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Gold (XAU/USD) plummeted 3% and reached the lowest levels in six-week at $1882 on Monday. The yellow metal treads water above $1900 in Tuesday’s trading so far, as the dollar bulls take a breather, digesting the release of the Fed Chair Jerome Powell’s prepared remarks ahead of his three-day Congressional testimony, FXStreet’s Dhwani Mehta briefs.
“Powell said that the Fed is committed to using all policy tools available to support the post-pandemic economic recovery. The sentiment on the global stocks will remain in focus for fresh impetus on gold. Should the risk-aversion deepen in the sessions ahead, the safe-haven dollar could see a fresh leg higher, weighing once again on the USD-denominated gold.”
“Although a brief bounce cannot be ruled out before the yellow metal resumes the sell-off. The 14-day Relative Strength Index (RSI), currently at 43.85, has turned flat, backing the case for a temporary pullback, especially given Monday’s slump. Therefore, the immediate upside barrier is aligned at the pattern support now resistance at $1930. A break above which the confluence of the 21 and 50-DMAs around $1940/41 will limit the recovery attempts.”
“To the downside, the $1900 level could be once again challenged by the bears. The next downside target at $1882 (Monday’s low) could be put at risk. A failure to defend the latter could expose the August low at $1863.”
Gold (XAU/USD) plummeted 3% and reached the lowest levels in six-week at $1882 on Monday. The yellow metal treads water above $1900 in Tuesday’s trading so far, as the dollar bulls take a breather...READ MORE
The EUR/USD pair witnessed some aggressive selling on the first day of a new trading week and dived to six-week lows amid a strong pickup in the US dollar demand. Rising odds of fresh lockdown measures to curb the second wave of coronavirus outbreak triggered a fresh wave of the global risk aversion trade. The anti-risk flow was evident from a selloff in the equity markets, which, in turn, provided a strong boost to the greenback's status as the global reserve currency.
Apart from this, the shared currency was further weighed down by not so optimistic comments by the ECB President Christine Lagarde, saying that the economic recovery remains very uncertain, uneven and incomplete. Lagarde reiterated that the ECB stands ready to adjust all of its instruments as appropriate and that a higher exchange rate put prices under downside pressure. The combination of factors led to steep intraday fall to the 1.1730 region, though the pair showed some resilience at lower levels and finally settled around 40 pips off daily lows.
The USD bulls turned cautious amid expectations that the Fed Chair Jerome Powell will reaffirm to keep interest rates lower for longer during his congressional testimony later this Tuesday. This makes it prudent to wait for some strong follow-through selling before traders start positioning for any further near-term depreciating move. In the meantime, Tuesday's release of the preliminary estimate of Eurozone Consumer Confidence for September, along with the second-tier US economic data will be looked upon for some trading impetus. The US economic docket features the release of Existing Home Sales and Richmond Manufacturing Index, which might influence the USD price dynamics and help traders to grab some short-term opportunities.
From a technical perspective, the set-up now seems tilted in favour of bearish traders and supports prospects for further downside. Hence, some follow-through weakness towards August monthly swing lows, around the 1.1700-1.1695 region, now looks a distinct possibility. Failure to defend the 1.1700 mark will be seen as a fresh trigger for bearish traders and turn the pair vulnerable to prolong the recent corrective slide further towards testing the 1.1600 round-figure mark.
On the flip side, the 1.1800 mark becomes immediate strong resistance. Any subsequent positive move might now be seen as a selling opportunity and remain capped near the 1.1850-60 supply zone. That said, a sustained move beyond might trigger a short-covering move and push the pair further towards the 1.1900 mark en-route the next major hurdle near the 1.1935-40 region. The momentum could further get extended towards the key 1.2000 psychological mark.
The EUR/USD pair witnessed some aggressive selling on the first day of a new trading week and dived to six-week lows amid a strong pickup in the US dollar demand. Rising odds of fresh lockdown measures to curb the second wave of...READ MORE
Here is what you need to know on Tuesday, September 22:
The US dollar consolidated the surge to six-week highs, as the bulls took a breather amid holiday-thinned quiet trading and ahead of the US Federal Reserve (Fed) Chair Jerome Powell first of three appearances on Capitol Hill this week.
According to the prepared remarks released early Monday, Powell is expected to say that the Fed committed to using all tools available to ensure a strong recovery.
The uncertainty and delays in US fiscal stimulus combined with mounting coronavirus risks on the global economic recovery spurred the haven demand for the greenback at the expense of the risk assets.
The omnipresent US-Sino tensions also added to the downbeat market mood. The Global Times reported that Beijing is unlikely to approve the Tik Tok-Oracle deal, which is in-principally approved by US President Donald Trump.
Asian equities traded mostly lower, despite the easing of the Wall Street sell-off towards the closing. The US stock futures also traded on the back foot, reflective of the tepid risk sentiment.
Across the fx board, AUD/USD tested two-week lows sub-0.7200 after the Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle unveils four policy options, including currency intervention and negative interest rates. USD/JPY stabilized around 104.50 following the rejection near the 104.80 region.
EUR/USD remained under pressure above 1.1750 amid the virus resurgence and localized lockdowns in different countries in the Old Continent. The European Central Bank (ECB) President Christine Lagarde’s downbeat outlook on the economy also weighed on the shared currency.
GBP/USD’s rebound stalled above 1.2800, as traders await the Bank of England (BOE) Governor Andrew Bailey’s speech and UK Prime Minister (PM) Boris Johnson’s emergency COBRA meeting amid a spike in infections. A two-week nationwide lockdown could be on the table. Pubs and restaurants in England will be shut after 2200 hours.
Gold attempted a bounce on the $1900 level after Monday’s 3% slump. WTI licked its wounds below $40, in the face of rising concerns over global economic recovery.
Cryptocurrencies’ remained in downside consolidation mode, with Bitcoin hovering below the $10,500 level.
The US dollar consolidated the surge to six-week highs, as the bulls took a breather amid holiday-thinned quiet trading and ahead of the US Federal Reserve (Fed) Chair Jerome Powell first of three appearances on Capitol Hill this week...READ MORE
Open interest in Gold futures markets rose by nearly 3K contracts at the end of last week according to preliminary data from CME Group. On the other hand, volume retreated for the second session in a row, this time by around 104.1K contracts.
Gold now targets $1,992/oz
Prices of Gold edged higher on Friday amidst rising open interest, opening the door to the continuation of the recovery. That said, the next target of relevance still emerges at the monthly tops around $1,992 per ounce in the short-term horizon.
Open interest in Gold futures markets rose by nearly 3K contracts at the end of last week according to preliminary data from CME Group. On the other hand, volume retreated for the second session in a row, this time by around 104.1K contracts...READ MORE
The EUR/USD pair lacked any firm directional bias on Friday and seesawed between tepid gains/minor losses, well within a familiar trading range around mid-1.1800s. Concerns about the second wave of the COVID-19 infections and fading prospects of a sharp V-shaped economic recovery weighed on investors' sentiment. This was evident from a weaker trading sentiment around the equity markets, which coupled with Wednesday's not so dovish FOMC statement drove some haven flows towards the safe-haven US dollar. The greenback was further underpinned by the better-than-expected release of the preliminary Michigan Consumer Sentiment Index, which improved to 78.9 in September from 74.1 previous.
The supporting factors, to a larger extent, were negated by growing optimism over a potential vaccine for the highly contagious coronavirus disease. This coupled with worries that the lack of additional fiscal stimulus measures could halt the current US economic recovery held the USD bulls from placing any aggressive bets. This, in turn, failed to provide any meaningful impetus to the major and led to a subdued/range-bound price action. The pair finally settled nearly unchanged for the second consecutive week and formed a Doji candlestick pattern, indicating a tug of war between bulls and bears.
The pair managed to regain some positive traction on the first day of a new trading week as market participants now look forward the Fed Chair Jerome Powell's comments for a fresh impetus. Powell is also due to testify before the Congressional committees later this week, which, along with scheduled speeches by other influential FOMC members will influence the near-term USD price dynamics. Apart from this, traders will further take cues from Wednesday's release of the Eurozone preliminary PMI reports for September before positioning for the pair's next leg of a directional move.
Short-term technical outlook
From a technical perspective, the emergence of some dip-buying near 50-day SMA favours bullish traders. However, the lack of any strong follow-through buying warrants some caution before positioning for any further appreciating move. Hence, any subsequent positive move is more likely to confront a stiff resistance near the 1.1900 mark. That said, some follow-through buying might trigger some near-term short-covering move and push the pair further beyond the 1.1935-40 supply zone, towards reclaiming the key 1.2000 psychological mark.
On the flip side, the 1.1800 mark now seems to have emerged as immediate support, below which the pair could slide back to the 1.1750 horizontal level. Sustained weakness below, leading a subsequent break through the 1.1735 area (50-DMA), will be seen as a fresh trigger for bearish traders. The pair could then accelerate the fall further towards August monthly swing lows, around the 1.1700-1.1695 region. Failure to defend the 1.1700 mark would now turn the pair vulnerable to prolong the recent corrective slide towards testing the 1.1600 round-figure mark.
The EUR/USD pair lacked any firm directional bias on Friday and seesawed between tepid gains/minor losses, well within a familiar trading range around mid-1.1800s. Concerns about the second wave of the COVID-19 infections and fading prospects of...READ MORE
Here is what you need to know on Monday, September 21:
The US dollar remained on the defensive starting out a fresh week this Monday, extending last week’s softness, courtesy of the gridlock on the US fiscal stimulus. The US lawmakers are still nowhere near agreeing on new relief aid, which could likely thwart the nascent economic recovery.
The greenback failed to benefit from the risk-off market mood amid renewed US-China tensions. Trump administration ordered to ban WeChat and TikTok application from the states, although the curbs were put on hold by a judge. Meanwhile, President Donald Trump approved Oracle Corp.’s bid for the US operations of TikTok “in concept.”
Asian equities tracked Wall Street lower, with Japanese markets closed on a public holiday. Investors weighed in China ratcheting up the risk of military confrontation in the Taiwan Strait, as Sino-American row over Taipei escalates.
AUD/USD was the top gainer in Asia and regained 0.7300, helped by the upbeat comments from Australian Prime Minister (PM) Scott Morrison. He predicts a job bounce-back as Victoria prepares to reopen. The kiwi also followed suit and headed back towards 0.6800 after NZ PM Ardern lowered the country-wide alert outside Auckland to level 1. The yen advanced on broad risk-aversion against the US dollar, with USD/JPY downed to near two-month lows of 104.26.
EUR/USD jumped back onto 1.1850, with the 1.1900 level back in sight, as the common currency shrugged-off concerns over the coronavirus resurgence in Europe. Fresh restrictions were imposed in Greece and Denmark last Friday. Spain and France mulled local lockdowns amid a spike in infections. Among other news, the European Central Bank (ECB) launched a review of its pandemic bond-buying program (PEPP), as cited by the Financial Times (FT).
GBP/USD stood resilient above 1.2950, despite the increasing odds of a nationwide lockdown in the UK. Health Minister Hancock said that the country is at a “tipping point.” Chancellor Sunak may extend business support loans. Optimism over a Brexit deal, courtesy of European Commission President Ursula von der Leyen’s upbeat comments, continued to bode well for the pound.
Gold traded on the front foot above $1950 amid the dollar weakness, ahead of the Fed Chairman Jerome Powell’s speech. Oil prices returned to the red despite the US storm-led production halt. WTI posted small losses to test the $41 mark.
Cryptocurrencies’ traded modestly flat, with Bitcoin probing the $11K level.
The US dollar remained on the defensive starting out a fresh week this Monday, extending last week’s softness, courtesy of the gridlock on the US fiscal stimulus. The US lawmakers are still nowhere near agreeing on new relief aid, which could likely thwart the nascent economic recovery....READ MORE
Powell given a second chance
It’s a fascinating time to be following financial markets. There are so many massive things happening at the same time that it can be difficult to judge what exactly is driving the markets at any one moment. This week, it’s the central banks that have dominated and with Powell making numerous appearances next week, days after disappointing the markets by only be extremely dovish, that’s unlikely to change.
Sunday, Sept. 20
– Secretary of State Pompeo has noted said the US is preparing to reimpose practically all sanctions on Iran.
– The UK’s opposition Labour Party holds its annual conference online. Leader Keir Starmer speaks on Tuesday.
– Italy holds regional elections.
Monday, Sept. 21
– European Union trade ministers meet in Berlin.
– Prime Minister Boris Johnson’s Internal Market Bill may get scrutinized in the House of Lords, despite Johnson agreeing on a compromise with members of his Conservative Party. Attention will also be on the EU, which has threatened the collapse of trade talks unless Johnson withdraws the legislation.
– The Federal Reserve Board holds an open meeting to discuss advance rulemaking on the Community Reinvestment Act.
Tuesday, Sept. 22
– Chicago Fed President Charles Evans takes part in a webinar discussion on the U.S. economy and monetary policy hosted by OMFIF, the Official Monetary and Financial Institutions Forum.
Wednesday, Sept. 23
– Fed Chairman Jerome Powell is expected to testify to the House’s select subcommittee to the coronavirus crisis about the central bank’s response.
– The Chicago Payments Symposium has remarks by Cleveland Fed President Loretta Mester on “payments and the pandemic.” Chicago Fed President Charles Evans takes part in a MNI-moderated discussion on the U.S. economy.
– Boston Fed President Eric Rosengren discusses the U.S. economy at a virtual event hosted by the Boston Economic Club. San Francisco Fed President Mary Daly takes part in a virtual discussion on the impact of the pandemic on the labor force.
– The Trudeau government unveils a new agenda for a spending plan to help drive the economic recovery, in a speech delivered by Governor General Julie Payette at the opening of Canada’s parliament.
– Weekly EIA Crude Oil Inventory Report
Thursday, Sept. 24
– EU summit. Leaders from across the bloc meet in person to discuss industrial strategy in the aftermath of Covid, tensions with Turkey and Russia, relations with China, and the state of the Brexit negotiations. Through Sept. 25.
– Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin testify to the Senate Banking Committee about coronavirus relief.
– St. Louis Fed President James Bullard discusses the economy and monetary policy on a Global Interdependence Center webinar. The Chicago Fed’s Charles Evans discusses the outlook for the U.S. economy in a virtual event hosted by the Illinois Chamber of Commerce
– Hungary’s Central Bank Governor Matolcsy, Finance Minister Varga and Mol Chairman-CEO Hernadi headline a two-day annual economics conference.
Friday, Sept. 25
Sovereign Rating Updates:
– Poland (Fitch)
– United Kingdom (Fitch)
– Saudi Arabia (S&P)
– Hungary (Moody’s)
– Sweden (Moody’s)
– European Union (DBRS)
Fed Chair Powell will deliver two days of testimony in Washington DC. On Wednesday, he will testify to the House’s select subcommittee and on Thursday with the Senate Banking Committee. Powell will be asked several questions about the Fed’s new monetary strategy and if they are almost out of ammo. After Jackson Hole and the September FOMC decision, Powell will likely confirm their outcome-based guidance means rates will be lower for longer and highlight the risks to the outlook. Rates are going nowhere for a few years and all the Fed speak this week should lean towards further dovishness.
The US still does not have the virus under control as over 20 states are recording more infections when compared to the prior week. It will be difficult for governments to continue to ease COVID-19 lockdowns if the downward trend in US cases is interrupted. The upcoming round of economic data, the flash Markit PMIs and durable goods data should show economic growth rebound is slowing.
The election is nearing and President Trump may have got his groove back. Joe Biden maintains leads across the national polls but Trump is starting to chip away at his lead. Biden’s lead has fallen to 5.8-points in the RealClearPolitics poll and 6.7-points with FiveThirtyEight’s poll. Trump is benefiting from vaccine optimism and as labor market recovery heads in the right direction, unadjusted claims continue to decline, albeit still quadruple the number before the pandemic.
Policy makers from the ECB were out in force last weekend, clarifying comments from the meeting last Thursday regarding the currency exchange rate. Lagarde’s comments in the press conference gave the impression that the central bank was very relaxed about the currency’s rapid appreciation but policy makers, including Lagarde, were keen to stress otherwise. The free run at 1.20 against the dollar may not be so welcome afterall.
Especially not with Covid cases rising rapidly across Europe which threatens the recovery that had already started stalling. The ECBs optimistic assessment may be pared back between now and the end of the year. PMIs next week could provide more insight into how the situation is impacting business confidence.
Not the best week for the UK as far as Brexit is concerned. Talks with the EU are not progressing, with the Internal Market Bill only serving to further frustrate Brussels. It’s not just Brussels that’s taken issue with it, though. Democratic Presidential hopeful Joe Biden weighed in this week, warning that the Good Friday Agreement should not become a casualty of Brexit, effectively echoing Nancy Pelosi’s words last week and insisting it would not pass Congress. This is seemingly one thing both Presidential candidates are in agreement on. Boris Johnson may be able to sell no-deal to some Brexiteers, but no trade deal with the US as well? That will be a whole lot harder. Something has to give.
Coronavirus cases are spiking in the UK and more restrictions are being imposed across the country as businesses once again are forced to contend with the disruption. What’s more, the government is reportedly considering a two week lockdown coinciding with the half term school holiday’s next month which will be another hammer blow to business. On the bright side, more people are taking the government’s advice and returning to work, with the ONS claiming 62% of people went into the office last week.
The Bank of England once again discussed negative interest rates at the meeting this week, triggering another decline in the pound which has spent much of the week recovering the sharp declines suffered in September. With the risk of no deal heightened and deadline less than a month away, the pound will remain volatile and could come under pressure. I still believe a deal will be struck which should be positive for sterling. When that comes and whether the two sides can actually work to a deadline is another thing altogether.
The rand could see further momentum from the potential ending of the SARB’s easing cycle. The September decision to hold rates despite downward pressure on growth and inflation for the rest of the year likely means they are done and that next move will be a hike.
TikTok saga drags on. Very light data with creating a headline driven market with geopolitics to dominate.
China Loan Prime Rate decisions on Monday. Expected unchanged.
China activity will drop as the week progresses ahead of Mid-Autumn holiday the following week.
Covid-19 measures continue to dampen economic activity. No notable data or event risk next week.
Covid-19 continues to wreak havoc on the domestic economy, heightening fears about growth as the stability of the banking system. India has become the no 2 infected country and hit 5 million cases this week with no end in sight.
GDP shrank 23.90% in Q2 and is expected to shrink by 10+% for the year, increasing stress on the banking sector. INR appreciation has resumed, supported by e-commerce investment inflows, lower oil prices and high interest rates, with RBI unable to cut in this environment.
No significant data this week.
The New Zealand covid-19 outbreak is bartering. NZD/USD rising as a pro-cyclical recovery play.
RBNZ decision Wednesday will remain unchanged. Markets watching for comments on potential negative interest rates. Could spark a NZD/USD sell-off.
Trade relations with China continue to be a flashpoint. Relatively quiet this week though.
ACT eased interstate movement restrictions. Victoria State’s may ease restrictions next week, equity and AUD supportive.
PMI Wednesday only data of note. AUD/USD supported as pro-cyc;lical recovery play with copper and iron ore prices remaining at one-year highs.
Suga was appointed as the new Prime Minister as expected. Passed without incident.
Bank of Japan rate decision was unchanged and dovish as expected. PMI Wednesday the only significant data. Japan is on holiday Monday and Tuesday, dampening activity next week.
USD/JPY has fallen through monthly support after the FOMC telegraphed lower for longer rates. Yen could strongly appreciate with Japan away early next week.
Saudi Arabia’a Energy Minister, Prince Abdulaziz bin Salman, had some harsh words for anyone wanting to profit from a decline in oil prices after the OPEC+ JMMC meeting this week, warning that the market won’t go unattended and he wants traders to be as jumpy as possible.
With a threat that anyone who gambles on the market will be “ouching like hell”, it will be interesting to see just how oil prices now respond as they near the $40 mark.
The threats weren’t just saved for those that bet on weaker prices, with a thinly veiled warning directed at those not complying within the group. He warned that attempts to over-produce and hide non-compliance have and will always end in failure, a warning clearly aimed at the UAE which has fallen far short of its quota and will make up the short-fall with compensation cuts by year-end.
With Hurricane Sally forcing shut-ins in the Gulf, oil prices have been well supported in recent days and these comments could well put a floor underneath them for the foreseeable.
Even in the event of a Covid-driven demand shortfall, an emergency October meeting will be called to address the change, with the next scheduled meeting taking place in December.
Gold is on course to end the week roughly where it started, despite the Fed not delivering the uber-dovish message the market wanted to hear. The short-squeeze in the dollar was brief but that doesn’t mean it’s all downhill from here.
The dollar has fallen considerably since March which has provided significant support for gold but it’s since entered a period of consolidation. The dollar has threatened a correction but has failed to gather much momentum so far.
The failure of gold to break $2,000 once again doesn’t bode well for the yellow metal. Ultimately though, the range is tightening. The good news is that we may not have to wait too long for a breakout.
It’s a fascinating time to be following financial markets. There are so many massive things happening at the same time that it can be difficult to judge what exactly is driving the markets at any one moment. This week, it’s the central banks that have dominated and with Powell ...READ MORE
Winter is coming and so are negative rates – that is the message from the Bank of England. The BOE has moved from saying that sub-zero borrowing costs are in the toolkit to being briefed on how to implement them effectively.
Negative rates have failed to boost the Japanese and the eurozone economies – but have dampened their respective currencies. So far in the coronavirus crisis, printing more money boosted currencies – as it allows governments to spend more. However, punishing banks for parking their funds with the central banks is unequivocally adverse for the currency.
GBP/USD dropped below 1.29 in response, and there are additional reasons to expect more falls.
Why sterling may continue suffering
Andrew Bailey, Governor of the Bank of England, enjoyed unanimous support in his decision, showing high determination for such a move.
Moreover, the BOE released new guidance – no tightening until there is significant progress on the inflation goal.The "Old Lady" seems to be taking a page from the Federal Reserve's book. It expects inflation to remain below 1% – far off the 2% target – through early 2021.
In addition, the bank says that there is a risk of a longer period of elevated unemployment. It said that for the current third quarter, it expects output to be 7% below the pre-pandemic levels seen in the fourth quarter of 2020.
Overall, the message is clearly dovish and may further weigh on the pound. How low will sterling go? That also depends on other factors.
Concerns about Brexit remain prevalent and the fate of the goevrnment's successful furlough scheme – which kept employment high during the crisis – is unclear.
Winter is coming and so are negative rates – that is the message from the Bank of England. The BOE has moved from saying that sub-zero borrowing costs are in the toolkit to being briefed on how to implement them effectively...READ MORE
“The exchange is a fundamental economic variable which affects imports, exports, imported inflation or deflation,” the European Central Bank (ECB) Vice President Luis De Guindos said during a webinar on Thursday.
“A relatively brisk and intense fluctuation in the exchange rate affects inflation expectations and the conditions that determine inflation.”
“The ECB could not be happy with its own forecast for a 1.3% inflation rate in 2022.”
The euro is little affected by the above comments, as EUR/USD remains at the mercy of the US dollar dynamics. Although mixed Eurozone inflation numbers dragged the pair below 1.1800.
EUR/USD, currently, trades 1.1791, down 0.18% on the day.
“The exchange is a fundamental economic variable which affects imports, exports, imported inflation or deflation,” the European Central Bank (ECB) Vice President Luis De Guindos said during a webinar on Thursday.Additional quotes...READ MORE
Here is what you need to know on Thursday, September 17:
The Federal Reserve's reluctance to signal more stimulus despite cautious forecasts is weighing on stock markets and boosting the safe-haven dollar. Weekly jobless claims and the Bank of England's decision stand out on Thursday.
Fed: Jerome Powell, Chairman of the Federal Reserve, stressed that the outlook is uncertain yet said that the current level of bond-buying is appropriate. The Fed did not surprise markets by hinting that interest rates will likely remain at zero through 2023.
Powell also indicated that additional fiscal stimulus will likely be needed, seemingly passing the ball to lawmakers' court. According to reports, Democrats and Republicans are getting closer to a deal on an injection of around $1.5 trillion.
The new impetus comes after retail sales disappointed with a meager increase of 0.6% in August. The Control Group dropped by 0.1% and all the recent figures came on top of downward revisions. The shortfall seems related to the lapse of government programs at the end of July.
Weekly jobless claims are set to show a small drop for the week ending on September 11, when Non-Farm Payrolls surveys are held. The Philadelphia Fed Manufacturing Index, and housing figures are also of interes.
President Donald Trump contradidcted his own top health officials by claiming a vaccine is coming shortly. Robert Redfield, the head of the Center for Disease Control, and leading epidemiologist Anthony Fauci foresee broadly available immunization to come only in mid-2021.
Brexit: Prime Minister Boris Johnson has ceded ground to "rebels" in his Conservative Party and allowed for greater parliamentary oversight over the controversial Internal Markets bill. The legislation knowingly violates the Brexit accord Johnson signed with the EU last year. The pound advanced in response.
The focus shifts to the Bank of England, which is widely expected leave its policy unchanged. Investors will watch the BOE's guidance amid a stop-start economy. Local lockdowns are enacted in various places in Britain and new restrictions may be added.
The Bank of Japan left its interest rate unchanged at -0.1% as expected, in its first decision after Yoshihide Suga replaced Shinzo Abe as prime minister. The Tokyo-based institution upgraded its forecasts. USD/JPY is trading around 105, rising amid dollar strength and not falling on safe-haven flows.
AUD/USD is trading below 0.73 amid the risk-off mood. However, Australia reported an increase of 111,000 jobs in August, far above expectations and boosting the Aussie.
NZD/USD is trading around 0.67, down on the greenback's strength and as second-quarter Gross Domestic Product dropped by 12.2%, within broad expectations.
OPEC+ members are set to leave oil production goals unchanged. WTI is trading closer to $40. While the damp market mood is weighing on petrol prices, Hurricane Sally and other brewing storms are limiting output and boosting oil prices.
Cryptocurrencies are holding onto recent gains, with Bitcoin trading around $11,000.
The Federal Reserve's reluctance to signal more stimulus despite cautious forecasts is weighing on stock markets and boosting the safe-haven dollar. Weekly jobless claims and the Bank of England's decision stand out on Thursday.READ MORE
Gold (XAU/USD) built on Monday’s 1% rally after a steady start on Tuesday, reaching fresh nine-day highs at $1969. The yellow metal eyes $1980 amid weaker dollar ahead of US data and FOMC decision, FXStreet’s Dhwani Mehta informs.
“Traders now look forward to the US Industrial Production data and the sentiment on Wall Street for fresh trading impetus. Dovish Federal Reserve (Fed) expectations ahead of Wednesday’s monetary policy decision could also bode well for the XAU bulls.”
“A bull flag confirmation on the hourly chart calls for a test of $1979 in the sessions ahead. The price broke through the pattern resistance at $1957 and rallied $10 to surpass last Thursday’s high of $1966.54. The path of least resistance is to the upside, as the next target for the bulls awaits at $1970. The price trades above all the major HMAs.”
“To the downside, Monday’s high of $1962 will offer immediate support on any pullbacks. A break below which the aforementioned pattern resistance now cushion could limit the losses. The next cap is seen at the bullish 21-HMA at $1955. Acceptance below the latter could intensify the bearish pressure, opening floors towards the upward-sloping 50-HMA, now at $1949.”
Gold (XAU/USD) built on Monday’s 1% rally after a steady start on Tuesday, reaching fresh nine-day highs at $1969. The yellow metal eyes $1980 amid weaker dollar ahead of US data and FOMC decision, FXStreet’s Dhwani Mehta informs...READ MORE
Economists at UBS advise to hold their nerve on UK assets despite the heightened concerns over the final stages of the Brexit process as the political and economic incentives point to an agreement eventually being reached. This outlook supports UK assets.
“We are positive on the medium-term outlook for sterling, both against the US dollar and against the euro. In line with this view, we are not hedging sterling risk for UK assets held in international portfolios. By September of next year we expect sterling to rise to USD 1.40, against 1.29 at present.”
“We also like the UK equity market. A positive outcome to talks would also remove a major impediment to the UK equity market, which has lagged global stocks. Added to this, the UK offers an attractive valuation at 15.4x 12-month trailing P/E, which is a 30% discount to MSCI All-Country World. We expect earnings growth to fall substantially this year, but by next year we anticipate a robust rebound driven by an economic bounce-back and a recovery in the oil price. The UK market has a high exposure to cyclical value sectors such as energy and basic materials, which could benefit from a global recovery.”
Economists at UBS advise to hold their nerve on UK assets despite the heightened concerns over the final stages of the Brexit process as the political and economic incentives point to an agreement eventually being reached. This outlook supports UK assets...READ MORE
Chinese figures beat estimates and joined coronavirus vaccine hopes in keeping the mood positive, weighing on the dollar and supporting stocks and gold. The UK's controversial bill passed the first hurdle and pressures the pound. Several economic figures are due out as tensions mount ahead of the Fed.
Asian stocks and S&P500 500 futures are on the rise after China reported a 5.6% yearly increase in industrial output in August, while retail sales are up 0.5% YoY, also above estimates. The world's second-largest economy also extended exemptions on some US goods imports, adding to the positive mood.
The US dollar is on the back foot, especially against the Australian dollar which is benefiting from Beijing's data dump and relatively optimistic meeting minutes from the Reserve Bank of Australia.
Gold is on the rise, breaking out of range and hitting the highest since early September. Citibank says record pace of ETF investors demand, the weaker dollar and negative yields are also underpinning the precious metal.
GBP/USD is failing to benefit from the greenback's decline. The House of Commons passed the controversial Internal Markets bill which violated the Brexit accord with the EU. Several members of Prime Minister Boris Johnson's Conservative Party said they would vote against the legislation when it comes to a final read next week.
UK jobs figures are due out shortly, and they will likely show a modest uptick in unemployment. The fate of the furlough scheme and the Bank of England's decision are awaited.
EUR/USD is on the rise, shrugging off rising COVID-19 cases in the old continent and benefiting from the European Central Bank's lax approach to the exchange rate as expressed last week. The German ZEW Economic Sentiment is eyed.
Tensions are mounting ahead of Wednesday's decision by the Federal Reserve – the last one before the elections. Updated forecasts for employment and |growth are awaited.
Ahead of the Fed, Tuesday's publications include the Empire State Manufacturing Index for September and Industrial Production statistics for August.
USD/JPY is trading on low ground below 106, seemingly unaffected by the ascent of Yoshihide Suga to lead Japan. The outgoing prime minister's right-hand man will assume office on Wednesday.
Oil prices are struggling to rise amid reports that OPEC+ countries are unlikely to deepen petrol production cuts.
Cryptocurrencies have been moving higher, with Bitcoin changing hands above $10,000.
Chinese figures beat estimates and joined coronavirus vaccine hopes in keeping the mood positive, weighing on the dollar and supporting stocks and gold. The UK's controversial bill passed the first hurdle and pressures the pound...READ MORE
Central banks to be called upon again
The final months of the year are going to be extremely challenging for the global economy, with experts predicting another significant wave of Covid-19 which risks further restrictions around the world at the expense of businesses that are already struggling to cope. Central banks are likely to be called upon again before the end of the year and while the ECB opted against laying the groundwork for more stimulus, others may not be so hesitant. With the Fed adopting a slightly modified framework, more easing could be coming.
Key Economic Events
Saturday, Sept. 5
-Italian think tank the European House continues its forum in Cernobbio. French Finance Minister Bruno Le Maire, EU Brexit negotiator Michel Barnier, and German Deputy Finance Minister Joerg Kukies are expected to speak
Monday, Sept. 14
-OPEC Monthly Oil Market Report is released with updates to their demand forecasts and production estimates.
-ECB Chief Economist Philip Lane participates in a fireside chat hosted by SUERF, the European Money and Finance Forum.
-Japan’s Liberal Democratic Party is expected to vote Chief Cabinet Secretary Yoshihide Suga as Prime Minister Shinzo Abe’s replacement.
Tuesday, Sept. 15
-The Federal Open Market Committee begins their two-day policy meeting.
-ECB Executive Board member Panetta delivers a recorded video statement at the 24th Annual Economist Government Roundtable in Athens.
Wednesday, Sept. 16
– The upcoming Fed meeting could reveal some hints as to what needs to happen before policymakers are ready to raise rates.
-The OECD presents new economic forecasts for G-20 economies.
– EIA crude oil inventory report
-UK Prime Minister Boris Johnson appears before Parliament’s powerful liaison committee to discuss the coronavirus crisis and tricky Brexit negotiations.
-ECB Governing Council member Robert Holzmann speaks in New York.
Thursday, Sept. 17
– Bank of England rate decision. BOE policy makers are expected to keep policy unchanged while laying the groundwork for more easing later in the year.
– Bank of Japan expected to keep rates unchanged and to keep supporting the corporate sector.
– The South African central bank (SARB) is likely to cut rates by 25 bps and downgrade their outlook for the rest of the year.
– ECB Governing Council member Olli Rehn speaks in Helsinki.
– The Economic Club of New York hosts a webinar with Larry Kudlow, President Donald Trump’s top economic adviser.
Friday, Sept. 18
– Quadruple witching day for US markets means trading volatility will be elevated.
Sovereign Rating Updates:
– Belgium (S&P)
– Spain (S&P)
– European Union (Moody’s)
– Spain (Moody’s)
Following Jackson Hole, the Fed’s September policy decision will likely emphasize policymakers are ready to do more, but will wait to see if the economic recovery completely stalled and if Capitol Hill was able to accomplish anything with the next round of fiscal stimulus. Many investors will pay close attention to the Fed’s forecasts which will have them improve their employment outlook. At the June meeting, the Fed estimated unemployment will be at 9.3% by the end of 2020. After the August nonfarm payroll report, Wall Street and the Fed were stunned to see the unemployment rate improved dramatically to 8.4%. The Fed will have to acknowledge the improvement with the labor market and traders will look to see if low interest rates might only last a couple years.
Not much has changed in the polls following the Republican convention as President Trump still trails Joe Biden in six swing states. Right now, Biden has low-single digit leads in Arizona, Florida, Michigan, North Carolina, Pennsylvania, and Wisconsin. The first Presidential debate is not until September 29th, so the focus will fall on the several upcoming campaigning events.
The European Central Bank offered a more upbeat view on the outlook for growth and inflation than had been expected and warned that deflationary pressures are only temporary. In the days leading up to the meeting, it had been rumoured that policy makers were falling in line with that train of thought and it turned out to be correct. The euro rallied strongly on Thursday in response before going into reverse.
The central bank made clear that it doesn’t target fx rates, effectively telling the market it’s safe to take a run at 1.20 against the dollar. Traders may decide there’s no rush though, with the pair having rallied strongly in recent months and shaping up for a possible correction in the near term. Plenty of time to see whether the data improves, particularly on the inflation side, and how bad the Covid situation becomes heading into the dreaded winter months.
Another unsuccessful week of talks this week that was overshadowed by the UK government’s baffling decision to introduce legislation into Parliament that undermines the Withdrawal agreement struck earlier this year and break international law. The Internal Market Bill has struck a nerve not just in Brussels but in the UK as well, including among some Brexit backing Conservatives, both in the House and the Lords. If this is a negotiating tactic by the UK government, it doesn’t seem a very good one as it tells anyone they’re hoping to strike a trade deal with, including the EU, that the country isn’t good for its word. Puzzling to say the least and maybe one of the more embarrassing u-turns facing the government in the coming weeks.
The UK grew by 6.6% month on month in July, the third consecutive positively monthly reading as it continues to bounce back from the devastation of the second quarter as the country went into lockdown. The economy remains 11.7% smaller than it was in February though so there’s still a long way to go. With more restrictions likely over winter, it may take some time to make up the deficit.
On a more upbeat note, the UK struck its first post-Brexit trade deal with Japan as it seeks to make a success of leaving the EU. The deal puts zero tariffs on 99% of exports to Japan and reportedly expands on the agreement negotiated with the EU.
The Bank of England meeting next week will be eyed for hints about further easing later this year, with the last increase in the QE program in need of a boost. The central bank has discussed negative rates but more purchases is currently viewed as the preferred option.
TikTok sales deadline this week. They will inevitably have to ask for an extension from the US. A refusal and outright shutdown in the US will ratchet up the geopolitical temperature once again.
China Industrial Production and Retail Sales are expected to show slight improvements which should confirm that China’s recovery is on track and lift sentiment in the region.
China and India’s Himalaya standoff is a potential negative shock not priced by markets.
Arrests continue under new HK security law, but are being completely ignored by financial markets. Industrial Production expected to shrink by 9.50% highlighting Hong Kong’s recession and the challenges it has ahead in the new world order.
Social distancing measures may be lifted next week, boosting domestic consumption, and possibly, HK consumer discretionary stocks.
Covid-19 continues to wreak havoc on the domestic economy, heightening fears about growth as the stability of the banking system. India has become the no 2 infected country with no end in sight.The Indian Rupee’s appreciation has stalled over economic concerns and with Dollar strength last week.
India inflation data is released on Monday with CPI expected to climb to 7.0%, well above the 6% RBI target. With falling growth and rising prices, India’s immediate economic threat is stagflation. A high print for inflation will escalate those fears possibly leading to selling of Indian equities and currency. Having said that, international interest remains high in accessing India’s e-commerce sector.
China and India’s Himalaya standoff is a potential negative shock not priced by markets.
The New Zealand covid-19 outbreak is bartering but the New Zealand Dollar is coming under pressure as expectations rise that the RBNZ will move to negative interest rates by the year’s end. NZ GDP to show 7% QoQ fall this week, although more recent data shows activity rebounding quickly.
A rise in Covid-19 cases in Auckland, or their emergence elsewhere in the country, will have a strong negative impact on the NZD and NZ equities.
Trade relations with China continue to worsen with two Australian reporters evacuated by the government last week from Beijing. The deteriorating relations are weighing on Australian equities with the currency retreating in the face of a stronger US Dollar.
Australian Employment Change on Thursday expected to show a 90k jump. Notoriously volatile, poor numbers will cause short-term selling pressure on the currency and equities.
Victoria State’s lockdown seems to have been priced into Australian markets now..
Abe’s successor will be announced this Monday September 14th with Cabinet Secretary Suga the favorite. Little will change fiscally. The new PM will almost certainly have to fight a new general election in October.
Bank of Japan rate decision on Thursday. We expect unchanged at -0.10% with little to no new insight into future monetary policy. With a new Prime Minister selected on Monday, the BoJ is unlikely to rock the boat in his first week in the office.
Heavy data schedule. Industrial Production will recover slightly, core inflation will ease but the Balance of Payments will rise sharply. None of this will be enough to move the BoJ’s hands.
Oil is in correction mode but has steadied over the last couple of days after plunging more than 15% late last week and early this. Numerous reasons were given for the fall but the reality in situations like this is that there were a lot of stale long positions that bailed the minute it started looking a little weak.
That’s fine, perfectly healthy in fact. And we are heading into a challenging winter period for the global economy. A vaccine is needed or it could be a tough few months for oil producers. With prices back below $40, I can’t imagine there’ll be a great rush among producers to further trim output cuts in any significant way.
Gold has enjoyed a decent week after looking very vulnerable early on. A bullish dollar breakout that appeared to be triggering a correction was very problematic for gold but the breakout has stalled quickly, aided by the ECB opting to take a more considered approach than had been previously rumoured.
As we saw immediately after yesterday’s decision though, the dollar quickly bounced back and with some force, potentially signalling that it’s not giving up the correction easily. Gold remains vulnerable and the path of least resistance looks below. It may just take a little time for the dollar to overcome some of the stubborn shorts.
The final months of the year are going to be extremely challenging for the global economy, with experts predicting another significant wave of Covid-19 which risks further restrictions around the world at the expense of businesses that are already struggling to...READ MORE
The recent appreciation of the euro exchange rate dampens the inflation outlook,” said the European Central Bank (ECB) Chief Economist Phillip Lane in a blog post just a day after the ECB left policy unchanged.
“The scale of upward revision in core inflation has been significantly muted by the appreciation of the euro exchange rate.”
“It should be abundantly clear that there is no room for complacency on inflation.”
“Headline inflation to remain negative for the rest of the year.”
“Governing council stands ready to adjust all of its instruments accordingly.”
EUR/USD holds the bounce from 1.1810 on Lane's jawboning. At the press time, EUR/USD gains 0.14% to trade at 1.1836.
The recent appreciation of the euro exchange rate dampens the inflation outlook,” said the European Central Bank (ECB) Chief Economist Phillip Lane in a blog post just a day after the ECB left policy unchanged...READ MORE