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Sterling Firms Ahead of Parliamentary Vote, Risks Remain

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Summary: Sterling firmed ahead of a crucial Parliamentary vote where any number of scenarios could see extreme volatility in the British currency. PM Theresa May urged British lawmakers to give her deal another look. Recent polls showed that odds of a rejection remained likely. A failure to approve her Brexit plan could result in the UK staying in the European Union. While this is negative for risk, the British Pound rallied as traders covered their short positions already built in. Other possible outcomes include an approval of May’s plan by MP’s, a NO-DEAL or HARD-DEAL outcome, or a no-confidence vote in May’s government. Markets are bracing themselves for further volatile trade in the currency.

FX Street - Chinese Import Chart for December 2018 - 15 January 2019

FX Street – Chinese Import Chart for December 2018 – 15 January 2019

The Dollar ended with mild losses after Chinese December trade data revealed a slump in both imports and exports. Net Imports slumped to -7.6% against a previous rise of +3.0% while Exports fell -4.4% versus a previous 5.4%.
Meantime the partial US government shutdown entered its 24th day. Wall Street stocks were mostly lower.

  • GBP/USD – The British currency climbed to 1.29306, 2-month highs before settling to finish at 1.2870, up 0.25% from yesterday. Sterling firmed following May’s warning that a rejection of her Brexit plan could lead to the UK remaining in the European Union. Short-covering and a generally weaker US Dollar also supported the Pound.
  • AUD/USD – The Aussie Battler slipped following the fall in Chinese trade and renewed worries about global economic growth. AUD/USD finished the NY session at 0.7198 (0.7215 yesterday). The Antipodean currency had rallied to 0.7235, one-month highs on Monday.
  • USD/JPY – the Japanese currency benefited from a rise in risk aversion following China’s weak export and import data. USD/JPY fell to an overnight low of 107.987 before rallying to close at 108.22, down 0.16% (108.54 yesterday).
  • USD/CNH – the US Dollar steadied against the offshore Chinese Yuan, finishing at 6.7625 (6.7600 yesterday). The weak Chinese trade data is expected to spur the Chinese government to announce new stimulus measures.

On the Lookout – The UK Parliamentary vote on Brexit is the big event, the conclusion of which will come in early Sydney tomorrow. Whatever the results are, we can expect further volatility in the Pound. Other events and data today include New Zealand NZIER Business Confidence Index which was -3.0 previously. Japanese Preliminary Machine Tool Orders round up data in Asia. Euro-Zone December trade data precede US Headline and Core Producer Prices (December) as well as US Empire State Manufacturing Index data.
ECB President Mario Draghi speaks to the European Parliament on the ECB’s 2017 Annual Report.

Trading Perspective: The Dollar finished little-changed following the Chinese trade slump. Traders will look to the US Producer Price Index data which are the first set of major data from America this week. The Dollar Index (USD/DXY) sits just above short-term support at 95.50. While short term sentiment on the Greenback has turned negative, we can expect Dollar support to emerge at current levels. US bond yields steadied with the 10-year climbing 1 basis point to 2.71%. The US 2-year yield rose 4 basis points to 2.54%. Other global yields were mostly flat.

DX Empire - GBP USD 1M Chart - 15 January 2019

DX Empire – GBP USD 1M Chart – 15 January 2019

  1. GBP/USD – Markets are anticipating a few scenarios for the crucial vote. Majority of market expectations are for Members of Parliament to reject PM May’s Brexit plan which would have limited impact on the Pound as it’s almost fully priced-in by traders. If Parliament were to approve May’s plan, expect GBP/USD to soar in choppy trade. Immediate resistance at 1.30 should easily give way to 1.33 and possibly 1.3600. The speculative market is still short of Sterling. EUR/GBP would slump to 0.8700/0.8500. A defeat by a narrow margin (less than 50 votes) would see the Pound settle, before grinding higher. If May’s plan were rejected by over 100 votes, Sterling could fall back to 1.28 first up, possibly testing the 1.25/1.26000 levels. We could see EUR/GBP jump through .90, up to 0.9200. A NO-DEAL Brexit could mean “SAYONARA” for Sterling, resulting in a test and break of 1.2000.
  2. USD/JPY – the Dollar grinded lower against the Yen given the weaker market risk profile. USD/JPY failed in the attempt to trade higher than 109.00 late last week following the flash-crash to 104.65. With the US 10-year yield steadying around 2.70%, expect USD/JPY to find support at 107.80 and 107.50. Immediate resistance lies at 108.60 and 109.00. Look for a likely trading range of 107.85-107.55 today.
  3. AUD/USD – The Aussie topped out at 0.7235 for now. Weaker Chinese exports and imports weighed on currency which slid 0.22%. The Australian Dollar has immediate support at 0.7175 which should be a base for today. Immediate resistance now lies at 0.7215 and 0.7235. Expect a likely trading range today of 0.7175-0.7225.
  4. EUR/USD – The Euro ended little-changed at 1.1470 (1.1465 yesterday). Yesterday Euro-Zone Industrial Production showed a drop to -1.7%, much lower than forecasts of 0.3% in December. German Wholesale Prices also missed forecasts. EUR/USD traded to 1.1482 highs overnight before settling a touch lower. The Euro looks likely to stay within a 1.1400-1.1500 range until we see further US or Euro-area data. A negative outcome for Brexit and Sterling cannot be positive for the Single Currency.

Happy trading all.

Euro Falls, Yuan, Aussie Climb, Dollar Ekes Out Gains, Tone Weak

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

Summary: The Dollar Index (USD/DXY) ended with mild gains as the Euro slipped to 1.1465 (1.1502) after failing to break topside technical resistance. US consumer prices fell for the first time since April, and below the Fed’s target, supporting its cautious stance on hiking rates this year. The US Dollar fell further against the Offshore Chinese Yuan (USD/CNH) to 6.7590, fresh July lows. Extended trade talks between the US and China in Beijing remained upbeat, further lifting the Yuan. AUD/USD rallied to 0.7235, its highest in over a month before settling at 0.7215, up 0.35%.

  • EUR/USD – The Euro’s rally reversed as the technical failure to break recent highs of 1.1570 saw traders adjust their positions into the weekend. EUR/USD fell back into its recent well-worn range of 1.14-1.15, finishing at 1.1465, down 0.37%.
  • AUD/USD – The Aussie lifted to 0.7235, December 13 highs before slipping to close at 0.7215. December Australian Retail Sales beat forecasts. Industrial metals were higher led by Copper. The outlook for trade talks between China and the US, extended in Beijing remained upbeat.

Daily FX.COM – USD CNH Chart – 14 January 2019

  • USD/CNH – The Greenback fell against the Offshore Chinese Yuan to 6.7590, late July lows. After trading to a high of 6.98 in October, USD/CNH has steadily eased. Upbeat sentiment on China-US trade talks as well as China’s reassurance of further fiscal boosts to the slowing economy aided the Yuan’s climb. Most Asian currencies saw modest gains.

On the Lookout: On Friday, trading turned quiet, slowing toward the close dominated by technical factors after a busy and volatile week. Early Sydney and Asia will see a slow start until the release of China’s Trade Balance for December later today. China’s trade surplus is forecast to gain to CNY 345 billion from November’s CNY 306 billion (USD 51.6 billion from USD 44.7 billion). Markets will focus on the breakdown of Imports and Exports. December Exports are expected to fall to 3% from 5.4% with Imports rising to 5% from 3%. China-US trade data will also be scrutinised.
Australia releases its Consumer Inflation Expectations for January (11 am Sydney) compiled by the University of Melbourne which measures consumer expectations of future inflation during the next 12 months. The Euro-Zone’s Industrial Production numbers for December rounds up today’s data.
The week ahead sees US Headline and Core PPI, Retail Sales, UK and Eurozone CPI data releases. The UK Parliamentary vote on Brexit is on Tuesday (Jan 15) the week’s major event.

Trading Perspective: The Dollar Index (USD/DXY) managed to claw back 0.13% to 95.664 (95.515 Friday). Most of those gains came courtesy of a lower EUR/USD, which carries 57.6% weight on the Index. The overall tone for the Greenback remains soft with a more dovish outlook on interest rates from the Fed. The Euro’s failure to break recent highs (1.1570) saw it slide back into its recent range.
US bond yields slipped back with the benchmark 10-Year ending at 2.70%, while two-year yield was down to 2.50% from 2.56% Friday. Yields of global peers also fell but not to the extent of their US counterparts. This should keep the US Dollar topside limited.

  1. EUR/USD – The technical failure to break recent highs saw selling of the Single currency to immediate supports at 1.1465. Euro-area data continue to remain soggy and the outlook has not improved. The ECB’s December Meeting Minutes Accounts saw Euro-Zone growth forecasts for 2019 cut, fuelling the market’s growing fears of a global economic slowdown. While this should translate into a lower currency, what is keeping the Euro supported is the weak tone and outlook for the US Dollar. German 10-year Bund yields fell 2 basis points to 0.23%. The US 10-year yield fell 3 basis points. Yield differentials have narrowed, and this will continue to be a supportive factor for the Single currency. Immediate support can be found at 1.1450 followed by 1.1420. Immediate resistance lies at 1.1480 and 1.1520. Look for the Euro to form a base for a more sustained rally ahead.

Bloomberg GBP USD 6 M Chart – 14 January 2019

  1. GBP/USD – The British Pound closed higher versus the US Dollar despite Brexit uncertainty. Sterling has benefitted from the overall weaker Greenback. The gap between UK and US bond yields have also narrowed in favour of the Pound, narrowing in 4 months to 147 basis points from 163 BP. On Friday UK December GDP beat forecasts. Speculative market positioning has remained short of Sterling. However, the outlook for Brexit remains bleak with tomorrow’s UK Parliamentary vote expected to veto PM Theresa May’s plan. We can expect more volatility ahead for the British currency. Immediate resistance can be found at 1.2870 and then 1.2920. The 1.3000 psychological level should cap gains. Immediate support lies at 1.2800, followed by 1.2730.
  2. USD/CNH – While the Chinese Currency is not always focussed on, it does have its influence on the Major currencies on occasion. The focus on China’s trade war with America now scrutinises much more of economic data, policies and currency moves. At the end of the day, the Dollar remains as king of the major currency moves. The latest Fed outlook on interest rates turned the Greenback around with its direction looking further south. The Chinese currency slowly gained with China much more focussed and intentional in addressing its economic slowdown. The USD/CNH was headed toward 3.00 4 months ago, and now it’s looking like 6.60-6.70 is a possibility. While optimism remains on current China-US trade talks, we are still a long way from resolution. Traders will keep their focus on the USD/CNH trade with immediate support at 6.7200 and 6.7000 within reach. Immediate resistance lies at 6.78 and 6.81.

Have a good week ahead all, happy trading.

Dollar Finds a Bid, Powell Says Fed to Keep Reducing Balance Sheet,

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

Summary: Fed Chair Jerome Powell said that the Fed intends to further shrink the balance sheet, implying that the Fed is not yet done with hiking interest rates. At the same time Powell reiterated that the US central bank can be “patient” on monetary policy. We reckon that Powell could have taken the Moody Blues 1969 tune “Watching and Waiting” from his playlist.
The Dollar found a bid and hit its highs against the Euro, Swiss Franc and Yen. US Unemployment Claims fell in the first week of January to 216,000, a 4-week low. The Dollar Index (USD/DXY) rallied 0.4% to 95.515 (95.22 yesterday). Wall Street stocks rallied. The US S&P 500 gained 0.5% to 2594.
Meantime, the US Dollar fell to August lows against the Offshore Chinese Yuan (USD/CNH) to 6.7900 (6.81 yesterday). China vowed to buy more US goods as the Sino-US trade talks formally ended.

  • EUR/USD – The Euro slipped back to 1.1498 after testing October 17 highs of 1.1570. The Single currency has had a good run-up since last Friday where it closed at 1.1390. The ECB meeting minutes accounts provided no surprises. The Governing Council said they expect key interest rates to remain at present levels. Look for the Euro to consolidate.
  • USD/JPY – climbed off it’s lows at 107.769 to finish at 108.45, up 0.25%. The yield on the benchmark US 10-year note was steady at 2.73%. Japan’s 10-year JGB yield fell one basis point to 0.01%.

Trading View USD CNH 6 M Chart – 11 January 2019

  • USD/CNH – Despite lower than forecast Chinese CPI and PPI, the Chinese Yuan rallied to August highs against the Greenback. The US-China trade talks in Beijing concluded on an optimistic note. China vowed to buy more US goods. However, the major divisive trade issues are yet to be resolved.

On the Lookout: Fed Chair Jerome Powell’s measured speech put a bid on the Dollar and calmed markets down. Powell also said that US underlying economic data did not point to an economic slowdown and there was no risk of a recession. He also expressed his concern about current US debt levels.
Economic data releases today start with Australia’s AIG Construction Index and December Retail Sales while New Zealand reports on Building Consents. Japan releases December Household Spending, Current Account and Trade data as well as its Economic Watchers Sentiment Index. The UK releases December GDP, Manufacturing and Industrial Production, and Trade Balance. Finally, the US reports on its Headline and Core CPI for December.

Trading Perspective: Expect the Dollar to consolidate its gains after dropping following last week’s robust US Jobs report and the FOMC meeting minutes. The US inflation numbers are the highlight of the week and will impact the Greenback.

  1. EUR/USD – The Single Currency has moved it’s range up a notch, boosted by a more neutral Federal Reserve. The gap between US and German 10-year yields have narrowed since October from 275 basis points to 248 currently. This should limit the EUR/USD downside with immediate support coming in at 1.1480 and 1.1450. Immediate resistance can be found at 1.1540 followed by 1.1570.
  2. USD/JPY – After last week’s flash crash, the Dollar found support against the Haven Yen. Trade talks between China and the US were considered constructive. The world’s second largest economy vowed to purchase more goods from the US. The deeper more divisive issues are yet to be resolved. But for now, the USD/JPY is attempting to form a base. Immediate support lies at 107.70 followed by 107.40. The resistance at 108.50 should cap on the day with 109.00 strong resistance next.

Bloomberg AUD USD 6M Chart – 11 January 2019

  1. AUD/USD – The Aussie finished with modest gains to 0.7185 after trading to 0.71975 overnight highs. The 0.7200/20 resistance level remains formidable. Immediate support can be found at 0.7150 followed by 0.7120. The Aussie has not fully recovered from its fall following last week’s flash crash. China’s PPI and CPI data yesterday were much softer than forecast. Look for the Aussie to consolidate between 0.7150-0.7200. A generally weaker US Dollar will see the Battler move to higher ground over time.
  2. USD/DXY – The Dollar Index found good support at the 95.00 level (95.029 overnight low). USD/DXY rallied to finish at 95.53. Immediate support is found at the 95.00 level which should hold until tonight’s US CPI release. Immediate resistance lies at 95.60 and then 96.00. Look for consolidation between 95.15-95.65 for now, before a more sustained attempt lower.

In 1969 the Moody Blues sang “Watching and waiting for someone to understand me, I hope it won’t be very long”. Jerome Powell may be saying that to the markets.

Happy Friday and trading all.

Dollar Rebounds Off Lows, Aussie, Yuan, EM, Asian Currencies Slide

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

Trading View CBOE VIX (Volatility Index) Chart – 12/24/2018

Summary: The US Dollar bounced off its lows amid persistent investor fear even as Wall Street stocks extended their slump to 17-month lows. The S&P 500 plummeted 2.99% to 2411 (2477 yesterday). The VIX (CBOE Volatility Index), also known as the Fear Gauge, a measure of market risk and investor sentiment, jumped to 6.1 % to 30.11 February highs.
The Dollar Index (USD/DXY) rallied to 96.95 (96.268) as US treasury yields stabilized. The benchmark 10-year yield rose to 2.79% from 2.78%. Risk and Emerging Market currencies slid led by the Australian Dollar, down 1.16% to 0.7035 at the close. Signals of an easier monetary policy stance from China lifted the USD/CNH rose to 6.9250 (6.8950). The safe-haven Yen was little-changed.

  • AUD/USD – The Aussie suffered from a double whammy of extended poor risk sentiment and a rebounding US Dollar. AUD/USD slid to an overnight low of 0.7034, finishing on a soggy note at 0.7037.
  • USD/JPY – The Dollar was little-changed against the Yen, finishing at 111.22 (111.20 Friday). The Japanese currency remained buoyant as investors fears remained elevated. USD/JPY slid to 110.933 overnight before rallying at the New York close.
  • USD/CNH – The offshore Chinese currency slid after Chinese authorities said significant tax cuts would be enacted next year. They also signalled an easier monetary policy stance. China’s economy has seen a slowdown following the trade war with the US. USD/CNH closed at its highs at 6.9250, it’s the highest close this month.

On the Lookout: Markets will continue to focus on the latest drama in Washington with the likelihood of government shutdown. While this is nothing new to traders, particularly during December, it comes at a time of heightened investor fear and poor risk appetite. Most dealing rooms will close early on the 24th and stay shut until the 27th. Expect low trading volumes and wider pricing which would risk volatile markets.
Data released on Friday saw US Final Q3 GDP miss forecasts at 3.4% against 3.5%. US Durable Goods Orders fell below expectations at -0.3% from the previous months 0.2%. With most centres on holiday, there will be no data releases until the 27th of this month.

Trading Perspective: The possibility of a US shutdown in the past has always occurred at this time of the year. The currency markets have not been affected much. A shutdown this time though could see the US Dollar hold its strength at current levels. The Aussie, Loonie, EM and Asian currencies could suffer further.

FXCM AUD USD 1 Year Chart – 12/24/2018

  1. AUD/USD – This currency suffered the brunt of the risk-off sentiment and heightened fear factor. The Aussie slid down to 070343, close to October lows. AUD/USD closed at 0.7035, not far from the lows, with the possibility of a test of the psychological 0.7000 cent mark. AUD/USD has good support at the 0.7010 level. Further support can be found at 0.6980, not seen since February 2016. Immediate resistance can be found at 0.7080 and then 0.7120. The latest CFTC report (week ended 18 December) saw speculators trim their Aussie short bets to -AUD 35,100 contracts from -AUD -46,000. The Aussie was at 0.74 cents at the beginning of this month. While a test of 0.700 cents cannot be ruled out, the Aussie is a decent buy at current levels.
  2. USD/JPY – The Dollar finished flat against the Yen, despite a stronger overall Dollar. The Yen gained on the crosses against other global currencies. The safe-haven Japanese currency will continue to gain support given the markets current environment. Speculators remain short of JPY bets. The latest CFTC report saw net speculative JPY shorts increased to-JPY 102,800 contracts to -JPY 98,000. Immediate support lies at 111.00 followed by 110.80. Immediate resistance can be found at 111.40 and 111.60. Look to sell any Dollar rallies rather than buy dips on this currency pair. It is headed further south.
  3. EUR/USD – The Single currency slumped back to 1.1368 from 1.1468 on Friday morning. The Euro traded to a low of 1.13561. Immediate support lies at that 1.1350/55 level. The next support level is 1.1320. Immediate resistance can be found at 1.1400 and then 1.1430. The latest COT/CFTC report saw net speculative Euro short bets trimmed to -EUR 53,100 from the previous weeks -EUR 56,000. Look to buy Euro dips to 1.1330 ideally with the Greenback gaining back lost ground. Prefer to buy dips near 1.1300 given the current events in the marketplace.
  4. USD/DXY (Dollar Index) – The Dollar Index rallied off its lows yesterday after falling to 96.268 on Friday. USD/DXY rebounded to close at 96.950. Overnight high was 97.047 which is where today’s resistance lies (97.00/10). Immediate support can be found at 96.50 followed by 96.20. Expect further short-covering of Dollars against its Peers in Asia. Look to trade between 96.30-97.30 for now.

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