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Dollar Flat, Powell Faces a Divided Fed; Jackson Hole Speech Eyed

by Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: , , , , , , , , ,

Summary: It was a market where the Dollar Index (USD/DXY) closed little changed (98.207) ahead of today’s Jackson Hole, Wyoming central bank symposium. However, there was lots of movement in FX. The British Pound soared 1% against the Dollar to 1.2255 (1.2125), hitting one-month highs after German Chancellor Angela Merkel said a solution to the Irish border could be found ahead of the October 31 Brexit deadline. Against the beleaguered Euro, Sterling was up 1.08%. EUR/GBP plummeted to 0.9043 (0.9145). EUR/USD was modestly lower at 1.1080 (1.1087) despite better-than-expected rises in Euro area PMI’s. The Dollar dipped against the Yen to 106.42 (106.62). The Aussie fell 0.42% to 0.6760 (0.6780) while the Kiwi dropped 0.62% to 0.6370 (0.6403) after China’s offshore Yuan slumped 0.3% against the Greenback to 11-year lows (USD/CNH 7.0885 vs 7.0700). Asian currencies were all lower against the Dollar. Welcome to the good old world of FX!

FOREX FACTORY - US Manufacturing PMI - 23 Aug 2019

FOREX FACTORY – US Manufacturing PMI – 23 Aug 2019

US Bond yields rose while stocks ended with moderate gains. The US 10-year bond yield climbed to 1.61% (1.59%). The spread between the US 2-year and 10-year yield moved to flat after briefly hitting negative territory. The Dow climbed 0.17% to 26,225.
Fedspeak revealed a deep divide amongst US policymakers on interest rates. Amidst a worsening global economic outlook two Fed officials said they saw no need for easing at this time.
Australia’s Flash Composite PMI’s missed forecasts at 49.5 from 51.5. French, German and Eurozone Flash Manufacturing and Services PMI’s were all better than expected. US Flash Manufacturing PMI’s fell to 49.9 in August from 50.4 and a forecast of 50.9. US Flash Services PMI also underperformed. US Weekly Jobless Claims improved to 209,000 from 220,000.

  • GBP/USD – The British currency jumped after Angela Merkel lifted invertor’s hopes that a solution to the crucial Irish border could be found before the October 31 Brexit deadline. Sterling soared to 1.2273, one-month highs before settling at 1.2255 as spec shorts scrambled for cover.
  • EUR/USD – The Euro remained on the backfoot closing near at 1.1080 (1.1087) despite better-than-expected Euro area PMI data. Sentiment toward the shared currency remains bearish with the ECB expected to announce fresh stimulus measures in September.
  • AUD/USD – The Aussie dropped after the Chinese Yuan hit its weakest since March 2008. USD/CNH jumped 0.3% to 7.0885 (7.0700) while Asian currencies fell. AUD/USD retreated to 0.6760 at the close.

On the Lookout: All eyes on Jerome Powell due to deliver a keynote speech at the Jackson Hole symposium in Wyoming (12 midnight Sydney 23 August). Powell’s speech will be on the “Challenges of Monetary Policy”. He faces a divided Fed after two key policymakers said they saw no need for easing at this time. Kansas City Federal Reserve president Esther George (a noted hawk) said that the July rate cut was not needed, and that further stimulus measures are not needed. Patrick Harker, Philadelphia Federal Reserve Head said that there was no need for another rate reduction. Dallas Fed President Kaplan backed the July rate cut. Powell will want to be seen not bowing to repeated attacks from President Donald Trump for not easing policy further. Markets are expecting the US central bank head to clarify the July meeting minutes “mid-cycle adjustment” message and re-affirm an easing stance. The risk is that Powell downplays any rate cut chances.
The US 2-year against 10-year bond yield spread closed flat (1.61%).  A move to negative territory, the market’s most feared recession signal, will put pressure on the US Dollar.

Forex Factory - Jackson Hole, Wyoming Economic Policy Symposium Description - 23 AUG 2019

Forex Factory – Jackson Hole, Wyoming Economic Policy Symposium Description – 23 AUG 2019

Trading Perspective: It all boils down to Jackson Hole, the annual Wyoming symposium hosted by the Kansas City Fed which is attended by global central bankers, finance ministers and academics and financial market participants. In the past, Jackson Hole has moved FX and this year is no different. Be ready for a volatile ride in FX tonight.

LIVECHARTS.CO UK - GBP USD 1H Chart - 23 AUG 2019

LIVECHARTS.CO UK – GBP USD 1H Chart – 23 AUG 2019

  1. GBP/USD – Yesterday’s move in Sterling saw the impact of market positioning in FX. While Angela Merkel’s comments offered hope for a Brexit backstop solution, the reality is that the UK and EU remain far apart on the issue. French President Macron was sceptical after a meeting with Boris Johnson. For weeks, Sterling has been under pressure on fears that Johnson would take the UK out of the EU without a deal. Net speculative short GBP bets increased to multi-year highs according to the latest COT/CFTC report. GBP/USD jumped to an overnight high at 1.2273 from 1.2125 yesterday before settling at 1.2255. Immediate resistance lies at 1.2270-1.2300. Immediate support can be found at 1.2220 and 1.2180. From here it will depend much on where the US Dollar heads. Look for a volatile 1.2200-1.2300 range today.
  2. EUR/USD – The Euro slid to 3-week lows at 1.10636 before settling at 1.1080 in New York. The shared currency traded to an overnight high at 1.11132. The immediate resistance at 1.1120/30 is strong and would have to see a clean break to push the Euro higher. Immediate support at 1.1060 should hold, otherwise we will see EUR/USD test this year’s low at 1.1025. The next support level lies at 1.0980. Market sentiment is decidedly bearish, but the specs are short. Look to trade a likely range of 1.1060-1.1110 until Powell speaks at Jackson Hole.
  3. AUD/USD – Like the Euro, market sentiment is bearish on the Australian Battler. Net speculative Aussie shorts increased to -AUD 62,912 contracts, an increase of 13% from the previous week. Spec shorts are now at 83% of 2019’s biggest total. The Australian Dollar TWI is at lows now seen since 2008. All supportive factors. On the other hand, continuing weakness in the Chinese Yuan and Asian currencies will weigh on the Australian currency. The locals are decidedly bearish which makes this writer want to buy Aussie dips. An overly bearish domestic market has almost always been a reverse indicator. AUD/USD closed at 0.6760 from 0.6780 yesterday. Immediate support lies at 0.6750 (overnight low 0.67509). The next support level lies at 0.6730 and 0.6700. Immediate resistance can be found at 0.6790 (overnight high 0.67872) followed by 0.6810. Look to buy dips with today’s range likely 0.6750-0.6800.

Put those tin helmets on and get ready to rumble. Happy Friday and trading all.

DXY Advances to 2019 Highs, Global Stimulus Hopes Boost Risk

by Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: , , , , , , , ,

Summary: Optimism on stimulus hopes from Germany and China boosted risk which lifted the Dollar, treasury yields and stocks. The Bundesbank’s (German central bank) latest monthly report stated: “there is a risk the German economy could shrink again in the third quarter.” German Finance Minister Olaf Scholz reportedly said that Berlin could make available EUR 50 billion of extra spending in case of a slowdown. This saw EUR/USD retreat for the 5th day in a row to close at 1.1080, down 0.11%. Elsewhere, China is preparing to announce today details of their new Loan Prime Rate program (approx. 11.30 am Sydney time). Which replaces their fixed benchmark lending rate (updated every 20th of the month). Markets expect the fixed rate (4.35%) to be set lower. Risk appetite increased with the Dollar, treasury yields and stocks climbing. The Dollar Index (USD/DXY) rose 0.23% to 98.372, approaching 2019 highs. Haven darlings the Yen and Swiss Franc retreated. USD/JPY was up 0.29% to 106.62 (106.35) while USD/CHF advanced 0.49% to 0.9817 (0.9787). The Australian Dollar eased to 0.6765 (0.6775) ahead of today’s RBA August meeting minutes release.
Wall Street stocks rallied with the S&P 500 adding 1.05% to 2,922. (2,892). The benchmark US 10-year bond yield climbed 6 basis points to 1.61%. Germany’s 10-year Bund yield closed at -0.65% from -0.69% yesterday. Japan’s 10-year JGB yielded -0.24%, unchanged from yesterday.
New Zealand’s PPI Input and Output beat expectations. The Eurozone’s Final CPI (annual) slipped to 1.0% from the previous 1.1% and forecasts of 1.1%.

TRADING VIEW - DXY Chart - 20 August 2019

TRADING VIEW – DXY Chart – 20 August 2019

  • EUR/USD – slip-sliding away. The Euro retreated for the 5th day in a row to finish modestly lower at 1.1080 (1.1090 yesterday). The Bundesbank’s monthly report findings and comments by the German Finance Minister weighed on the shared currency. However, there was little movement ahead of next week Euro area PMI’s and Friday’s Jackson Hole summit.
  • USD/JPY – The Dollar rallied against the haven sought after Yen following the rise in US treasury yields. Risk-on stance by the markets on global stimulus hopes also buoyed USD/JPY. The latest COT/CFTC report saw little change to the overall speculative long USD positioning. Against the Yen (and Sterling), there are highlighted changes.
  • USD/DXY- while mainly a mirror of the Euro, the Dollar advanced against the Yen, Sterling and Swiss Franc. USD/DXY closed 0.23% higher to 98.372 from 98.203 yesterday. DXY was boosted by the climb in US bond yields and within striking distance of 2019 highs at 98.93.
  • AUD/USD – the Aussie stayed weak ahead of today’s RBA August meeting minutes release (11.30 am Sydney time). AUD/USD finished at 0.6765, down 0.18% from 0.6775. While RBA speak has been less dovish and economic data brighter, market sentiment toward the Battler is still bearish. The risk, according to this writer, could be for an Aussie short squeeze.

On the Lookout: The main event today is the RBA’s August monetary policy meeting minutes release. Economic data releases start off with the Swiss Trade Balance followed by German Producer Prices. The UK reports its CBI Industrial Order Expectations. Canada reports its Manufacturing Sales for August. New Zealand’s Global Dairy Prices are also released early tomorrow morning.
Traders will be focussed on China today with the new interest rate mechanism paving the way for lower borrowing costs to businesses.
On the trade front, tensions eased with the announcement that the US is granting Chinese tech giant Huawei a 90-day extension with which to buy components from US companies to supply their customers.

Saxo Bank - Bloomberg COT CFTC REPORT - 20 AUG 2019
The Jackson Hole Symposium for the world’s central banks which begins on Friday with a speech by US Fed Chair Jerome Powell is the week’s big event.

Trading Perspective: Amidst the plethora of news items, FX stayed well within established ranges. The Dollar Index extended its grind higher, this time against a broader range of currencies. The bounce back in US treasury yields have been a solid support for the Greenback, and we would need to see more yield support for a move higher.

The latest COT/CFTC report (week ended 13 August) saw total net speculative US Dollar long bets pretty much unchanged. Speculators increased their net long US Dollar bets against the Euro, Aussie and Canadian Dollar. Versus the British Pound, specs cut their short Sterling bets. The biggest move came against the Japanese Yen where speculative long JPY bets increased +JPY 25,000 lots, to their biggest total since November 2016.

  1. EUR/USD – The Euro remains under pressure with all the stimulus rhetoric coming out of Europe of late. EUR/USD grinded lower top close at 1.1080, trading to a low of 1.10762. Overnight high for the Euro was 1.11138. Lately, Euro area economic data has underperformed. On Thursday, crucial Euro area and Eurozone Manufacturing and Services PMI’s for August are due. Should the PMI’s be weaker than expected, the Euro will test recent lows of 1.1027. Immediate support lies at 1.1070 followed by 1.1040. Immediate resistance can be found at 1.1100 and 1.1120. The latest COT report saw speculative short Euro bets increase to -EUR 46,649 bets from the previous week’s -44,010 bets. Look to trade a likely range of 1.1060-10. Prefer to buy dips.
  2. AUD/USD – the bearish sentiment on the Aussie stayed intact with the US Dollar gaining strength on a broad base. While risk rallied, Emerging Market currencies ended lower against the Greenback. Higher US yields contrast with market expectations of lower Australian rates. Markets are still looking for a dovish bent from the RBA. AUD/USD closed at 0.6765. Immediate support on the day can be found at 0.6740 followed by 0.6710. Immediate resistance lies at 0.6800 and 0.6840. The latest COT/CFTC report saw speculative Aussie short bets increased to -AUD 62,912 bets (week ended 13 Aug) from last week’s -55,571. That’s a decent rise. Let’s not forget that the Aussie Dollar TWI is at multi-year lows. The risk is for a short squeeze soon. Today’s likely range will be 0.6745-0.6795. Prefer to buy dips.
DAILY FX - USD JPY Chart - 20 AUGUST 2019

DAILY FX – USD JPY Chart – 20 AUGUST 2019

  1. USD/JPY – The Dollar rose to finish at 106.62, up 0.29% on higher US yields and a more positive market risk profile. USD/JPY traded to an overnight high at 106.697. Immediate resistance lies at 106.70 followed by 107.00. Immediate support can be found at 106.30 (overnight low 106.244) and 106.00. The latest COT/CFTC report (week ended 13 August) saw speculative JPY long bets increase by a hefty +JPY 14,181 contracts to total +JPY 24,742 bets, the biggest net long JPY total since November 2016. Which isn’t surprising given current market sentiment. Look to trade a likely range today of 106.25-106.95. Prefer to buy dips.

Happy trading all.

Equities Positive on Central Bank Policy Stimulus Cues

by Leave a Comment Filed Under: Market News - US Open Tagged: , ,

Central Bank Policy StimulusCentral bank cues underpin market bulls while Trump’s comments on keeping trade deal un-signed until Hong Kong protests are resolved caps gains. 

Summary: Global stock market is seeing positive price action today on receding fears surrounding the possibility of economic recession and central bank stimulus cues. Following last week’s cues on fresh German government announcement of plans to ditch balanced budget to counter recession outcome, cues from Chinese central bank’s key interest rate reforms also added a positive influence to investor sentiment boosting risk appetite in the market.

Following positive opening and price momentum in major benchmark indices and key risk assets in the Asian market, European market took on cues from the Asian market and saw positive price action in risk assets. Further, gains in Deutsche bank shares also added strength to market bulls in European market hours helping key European benchmark indices to trade positive today. In forex markets, USD recovered strength and gains were capped in check, but prevalent risk appetite underpinned major currencies resulting in mixed activity among top forex pairs. 

Precious Metals: Precious metals are seeing dovish price action today. Both Gold and Silver traded with dovish bias as USD regained strength owing to a recovery in US T.Yields while the boost in broad-based risk appetite also added to decreasing demand for safe-haven assets. 

Crude Oil: Crude oil is trading positive in the global market today as economic outlook stabilized on central bank stimulus cues. Further, news of drone attack on Saudi Oil field also affected demand to supply ratio skewing price in favor of crude oil bulls. 

AUD/USD: The pair is trading with dovish bias today despite the rise in 10-yr Australian government bond yields. The dovish influence comes from Trump’s comments hinting at a delay in the trade deal and a rebound in USD weighing down AUD bulls, and it is likely to continue trading in red for the rest of the day. 

On The Lookout: In the immediate future, all eyes are focused on proceedings of Sino-U.S. trade negotiation related headlines. US President Donald Trump and white house officials downplayed recession worries in US market commenting impact of China-U.S. trade war hasn’t caused a major impact on US economy and that sales/consumption/demand still continue to rise, hinting at flourishing on positive business activity. While Trump also mentioned talks between US and China negotiators which could lead to meet in the USA later this month leading to an end in trade war, he said he is also not interested in signing a trade deal at the moment and wants Hong Kong protests to be resolved first as he believes it will help the US gain more benefits once a trade deal is signed.

Brexit seems to be heading towards hard Brexit outcome, but UK remains unprepared given the leak of operations Yellowhammer details and lack of fast response team to keep economy intact while the PM remains steadfast on the exit date. Today’s calendar is silent on release front during North American market hours. However, central bank stimulus cues and positive investor sentiment influenced cues from international market are likely to keep major assets in US market in bulls’ territory. 

Trading Perspective: As USD remains strong owing to a recovery in US T.Yields, risk appetite influenced positive support for major global currencies are offset by USD bulls. This suggests the status quo will remain unchanged in the forex market in American market hours. US Index and stock futures trading in the international market saw positive action ahead of Wall Street opening on news of Trump’s talks with Apple CEO Tim Cook over the impact of a trade war on the firm. Broad-based investor risk sentiment is also expected to keep market bulls sustained in north American market hours, suggesting bullish price action on Wall Street today. 

EUR/USD: The pair is trading positive in the global market despite mixed macro data outcome as positive equity market activity and German government decision to scrap balanced budget plan added strength to EURO bulls while USD’s rebound on recovery in US T.Yields kept gains in check. Traders now await fresh cues from US market for short term profit opportunities. 

GBPUSD: The pair is trading in red as British Pound is pressured from multiple fronts. Increasing odds of no-deal Brexit, lead of yellowhammer operation details are major factors weighing GBP bulls. However, USD’s rebound on recovery in US T.Yields also kept GBP under pressure. Traders now await fresh cues from US market for short term profit opportunities. 

USD/CAD: The pair opened with a dovish bias earlier in the day scaling multi-session lows near mid 1.32 handle as Crude oil grew strong on news of drone attack on Saudi Oil fields. However, the decline was offset by a recovery in USD owing to rise in US T.Yields which caused the pair to erase early losses and traded flat ahead of US market hours. Traders now await fresh cues from US market for short term profit opportunities. 

Please feel free to share your thoughts with us in the comments below. 

Euro Extends Drop, ECB Stimulus Bets Rise, Dollar Steadies

by Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: , , , , , ,

Summary: The Euro extended its drop for the 4th straight day to 1.1090 (1.1115) on rising bets of a bold stimulus package from the ECB in their next meet (September 12). On Thursday, ECB Governing Council Member Olli Rehn suggest that the Europe’s central bank could restart its QE program. Sterling rallied 0.4% to 1.2145 (1.2105) as growing opposition to PM Boris Johnson’s promise to take Britain out of the EU with or without a deal forced crowded shorts to cover. The Dollar Index (USD/DXY) steadied to 98.203 (98.096) after a jump in US Building Permits offset a fall in Housing Starts. On Sunday, White House Economic Adviser Larry Kudlow said that there is little risk of a recession despite a volatile week for bond markets. Treasury yields stabilised with the benchmark 10-year rate finishing up 2 basis points at 1.55%.
Wall Street stocks gained with risk appetite with the Dow finishing the week up 1.2% to 25,920. (25,600). The S&P 500 gained 1.4% to 2,892.
The Eurozone’s Trade Surplus narrowed to EUR 17.9 billion in July. US Building Permits rose to 1.34 million units from 1.23 million while Housing Starts dropped to 1.19 million from 1.25 million the previous month.

BLOOMBERG US TREASURY YIELD TABLE - 19 AUGUST 2019

BLOOMBERG US TREASURY YIELD TABLE – 19 AUGUST 2019

–          EUR/USD – slip-sliding away, the Euro extended its retreat to finish at 1.1090 from 1.1115. The shared currency fell for the fourth day in a row as market bets grow for an ECB stimulus move in their upcoming September policy meeting.

–          GBP/USD – Sterling rallied as crowded shorts ran for cover on growing opposition from political parties to Boris Johnson’s pledge to take Britain out of the European Union with or without a deal. The British Pound climbed against both the US Dollar (1.2145 from 1.2105) and Euro (0.9130 from 0.9183).

–          USD/JPY – The Dollar edged higher against the Japanese currency to 106.35 (106.05 Friday) as US treasury yields steadied. The 10-year US yield climbed 2 basis points to 1.55% while Japan’s 10-year yield was at -0.24% from -0.25% Friday.

–          AUD/USD – The Aussie finished little changed at 0.6775 (0.6778) after the risk of a September rate cut was lessened by RBA speak last week.

On the Lookout: Trade tensions will still drive the markets as we look to the week in front of us. Latest media releases saw President Trump accuse Chines tech giant Huawei as a national security threat. Trump also warned China of negative trade impacts should they use force on Hongkong protesters.
Today’s economic report releases are mostly second tier, but they will pick up starting tomorrow. The week’s big event is Friday’s annual Kansas City Fed’s Jackson Hole, Wyoming global central bank symposium where Jerome Powell is scheduled to open the gathering. Markets will be looking to Powell to gauge if US policy makers will add to July’s rate reductions.
New Zealand PPI input and output start today’s reports. Japan’s Trade Balance follows. The Eurozone’s Current Account Balance, Final Headline and Core CPI reports round up today’s data releases.

Trading Perspective: The latest Commitment of Traders/CFTC report saw speculative US Dollar longs trimmed further. Which gives more room for a Dollar rally, particularly against the Euro. We look at the breakdown of currencies in tomorrow’s report. The Dollar Index (USD/DXY), a mirror of the Euro, gained for 4 out of 5 trading days closing at 98.20. On Friday, China fixed its Yuan weaker against the Greenback which saw Emerging Market currencies mostly weaker. This is also mildly Dollar supportive.

1.       EUR/USD – The Euro traded to an overnight and eight-day low at 1.10663 before steadying to close at 1.1090. Immediate support can be found at 1.1060 and 1.1040. A break could see us down to 1.1025, July 31 lows. Immediate resistance can be found at 1.1110 and 1.1140. Tomorrow sees the release of Euro area Manufacturing and Services PMI data which could pile on more pressure on the single currency if they point to a Euro area recession. For today look for a likely trading range of 1.1070-1.1120. Can’t go wrong trading that range.

2.       GBP/USD – The British Pound extended its gains as shorts scrambled to cover when the currency didn’t rall any further. We reported last week that speculative GBP shorts rose to multi-year highs which is a danger sign to any further shorts. GBP/USD closed at 1.2145. Immediate resistance lies at 1.2175, overnight highs. The next resistance level can be found at 1.2210 and 1.2250. Immediate support can be found at 1.2110 followed by 1.2075. Look for a likely trading range today of 1.2120-1.2180, prefer to buy dips.

CNBC USD DXY (Dollar Index) 1 Y Chart - 19 AUGUST 2019

CNBC USD DXY (Dollar Index) 1 Y Chart – 19 AUGUST 2019

3.       USD/JPY – The Dollar has traded between 105 and 107 for the past three weeks and held both levels well. No reason to see any change in that for now. USD/JPY closed at 106.35 (106.05 Friday). Overnight high traded was 106.50, which is immediate resistance. The next resistance level can be found at 106.70 and then 107.00. Immediate support lies at 106.00 (1060.025 overnight low) and 105.85. Look to trade a likely range of 106.00-106.60 today. Just trade the range shag on this one today.

4.       AUD/USD – The Australian Dollar ended little changed at 0.6775 (0.6778 Friday). Overnight low traded was 0.670 which is today’s immediate support. The next support level lies at 0.6740. Immediate resistance can be found at 0.6800 (overnight high was 0.67951). The next resistance level is at 0.6820. The RBA’s latest meeting minutes are released tomorrow. There has been less negative rate cut chatter since after two policymakers (Kent and Lowe) poured cold water on the possibility. We reported last week that with the Australian Dollar TWI so low, there was less likelihood of that possibility. Like Sterling, Aussie net short speculative bets continue to grow. This supports the downside. Look to trade a likely range today of 0.6770-0.6820. Prefer to buy dips.

Have a good week ahead, happy trading all.

European Equities Positive, US Macro Data In Focus

by Leave a Comment Filed Under: Market News - US Open Tagged: , ,

European equities positive, US macro data in focus. Chinese stimulus update provides fresh bullish cues while US T.Yield inversion influenced recession woes and global economic slowdown concerns weigh down market bulls.

Summary: Asian markets saw major risk assets, bench market indices and key stocks trade in mixed momentum despite headlines hinting at further stimulus from central banks. Japan, Singapore and Australian stock markets saw dovish price action on global economic slowdown woes while Chinese indices and equities closed positive for second consecutive session. Chinese state planner has released an update hinting at plans to boost disposable income for 2019 and 2020 in hopes of encouraging consumption during times of slow economic activity. European markets on the other hand saw all major bench mark indices, stocks and F&O’s from all major European stock exchanges trade positive supported by boosted risk appetite and positive investor sentiment from Chinese stimulus updates and gains from chipmaker stocks. However, there was some investor concerns owing to delayed start of UK’s FTSE caused by some technical glitch. Forex market is seeing major global currencies trade positive on USD’s weakness but USD saw some level of strength on safe haven demand capping gains to some extent. 

Precious Metals: Precious metals are trading in red owing to profit booking activities and gains in equities which diverted fund flow from safe haven assets. However, price remains well near weekly highs as risk aversion among global investors still remains high keeping price well above critical levels.

Crude Oil: Crude oil is trading positive today after sharp declined influenced by Chinese threats and US inventory boost as recession fears ease. But gains remain capped as OPEC outlook for the year ahead took a dovish turn with comments suggesting demand may be low for rest of 2019. 

AUD/USD: The Australian Dollar is trading positive in the global forex market today as government bond yields rose underpinning AUD bulls. Boost in risk appetite from news of Chinese stimulus and USD weakness also supported Chinese proxy but gains remain capped below 0.68 handle across the day. 

On The Lookout: US Government bond yields continue to extend decline (Inversion) boosting fears of recession in USA. Meanwhile, prolonged Sino-U.S. trade war woes also affects risk appetite owing to concerns of impact on global economic activity while Chinese Stimulus update provides temporary relief. There are now new major developments in Brexit progress either keeping investors cautious preventing medium to long term bets while headlines and data driven volatility provides investors with plenty of short term profit opportunities. On the economic calendar, US market is set to see release of OPEC monthly report, building permits, housing starts and Preliminary Michigan Consumer – expectations, sentiment, current conditions and inflationary expectations while Canadian calendar is set to see the release of foreign securities purchase data. 

Trading Perspective: Forex market to see mixed activity as USD regained some strength over reassurances from US President Donald Trump on positive outcome in trade deal with China. However, USD gains are likely to be capped owing to steady decline in US T.Yield inversions. On the earnings calendar, there isn’t any release from major corporate firms that could influence a favourable momentum. However, improved risk appetite in international market, previous session gains in US indices and Nvidia/Walmart earnings helped US index and stock futures trading in the international market see positive price action. US Wall Street is expected to see some level of positive price action but as trading session heads to week’s close Wall Street is likely to see dovish closing for the week. 

EUR/USD: The pair is seeing dovish activity as EURO bulls lost support owing to decline in EU government bond yields. However, declines were limited owing to USD’s weakness in broad market over T.Yield inversion. Traders now await US macro data for short term profit opportunities as trading session comes to close for the week. 

GBP/USD: The British Pound continues to trade positive on lingering influence from previous session gains and USD’s weakness. However, gains remain capped below 1.22 handle as GBP bulls lack strength for breakout. For now the pair trades positive near mid-1.21 handle which if remains steady until end of the day the pair will break a 3 week long losing streak. Traders now await US macro data for short term profit opportunities as trading session comes to close for the week.

USD/CAD: The pair is trading in red today as USD’s weakness influenced by US T.Yield inversion combined with recovery in crude oil price weighed down USD. The commodity linked currency remains strong across Asian and European session. Traders now await US and Canadian macro data for short term profit opportunities as trading session comes to close for the week.

Please feel free to share your thoughts with us in the comments below. 

Equities Continue To Decline on Chinese Retaliatory Comments 

by Leave a Comment Filed Under: Market News - US Open Tagged: , ,

Retaliatory CommentsChinese retaliatory tariff threat comes as a fresh blow to market underpinning market bears fundamentally, US macro data in focus for short term directional cues. 

Summary: Global finance market is seeing bears dominate price action on geo-political cues influenced momentum. Latest headlines indicate China is threatening the US with counter-tariffs on US goods if the US government proceeds to impose additional tariffs on Chinese goods. This caused risk aversion to remain strong in the market. While the news influenced some level of declines, the market suffered a steep loss in the previous session, and declines were relatively capped in today’s trading session.

In Asian markets, aside from Chinese benchmark indices, all other major indices and equities suffered sharp declines in trading session today. European markets opened on subdued note over cues from China’s counter tariff threats which provided market bulls with yet another major blow. But bears have exhausted themselves, post the previous session declines, keeping the decline in check albeit key indices, stocks, and F&O’s trading in red today. In the forex market, USD weakness influenced rally offset risk-averse investor sentiment, causing major global currencies to trade positive. 

Precious Metals: Precious metals are continuing to trade with positive momentum today. However, profit booking activity post previous session’s gains had caused gold and silver to decline from the week highs albeit price remaining stable above critical levels underpinned by sentiment from US recession woes. 

Crude Oil: Crude oil price continues to trade with dovish bias in the global market. After several weeks, US weekly inventory data is showing contradictory results for the first time as EIA stockpile showed build while API stockpile showed draw in inventory. Meanwhile, recession woes hint at low demand for crude oil consumption offsetting supply-demand dynamics causing the price to remain dovish. 

USD/JPY: The pair is trading flat today as US Dollar has managed to ease the dovish pressure during Asian and early European session today. But US T.Yield inversion heading towards record lows keeps USD under pressure while safe-haven demand underpins JPY. A lack of strong bias on either side keeps pair trading range-bound ahead of US market hours. 

On The Lookout: Investors are now watching headlines for progress in geo-political events awaiting fresh updates for short-term profit opportunities while holding back from placing major bets owing to the highly volatile nature of the market. Tensions surrounding Sino-U.S. trade war is at all-time highs following China’s threats to US hinting at retaliatory tariffs on U.S. goods while there are also rumours in the market about Trump initiating a dialog with Xi Jinping while no concrete update on the progress of such an occurrence has been made public as of yet.

On the release front in late European/early North American market hours, traders await release of US core retail sales data, Philadelphia Fed Manufacturing Index data, Initial Jobless Claims, Non Farm Productivity data, Unit Labor Costs, and Industrial Production and Business inventories data from US calendar and ADP Non Farm Employment change from Canadian calendar. 

Trading Perspective: USD weakness driven price rally is going to keep major global currencies trading in red unless macro data outcome has major impact enough to offset USD’s weakness from US T.Yield curve inversion. On earnings calendar in US market hours, Wall Street is set to see a financial report from Nvidia and Wallmart. US stock and index futures trading in the international market is trading with dovish bias over Chinese threat on retaliatory tariffs hinting at dovish activity in US Wall Street later today. 

EUR/USD: The pair is trading positive in the global market today as EURO gained support from USD’s weakness, Italian market holiday and neutral macro data. The pair has managed to reverse previous sessions’ decline and is holding steady around mid-1.11 handle awaiting US macro data for fresh trading cues and short term profit opportunities. 

GBP/USD: The pair is trading positive in the global market today having managed to reverse most of the declines from the previous trading session. The pair is now trading slightly below mid-1.21 handle with GBP bulls further supported by positive retail sales data from UK and USD weakness while Brexit woes keep gains in check. Traders now await US macro data for fresh trading cues and short term profit opportunities. 

USD/CAD: The pair has declined from weekly tops scaled in the previous session but remains well above 1.33 handle. Crude oil’s weakness continues to pressure commodity-linked currency Loonie causing USD to trade positive despite weakness stemming from US T.Yields inversion keeping gains in check on recession fears. Traders now await US macro data for fresh trading cues and short term profit opportunities.

Please feel free to share your thoughts with us in the comments below. 

Treasury Yields Plunge on Geopolitical Tensions, FX Becalmed

by Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: , , , , , , ,

Summary: Geopolitical tensions arising from Hongkong protests and a primary election defeat of a pro-business President in Argentina boosted US treasuries. Hongkong authorities cancelled departure flights that were not checked in as protestors occupied the terminal. Argentinian voters scorned market-friendly President Mauricio Macri, handing the left-leaning opposition victory. Bond yields plunged in low volume trading. The US 10-year bond yield plunged 9 basis points to 1.65%. The Argentinian Peso sank 15%, weighing on Emerging Market currencies. Wall Street stocks sold off. Major FX was becalmed amidst the August lull, with many traders on holiday. The Dollar Index (USD/DXY) slipped 0.14% to 97.42, weighed by lower US bond yields. Japan’s Yen extended its rally against the Dollar to 105.05, it’s highest this year, settling at 105.28 at the close. The Euro rallied 0.2% to 1.1215, while Sterling gained 0.49% to 1.2075 (1.2025 yesterday). Continuing risk-off sentiment and weak Emerging Market currencies weighed on the Australian Dollar, down 0.47% to 0.6752 (0.67850). Gold prices increased by 0.99% to US$1,511.50, above the 1,500 USD level and highest this year. The DOW was down 1.43% to 25,900. (26,277. Yesterday).

BLOOMBERG MARKETS SPOT GOLD PRICE CHART - 13 August 2019

BLOOMBERG MARKETS SPOT GOLD PRICE CHART – 13 August 2019

  • USD/JPY – The Dollar slide to 105.05, fresh lows since earlier this year when the flash crash occurred. Risk-off sentiment continued to favour the haven-sought Yen. USD/JPY rallied off the lows to close at 105.28 in New York. Volumes were low as Tokyo enjoyed a holiday yesterday.
  • EUR/USD – The Euro shrugged off Italy’s political woes, climbing 0.2% against the Dollar to finish at 1.1215 from 1.1185 yesterday. Germany’s 10-year Bund yield fell one basis point to -0.59%, narrowing the rate gap with its US counterpart.
  • AUD/USD – Risk-off sentiment and weaker Emerging Market currencies continued to weigh on the Aussie Battler. The Australian Dollar fell 0.47% to 0.6752 from 0.6785 yesterday. In a speech this morning at a Finance and Treasury Breakfast in Sydney RBA Assistant Governor Christopher Kent (Financial Markets) said that the RBA is not targeting unemployment, suggesting that negative rates are not necessary.

On the Lookout: With Tokyo back into the fray today, volumes should pick up. However, the influence from the Northern Hemisphere August vacation period is still in play. Economic data releases pick up today and tomorrow. Traders will continue to monitor events in Hongkong.
Earlier this morning New Zealand’s Food Price Index climbed 1.1% in July from June’s fall of -0.7%.
Australia releases its NAB Business Confidence Index (July) with Japanese Tertiary Activity following.
The Euro area starts off with Germany’s Final CPI (July) and Wholesale Price Index and its ZEW Economic Sentiment Index. The UK’s Employment report for July comes next with Average Earnings Index (3m/year), Claimant Count Change, and Unemployment rate. US Headline and Core CPI data (July) round up the day’s reports.

Trading Perspective: The fall in US treasury rates have not been matched by its counterparts in terms of extent. Which narrows the differentials and weighs on the Greenback. The 10-year US bond yield plunged 9 basis points to 1.65%. In contrast, German, UK, Japanese and Australian 10-year rates were much unchanged. The US 30-year rate fell to 2.13%, the lowest of this year.

CNBC US 30-Year Bond Yield Chart - 13 AUGUST 2019

  1. USD/JPY – The Yen should continue to be sought after in the current environment. Lower US 10-year rates will keep USD/JPY pressurized. However, the 105.00 psychological level held last night. With Tokyo back from it’s holiday yesterday, we can expect more two-way trade with the 105.05 overnight and yearly low to hold. Japanese corporates will be buyers on dips. The next support level can be found at 104.70. Immediate resistance lies at 105.70 and 106.10. Look to buy dips with a likely range today of 105.10-105.90.
  2. EUR/USD – The Euro drifted higher as the Dollar weakened against most of the major currencies. The narrowing rate gap between German and US rates should keep the Euro supported. German’s ZEW Economic Sentiment is released today. Immediate support for the Euro lies at 1.1200 followed by 1.1180. Immediate resistance can be found at 1.1230 (overnight high was 1.12306). The next resistance level is found at 1.1260. Look to buy dips in a likely 1.1200-1.1260 range today.
DAILY FX - AUD USD CHART - 13 AUGUST 2019

DAILY FX – AUD USD CHART – 13 AUGUST 2019

  1. AUD/USD – The Australian Dollar climbed off its lows after RBA Assistant Governor Kent suggested that negative interest rates were not necessary when he said in a speech this morning that they are not targeting unemployment. AUD/USD moved up a mere 10 pips to 0.6760 from 0.6750 before settling at 0.6750. Risk-off sentiment continues to weigh on the Aussie Battler and will likely keep a lid on the topside. Immediate resistance can be found at 0.6785 and 0.6805. Immediate support lies at 0.6740 (overnight low 0.6745) followed by 0.6710. Kent, who heads the RBA’s Financial Markets division is aware that the Australian Dollar is near long term lows on a Trade Weighted basis. While the RBA have stated their preference for a weaker currency a few years ago, today is a different story. An Aussie Dollar which is too low is not ideal for the country either. Look to buy dips with a likely range today of 0.6740-0.6810.

Happy trading all.

Financial Stability Note: Central Bank note outlines the landscape for London and other EU financial centres post Brexit

by Leave a Comment Filed Under: Central Bank Annoucements, Central Bank News Tagged: , , ,

  • London likely to remain a very large global financial centre (GFC) even in adverse Brexit scenarios in Central Bank Note.
  • Impact of Brexit on London’s GFC could be very small due to the ‘premium’ London enjoys.
  • A less open, productive, and rich UK might influence London’s GFC and other financial centres in the EU, including Dublin.

The Central Bank has published a Financial Stability Note by Silvia Calò and Valerie Herzberg which examines the future of Global Financial Centres (GFC) after Brexit, from an EU perspective. The research presents a set of scenarios for the future of London and other financial centres in Europe after Brexit and finds the impact of fundamental factors on London could be very small. The potential dispersal of financial services to smaller centres like Dublin could have an impact on those centres.

One of the scenarios suggests that London will remain one of the major global centres irrespective of shock impacts. This takes into consideration data for the size of the country and city, trade openness, economic development, host city innovation, dominant currencies and legacy effects. However London’s status might be vulnerable to changes effected by new trading arrangements, disruption in global value chains, and institutional reshaping and associated uncertainty.

Finally, the analysis suggests that even if the City of London remains robust to adverse conditions, the impact of relocations on smaller centres like Dublin, Amsterdam or Luxembourg could be quite material.

The rapidly growing and changing nature of the Dublin financial centre, coupled with the visible fragmentation of finance in Europe raises questions about the evolution of financial stability risks. The Note concludes that the Central Bank of Ireland has already addressed some of these risks – for instance through a thorough authorisations process and by focusing resources on identifying and mitigating risks.

LSEG to Acquire Refinitiv for $27 Billion Ahead of Brexit

by Leave a Comment Filed Under: Industry News Tagged: , ,

billionTogether, LSEG and Refinitiv generated combined annual revenue of over £6 billion in 2018. The combined business would have been the largest listed global financial markets infrastructure provider by revenue last year. LSEG expects revenue synergies to surpass £225 million by the end of year five following the transaction.

London Stock Exchange Group has reached an agreement with Refinitiv’s shareholders, including Blackstone’s consortium and Thomson Reuters, to acquire the business in an all-share transaction for a total value of approximately US$27 billion.

Neill Vanlint, Head of Global Sales at GoldenSource, said: “One could speculate that the steady revenue stream the LSE will receive from acquiring Refinitiv could provide a nice Brexit buffer from any negative no-deal fallout. But regardless of the possible
drivers behind the acquisition, there is no doubt that the LSE now has far greater data firepower at its disposal. Once the dust settles on the deal, the big challenge will be coming up with a common model for the different data sets across both the exchange and the pure data business. Only with a standardised approach across the business can the LSE avoid fragmented business lines and ensure efficient distribution of data.”

The Transaction will result in the Refinitiv Shareholders ultimately holding an approximate 37 per cent economic interest in LSEG and less than 30 per cent of the total voting rights of LSEG.

LSEG and Refinitiv are found to be two highly complementary businesses which can become a leading global financial markets infrastructure provider with a data and analytics business, significant capital markets capabilities across multiple asset classes, and a broad post-trade offering.

Benefits for LSEG’s customers will include extending its trading capabilities across asset classes; expanding its data content, management and distribution capabilities; increasing its global
footprint and range of customer offerings; and enabling LSEG, Refinitiv and their customers to benefit from future data and technology-enabled innovation and growth opportunities.

The combined business targets a revenue compound annual growth rate of 5 to 7 per cent over the first three years following completion of the transaction. Recurring revenue should increase from approximately 40 per cent for LSEG standalone to around 70 per cent for the combined
business. LSEG will maintain its progressive dividend per share policy to its target range of 1.0-2.0x in the 24 to 30 months following the transaction.

The new business will be chaired by Don Robert, LSEG’s Chairman, and led by David Schwimmer as Chief Executive Officer, with David Warren as Chief Financial Officer. David Craig will join LSEG’s board and remain Refinitiv’s Chief Executive Officer.

Refinitiv Holdings and BCP York Holdings, a vehicle owned by the Blackstone Consortium, will hold an economic interest in LSEG equal to approximately 37 per cent and less than 30 per cent of the total voting rights of LSEG, following the deal.

The deal, classified as a Reverse Takeover, must first be approved by LSEG shareholders and the financial watchdogs in the UK, France, Italy, and the United States.

Don Robert, Chairman, LSEG, said: “This transaction is a defining moment for LSEG in terms of its
strategic importance. It will create substantial value for our shareholders and important benefits for our customers, employees and other stakeholders. The Board and I look forward to welcoming
Blackstone and Thomson Reuters as supportive, long-term shareholders as we work together to realise the compelling benefits of this transaction.”

David Schwimmer, CEO, LSEG, commented: “With the acquisition of Refinitiv, we will transform our position as a leading global Financial Markets Infrastructure group. Refinitiv brings highly complementary capabilities in data and capital markets, as well as deep customer relationships across a truly global business. We share a commitment to open access and partnering with our
customers to deliver innovative solutions across the financial markets value chain. Our shareholders and customers will benefit from attractive top-line growth prospects, substantial cost and revenue synergies, as well as ongoing efficiency initiatives, and this transaction will ensure we are well-positioned for future growth in an evolving landscape.”

Martin Brand, Senior Managing Director at Blackstone, said: “Refinitiv has been an outstanding performer for Blackstone and our partners Thomson Reuters, CPPIB, and GIC. We believe the combination announced today creates a strongly positioned leader in financial markets infrastructure, and we are excited about the continued prospects of Blackstone’s investment as a long-term partner of LSEG.”

David Craig, CEO of Refinitiv, said:

“LSEG’s business is highly complementary to Refinitiv’s leading global data platform, transaction, and distribution network. Our aim is to capture the opportunity of data which we believe is driving unprecedented change in the global financial community. The combined business will allow us to better serve customers across all regions. Our two companies both have strong heritages, a shared approach to open access and partnership, and we are excited to work with the LSEG team to create a leading financial markets infrastructure group and to continue to invest in our business.”

Bank Rate maintained at 0.75% – August 2019

by Leave a Comment Filed Under: Central Bank Annoucements, Central Bank News Tagged: , , , , , ,

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 31 July 2019, the MPC voted unanimously to maintain Bank Rate at 0.75%.

The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.

Since May, global trade tensions have intensified and global activity has remained soft. This has led to a substantial decline in advanced economies’ forward interest rates and a material loosening in financial conditions, including in the United Kingdom. An increase in the perceived likelihood of a no-deal Brexit has further lowered UK interest rates and led to a marked depreciation of the sterling exchange rate.

Brexit-related developments, such as stockbuilding ahead of previous deadlines, are making UK data volatile. After growing by 0.5% in 2019 Q1, GDP is expected to have been flat in Q2, slightly weaker than anticipated in May. Looking through recent volatility, underlying growth appears to have slowed since 2018 to a rate below potential, reflecting both the impact of intensifying Brexit-related uncertainties on business investment and weaker global growth on net trade.  Evidence from companies, up to the middle of July, suggests that uncertainty over the United Kingdom’s future trading relationship with the European Union has become more entrenched. The labour market remains tight. Annual pay growth has been relatively strong.  Consumer spending has remained resilient. CPI inflation was 2.0% in June and core CPI inflation was 1.8%.

The Committee’s updated projections are set out in the accompanying August Inflation Report. They continue to assume a smooth adjustment to the average of a range of possible outcomes for the United Kingdom’s eventual trading relationship with the European Union. In the central projection, conditioned on prevailing asset prices, underlying output growth is subdued in the near term, reflecting more entrenched Brexit uncertainties. This means that a margin of excess supply persists over the first year of the projection. Thereafter, GDP is projected to accelerate to robust growth rates, reflecting a gradual recovery in global growth and firming UK domestic demand growth, driven in large part by a recovery in investment growth as uncertainties dissipate in line with the Brexit conditioning assumption. The acceleration in GDP results in a significant build-up of excess demand, to around 1¾% of potential GDP by the end of the forecast period. After falling in the near term, CPI inflation is projected to rise above the 2% target, as building excess demand leads to firmer domestic inflationary pressures. Conditioned on prevailing asset prices, CPI inflation reaches 2.4% by the end of the three-year forecast period.

These projections are affected by an inconsistency between the smooth Brexit conditioning assumption underpinning the forecast and the prevailing market asset prices on which the forecasts are also conditioned. These asset prices reflect market participants’ perceptions of the likelihood and consequences of a no-deal Brexit.  If, as assumed, Brexit proceeds smoothly to some form of deal, market interest rates would likely rise and the sterling exchange rate would likely appreciate. A more consistent forecast would therefore have somewhat lower paths for GDP growth and CPI inflation.

Increased uncertainty about the nature of EU withdrawal means that the economy could follow a wide range of paths over coming years. The appropriate path of monetary policy will depend on the balance of the effects of Brexit on demand, supply and the exchange rate. The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction. In all circumstances, the Committee will set monetary policy appropriately to achieve the 2% inflation target.

The MPC judges at this meeting that the existing stance of monetary policy is appropriate.

Assuming a smooth Brexit and some recovery in global growth, a significant margin of excess demand is likely to build in the medium term. Were that to occur, the Committee judges that increases in interest rates, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target.

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