Disappointing Chinese macro data influenced global equity and forex markets on dovish price action which is expected to continue until tomorrow’s Brexit vote is concluded.
Summary: Asian market today opened on positive note following a week that saw significant boost in risk on trading environment over positive headlines on Sino-U.S. trade talk progress. However the positive action soon lost momentum and risk appetite died down in market following release of disappointing Chinese trade data. Import and export data in China saw biggest drop in two years for readings on monthly basis. This caused investors to turn cautious owing to significant impact it had on both Chinese and global economies as another trade war between the two parties could drag down global economies even future and no details regarding the recent talks has hit headlines despite comments from last week hinting at progress. This combined with tomorrow’s key even – UK Parliament’s vote on Prime Minister Theresa May’s Brexit plan which has great impact on Euro area business growth and economic activity has caused investors to book profit on recent gains and takes cautious stance which greatly limits any major change in market price action. This has now caused all risk assets in Asian and European markets and major forex pairs to trade in red.
XAU/USD: Today’s risk averse trading activity in forex and equity markets following disappointing trade data from China has boosted demand for gold as a safe haven asset. As investors cautiously await further details on Sino-U.S. trade talks and tomorrow’s key Brexit vote, demand is high in physical and online markets for gold owing to safe haven demand and cheaper exchange rate which makes it a good time for traders from emerging markets to participate in gold trading. Gold which was already trading positive last week despite risk on trading activity is expected continue seeing gains this week as safe haven demand remains relatively high in immediate and near future.
AUD/USD: Australian Dollar opened dovish for the week resuming its bearish price action from Friday’s close owing to profit booking activity which had erased most of the gains made earlier that day. This dovish influence on AUD was further aggravated post disappointing trade data in China owing to close trade ties between them and bearish cues from Chinese market dragged the currency to fresh intra-day lows of 0.7172 but weak US dollar in broad market helped AUD recover significantly from early losses and by mid European market hours was trading at 0.719. The pair is now expected to move range bound owing to lack of solid breakout trigger on either side of the pair.
USD/JPY: Following high level of bearish price action in various major markets across globe and a relatively weak USD on dovish Fed comments and partial shutdown in US government, risk off trading activity has been high since Thursday and this has provided some level of support to JPY which is considered a safe haven forex pair. The bearish sentiment in broad market spiked today following weak Chinese macro data which inspired fresh wave of caution among investors. This combined with tomorrow’s Brexit vote has resulted in wave of demand for safe haven assets today and this helped JPY gain significant ground against USD and the pair is currently trading at $108.01 down by 0.48% on the day as of writing this article.
On The Lookout: Investors are now on lookout for Brexit Vote in UK parliament which is key event of the week. While the outcome forecast is negative, Brexit uncertainties for once have boosted Pound as traders hope possible extension in article 50. Traders are also on lookout for no-confidence vote on PM May and these two will have major impact on Euro area political and economic proceedings in near future which makes them center of investors focus. Investors also wait retail sales and inflation data from UK and US markets later this week which will provide plenty of short term opportunities for traders.
Trading Perspective: Given risk averse trading activity in broad market US dollar is expected to gain across the board despite short to medium term outlook remaining dovish for Greenback. However any major move is highly unlikely ahead of tomorrow’s Brexit vote.
EUR/USD: Euro dropped sharply during Asian market hours following dovish cues from China. This decline was further aggravated owing to disappointing Industrial Production data for Euro area. The ongoing trade war is taking its toll on all major markets but Euro is also suffering from internal political conflicts which are adding pressure to single currency. And one such key political event UK parliament vote on Brexit deal will take place tomorrow which has caused the pair to decline heavily. But downside is prevented thanks to broad based USD weakness. The pair will continue range bound action ahead of tomorrow’s Brexit headlines owing to lack of solid breakout trigger on either side of the pair
GBP/USD: For once, uncertainty surrounding Brexit has favored British pound as headlines hint at possible extension of Brexit deadline. This has caused GBP to gain significantly despite broad based risk averse trading activity. While Pound could lose some ground if the vote doesn’t turn out in favor of Brexit deal, PM May is highly likely to win no-confidence vote against her which should provide GBP bulls to maintain some level of gains across majority of the week. For now the pair trades at 1.2876 up by 0.26% on the day, but a negative outcome tomorrow could force the pair back near mid 1.27 handle.
USD/CAD: Canadian Dollar continues to lose its ground against US Greenback as profit booking activity and risk averse trading in broad market is boosting Dollar to certain extent. Further disappointing Chinese macro data added pressure to crude oil price in broad market which enjoyed some gains last week on positive Sino-U.S. trade talk related headlines. Being a commodity linked currency, a decline in crude oil weighs on Canadian Loonie and as Oil will continue to lose price while risk averse trading boosts USD in immediate and near future trading session US Greenback is likely to move back above 1.33 handle by in next 24 hours.