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The USD/JPY pair now seems to have entered a consolidation phase and was seen oscillating in a range just below 1-1/2 month tops, set earlier this Tuesday.
Despite the latest escalation of geopolitical tensions in the Middle East, following drone attacks on oil fields in Saudi Arabia, the pair on Monday witnessed a dramatic intraday turnaround and rallied around 70-pips from an early low to levels just below mid-107.00s.
The upside seems capped ahead of FOMC/BoJ
The overnight goodish move up was solely driven by resurgent US Dollar demand and the momentum extended through the early Asian session on Tuesday, albeit investors' reluctance to place aggressive bets ahead of the key central bank meetings capped further gains.
Meanwhile, the fact that surging Oil prices might have raised fears of a global economic slowdown now seemed to underpin the Japanese Yen's safe-haven demand and further collaborated towards keeping a lid on any strong follow-through appreciating move for the major.
However, the fact that the pair has found acceptance above 100-day SMA for the first time since early-May support prospects for an extension of the recent bullish trajectory, though investors are likely to wait for a fresh catalyst from the highly anticipated FOMC decision.
The Fed is widely expected to cut interest rates again at the conclusion of a two-day meeting on Wednesday but opinions on further easing remain divided. This will be followed by the latest BoJ monetary policy update on Thursday, which might further contribute towards determining the pair's next leg of a directional move.
In the meantime, the broader market risk sentiment and the USD price dynamics might continue to influence the price action and contribute towards producing some short-term trading opportunities amid absent relevant market-moving US economic releases on Tuesday.
The USD/JPY pair now seems to have entered a consolidation phase and was seen oscillating in a range just below 1-1/2 month tops, set earlier this Tuesday...READ MORE
Analysts at TD Securities note that the RBA’s September meeting Minutes were published today and they were a little more downbeat than the Sep statement suggested.
“Overall the minutes support a further easing in the cash rate, but it really comes down to timing. The RBA outlined 3 things it is looking at in determining its monetary policy decision.
1. Labour market – recent outcomes suggested that spare capacity remained in the labour market, but this is a view the RBA has stated for sometime. It's comments that the upward trend in wages growth had 'stalled' is supportive for a cut.
2. Housing - Established housing market showed further signs of a turnaround but residential building approvals suggested further weakness in dwelling investment likely (members noted this could sow the seeds of an upswing at some point). Mixed outlook.
3. GDP – the RBA anticipated an outcome near 0.5% based on partial data, which is what we got but this falls short of the RBA's 0.75% forecast as per the Aug SoMP.”
“Overall the RBA has room to cut the cash rate as it sees downside risks dominating in the near term. It really comes down to timing. The Bank did say it will monitor developments globally and domestically. Globally the outlook appears to have improved, global data on balance has been beating forecasts and prospects on trade talks have improved at least in the near term. However the RBA would be clearly disappointed that following 2 rate cuts and tax cuts, we have not seen more signs of green shoots. We stick to our Nov call for the RBA to cut but if we get a poor jobs print on Thurs, then a move next month should be more a 50/50 proposition, not ~30% as it is currently. The fact that the RBA removed 'the accumulation of additional evidence' suggests the bar to cutting may have been lowered.”
Analysts at TD Securities note that the RBA’s September meeting Minutes were published today and they were a little more downbeat than the Sep statement suggested...READ MORE
Analyst at Commerzbank, points out that over the past few days EUR/USD reached the April and May lows as well as the three month resistance line at 1.1099/1.1110 which capped as expected.
“Further range trading within last week’s extremes at 1.0927/1.1109 is to be seen. Only a daily chart close above the August 26 high at 1.1164 would confirm a bottoming formation and put the 200 day ma at 1.1257 back on the cards.”
Further range trading within last week’s extremes at 1.0927/1.1109 is to be seen. Only a daily chart close above the...READ MORE
Sky News is out with further comments from the UK Foreign Minister Raab, with the key quotes noted below.
EU claiming no detailed plans put forward is a "diplomatic pressure exercise."
"This is not about whether enough technical content has been provided but about whether there is the political will."
The pound remains under pressure but manages to recover above the 1.2450 level ahead of the Juncker-Johnson meeting
The pound remains under pressure but manages to recover above the 1.2450 level ahead of the Juncker-Johnson meeting...READ MORE
The AUD/USD pair quickly reversed the weekly bearish gap opening, albeit struggled to extend the momentum and remained well within a broader trading range held over the past one-week or so.
After last week's repeated failures ahead of the 0.6900 handle, the pair opened with a mild bearish gap at the start of a new trading week in reaction to escalating geopolitical tensions in the Middle East. The weekend attacks on Saudi Arabian refining facilities triggered a fresh wave of the global risk-aversion trade and weighed on perceived riskier currencies - like the Australian Dollar.
However, the recent optimism over the resumption of US-China trade talks and encouraging trade-related developments continued attracting some dip-buying interest around the China-proxy Aussie, which coupled with a subdued US Dollar price action - despite a follow-through uptick in the US Treasury bond yields - remained supportive of the pair's intraday uptick of around 20-pips.
The up-move seemed rather unaffected by the disappointing Chinese macro releases, showing that Chinese retail sales rose 7.5% year-on-year rate in August as compared to 7.9% expected and industrial production slowed further to 4.4% in August from 4.8% in July.
Meanwhile, bulls seemed lacking any strong conviction, rather refrained from placing any aggressive bets and preferred to wait on the sidelines heading into the upcoming key event risk - the highly anticipated FOMC monetary policy meeting later this week on September 17-18.
The Fed is widely expected to cut interest again on Wednesday, though opinions on aggressive easing remain divided and should lead to some unusual volatility during the second half of this week/assist investors to determine the pair's next leg of a directional move.
In the meantime, the broader market risk sentiment and the USD price dynamics might be looked upon for some short-term trading opportunities amid absent relevant market-moving US economic releases and ahead of the RBA policy meeting minutes, due to be released during the Asian session on Tuesday.
The AUD/USD pair quickly reversed the weekly bearish gap opening, albeit struggled to extend the momentum and remained well within a broader trading range held over the past one-week or so.READ MORE
Senior Emerging Markets Strategist at TD Securities (TDS) - offered his take on the impact of rallying Oil prices on emerging market (EM) currencies. It is worth mentioning that Oil prices surged around 20% intraday on Monday in reaction to a drone strikes on the world's largest crude-processing facilities in Saudi Arabia, which knocked out more than 5% of global oil supply.
“While it is unclear how long the spike in oil prices will be sustained given slowing demand and strategic inventory releases, we examine historical periods (6 in total) of oil price increases (annualised gains of 200% since the start of 2015) to ascertain the potential impact on EM currencies.”
“EM FX in general benefits from higher oil prices. RUB, COP and MXN are the main beneficiaries while most Asian currencies, with the exceptions of SGD and to a lesser extent IDR, suffer as oil prices increase. INR loses most ground against the USD. Long Latam vs. Asia FX basket favoured as oil spikes.”
“Another imponderable is risk aversion. If risk appetite collapses due to fears of worsening middle east tensions in the wake of any retaliation to the drone attacks, some EM's could face a double whammy of pressures. In Asia, the most risk-sensitive currencies are INR, IDR and PHP.”
“While it is unclear how long the spike in oil prices will be sustained given slowing demand and strategic inventory releases, we examine historical periods (6 in total) of oil price increases (annualised gains of 200% since the start of 2015) to ascertain the potential impact on EM currencies.”...READ MORE
Brexit, Fed and trade war remain in focus
For many months now, all of the attention has been on the trade war, Brexit and central bank easing. Next week is going to be no different as the UK Supreme Court rules on Boris Johnson’s prorogation of Parliament, talks continue ahead of a meeting between the US and China – following rejected rumours of a limited trade deal – and numerous central banks announce interest rate decisions.
One of those is the Federal Reserve which is almost guaranteed to cut interest rates on Wednesday, the only real question is whether they’ll signal more this year. The Bank of England, Bank of Japan and Swiss National Bank are among the others announcing interest rate decisions next week.
Friday is quadruple witching day for U.S. markets. When the quarterly expiration of futures and options on indexes and stocks occurs on the same day, surging volatility and trading can follow.
On Friday, there are ratings reviews on Denmark (Fitch), Norway (S&P), Spain (S&P), Sweden (Moody’s) and Spain (DBRS).
Central Banks this week
Monday – No meetings
Tuesday – RBA (Australia) Minutes, Riksbank (Sweden) Minutes
Wednesday – Fed rate decision (rate cut expected)
Thursday – BoE (UK) rate decision, SARB rate decision, BoJ rate decision, SNB (Switzerland) rate decision and policy assessment (53% chance of 25 bps rate cut), Norges Bank (Norway) rate decision
Friday – No meetings
The main USD event for this week is the Fed’s policy decision and economic projections. The markets have been growing complacent in pricing out Fed rate cuts and we could see a stubborn Fed continue to show division on the how much more easing will be required. The Fed is widely expected to cut rates by 25 basis points and the projections should see another cut priced in for this year with two more for 2020.
With stocks near record highs and the labor market remaining firm, we should not expect the Trump administration deliver any meaningful concessions until well after the Fed policy meeting. We could see incremental updates on the trade front, but October will likely be when we see the next major trade development.
Just a couple weeks ago, the bond market was screaming for fresh record low yields with 10-year Treasuries. The 10-year yield has since rebounded from 1.45% to 1.75% in just a couple weeks. If the Fed fails to signal more cuts are warranted, we could see the bond market rally alongside the greenback.
The Fed should be good for a few more rate cuts as business confidence is falling and inflation is subdued. Some are calling for the restart of QE but that does not guarantee consumer price inflation, just asset appreciation, so the Fed might be hesitate considering that as an option.
It’s been a slow few weeks by bitcoin’s own standards as news flow has dried up and the Libra headlines have slowly disappeared. This always has the potential to spring back to life and put shame to what other assets call volatility.
It’s been a volatile couple of week’s for oil which broke out the upper end of its range as risk appetite improved and API and EIA reported large drawdowns. It has pared these in recent days but the outlook is looking more favourable.
Iran’s Rouhani is due in New York on Tuesday for UN General Assembly (According to Reuters Eikon – not confirmed). Given John Bolton’s resignation this week, there is potential for a face to face with US officials that could pave the way for talks in future that aim to save the nuclear agreement that Trump withdrew from.
Gold is looking more vulnerable that it has for some time and while today’s rally in the aftermath of the ECB stimulus did provide some relief, it’s since pared those gains and looks sensitive to a break of the $1,480 area.
Long-term, this isn’t a big deal as long as central banks keep their collective feet on the easing pedal but near-term, the rally looks to have run out of steam.
Gold is sensitive to many things including central banks, the trade war and overall risk appetite. The latter two are particularly volatile and so gold could see big swings out of the blue.
Parliament may have been prorogued for five weeks but that hasn’t brought an end to the drama that has surrounded Westminster for much of the last three years.
Markets are yet to be rattled by the various legal battles and no-deal Brexit reports but that may change on Tuesday if the Supreme deems the suspension of Parliament unlawful. It’s not yet clear whether Parliament would be forced to return and, if they were, what would happen.
The soap opera is never ending though and next week will be no different. Sterling has taken the last week in its stride but that should be no indication on what lies ahead given the volatility we’ve seen prior to this. Huge swings should always be expected.
Trump is still the front-runner for next year’s US election, but we could start to see Wall Street get nervous if the Democratic nomination goes to Warren or Sanders. Biden is barely hanging onto a lead and he will need to deliver to strong performances with no major gaffes.
Elizabeth Warren has slowly been gaining momentum and if she has a strong performance at the third Democratic debate we could start to see markets become nervous with financials and healthcare stocks.
Pro-democracy demonstrations are still ongoing in Hong Kong, now approaching four months, and constantly shift from peaceful to violent at the drop of a hat.
Hong Kong’s Government completely removed the extradition bill that started the protests but is regarded as “too little too late.” Serious doubts about Hong Kong government independence as Beijing is calling all the shots meaning a stalemate with protestors. Tourist arrivals slump by 40% deepening economic malaise in the SAR.
The risk of protests turning violent increases the risk of a heavy-handed response from China. Troops moving in from across the “border” would be negative for global risk and China/Hong Kong shares, potentially fueling further capital outflows from the territory. Asia might be caught up in contagion risk.
The next important date is October 1, China’s National Day, with big parades planned in Beijing and President Xi Jinping in attendance. There is growing speculation that the Hong Kong “situation” will be “sorted” before then, so as not to detract from the nationalistic headlines.
China and the US have both agreed to partially exempt or postpone impending tariffs on each other’s products as a gesture of goodwill ahead of trade -talk resumption in early October.
A failure to go ahead with talks would severely weaken global investor sentiment. Expect collapsing bond yields and large falls in global stock markets. Meanwhile we face the risk rollercoaster from Trump and his actions and Tweets.
North Korea has conducted several missile tests this week but has signalled a willingness to return to the negotiating table with the U.S. over its nuclear weapons. Test launches are business as usual for North Korea but an about face on talks could destabilise security in region. Especially S.K. and Japan.
Kashmir still in mobile and internet lockdown after one month, inflaming tensions with Pakistan. India car sales collapse 41% in August. Economic growth lowest in six years. Bad loans increasing in bank, non-bank financial system.
Risk of another war over Kashmir (both nuke armed) could severely dent global macro picture, India stocks and INR. Risk of bank failures and credit crunch choking growth further.
South Korea to take Japan to WTO over their politically driven trade dispute. Japan GST rising to 10% in October. A deeper global slowdown could push Yen under 100. BoJ to potentially ease next week by increasing QE again or cutting rates.
The Argentine government installed a new round of capital controls to stem the flow of funds leaving the country to avoid further falls of the peso. The currency is trading at 56.17 and has been under pressure ahead of the presidential elections in October.
The IMF continues to monitor the situation and is offering moral support, but has so far not approved the next tranche of the agreed credit given the victory in the primary elections by the opposition candidate Alberto Fernandez. The defeat of pro-market president Macri has raised the probability of a default.
The market will continue to await the IMF decision on Argentina, as the country has used a sizeable amount of its foreign in defending the currency but will not be enough if the funds are not released.
For many months now, all of the attention has been on the trade war, Brexit and central bank easing. Next week is going to be no different as the UK Supreme Court rules on Boris Johnson’s prorogation of Parliament, talks continue ahead of a meeting between the...READ MORE
CME Group’s preliminary figures for JPY futures markets noted open interest and volume increased by nearly 2.4K contracts and almost 8K contracts, respectively, on Thursday.
USD/JPY now targets 109.30
USD/JPY keeps the march north unabated for the time being backed by the better tone in the risk-associated complex and rising open interest and volume coupled with negative price action in JPY. That said, further upside in spot looks likely in the short-term horizon, with the next target at August’s peak at 109.31.
CME Group’s preliminary figures for JPY futures markets noted open interest and volume increased by nearly 2.4K contracts and almost 8K contracts, respectively, on Thursday...READ MORE
FX Strategists at UOB Group suggested EUR/USD could attempt some consolidation in the near term albeit with an upside bias.
24-hour view: “EUR plunged to 1.0925 yesterday, just one pip above the early September low of 1.0924 before rocketing back up to end the day higher by +0.47% (1.1061). While the sudden surge higher appears to be running ahead of itself, there is scope for EUR to move above the strong 1.1085 resistance (this level was tested overnight and last week). For today, 1.1110 is likely out of reach. Support is at 1.1020 followed by 1.0990”.
Next 1-3 weeks: “While we highlighted yesterday the “risk of a retest of the early Sep low of 1.0924 has increased”, we did not expect the level to be tested within hours as EUR crashed to 1.0925 (after ECB) before surging back up to a high of 1.1086 during late NY hours. The outsized 1-day range of 161 pips (second largest 1-day range in 2019) has clouded the near-term outlook. For now, we expect EUR to trade sideways within a broad 1.0925/1.1130 range. If the short-term volatility were to ease in the next few days, the expected range would be narrowed. Looking ahead, the ‘failure’ to crack 1.0924 coupled with the sharp upswing suggests the bias is tilted to the upside. That said, EUR has to move clearly above 1.1130 before a sustained advance can be expected”.
FX Strategists at UOB Group suggested EUR/USD could attempt some consolidation in the near term albeit with an upside bias....READ MORE
Here is what you need to know on Friday, September 13:
Here is what you need to know on Friday, September 13:READ MORE
Mario Draghi, President of the European Central Bank (ECB), is scheduled to deliver his remarks on monetary policy outlook in a press conference at 12:30 GMT. In a widely expected decision, the ECB today announced that it lowered the rate on deposit facility by 10 basis points to -0.5% as expected.
ECB lowers rate on deposit facility by 10 basis points to -0.50% as expected.
At its monetary policy meeting held today, the Governing Council of the European Central Bank (ECB) decided to leave the interest rates on the main refinancing operations and the interest rates on the marginal lending facility unchanged at 0.00% and 0.25%, respectively, and lowered the rate on deposit facility by 10 basis points to -0.50%.
EUR/USD fades a knee-jerk bullish spike, plunges below 1.10 mark post-ECB.
The EUR/USD pair faded the post-ECB bullish spike to and quickly retreated around 100-pips in the last hour, refreshing session lows and sliding farther below the key 1.10 psychological mark.
Following the ECB´s economic policy decision, the ECB President gives a press conference regarding monetary policy. His comments may influence the volatility of EUR and determine a short-term positive or negative trend. His hawkish view is considered as positive, or bullish for the EUR, whereas his dovish view is considered as negative, or bearish.
Mario Draghi, President of the European Central Bank (ECB), is scheduled to deliver his remarks on monetary policy outlook in a press conference at 12:30 GMT. In a widely expected decision, the ECB today announced that it lowered the rate on deposit facility by 10 basis points to -0.5% as expected...READ MORE
The European Central Bank has lowered its deposit rate by 10 basis points from -0.40% to -0.50%
However, the ECB announced that it will restart its QE program from November 1, buying 20 billion euros per month with no time limit. The ECB will stop purchases before raising rates.
Guidance has changed:
-- more to come
Follow all the updates in the ECB live coverage
The European Central Bank was expected to cut the interest rate by 10 basis points from -0.40% to -0.60% and also extend its commitment to maintaining low-interest rates for longer. However, some had expected a more aggressive rate cut and an announcement of a new bond-buying scheme – QE. Officials at the bank have recently expressed contradicting views about the scope for new stimulus.
The economic situation in the euro-zone has been deteriorating in the past few months, with signs of an imminent recession. Moreover, inflation – which is the ECB's mandate – has remained depressed with core prices rising by less than 1% YoY.
EUR/USD has been trading above 1.10 ahead of the all-important decision and the press conference by ECB President Mario Draghi.
The European Central Bank was expected to cut the interest rate by 10 basis points from -0.40% to -0.60% and also extend its commitment to maintaining low-interest rates for longer. However...READ MORE
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Gold traded with a positive bias through the early European session on Wednesday and recovered a part of the previous session's slide to over four-week lows.
Continuous improvement in the global risk sentiment - supported by growing optimism over the resumption of the US-China trade talks - has been acting as a key factor behind the precious metal's recent corrective slide from multi-year tops.
Geopolitical news provided immediate respite
However, the latest news report that North Korea test-fired a super-large multiple rocket launcher on September 10 extended some support to Gold's perceived safe-haven status and helped snap four consecutive days of losing streak on Wednesday.
The uptick, however, lacked any strong bullish conviction and remained capped below the key $1500 psychological mark amid a follow-through pickup in the US Treasury bond yields, which tends to drive flows away from the non-yielding yellow metal.
This coupled with the latest positive trade-related development, wherein China reportedly offered to buy more US agricultural products in exchange for a delay in tariffs, further collaborated towards keeping a lid on any meaningful recovery for the metal.
Moving ahead, Wednesday's US economic docket - highlighting the release of Producer Price Index (PPI) - will influence the US Dollar price dynamics and produce some short-term trading opportunities around the dollar-denominated commodity - Gold.
From a technical perspective, the commodity's inability to attract any meaningful buying interest now seems to suggest that the near-term bearish bias might still be far from being over and support prospects for a further depreciating move.
Hence, any subsequent recovery back towards the $1500 handle runs the risk of meeting with some fresh supply, rather seen as an opportunity to initiate some fresh bearish positions for an eventual breakthrough mid-August swing lows.
Gold traded with a positive bias through the early European session on Wednesday and recovered a part of the previous session's slide to over four-week lows...READ MORE
German Chancellor Merkel is reported by Reuters as saying that “we still have every chance of orderly Brexit”.
She said that China upholding human rights is essential while adding that US-China trade conflict is hitting Germany and affecting German exports.
Her comments on Brexit fail to inspire the pound, as the Cable meanders near session lows of 1.2341.
German Chancellor Merkel is reported by Reuters as saying that “we still have every chance of orderly Brexit”...READ MORE