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Global Markets Trade In Red over Renewed Trade War Fears

January 18, 2019 by Karthik Subramanian Leave a Comment Filed Under: Market News - US Open Tagged: Brexit, dovish comments, EURO, Event driven, forex pairs, global markets, Sino-U.S trade, Trade War Fears, USD, XAU/USD

Headlines hinting at no solid progress on key issues in recent Sino-U.S. trade talks and possible US tariff on EU auto market inspired dovish investor sentiment across all major global markets.

Summary: Global markets are on bear’s playground today as headlines inspired momentum is wrecking havoc in major equities and forex pairs in Asian and European markets. Major assets suffered dovish price action as Chinese economic outlook continues to hurt investor sentiment at start of the day. However headlines from European markets continue to remain as main driving force behind risk averse trading activity in all markets across the globe so far this week. At start of the week investors focus was on Brexit vote in UK parliament which was then followed by dovish comments from European Central Bank President Mario Draghi who warned European law makers that economic growth is slowdown. But main worry among investors now is ongoing trade war waged by US on multiple fronts, while headlines indicate that no solid progress was made on key issues during recent Sino-U.S. trade talks, news hit market that US President Trump is planning to impose tariff on European auto market to force open access to European agricultural market during trade talks and this has brought in fresh wave of risk averse investor sentiment in major global markets.

XAU/USD: Gold continues to see sustained demand despite slight boost in USD demand in broad market as renewed trade war fears in Asian and European market is seeing fund flow change direction from risky assets to safe haven yellow metal which is viewed as safe guard against inflationary move in broad market. Further activity is boosted in emerging markets who have taken opportunity to stock up on gold when exchange rate is low on weak USD which also underpins gold bulls in broad market.

AUD/USD: Risk averse trading action in broad market combine with renewed trade war fears in Asian market pressured Australian dollar to move on bear’s path. Further a pick up in US dollar value in broad market owing to risk asset sell off also underpinned bearish influence. However weaker USD despite slight demand owing to dovish Fed stance and partial shutdown in US government helped the pair limit downside move and rebound from intra-day lows.

USD/JPY: Broad based safe haven demand is growing due to headlines hinting at possible renewal of trade war between US – China & Europe and this is boosting demand for safe haven currency Japanese yen pulling the pair down from recent high’s at $110 level. While USD rebound owing to risk asset sell-off helped limit sharp downside move, political and Fed cues from US market which continue to limit dollar’s demand in broad market added positive influence to Yen bulls resulting in steady bearish price action.

On The Lookout: Now that Brexit proceedings have hit the wall, investors are focusing on trade war related headlines. US is expected to impose tariff on European auto market to force EU to open access to better agriculture market but how soon will the event occur is the question posed by traders. Also investors are focused on political proceedings in US markets as Democrats passed a bill to end government shutdown by Feb. 8 with concessions worth $14 billion to address natural disaster hit areas and back pay for 800000 workers who are suffering from loss of Job but President Trump is expected to reject it as he stands firm on his stance for funds to be allocated to build border wall despite recognizing that his attempt is causing severe loss to US economy. Tariff related headlines and UK’s cross party talks for further proceedings regarding Brexit will remain main focus of traders for rest of the week.

Trading Perspective: Event driven momentum is expected to keep market in bear’s playground for rest of the week.

EUR/USD: EURO continues to trade in range bound action as bulls lack fundamental strength to make upside breakout and trade positive. Dovish comments from ECB Draghi and weak macro data add to bearish influence on the pair. However weak USD owing to political woes from USA and dovish Fed limits downside move despite USD’s slight rebound on risk asset sell off. As traders are worries about possible US tariff’s on EU auto market and products, the pair is expected to continue range bound action with bearish bias in immediate and near future trading sessions.

GBP/USD: British Pound edged back near weekly highs as both Brexit vote in House of commons and No-confidence vote against PM May saw outcome in line with market expectations and had already been priced in by investors. This resulted in pair continuing to move range bound near recent high’s. Moving forward headlines relating to cross party talks to be initiated by PM May will drive momentum and preparation for no-deal brexit scenario will pull down GBP back to 1.26 handle while no clues relating to further proceedings will see pair close range bound for the week well above 1.28 handle.

USDCAD: Broad based risk averse trading in forex markets boosted demand for USD which was further underpinned by declining crude oil price which helped the pair climb to 1-1/2 week highs. Unexpected build in US inventory data despite forecast hinting at draw in stockpile hurt oil price and this has in turn affected price action of commodity linked currency Canadian Loonie in broad market. The pair is expected to see further positive price action today as USD bulls have upper hand in near future.

Dovish Fed Minutes, Trade Optimism, Shutdown Push Dollar Lower

January 10, 2019 by Michael Moran Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: AUD/USD, EUR-USD, EURO, FED, FOMC, S&P 500, USD/JPY

Summary: December FOMC Meeting minutes revealed dissension amongst members on the rate hike and reinforced the Fed’s cautious approach to further tightening. Trade optimism remained as China and the US extended talks for the third day in Beijing. The end-result was broad-based Dollar weakness. The Dollar Index (USD/DXY) slid to October lows, closing at 95.15 (95.914 yesterday). EUR/USD climbed 0.8% to 1.1550, the Kiwi was up 0.8% to 0.6798. The Dollar slipped against the Yen to 108.02 (108.67 yesterday). Germany’s trade surplus beat forecasts offsetting yesterday’s weak factory output. The Bank of Canada kept policy unchanged, leaving its overnight rate at 1.75%.
The US government shutdown entered Day 19 without resolution, further weighing on the Greenback as Sydney markets opened.
Wall Street stocks pared gains made earlier on the day, weighed by the partial government shutdown. The S&P 500 was up 0.6% at 2585 (2570).
Brent Crude Oil prices soared 4.5% boosted by OPEC cuts and optimistic trade talks.

EUR/USD – The Euro broke above 1.1500 on the dovish Fed meeting minutes and upbeat German trade data. EUR/USD climbed to 1.1557, hitting its strongest level since mid-October. The Single currency pared gains to close at 1.1551.
USD/JPY – slip-sliding away, this currency pair fell to 107.97 overnight lows, and closing at 108.02, down 0.7%. Japanese economic data releases come through today and tomorrow together with more Fedspeak.
AUD/USD – rallied to just under 72 cents on broad-based US Dollar weakness. The Aussie finished at 0.7177, up 0.2%. The Battler’s gains were limited by downbeat Australian Building Approvals which fell well below forecasts.

On the Lookout: The FOMC meeting minutes reiterated the Fed’s “patience” about further rate increases. While most members voted to raise interest rates in December there were a few dissensions. Fedspeak mostly echoed lowered expectations of rate increases in 2019.
Several more Federal Reserve officials speak later today. FOMC members James Bullard and Charles Evans speak at different events. The highlight will be Fed Chair Jerome Powell who addresses the Economic Club of Washington DC where audience questions are expected. Upbeat Sino-US trade talks in Beijing are expected to end today with a statement expected. Data releases today begin with China’s annual PPI and CPI for December, followed by Japanese Leading Economic Indicators and 30-Year JGB Bond Auction for Asia. Europe sees ECB Monetary Policy Meeting accounts followed by the US Fed speakers.

Trading Perspective: While the Dollar is clearly on the back-foot, the events and data releases could make for a rebound. Fed Chair Powell’s speech will be closely followed. While trade talks between China and the US remain optimistic, any disappointment will give the Greenback support, while weigh on stocks. Tomorrow sees the release of US Headline and Core CPI which will be crucial. Fed officials said that they could afford to be more “patient” about tightening rates due to “muted inflation pressures”.
US bond yields steadied further with the 10-year finishing 2 basis points higher at 2.74%. Germany’s 10-year Bond yield settled at 0.27% from 0.22%.

EUR/USD – The Single Currency hit a high of 1.1557 not seen since October 17 last year. The Euro backed off those highs and settles currently at 1.1543, suggesting that the immediate resistance at 1.1555/60 should hold. The ECB has it’s turn tonight when it releases its monetary policy meeting accounts. A bit of caution on the topside before getting too carried away. We see a likely trading range of 1.1485-1.1555 today.
USD/JPY – The Dollar slid to 107.97 earlier this morning before settling at 108.15 currently, suggesting immediate support just under 108.00. If we look back to May 2018, USD/JPY has been in a wider 108-113 range. And unless we see a lower US 10-year bond yield, its difficult to see that break. That said, the USD/JPY always tends to overshoot (as it did during the recent flash-crash). Japanese data releases today and tomorrow and further Fedspeak will determine the next big move for this currency pair. Immediate support lies at 107.90 and then 107.60. Immediate resistance can be found at 108.35. For today we see a likely range of 107.95-108.55.
AUD/USD – The Aussie traded to 0.71939, short of the immediate resistance at 0.72 cents. The Aussie lagged its Rivals against the generally weaker US Dollar. Base metal prices stabilised after their strong rally earlier this week. Trade talks between China and the US remain the big factor for the Battler. Chinese CPI and PPI data releases today will also impact the currency. The resistance on the AUD/USD pair lies between 0.7200/20 and that should cap any rallies for today with a likely range of 0.7150-0.7200.
S&P 500 – This Wall Street financial stock index rallied to a high of 2595 before paring gains to close with modest gains at 2589. Immediate resistance can be found at 2600 followed by 2630. Immediate support lies at 2560 and then 2520. The ongoing government shutdown will limit any further gains. The risk is down should optimism on trade fail to sustain.

Happy trading all.

Euro, Swiss Outperform, Aussie Extends Rise, Dollar Stumbles

January 8, 2019 by Michael Moran Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: AUD/USD, EUR-USD, EURO, Swiss Franc, USD/DXY, USD/JPY

Summary: The Euro and Swiss Franc outperformed against a generally weaker US Dollar in more stable markets. The Dollar Index (USD/DXY) stumbled to 95.67, October 2018 lows, as expectations grew that the Fed will slow its tightening pace. The Euro considered the most liquid of currencies, as well as the Dollar’s biggest Rival, responded as the yield gap between both continued to narrow. Global yields were stable with the US 10-year bond closing at 2.69%.
The Aussie, Kiwi and Loonie extended gains versus the Greenback on stronger commodity prices. USD/JPY finished with mild gains at 108.65 (108.50). EM currencies were modestly higher.
December US ISM Non-Manufacturing PMI slumped to 57.6 from 60.7 in November.
Markets were optimistic on trade talks between China and the US as they began in Beijing. Wall Street stocks lifted. The S&P 500 climbed 0.77%.

EUR/USD – The Single Currency soared against the Greenback as the yield differential between US and Euro-area continued to narrow. The Euro traded to an overnight high of 1.14826 against the Dollar, closing at 1.1477, up 0.74% (1.1397 yesterday).
AUD/USD – The Australian Dollar extended it’s rally against the Greenback, climbing 0.51% to finish at 0.7142 (0.7117 yesterday). Base metal prices were higher for the second day running.
USD/DXY – The Dollar Index dropped to October 2018 lows to close at 95.67 from 96.20 yesterday. Despite a much stronger-than-expected US Payrolls number on Friday, the Dollar Index gave back gains after Jerome Powell’s remarks suggested the Fed may pause its rate hike path. The break and close below 96.00 may be a signal for further weakening.

Barchart.Com Dollar Index (USD DXY) 6 Month Chart – 08 January 2019

On the Lookout – Trade talks continue in Beijing between the US and China. The upbeat outlook will be closely monitored in Asia today. The pattern lately has been a generally weaker Dollar on any improvement on the trade dispute between the two giants.
Today’s economic data sees Australian, Canadian and US Trade data, which will be significant in the current environment.
The partial shutdown of the US government drags on. The New York Times reported that President Trump will address the nation about the government shutdown.
Global bond yields stabilised yesterday. The benchmark US 10-year yield finished at 2.69% (2.67% yesterday). Germany’s 10-year Bond yield ended up 2 basis points to 0.22%. Australia’s 10-year bond yielded 2.27% from 2.23% yesterday. The yield differential between 10-year US and German has narrowed to 247 basis points from 265 bp in November. Further narrowing of this gap will see a higher Euro.

Trading Perspective: The Dollar faces a crucial test in the next few days with increasing chances of further downside breaks. The flash-crash in the USD/JPY last week may have been the catalyst. It’s not surprising that the Euro had its turn last night. A clean and sustained break above the 1.1500 level could see markets taking the Single currency further to 1.1800. This would bring the Dollar Index lower (EUR/USD carries almost 60% weight in the Index). USD/DXY traded to an overnight low of 95.638 with 95.50/60 now immediate and strong support.
The holiday-shortened week will delay the Commitment of Traders CFTC report on market positioning. This will continue to play a key role on where the currencies are headed next.
Emerging market currencies saw modest gains versus the Greenback. Any turnaround on these currencies will be USD supportive.

Royal MT4 EUR USD Daily Chart – 08 January 2019

EUR/USD – The Euro is poised to move higher should the gap between US and Euro-area yields continue to narrow. Immediate and strong resistance lies at the 1.1510/30 area. The Euro has held the 1.1240-1.1300 level well. The Single currency may be poised to move the range from 1.12-1.15 higher to 1.15-1.18 should we see a sustained break higher. Immediate support can be found at 1.1420 and then 1.1380.
AUD/USD – The Australian Dollar has recovered from the flash-crash in the AUD/JPY cross where the Battler was plummeted to a low of 0.6730. The Aussie then rallied hard and fast, recovering to just above 70 cents. Last night, AUD/USD traded to 0.71496 highs before closing at 0.7143. Copper and base metal prices extended their gains which supported the resource currencies. Chinese moves to address the weakening economy and upbeat trade talks further boosted the Battler. A lower US Dollar will see further gains in the currency. The Aussie is not out of the woods yet. Immediate support at 0.7110 and 0.7070 should hold. Immediate resistance can be found at 0.7150 and then 0.7180 with 0.7210 strong. Australia’s trade data are out later with a forecast surplus of +AUD 2.18 billion from November’s +AUD 2.32 billion. Australian Building Approvals and Retail Sales are also due out later in the week.
USD/DXY – The Dollar Index broke under 96.00 to close at 95.67, down 0.47%. Immediate support lies at 95.60 and a sustained break will lead to 95.20 and then 94.80. Immediate resistance can be found at 96.00 and then 96.30 followed by 96.60 (overnight high). The Dollar may be on the verge of further losses as waning expectations of US rate hikes build. The yield differentials between the US Dollar and its global peers will determine whether we can extend this corrective move further.

Happy trading all.

Global Markets Trade In Red over Renewed Trade War Fears

Dovish Fed Minutes, Trade Optimism, Shutdown Push Dollar Lower

Euro, Swiss Outperform, Aussie Extends Rise, Dollar Stumbles

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