday with previous fed chairs which could provide hints on Fed’s perspective of ongoing economic issues in US & International market.
Trading Perspective: Moving ahead both forex and equities are expected to trade dovish as investors continue to exercise caution ahead of President Trump’s boarder wall related multi party briefing.
EUR/USD: The global trade war has taken a bite out of European and German exports, and this in turn has put a damper on the manufacturing sectors. While the reading was in line with expectations of general market it is still viewed as sign of economic slowdown in Euro area. Much of key political & economic issues remain unresolved resulting in highly dovish sentiment for EUR/USD. The pair erased gains from Asian session and is trading downtrend with bearish bias clearly visible in late European market hours. Risk averse trading activity will continue in American market hours as well which suggests bearish trend will remain intact for the pair for rest of today’s market hours.
GBP/USD: Cable holds in red in European market hours today despite positive manufacturing PMI data which suggests ongoing political woes amid brexit uncertainty is greatly hurting broad based sentiment surrounding GBP. British Pound which traded with significant bullish bias above 1.27 handle lost all its gains and moved well near to mid-1.26 handle in European market hours on risk averse trading activity but broad based USD weakness helped limit sharp downside move. Investors continue to exercise caution over US political woes which suggests both side of pair experiencing high bearish pressure. This is expected to influence the pair into range bound price action with bearish bias during American market hours.
USD/CAD: USD/CAD greets the new trading year for 2019 with a fresh round of risk-off trading, sending investors back-pedaling into the US Dollar and sending the Dollar-Loonie pairing back into recent highs as unresolved bearish issues from 2018 carried forward with their influence on price action into 2019’s trading session. Crude markets remain fully deflated, and the Loonie finds itself without a solid floor to stand on as the CAD struggles to maintain balance against the steady-marching Greenback. US economic data is thin for Wednesday, but broad-market sentiment is seeing pickup in the USD almost entirely across the board supporting possibility of bullish price action for the pair in US market hours.