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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
Here is what you need to know on Wednesday, September 11:
- Market mood improves on fresh US-China trade optimism after Global Times editor reported China will introduce important measures to ease the negative impact of the trade war. Meanwhile, China released tariffs exemption list for products from the US.
- The US yields extend gains alongside Asian equities and Wall Street futures while and dollar eases against the euro and risk/ commodity currencies. The Yen remains the main laggard at six-week lows near 107.85 vs. the buck on trade progress and dovish BOJ expectations.
- EUR/USD clings to minor gains around 1.1050 amid the recent rally in German bund yields, awaiting Thursday’s ECB monetary policy outcome. The German stimulus talks pushed 30-year bund yields into positive territory.
- GBP/USD trades above 1.2350 ahead of an empty UK docket and bi-weekly EU-UK Brexit negotiations. UK Parliament passed a law to block a no-deal Brexit. UK MPs launched a new group to try to secure Brexit deal. PM Johnson said that he is opposed to the idea of a so-called Northern Ireland-only backstop to get a Brexit deal done.
- Oil prices jump on large US crude inventory draw, reversing the drop fueled by speculation of sanctions-hit Iranian crude returning to the market after US President Trump’s fired Iran-policy hawk, Bolton. Meanwhile, Gold holds the lower ground sub-$ 1500.
- Cryptocurrencies return to the red, with Bitcoin battling 10k level.
Here is what you need to know on Wednesday, September 11:READ MORE
EUR/USD has already entered the pre-ECB lull, trading in a consolidative fashion around the 1.1040/50 area...READ MORE
The GBP/JPY cross seesawed between tepid gains/minor losses through the European session on Tuesday and consolidated the recent up-move to over one-month tops.
The cross added to its recent strong recovery gains from closer to multi-year lows and climbed to the 1.3300 neighbourhood amid the recent optimism over soft-Brexit, especially after the UK Parliament passed legislation to take control of the Brexit agenda.
Cautious mood exerts some pressure
The UK lawmakers on Monday further voted to reject the UK PM Boris Johnson's bid for an early election, which might now require Johnson to ask the European Union to delay Brexit for three months beyond October 31 if a new deal is not achieved by the deadline.
Meanwhile, the GBP bulls seemed rather unimpressed by Tuesday's mostly upbeat UK employment details, with the prevailing cautious mood providing a minor lift to the Japanese Yen's relative safe-haven status and kept a lid on any further up-move for the cross.
Data released on Tuesday showed that the UK average weekly earnings including bonuses rose 4.0% 3m/Yr in July as compared to the previous month's upwardly revised reading of 3.8% and the unemployment rate fell to 3.8% during the reported month.
Looking at the technical picture, the cross has already found acceptance above a confluence resistance - comprising of 50-day SMA and a two-month-old descending trend-line - and thus, support prospects for an extension of the recent positive momentum.
The GBP/JPY cross seesawed between tepid gains/minor losses through the European session on Tuesday and consolidated the recent up-move to over one-month tops...READ MORE
EUR/JPY has resumed the upside so far this week, managing to leave behind Friday’s retracement and advance to 4-week tops beyond 118.00 the figure...READ MORE
Dollar Retreats After Jobs Miss and Higher Risk Appetite
The US dollar is lower against major pairs on Friday after the U.S. non farm payrolls (NFP) came in lower than expected by 30,000 jobs. The final data point was 130,000, while not raising alarms as it still points to a solid employment sector it does put more pressure on the Fed to cut rates when the FOMC meets in September 17/18. Incoming data next week would be crucial as inflation and retail sales are due on September 12 and 13.
Risk appetite made a comeback this week as risk events eased with HK pulling its extradition bill, no-deal Brexit knocked back as Boris Johnson was dealt heavy political defeats and the US and China got on the phone. The European Central Bank (ECB) will be the main event when it announces its monetary policy decision on Thursday, September 12 at 7:45 am EDT followed by President Draghi’s press conference at 8:30 am EDT.
EUR/USD All Eyes on ECB Decision and US Inflation and Retail Data
The EUR/USD is trading at 1.1043 on Friday after the U.S. non farm payrolls (NFP) came in lower than expected. The single currency trades higher by a small margin of 0.08% due to the upcoming ECB rate decision. Markets have fully priced in a 10 basis point rate cut this week, taking the deposit rate to -0.5%.The ECB may not stop there though and previously claimed to be exploring various other options including more QE which currently looks the most likely, possibly accompanied by other measures aimed at limiting the negative effects of negative deposit rates on banks in the region.
The ECB could disappoint as it did at the last meeting and could do again, potentially on the other extraordinary measures that markets expected. EUR has been trending lower in anticipation of more stimulus and with Lagarde due to take over in November, there is scope for the central bank to hold off for now.
US-China to hold high level trade talks on October
The big news this week was that an actual phone call between China and the US took place and has resulted in trade talks between Beijing and Washington to take place in October. Vice Premier Liu He and U.S. Trade Representative Robert Lighthizer got on the blower to try to de-escalate their tariff conflict. The US-China trade war has been a major negative factor in global growth factor and has kept safe havens bid as investors have flocked to gold, JPY and CHF. Global stocks have risen as the result as trade optimism is once again in vogue. Gold is down 2% on Thursday, but almost flat on weekly trading on the idea of a possible trade deal.
Brexit is the story that keeps on giving with a snap election the next possible step. Boris Johnson has suffered a series of parliamentary defeats that have reduced the probability of a no-deal Brexit. Weekend developments could influence the pound as we enter the final stretch of the EU-UK divorce.
Hong Kong protests still ongoing but protestors scored a major victory with the withdrawal of the extradition bill, but they are pushing for their other four demands, and have met with silence from China. There could be a military response from China over the weekend, stoking the fire and risk delaying the trade talks if the international community condemns the use of force.
After events in Parliament this week, the country looks to be headed for an election, possibly as early as 15 October, two days before the European Council summit.
A number of defeats this week has left Boris Johnson wounded and, it seems, without any other options ahead of the 31 October Brexit deadline, which is now likely to be extended.
The situation may still change though and there could be plenty of drama ahead of Parliament being suspended next week.
The pound is extremely sensitive to Brexit developments and the weekend is typically littered with appearances from various politicians. This weekend is likely to be no different which could impact the pound on the open next week.
The US-China trade talks have eased some of the pressured on commodities. Oil prices have improved with some solid data out of the US, and a large drawdown this week as reported by the EIA. Developments on the Iran-US front and the efforts of France and the EU to bypass US sanctions could unlock Iran’s oil reserves and put pressure on the black stuff.
Low demand and higher production from OPEC are keeping crude prices from rising too fast. Commodities are sensitive to trade war rhetoric. Escalations from either side will result in lower commodity prices.
The US dollar is lower against major pairs on Friday after the U.S. non farm payrolls (NFP) came in lower than expected by 30,000 jobs. The final data point was ...READ MORE
DXY is struggling for direction in the 98.40 region, managing to rebound from Thursday’s lows near the 98.00 handle.READ MORE
The recovery in EUR/JPY has already left behind the 10-day SMA and the 21-day SMA at 117.33 and 117.72, respectively...READ MORE
Gold dropped to fresh two-week lows during the early European session on Friday, albeit has still managed to hold above the key $1500 psychological mark.
Spot prices edged lower for the second consecutive session on Friday and added to the previous session's heavy losses amid the prevailing risk-on mood, which tends to weigh on traditional safe-haven assets - like Gold. Risk appetite revived after China confirmed that officials from Beijing and Washington have agreed to resume trade negotiations in early October.
Fading safe-haven demand was evident from a strong intraday upsurge in the US Treasury bond yields, which accelerated further following the release of stronger-than-expected economic data from the US - ADP report on private-sector employment and ISM non-manufacturing PMI - and helped ease the recent bearish pressure surrounding the US Dollar.
Meanwhile, the greenback failed to capitalize on the overnight uptick but the fact that Thursday's upbeat US data might have tempered expectations of an aggressive policy easing by the Fed at its upcoming meeting in September continued weighing on the non-yielding commodity and contributed to the weaker tone on the last trading day of the week.
The downside, however, seemed cushioned, at least for the time being, as investors now look forward to Friday's key release of the closely watched US monthly jobs report - popularly known as NFP. This coupled with the Fed Chair Jerome Powell's scheduled speech might play a key role in determining the commodity's next leg of a directional move.
Gold dropped to fresh two-week lows during the early European session on Friday, albeit has still managed to hold above the key $1500 psychological mark...READ MORE
Open interest in EUR futures markets from CME Group noted investors added around 9K contracts on Tuesday, the fifth build in a row and the largest single-day increase since August 14. Volume, too, extended the uptrend and increased by around 101.5K contracts, also recording the largest daily build since July 31.
EUR/USD seen retaking 1.10 and beyond
The rebound in EUR/USD from YTD lows in the 1.0930/20 band on Tuesday was in tandem with a sharp build in both open interest and volume, allowing for the continuation of the recovery in the short-term horizon. Initial resistance is seen in the mid-1.10s, where sits the 10-day SMA.
Open interest in EUR futures markets from CME Group noted investors added around 9K contracts on Tuesday, the fifth build in a row and the largest single-day increase since...READ MORE
Further comments are out from the European Central Bank (ECB) President Nominee Lagarde, with the key headlines noted below.
ECB needs to listen to and understand markets.
But need not be guided by markets.
I hope I never have to say "whatever it takes".
EUR/USD maintains the latest leg higher above the 1.10 handle, up 0.35% on the day. The spot remains strongly bid, mainly in response to broad-based US dollar weakness induced by disappointing US factory data.
Further comments are out from the European Central Bank (ECB) President Nominee Lagarde, with the key headlines noted below...READ MORE
The GBP/JPY cross quickly reversed the UK services PMI-led dip and climbed to fresh weekly tops - around the 129.30 region in the last hour.
The cross gained strong follow-through traction through the early European session on Wednesday and built on the previous session's solid recovery of over 130-pips - supported by the fact that the UK House of Commons passed a motion aimed at taking control of the daily agenda from the government.
Brexit optimism offset softer UK data
The cross did witness an intraday pullback following the disappointing release of UK services PMI, which fell to 50.6 in August from the previous month's final reading of 51.4, though the downtick turned out to be short-lived amid receding fears over Britain's exit from the EU without a deal.
It is worth mentioning that the latest UK political development is now expected to lead to a vote forcing the government to request another three-month extension to the Brexit deadline, though looming risk of a snap election in the UK might keep a lid on any strong follow-through positive momentum.
Meanwhile, a fresh wave of global risk-on trade - as depicted by a strong rally in equity markets - was seen weighing on the Japanese Yen's perceived safe-haven status and remained supportive of the pair's ongoing recovery further beyond the 129.00 round figure mark.
The GBP/JPY cross quickly reversed the UK services PMI-led dip and climbed to fresh weekly tops - around the 129.30 region in the last hour.READ MORE
Due to the increased volatility in GBP pairs with the expected No-deal Brexit vote later today and a potential General Election on the 14th of October, FXPIG will be increasing the margin requirement on all GBP pairs 3 folds compare to standard conditions currently applying.
The change will take place at 3 pm GMT today, 3rd of September 2019.
Please make your risk assessment, and add funds or close positions if necessary to reduce your margin risk exposure and avoid margin call and stop out.
Please make your risk assessment, and add funds or close positions if necessary to reduce your margin risk exposure and avoid margin call and stop out...READ MORE
According to analyst at Commerzbank, GBP/USD has eroded the 20 day ma and is now back under pressure.
“Attention is on the 1.2015 recent low and TD support at 1.1988. Below 1.1988 lies the 1.1491 3 rd October low (according to CQG). It remains on the defensive below the 55 day ma at 1.2357 – this protects the June high at 1.2784. Intraday rallies are indicated to terminate ahead of the 1.2142 20 day ma.”
“Only a rise above the June high at 1.2784 would indicate that a bottom is being formed (not favoured).”
According to analyst at Commerzbank, GBP/USD has eroded the 20 day ma and is now back under pressure...READ MORE
Analyst at Westpac, points out that the RBA statement sparked a bounce to 0.6710/15, presumably reflecting the 10% chance of a rate cut implied by money markets and language that reiterated the easing bias but offered no specific hint about when another move might come.
“The market turmoil of the past month, mostly driven by a deterioration in US-China trade relations, was barely evident in the discussion of the global economy. Governor Lowe repeated August’s observation that, “The Australian dollar is at its lowest level of recent times.” Last week Deputy Governor Debelle said that further depreciation would be helpful.”
“Looking forward, markets will continue to price another RBA rate cut before year end but even before the next RBA meeting we should see the Fed lower rates again. Indeed yield spreads have moved back in AUD’s favour over the past month as trade wars are judged to have greater implications for the Fed than the RBA with the cash rate already at 1%.”
“With iron ore prices on track to recover some more lost ground, spec positioning firmly short AUD and resource company dividend payments to Australian shareholders due in the next couple of weeks, AUD/USD should continue to find buyers on dips under 0.6700. But the global mood seems too risk-averse for rallies to extend beyond the 0.6780/90 area near term.”
Analyst at Westpac, points out that the RBA statement sparked a bounce to 0.6710/15, presumably reflecting the 10% chance of a rate cut implied by money markets and language that reiterated the easing bias but offered no specific hint about when another move might come....READ MORE
EUR/USD is intensifying the leg lower today, extending the recent breakdown of the psychological support at 1.10 the figure...READ MORE
Further downside to the 1.0930 region in EUR/USD is not ruled out, according to FX Strategists at UOB Group.
24-hour view: “While we expected EUR to move lower last Friday, we were of the view “1.1025 is likely out of reach”. The subsequent weakness exceeded our expectation by a wide margin as EUR not only sliced through 1.1025 but also cracked the major 1.1000 support. The rapid drop to a low of 1.0961 appears to be running ahead of itself and further sustained decline is unlikely for today. EUR is more likely to consolidate its loss and trade sideways, expected to be within a 1.0960/1.1025 range”.
Next 1-3 weeks: “We detected the weakened underlying tone in EUR last Friday (30 Aug, spot at 1.1060) and held the view that EUR is likely to “probe the bottom of the expected 1.1000/1.1130 range first”. However, instead of ‘probing’ 1.1000, EUR crashed through this strong support level and hit a 27-month low of 1.0961. The sudden lurch lower and the subsequent weak daily closing in NY (1.0989, -0.59%) has resulted in a rapid improvement in downward momentum. From here, EUR could extend its weakness to the next support at 1.0930. However, oversold short-term conditions could lead to a couple of days of consolidation first. Resistance is at 1.1025 but only a break of 1.1060 (‘key resistance’) would indicate that the current weakness in EUR has stabilized”.
Further downside to the 1.0930 region in EUR/USD is not ruled out, according to FX Strategists at UOB Group...READ MORE
FX Strategists at UOB Group noted Cable is likely to remain sidelined for the time being, although a move lower should not be discarded.
24-hour view: “Our view last Friday was that GBP “could breach the 1.2150 support but is unlikely to challenge 1.2125”. In line with expectation, GBP touched 1.2140 before recovering slightly. Downward momentum has improved albeit not by much. From here, GBP could probe 1.2125 but the next support at 1.2100 is unlikely to come into the picture. On the upside, only a move above 1.2215 (minor resistance is at 1.2190) would indicate the current downward pressure has eased”.
Next 1-3 weeks: “GBP dropped to 1.2140 last Friday (30 Aug) before closing lower for the third straight day (1.2166, -0.13%). The underlying tone has weakened somewhat but for now, we continue the view price action as part of a consolidation (see update on 29 Aug). That said, the soft underlying tone suggests GBP would likely test the bottom of the expected 1.2100/1.2250 range first (expected range narrowed from 1.2100/1.2300). Looking forward, only a NY closing below 1.2100 would suggest that GBP is ready to extend its weakness to 1.2050, possibly retesting the August’s low of 1.2015”.
FX Strategists at UOB Group noted Cable is likely to remain sidelined for the time being, although a move lower should not be discarded...READ MORE
In view of Team Head FICC Technical Analysis at Commerzbank, EUR/JPY could have bottomed out in recent lows in the mid-116.00s.
“EUR/JPY remains on the defensive very near term, its recent low at 116.42 was not confirmed by the daily RSI and we have a second 13 count and TD support at 116.36 - we therefore suspect the down move may be over for now. Initial resistance is the 20 day ma at 117.99 and the 120.06 25th July low. Key short term resistance is the 55 day ma and the 3 month downtrend at 120.10/39. The market will need to regain this on a closing basis to reassert upside interest”.
“TD support at 116.36 guards the 114.86 2017 low. The break lower last week saw the market erode a 2012-2019 support line and this leaves a negative bias entrenched while below the downtrend”.
EUR/JPY remains on the defensive very near term, its recent low at 116.42 was not confirmed by the daily RSI and we have a second 13 count and TD support at 116.36 - we therefore suspect the down move may be over for now...READ MORE
Labor Day will not be quiet at all, as the US-China trade war remains tense, as certain tariffs kick in and will start to weigh on the US economy. Politics will remain a focal point as some UK officials will try to stop Boris Johnson’s plan to suspend Parliament. Continued deterioration with Chinese manufacturing data also have global recession concerns on high alert and have markets bracing for the next wave of monetary and fiscal stimulus.
Markets remain firmly focused on the ECB’s September 12th meeting and September 18th FOMC decision, but we can’t overlook a plethora of rate decisions that will likely signal continued additional rate cuts are coming and stimulus is just around the corner. The RBA is expected to remain on hold for just one month, while the BOC and Riksbank are expected to deliver dovish messages that will see them join the global rate cutting club. The Russian Central Bank (CBR) is expected to cut rates by 25-basis points.
Geopolitical risks remain giant thorns to the global outlook and heavy attention will remain on Hong Kong’s turmoil and the ongoing saga of Brexit. In Germany, Saxony and Brandenburg will hold regional elections. AFD seems to be gaining momentum and we could see Merkel’s party continue to struggle, prompting concerns she will depart sooner.
The bond market will be focused on whether we see a record low made with the 10-year Treasury yield. Fed speak will closely be watched from the hawkish Rosengren, centrists Bowman and Williams, and doves Kashkari, Evans, Williams and Bullard.
Central Banks this week (for currencies that we offer):
Monday – No meetings
Tuesday – Reserve Bank of Australia (RBA)
Wednesday – Bank of Canada (BOC)
Thursday – Sweden Central Bank (Riksbank)
Friday – Russia Central Bank (CBR)
Central Bank Speakers (at the time of writing)
Monday – No speeches
Tuesday – SNB Presentation of new 100-Franc note, Fed’s Rosengren (hawk, dissenter), BOJ Goshi Kataoka
Wednesday – ECB’s Lane (dove), Fed’s Williams (moderate, voter) in NY, Fed’s Bowman and St Louis Fed President Bullard speak, Fed’s Kashkari (dove, non-voter) speaks in Minneapolis, Fed’s Beige Book released, Fed’s Evan’s (dove, voter) speaks on trade.
Thursday – ECB’s Guindos (centrist) speaks in Frankfurt, Riksbank post-rate decision press conference, BOE’s Tenreyro speaks in Frankfurt, BOC Schembri give economic progress report
Friday – No speeches
New US import tariffs on Chinese goods kick in on Sunday, September 1st. If we continue to see a conciliatory tone from both China and the US, we could see risk appetite improve and safe-havens may soften. If we don’t see US or Chinese officials agree on a face-to-face meeting date in DC, we could see risk aversion quickly return and drive US stock markets and dollar-yen lower. Another key risk event for USD/JPY is if we see the inversion between the 10-year and 2-year Treasury yields deepen. The longer we stay in inverted territory, the greater the calls will be for the US to see a recession next year.
Bitcoin seems to be losing bullish momentum as concerns grow that tighter regulation is about to come from China as they prepare to launch their own cryptocurrency. Short-term bullish bets seem to be coming off quickly as the psychological $10,000 level has been unable to hold up.
Oil remains highly sensitive to trade war movements and its impact on the global economic – and demand – outlook. Risks remain to the upside for oil as Hurricane season heats up and US stockpiles are declining at a fast pace, easing some recession worries.
Gold’s bullish trade is extremely overcrowded as the prospects of fresh global stimulus grow, more countries are adopting negative interest rates, along with geopolitical risks from Brexit and Hong Kong. If we do see a major de-escalation with the US-China trade war, we could see an exaggerated selloff to squeeze out some weak bullish positions. From a macroeconomic standpoint, gold should out-perform the other safe-haven currencies once we see the Fed capitulate and commit to an easing cycle.
Following the August 25th flash crash lira volatility could see wild moves as Turkish liquidity returns from a national holiday on Monday. Continued weakness from Germany, Turkey’s largest export destination will continue to weigh on the economy. Turkish bond equity markets will be closed on Friday for a public holiday.
Boris Johnson will suspend parliament, commencing between 9th and 12th September (tbc) until the Queen’s speech on 14th October. The move leaves MPs that want to block no deal with little time to do so and increases the chance of no-deal Brexit. The next week could therefore be action-packed and full of surprises. Massive swings in the pound looks almost guaranteed, with there being particular vulnerability to the downside if government fails to block no-deal or bring down the government.
Five Star Movement has agreed to go into government with the Democratic Party, with Giussepe Conte returning as Prime Minister for a second term. One stumbling block to the alliance will be an online poll of Five Star members to back the coalition. The party has previously been hostile towards PD and so support may not be as straightforward as you’d typically expect. Italian equities and yields have been very sensitive to political developments and obstacles still lie ahead. The euro has so far shrugged off the political instability both because of the limited impact beyond its borders.
Pro-democracy demonstrations are still ongoing, now approaching three months, and constantly shift from peaceful to violent at the drop of a hat. Hong Kong’s airport authority now has an indefinite court injunction against protesters which prevents them from storming and strangling airport traffic, like happened a few weeks ago. Reports suggest Carrie Lam is considering invoking the Emergency Regulations Ordinance, last used in 1967, which would give her sweeping powers to quell the protests. This has drawn criticism from members of her own cabinet and legal experts. Saturday marks the fifth anniversary of Beijing handing down a restrictive electoral framework on Hong Kong, and the Civil Human Rights Front is planning mass marches. The Hang Seng has a chance to post its first up-week since mid-July, but this is currently only marginal. It could quickly reverse depending on weekend developments. USD/HKD is constantly testing the upper limit of the trading band at 7.85.
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/HK 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 HK “situation” will be “sorted” before then, so as not to detract from the nationalistic headlines.
China’s response to Trumps latest tariff hike has been quite measured, with levies raised on just $75b worth of US goods. They are still promoting the “calm face” of negotiation, though it is unsure if the planned September meetings will still go ahead. The next significant data point will be the NBS manufacturing and non-manufacturing PMIs scheduled for release on Saturday August 31. Whilst only a marginal deterioration in the PMI is expected, it continues to build a picture of a weakening Chinese economy. No doubt Trump will tweet on weak data prompting greater volatility the following Monday. Meanwhile we face the risk rollercoaster from Trump and his actions and Tweets.
Latest intel reports suggest North Korea may be building a ballistic missile submarine and may be preparing for vessel-based test launches, though analysts suggest this could be more than a year away. This would be a significant advancement in the nuclear missile threat and more difficult to counter. So far, the test missile launches have proved to be nothing special or threatening, though Japan has expressed concern that any new type of weapons system may be able to breach its missile defence system.
Bilateral relations on the India-Pakistan border at Kashmir are deteriorating with India revoking its special status awarded to the region via the Constitution. Pakistan meanwhile is said to be considering closing its airspace to Indian carriers and blocking India’s land route to Afghanistan. The risk is further escalation to a war stance.
While not a global game-changer at the moment, a war between the two neighbours could hit risk appetite in the region and force superpowers from both East and West to be dragged into the skirmish and forced to choose sides. That would be a huge negative for risk appetite.
One of the few positive notes is that the US and Japan appear to be edging closer to a mini-FTA, with Trump and Abe announcing a tentative deal on Aug. 25, with a goal of working out final details by the end of September. Things are not so rosy with South Korea, where trade relations are souring rapidly, which started a few weeks ago when Japan removed Korea from a trusted exporter list. More likely a skirmish that will be contained locally as China is the focus for the majority of Asia’s export-oriented economies.
The RBA meeting on Tuesday could be another one on pause mode, with market pricing only assigning a 10% chance of a 25 bps cut from the current record low of 1%. The last set of employment data was strong, with solid jobs growth and a stable unemployment rate at 5.2%. There is a slight risk of a surprise cut, but more likely we could get a more dovish tone to the statement. Q2 GDP data on Wednesday could spring a positive surprise, with latest estimates suggesting a slight improvement to +0.5% q/q from +0.4%. A dovish statement or a surprise cut would pile additional pressure on an already weak Aussie dollar. It’s fallen vs the US dollar for the past six weeks. Other G-7 Q2 data has been flat to negative, so positive growth could be a boon for AUD.
The central bank has indicated its intention to raise interest rates from the current level of -0.25% later this year or early next. The central bank did emphasize the need for caution given the easing tendency of the Fed and ECB and weaker global economic developments. The market is no longer pricing in the next move to be a rate hike, but now see odds slowly growing for the Riksbank to join the rest of the world in providing stimulus.
The biggest risk in LatAm is the presidential address by AMLO in Mexico. His first year in power has been plagued by low growth and rising violence, but this type of events are more ceremonial and not likely to influence the markets. Yet, given he is known for going off script there is a small possibility that his comments influence the MXN. Mexico avoided a technical recession by having a growth rate of 0, instead of a contraction in the second quarter. The USDMXN is at yearly highs and continues to be pressured by EU-China trade war and Argentina default risks and contagion. The US holiday on Monday will mitigate any reactions, but could be a gap when the market opens on Tuesday, although that is unlikely.
Speculation is growing that South Africa will lose their last investment grade status. Moody’s is expected to move up their review from November as government takes on too much debt from Eskom. The rand will likely trade on EM flows, which will mirror the overall direction of the dollar. A downgrade to junk however should see a major selloff with the rand.
Labor Day will not be quiet at all, as the US-China trade war remains tense, as certain tariffs kick in and will start to weigh on the US economy. Politics will remain a focal point as some UK officials will try to stop Boris Johnson’s plan to suspend Parliament...READ MORE
The US dollar is lower across the board against major pairs at the end of a volatile Friday. The speech by Fed chair Jerome Powell at Jackson Hole was the main event in the radar before China announced it was escalating its trade war with the US. The dollar was on the back foot, even though the Fed remains non-committal to a monetary policy easing cycle. President Trump blasted Powell for not cutting rates and launched a new trade offensive against China.
The trade war between the two largest economies has been the main factor putting pressure on global economic growth. After several cease fires and rounds of talks the two sides remain far apart and China has surprised most, in particularly the White House, by standing their ground at the negotiating table.
Safe Haven Appeal Boosts Yen
The USD/JPY fell more than 1% percent on Friday as the yen soared after uncertainty was triggered not only by the China announcement, but by the US response on more tariffs coming. The Fed went from the main event, to a secondary act, with safe havens such as the Japanese yen, Swiss franc and gold.
The dollar was sold off against major pairs with safe havens rising not the face of a renewed round of tariffs in the prolonged US-China trade war. The JPY looks set to break under 105 ahead of the end of the week. Next week US-China headlines and comments will drive markets even as the G7 meet in France. The JPY will continue to get bid as flows will settle on the safety of the Japanese currency.
China targeted oil imports from the US and WTI fell more than 2 percent. The trade war between US and China was already the biggest factor putting pressure on crude prices as it led to the global growth downgrades and drove energy demand lower, but with tariffs directly on US energy exports US crude went into a free fall.
Brent and WTI will diverge on a weekly basis as the European benchmark will finish 1.16 percent higher, while WTI will almost mirror with a. 1.24 but on the loss column. The US boom shale has allowed the nation to be a net exporter and with this blow China hit a very strategic target. Beijing will now shift some of its energy demand to other providers with the ball on the White House on how to respond.
The new round of tariffs announced by China this morning is giving gold its time to shine. The metal has been a favoured safe haven by investors as geopolitical risk events are on the rise. China took center stage an in a vintage Kanye West move interrupted the proceedings when everyone was waiting for Fed Chair Powell, to announce the 5 to 10 percent tariffs in two rounds matching the dates imposed by the White House.
Gold is trading at $1,528 and will continue to bid as more developments are known about the US retaliation to the latest round of Chinese tariffs. Jerome Powell met most of the expectation of the Fed’s neutral stance, but the market and Trump in particular were disappointed and singled him out adding to the appeal of the yellow metal as a safe haven.
US equities were prepared to rise as the Fed would be signalling further rate cuts, but China’s latest round of tariffs took the market by surprise. Beijing is ready to apply 5 to 10 percent on $75 billion of US imports as a direct response to the tariffs announced by the US that become effective on September 1.
The China opening proved to be a tough act to follow for Jerome Powell. Trump tweeted in anticipation that “Now the Fed can show their stuff!” but he later criticised the central bank for their lack of action. The speech by the Fed chief was unsurprisingly neutral and was already in final form before the Chinese tariffs disrupted the trading session.
Trump went on the offensive and threatened escalation which hit equities directly and pushed them into the red. US markets closed more than 2 percent down for the day and a weekly loss.
The US dollar is lower across the board against major pairs at the end of a volatile Friday. The speech by Fed chair Jerome Powell at Jackson Hole was the main event in the radar before China announced it was escalating its trade war with the US...READ MORE
The GBP/USD pair quickly reversed an early dip to the 1.2100 neighbourhood and rallied around 35-pips on upbeat UK macro data, albeit lacked any strong follow-through.
A follow-through US Dollar pullback - led the ongoing freefall in the US Treasury bond yields amid the global flight to safety, helped the pair to stall its intraday downfall and once again find some support near the mentioned handle. With investors looking past last week's hawkish rate cut by the Fed, the US President Donald Trump's unexpected announcement on Thursday to slap 10% tariffs on additional $300 billion worth of Chinese goods rattled global financial markets and triggered a fresh wave of global risk-aversion trade.
Meanwhile, the British Pound got an additional boost during the early European session on Monday following the release of stronger-than-expected UK services PMI, which edged up to a nine-month high level of 51.4 in July as compared to a steady reading of 50.2 expected, albeit increasing odds of a no-deal Brexit might hold the bulls on the defensive and keep a lid on any runaway rally, at least for the time being.
It is worth mentioning that The Sunday Telegraph had quoted the UK PM Boris Johnson's senior adviser - Dominic Cummings, saying lawmakers will not be able to stop a no-deal Brexit by bringing a vote of no confidence, which did little to ease market concerns that the UK will eventually crash out of the EU on October 31 and might continue to dent the broader market sentiment surrounding the Sterling.
Apart from the incoming Brexit-related headlines, traders on Monday will further take cues from the release of the US ISM non-manufacturing PMI, which might influence the USD price dynamics and produce some short-term opportunities later during the early North-American session.
The GBP/USD pair quickly reversed an early dip to the 1.2100 neighbourhood and rallied around 35-pips on upbeat UK macro data, albeit lacked any strong follow-through...READ MORE
EUR/USD is prolonging the bounce off YTD lows near 1.1020, re-gaining over a cent and re-focusing on a potential visit to the 21-day SMA at 1.1183 in the near term...READ MORE
Here is what you need to know on Monday, August 5th:
- China retaliates to US President Donald Trump's announcement of new tariffs. The world's second-largest economy has allowed the Chinese yuan to fall beyond 7 to the US dollar. Moreover, Beijing has asked state-owned companies to stop buying US agricultural goods. Reports suggest China may not resume trade talks.
- Stocks and bond yields are falling. USD/JPY dropped below 106. Oil prices and commodity currencies are on the back foot alongside. EUR/USD is stable.
- The US Non-Farm Payrolls met expectations at 164K jobs gained while wages beat projections with 0.3% MoM. US ISM Non-Manufacturing Index is on the cards today.
- UK: The UK government is pledging funds toward the National Health Service in a move that is seen as preparations for early elections. The government's majority was squeezed after by-elections last week. Special adviser Dominic Cummings said that parliament will be unable to stop a no-deal Brexit. Markit's UK Services PMI is due.
- Bitcoin and other cryptocurrencies have enjoyed significant gains over the weekend with BTC/USD topping $11,500.
- Gold has extended its gains above $1,450.
Here is what you need to know on Monday, August 5th:READ MORE
Where do we stand
This week has seen the focus remain on central bank, particularly the disappointment with their ability to do what the market demands of them.
Last week it was Mario Draghi and the ECB that was seen to not be being dovish enough, this week it was the turn of Jerome Powell and the Fed to frustrate. It’s becoming increasingly clear how much investors are reliant on the central banks to maintain the positive momentum. Earnings season is going well relative to expectations but is still on course for an earnings recession.
UK politicians may be on summer recess but with less than three months to go until the UK leaves the EU, as it stands without a deal, I don’t think too many of Boris’ team will be off on their holidays. The PR offensive is likely to continue and so far, this hasn’t been favourable for the pound.
Trade talks resumed in Shanghai this week but it would appear they didn’t go to plan. Trump announced on Thursday that a 10% tariff will be slapped on $300 billion of imports from 1 September as he further ramps up the pressure on the Chinese regime to compromise on certain issues. While investors saw this as a sign that a Fed rate cut in September is more likely – almost guaranteed – that didn’t save the stock market which tumbled on the news.
The coming week sees a few major central bank meetings taking place and a scattering of data but it may be much quieter overall with traders left to seethe over the unwillingness of central banks to be the impulsive trigger happy officials we are usually happy they are not.
Central Banks next week
The Reserve Bank of Australia (RBA) appears to be in pause mode for now after delivering 2 consecutive rate cuts. Rates are at record lows and headline inflation did tick higher in Q2. Market pricing only assigns a 6% chance of a cut at the meeting on Tuesday.
Another surprise cut cannot be ruled out but since the RBA is focusing on the unemployment rate, we have to wait until August 15 for the next data set; If it happens, Aussie could get hit.
The Reserve Bank of New Zealand (RBNZ) last cut interest rates in May and markets are pricing in more than 90% probability of another 25bps cut on Wednesday. The RBNZ was one of the first central banks to start cutting rates by 25bps in May but held off in June.
Another 25bps rate cut from the Reserve Bank of India (RBI) is now priced in, which will be the fourth since the fourth quarter of 2018. India is facing the same issue as many other central banks: slowing growth and benign inflation. The Monetary Policy Committee has dovish leanings and market pricing suggests a more than 80% chance of a cut.
Full list of central bank meetings and speakers
Monday – No meetings or speeches
Tuesday – RBA (Australia) , Patrick Harker (Fed – Non-voter), James Bullard (Fed – voter)
Wednesday – CBH (Hungary), RBI (India), BoT (Thailand), RBNZ (New Zealand), BoJ (Japan) Summary of opinions, Charles Evans (Fed – Voter), Adrian Orr (RBNZ Governor)
Thursday – No meetings, no speeches
Friday – CNB (Czech Republic), RBA Monetary Policy Statement, Philip Lowe (RBA Governor)
Any hopes that Johnson’s victory would release some of the pressure on the pound were quickly dashed as his team seriously stepped up the Brexit no-deal PR offensive which has sent sterling spiraling. We’re now not far from post-referendum lows as no-deal is increasingly priced in. The currency is going to remain extremely volatile and vulnerable to no-deal threats. Sterling may have already fallen far but there could still be a long way to go.
No further escalations in the Persian Gulf over the last week but tensions remain high between Iran and the US/UK and the risk of further acts of hostility are likely. So far, all sides have refrained from overstepping the mark and significantly escalating the conflict but this could happen at any time, intentionally or not.The Strait of Hormuz is a hugely important passage that carries around 20% of all daily oil production. Any escalation that jeopardises this could cause sharp spikes in oil prices.
There were more anti-govt demonstrations in Hong Kong at the weekend. What began as an anti-extradition law protest has morphed into a more deep-seated protest against the government. Protests are becoming more violent, with China accusing the US of “meddling” in the situation. A notion that Washington has denied.
Relations between the coalition government’s populist partners in Italy appears to be on the mend reducing the risk of a collapse in the near-term. The risk of renewed infighting will never go away between the two parties in what will remain a fragile and fiery partnership.
North Korea has conducted three sets of “projectile” test launches in the last week. They have all been short-range missiles so far and are seen as posturing ahead of a planned August military exercise by South Korea and the US. Trump tweeted on Friday claiming these not to be in violation of the agreement signed in Singapore, just possibly a United Nations violation. This may escalate but Trump seems keen to not allow that to happen.
Bitcoin and other cryptocurrencies survived the Congressional grilling on Facebook’s proposed digital currency offering. The digital coin space has already been enduring an increased regulatory environment, but the Facebook proposed offering has caught the attention of all US government leaders. Current laws limit the reach Congress currently has on Libra since they are not a bank. The SEC could deem Libra a security and regulate them. Bitcoin’s roller-coaster ride continues and it’s anyone’s guess the extremes that prices can achieve. 10%+ days are not rare and markets are open over the weekend.
The Central Bank of the Republic of Turkey (CBRT) cut interest rates by 4.25% last week, which exceeded market expectations but didn’t come as a great surprise. TRY took the decision in its stride and has since gained ground rather than lost it. The move was a clear sign that the central bank is no longer fully acting independently and is vulnerable to further interference and therefore rate cuts which may not get such a tame response. Inflation data on Monday will attract plenty of attention following the central banks moves.
Traders are reeling from the Fed’s refusal to go full dove on Wednesday which weighed on commodities in the middle of the week. Global stimulus efforts are generally supportive but markets have been left disappointed over the last couple of weeks. Oil has its eyes on other things, be it more inventory declines, the Persian Gulf, US output and global growth which was keeping it volatile but range-bound. Trump’s comments on Friday sparked commodity markets back to life, with gold back near its highs and oil tanking on the announcement. It should keep things interesting in the coming weeks.
This week has seen the focus remain on central bank, particularly the disappointment with their ability to do what the market demands of them.Last week it was Mario Draghi and the ECB that...READ MORE
Here is what you need to know on Thursday, August 1st, European session:
- The Federal Reserve's "hawkish cut" continues supporting the USD against all other currencies. The Fed cut rates as expected amid weak inflation and weaker global demand, but stressed that the outlook is favorable for the US economy and signaled that it is only an "insurance cut" and a "mid-cycle adjustment." Chair Jerome Powell has stressed that it is not the beginning of a long recession-style cycle of rate cuts. Two hawkish members voted against the move. Stocks, oil, and gold suffered and the dollar soared.
- EUR/USD has dropped to the 1.10 handle, the lowest in two years. It also suffered amid weak core CPI in July – 0.9%, and mediocre second-quarter growth at 0.2% QoQ. It faces the final manufacturing purchasing managers' indices today.
- GBP/USD has ended its bounce and is falling as Boris Johnson's government doubled its budget set out for a hard Brexit as well as the Fed. Markit's Manufacturing PMI is set to show a deeper contraction ahead of the Bank of England's decision.
- The BOE is set to leave interest rates unchanged but may drop its intention to raise rates assuming a smooth Brexit. The global slowdown and the higher risk of a no-deal Brexit – reflected in sterling – may shift the BOE's bias. Today's event is a "Super Thursday" one with the bank publishing its Quarterly Inflation Report and holding a press conference led by Governor Mark Carney.
- The US and China have concluded the first round of face-to-face talks since May by labeling the deliberations as "constructive" and will meet again in September. The Chinese Caixin Manufacturing PMI came out at 49.9 – almost perfectly balanced between expansion and contraction.
- ISM Manufacturing PMI is the main data point today and serves as another hint toward Friday's Non-Farm Payrolls. The ADP jobs report came out within expectations at 158K.
- Cryptocurrencies have been stable with Bitcoin around $10,000.
Here is what you need to know on Thursday, August 1st, European session...READ MORE
The USD/JPY pair built on the post-FOMC positive move and rallied further beyond the 109.00 handle, hitting two-month tops on Thursday.
As was widely expected, the Fed lowered its benchmark interest rate by 25 bps for the first time since December 2008 but signalled that more rate cuts are not guaranteed. The lack of commitment further easing forced investors to scale back expectations of another rate cut in September and provided an additional boost to the recent US Dollar bullish run.
The positive momentum seemed rather unimpressed by a slight deterioration in the global risk sentiment, which tends to underpin the Japanese Yen's safe-haven demand. Against the backdrop of the Fed's hawkish rate cut, the fact that US-China trade negotiations concluded without a major breakthrough now seemed weighing on investors' appetite for perceived riskier assets.
Meanwhile, the upsurge helped the pair to finally break out of a four-day-old trading range, setting the stage for a further near-term appreciating move as market participants now look forward to the US economic docket - highlighting the release of ISM Manufacturing PMI later during the early North-American session, for a fresh bullish impetus.
The key focus, however, will remain on Friday's closely watched US monthly jobs report - popularly known as NFP, which should now act as the next catalyst and help investors determine the pair's next leg of a directional move.
As was widely expected, the Fed lowered its...READ MORE
Danske Bank analysts point out that August kicks off with a wave of PMI data across the globe.
“Given the frozen escalation of the China-US trade war and softening central banks, we are unlikely to see big changes in European figures reflecting the sentiment in manufacturing with PMIs remaining in negative territory. The US manufacturing PMI data (both ISM and Markit) could still hover just above 50.0.”
“Bank of England (BoE) will announce its decision on policy rate at 13:00 CEST, followed by the inflation report, which could reveal above-target inflation. In line with unanimous Bloomberg consensus, we expect the rate to stay unchanged at 0.75%, while BoE's tonality could become more dovish ahead of increasing uncertainty ahead of 'hard' Brexit in the environment of economic slowdown and given the possibility of a technical recession.”
“US initial jobless claims are due out this afternoon. The figure is likely to show a marginal increase in inflow of people receiving unemployment benefits, while the most recent number could still be under the 12-month average.”
Bank of England (BoE) will announce its decision on policy rate at 13:00 CEST, followed by the inflation report, which could reveal above-target inflation. In line with unanimous ...READ MORE
FX Strategists at UOB Group still expect USD/JPY to re-visit the 109.00 handle in the next weeks.
24-hour view: “Expectation for USD to edge above 109.00 yesterday did not materialize as it slipped after touching 108.94. Upward momentum has waned and the current movement is viewed as part of a consolidation phase. In other words, USD is expected to trade sideways, likely between 108.35 and 108.85”.
Next 1-3 weeks: “There is not much to add to the update from last Friday (26 Jul, spot at 108.65). As highlighted, while USD is “expected to test the solid 109.00 resistance”, it is unclear for now if USD can maintain a toehold above this level. The lackluster price action over the past couple of days offers no fresh clue and USD has to ‘punch’ above 109.00 and register a NY closing above this level in order to indicate that it is ready to tackle 109.60. Meanwhile, 108.10 is still acting as a strong support and only a break of this level would indicate that the current mild upward pressure has waned”.
“Expectation for USD to edge above 109.00 yesterday did not materialize as it slipped after touching 108.94. Upward momentum has waned and the current...READ MORE
Deutsche Bank analysts point out that today is the long-awaited Fed decision day, where markets are fully pricing in what is expected to be the first-rate cut since December 2008.
“The question still on investors’ minds is by how much the Fed will cut, and whether there’ll be any messages about the future path of rates going forward. The market currently fully prices a 25bp cut and implies a 16% chance of a larger 50bp cut. Although the Fed have given no real encouragement to the notion of a 50bps cut it’s worth noting that the last time the Fed began a series of rate cuts, in September 2007, their opening move was a 50bp cut, and a similar 50bp cut happened when the Fed began cutting in January 2001.”
“Rates were higher back then though. The last time the Fed started an easing cycle with a 25bps cut was in September 1998, when they ultimately cut rates 3 times and successfully prolonged the expansion until the recession in 2001.”
“Our US economists predict a 25bp cut, but they say that “the key question is how Chair Powell and the Committee frame the narrative for further easing through year end.” With this in mind, investors will be paying close attention to Chair Powell’s press conference. Our economists write that they “do not expect the Committee to pre-commit to another cut in September”, but instead the amount of further easing is going to be data dependent.”
“The question still on investors’ minds is by how much the Fed will cut, and whether there’ll be any messages about the future path of rates going forward...READ MORE
GBP/USD: The next support below 1.2110 is at 1.1985.
While we held the view yesterday (30 Jul, spot at 1.2225) that GBP has moved into a ‘negative phase’ and that it “could trade to 1.2110”, the subsequent rapid pace of decline was not exactly expected (GBP plunged to an overnight low of 1.2120). The downward acceleration over the past couple of days could be attributed to the lack of significant support levels. From here, if GBP were to crack 1.2110, it could lead to further steep decline as the next support is more than 100 pips lower at 1.1985. That said, 1.1985 is just a minor low in Jan 2017 (on the weekly chart) and it is left to be seen how much support it can offer (if GBP were to move to this level). Below this level, the more significant support would be the Oct 2016 ‘flash crash’ low of 1.1491. All in, despite being oversold, the current weakness in GBP is not showing sign of stabilizing just yet. Only a break of the 1.2295 ‘key resistance’ (level was at 1.2335 yesterday) would suggest that the decline in GBP is ready to take a breather.
AUD/USD: AUD could weaken further but expect strong support at 0.6830.
Our latest narrative was from Monday (29 Jul, spot at 0.6910) wherein AUD “could weaken further to 0.6870 but expect solid support near 0.6830”. AUD extended its losing streak as it touched 0.6869 yesterday (30 Jul) before closing lower for the 8 straight day. While the decline is overextended, there is still no sign of stabilization and AUD could weaken further in the coming days. That said, we continue to expect 0.6830 to offer solid support (in other words, the prospect for a sustained decline below this level is not high). On the upside, AUD has to break the 0.6945 ‘key resistance’ (level previously at 0.6975) in order to indicate that the weakness has stabilized.
NZD/USD: Mid-July low near 0.6565 is unlikely to come into the picture unless there is a NY close below 0.6610.
While NZD dipped below 0.6610 and touched 0.6602 yesterday (30 Jul), it recovered slightly and closed at 0.6615 in NY. As highlighted on Monday (29 Jul, spot at 0.6635), the mid-July low near 0.6565 is unlikely to come into the picture unless there is a NY close below 0.6610. After yesterday’s price action, the prospect for a move to 0.6565 has increased. All in, the weakness in NZD that started a week ago (24 Jul, spot at 0.6705) is deemed as intact unless NZD can move above the 0.6650 ‘key resistance’ (level was previously at 0.6690).
While we held the view yesterday (30 Jul, spot at 1.2225) that GBP has moved into a ‘negative phase’ and that it “could trade to 1.2110”,..READ MORE
Gold struggled to capitalize on the overnight goodish up-move and traded with a mild negative bias through the early European session on Tuesday.
The precious metal failed to build on its modest uptick witnessed over the past two trading session and was now being weighed down by a combination of negative factors - including the prevalent bullish sentiment surrounding the US Dollar and improving global risk sentiment.
The greenback remained well supported near two-month tops amid a pickup in the US Treasury bond yields and exerted some pressure on the dollar-denominated commodity. This coupled with optimism over a possible resolution of the prolonged US-China trade disputes further dented the precious metal's relative safe-haven status.
The downside, however, remained cushioned ahead of the highly anticipated FOMC monetary policy decision, scheduled to be announced on Wednesday and should play a key role in determining the next leg of a directional move for the non-yielding yellow metal.
Adding to this, fresh trade-related headlines coming out of the high-level trade negotiations between the world's two largest economies might further influence the broader market risk sentiment and collaborate towards producing some meaningful trading opportunities.
Apart from this, Tuesday's US economic docket - featuring the releases of Personal Income and Spending data, the core PCE price index (the Fed's preferred inflation gauge) and the Conference Board's Consumer Confidence Index will be looked upon for some impetus later during the early North-American session.
Gold struggled to capitalize on the overnight goodish up-move and traded with a mild negative bias through the early European session on Tuesday...READ MORE
Deutsche Bank analysts note that the BoJ kept its monetary policy unchanged at their meeting overnight maintaining the settings on its yield curve-control program and asset purchases while also keeping its interest rate pledge the same as before.
“The accompanying statement added a new sentence that, "In particular, in a situation where downside risks to economic activity and prices, mainly regarding developments in overseas economies, are significant, the Bank will not hesitate to take additional easing measures if there is a greater possibility that the momentum towards achieving the price stability target will be lost."
“We are slowly moving that way as the BoJ revised down both the core inflation and growth forecasts for 2019 by one-tenth to +1.0% and +0.7%, respectively.”
BoJ kept its monetary policy unchanged at their meeting overnight maintaining the settings on its yield curve-control program and asset purchases while also keeping its interest rate pledge the same as before...READ MORE
EUR/USD: EUR is still under pressure but too early to tell if it could move and stay below 1.1100.
After EUR traded within a wide range of 1.1100/1.1187 last Thursday (25 Jul), we indicated on Friday (26 Jul, spot at 1.1145) that it is “too early to tell whether EUR could move and stay below 1.1100”. We added, “EUR could consolidate and trade sideways for a few days”. From that perspective, the relatively quiet price action over the past couple of days was not surprising (EUR traded between 1.1110 and 1.1150 for the past two days). At this stage, it is still not clear whether EUR could move and stay below 1.1100. That said, the downside risk is clearly higher and only a break of the 1.1200 ‘key resistance’ (no change in level) would indicate that the recent weakness in EUR has stabilized.
GBP/USD: GBP in a ‘negative phase’, could trade to 1.2110.
While we expected GBP to trade with a ‘downside bias’ yesterday (29 Jul, spot at 1.2380), we indicated we have “doubts about the sustainability of any decline”. The manner of which GBP subsequently crashed through our support levels at 1.2340 and 1.2300 has put our doubts to rest. From here, instead of trading with a ‘downside bias’, GBP is deemed to have move into a ‘negative phase’ and could weaken further to the next support at 1.2110. Only a move above the 1.2335 ‘key resistance’ (level was a strong resistance at 1.2460 yesterday) would indicate that the current weakness in GBP has stabilized.
USD/JPY: USD is expected to test the solid 109.00 resistance.
There is not much to add to the update from last Friday (26 Jul, spot at 108.65). As highlighted, while USD is “expected to test the solid 109.00 resistance”, it is unclear for now if USD can maintain a toehold above this level. The lackluster price action over the past couple of days offers no fresh clue and USD has to ‘punch’ above 109.00 and register a NY closing above this level in order to indicate that it is ready to tackle 109.60. Meanwhile, 108.10 is still acting as a strong support and only a break of this level would indicate that the current mild upward pressure has waned.
After EUR traded within a wide range of 1.1100/1.1187 last Thursday (25 Jul), we indicated on Friday (26 Jul, spot at 1.1145) that it is “too early to tell whether EUR could move and stay below 1.1100”. ..READ MORE
The selling bias around the British Pound has gathered extra pace in the past hours and is now pushing EUR/GBP further north of the psychological 0.90 handle, or fresh 2-week highs.
EUR/GBP looks to Brexit, UK politics
The European cross has started the week on a positive note and is extending the recovery after bottoming out in the 0.8890 region soon after Boris Johnson was elected new UK PM.
However, Brexit jitters and the increasing likelihood of a ‘no deal’ scenario have all returned to the fore and keep weighing on the Sterling following B.Johnson rhetoric around the Irish backstop and his request for the EU to drop it, a condition sine qua non to resume talks between Brussels and London.
In the docket, BoE’s Consumer Credit expanded £1.04 billion during June and Mortgage Approvals ticked higher to 66.44K in the same period, both prints surpassing initial estimates.
Despite the up move, the cross is expected to remain under scrutiny in light of the potential dovish move from the ECB in the next weeks. Later this week, the single currency should also be under pressure following the key FOMC event (Wednesday).
What to look for around GBP
The Sterling remains under heavy pressure and it has quickly faded a relief rally soon after Boris Johnson was elected new UK Prime Minister. Investors’ attention has now returned to UK politics amidst rising bets of a ‘no deal’ scenario, while any progress in the negotiations between London and Brussels is expected to exclusively gyrate around the Irish ‘backstop’ issue. Back to the UK economy, poor results from key fundamentals continue to add to the sour prospects for the economy in the months to come and collaborate further with the bearish view on the currency. On another direction, the overall tone from the BoE appears to have shifted towards a more dovish gear, while markets have started to price in the likeliness of a rate cut at some point in Q3/Q4.
EUR/GBP key levels
The cross is gaining 0.37% at 0.9017 facing the next barrier at 0.9051 (monthly high Jul.17) seconded by 0.9092 (2019 high Jan.3) and finally 0.9098 (2018 high Aug.28). On the downside, a breach of 0.8904 (55-day SMA) would expose 0.8891 (monthly low Jul.25) and then 0.8872 (low Jun.20).
The selling bias around the British Pound has gathered extra pace in the past hours and is now pushing EUR/GBP further north of the psychological 0.90 handle, or fresh 2-week highs...READ MORE
Analysts at TD Securities suggest that the BoJ could be moving towards strengthening its forward guidance following a likely Fed rate cut though TD think they will be more patient than other major central banks.
“The BoJ has sounded more dovish of late, highlighting downside risks from weaker external demand while keeping their options open to further easing should the economy lose momentum. So far that has not been the case, with data over recent weeks such as industrial production, holding up well although there has been some softening in the Tankan.”
The BoJ has sounded more dovish of late, highlighting downside risks from weaker external demand while keeping their options open to further easing should the economy lose momentum...READ MORE
GBP/USD: GBP expected to trade with a ‘downside bias’ to 1.2340, possibly 1.2300.
The week-long ‘sideway-trading phase’ that started on (19 Jul, spot at 1.2540) has ended as GBP not only cracked the bottom of our expected 1.2400/1.2580 range last Friday (26 Jul) but also registered a fresh year-to-date (and two-year) low of 1.2377. While further GBP weakness would not be surprising, we have doubts about the sustainability of any decline (would prefer to see GBP spend a longer time unwinding from oversold conditions). For now, we expect GBP to trade with a ‘downside bias’ to 1.2340. A dip below this level is not ruled out but note that there is another relatively strong support at 1.2300. On the upside, GBP has to reclaim 1.2460 in order to indicate that the current weakness has stabilized.
AUD/USD: AUD could weaken further to 0.6870 but expect solid support near 0.6830.
While we detected the improvement in momentum last Friday (26 Jul, spot at 0.6950) and cautioned that the ‘downside bias’ that started on Wednesday (24 Jul, spot at 0.7000) could “weaken further”, the ease of which AUD took the mid-July low near 0.6910 came as a surprise (low of 0.6903). Note that AUD closed lower for the sixth straight day on Friday; the last time we witnessed such extended decline was in early to mid-June (AUD subsequently reversed its decline as it rebounded strongly from 0.6835). From here, we see chance of AUD weakening to 0.6870 but for now, the June’s low near 0.6830 is expected to offer solid support. On the upside, the ‘key resistance’ has moved lower to 0.6975 from 0.7005. AUD has to break the ‘key resistance’ in order to indicate that the downward pressure has eased.
NZD/USD: Mid-July low near 0.6565 is unlikely to come into the picture unless there is a NY close below 0.6610.
As highlighted last Friday (26 Jul, spot at 0.6660), a break of 0.6645 would increase the risk of further NZD weakness to 0.6610. While NZD took out 0.6645 without much difficulty (low of 0.6626), the current weak phase in NZD that started last Tuesday (24 Jul, spot at 0.6705) appears to be running too fast, too soon and NZD has to register a NY closing below 0.6610 or the mid-July low near 0.6765 is unlikely to come into the picture this time round. All in, NZD is expected to stay under pressure until it can reclaim 0.6690 (level was at 0.6725 last Friday).
The week-long ‘sideway-trading phase’ that started on (19 Jul, spot at 1.2540) has ended as GBP not only cracked the bottom of our expected 1.2400/1.2580 range last Friday (26 Jul) but also registered a fresh year-to-date (and two-year) low of 1.2377. ..READ MORE
USD/CAD Canadian Dollar Lower as Dollar Gets GDP Boost
The Canadian dollar fell 0.92 percent against the US dollar in the last five trading sessions. The loonie is trading at 1.3180 versus the USD after the GDP data lifted the American currency higher by beating expectations. The data shows a slowdown of the US economy, but the fact that consumer spending is strong backs the view of the Fed on the transitory nature of the current slowdown.
The Fed is heavily anticipated to make the first interest rate cut of a new monetary policy easing cycle on July 31. The improved GDP data does not change the forecast on that, but it does reduce the probability of a potential 50 basis points, and the number of rate cuts for the rest of 2019.
Canadian data has declined, and investors will be looking at GDP data on Wednesday ahead of the main event of the week when the Fed delivers its rate statement. Later in the week, employment data will hit the wires for both the US and Canada. The American number will be heavily scrutinized looking for arguments to validate the Fed’s views from the FOMC statement and press conference.
The U.S. non farm payrolls (NFP) is forecasted to show a gain of 170,000 jobs added to the economy in July, while in Canada the expectations are for a bounce of the losses last month, to add around 10,000 jobs.
Fed to Lead Central Bank Easing Once Again
The US dollar is higher across the board against major pairs. The better than expected GDP data with the greenback rising, even as the Fed will be on deck during the week to restart an easing monetary policy cycle with an interest rate cut. The market has already priced in a 25 basis point rate cut but given the strong fundamental data of late a 50 basis points slash is looking unlikely.
The week will be packed to the brim with central banks: Bank of Japan (BOJ), Bank of England (BoE) and the Federal Open Market Committee (FOMC) and economic data: US consumer confidence, Chinese manufacturing PMIs and the release of employment data in the US.
The Federal Open Market Committee (FOMC) will wrap its two-day meeting on July 31 with the publication of the interest rate statement at 2:00 pm EDT to be followed by a press conference hosted by Fed Chair Jerome Powell at 2:30 pm EDT. The actions of the Fed could be limited by improving economic indicators, but Powell is expected to continue a dovish rhetoric line that puts downward pressure on the USD.
Euro Closes Gap on USD as ECB Disappoints with Lack of Action
The EUR/USD lost 0.84 percent in the last five trading sessions. The single currency is trading at 1.1126 and is the major currency that depreciated less versus the dollar. The European Central Bank (ECB) held its monetary policy meeting on Thursday with anticipation of stronger dovish rhetoric and a possible interest rate cut, putting the benchmark rate deeper into negative territory.
ECB President Mario Draghi laid the groundwork for further easing in the next meeting to take place in September, but despite hitting all the right dovish notes, like the overuse of “worse” in describing the outlook for manufacturing and services did not go dovish enough for the market with the euro bouncing back with every answer the ECB chief gave to reporters.
Draghi will step down from the ECB in October and at this point looks to keep the central bank steady, ahead of the change in leadership. Former IMF chief Christine Lagarde will take the reins of the ECB, but only after Mario Draghi takes one more chance at “whatever it takes”.
Bank of Japan (BOJ)
The BOJ is in the same boat as the ECB. There is a small probability of adding more stimulus in July or wait until the effects of the Fed rate cut trickle down. The JPY has risen both due to the safe haven appetite and the Fed’s plans to cut interest rates in 2019.
A surprise rise in domestic demand has offset the drop in exports, but it is hard to depend on Japanese consumers finally stepping up against the backdrop of rate cuts from other major central banks.
The BOJ is expected to tweak the guidance and be vigilant of market conditions before adding more stimulus.
Federal Open Market Committee (FOMC)
Financial news services are conducting polls where economists and analysts are putting down a 25 basis points cut as the most likely outcome at the end of the two-day FOMC meeting. The market could still read that as disappointing given the dovish turn of the Fed since January.
Fed members have talked down the probability of a 50 basis points as they want to stress the central bank is playing the long game. The press conference will be key as Fed Chair will get the last word on how dovish the central bank really is about the economy as the US will be back in talking terms with China on trade.
The US-China trade war is the biggest headwind for the Fed, but in the background the White House has been on a constant campaign to get lower rates. A deal with China might be reached, but the Trump administration will continue to harp about lower rates.
Bank of England (BoE)
As Boris Johnson takes over from Theresa May, the BoE is under market pressure to cut rates. A no-deal Brexit is back on the table with Johnson at the helm, but even then, the BoE’s Chief Economist says it’s not an automatic rate cut. The central bank would like to see a short economic downturn in order to act. Holding rates unchanged until there is a reason to change them might sound like simple sound advice, but this is the bigger question facing central banks. What happens if by waiting they add to the stress of the economy and worsens the outcome?
Mark Carney’s term will finish in January 2020 leaving the rockstar central banker plenty of time to influence monetary policy and respond to a crisis if needed. The market has lost some trust in the BoE as economic forecasts, in particular inflation have recorded big misses. This time around by sticking to its economic guns, the BoE sees a rate hike more likely than a cut, even as other major central banks have joined the dovish choir.
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Rabobank analysts point out that in the UK, the Conservative party has elected Boris Johnson to be the new leader of the party and Prime Minister (PM) of the country and his first speech and cabinet appointments reflect his tough electoral rhetoric on Brexit.
“Time is a major constraint and not on the new PM’s side, who has a maximum of 6 weeks to deliver Brexit.”
“If the new UK PM opts for a hard Brexit once EU negotiations fail, he will face firm opposition from the British Parliament.”
“Such a conflict is likely to lead to an early general election, an outcome the new PM might be able to avoid by opting for a second referendum.”
“Either way, a third extension of article 50 by the EU will be necessary and we regard that as the most likely option on 31 October.”
“The odds of a hard Brexit on 31 October remain uncomfortably high.”
“In 2020 we still see the same three possible Brexit outcomes, but the odds of the three are closely tied, with an orderly Brexit being slightly more likely than a Bremain or a hard Brexit.”
Rabobank analysts point out that in the UK, the Conservative party has elected Boris Johnson to be the new leader of the party and Prime Minister (PM) of the country and his first speech and cabinet appointments reflect his tough electoral rhetoric on Brexit...READ MORE
ANZ analysts suggest that the most talked about event in financial markets in recent months, the July FOMC meeting, is the key risk event in the week ahead.
“With the market still pricing in a chance of a 50bp move, we think there is scope for disappointment. The US data pulse has been broadly positive since the June meeting and this obviously lifts the probability of Chair Powell taking a more cautious tone than the market is expecting.”
ANZ analysts suggest that the most talked about event in financial markets in recent months, the July FOMC meeting, is the key risk event in the week ahead...READ MORE
EUR/USD remains well under downside pressure after recently breaching the key contention area at 1.1181/76...READ MORE
Gold reversed an early dip during the Asian session on Thursday and climbed to fresh session tops, around the $1427 region in the last hour.
News that North Korea fired two short-range missiles into the sea early on Thursday helped revive the precious metal's safe-haven demand and turned out to be one of the key factors behind the intraday uptick.
However, the prevalent bullish sentiment surrounding the US Dollar, coupled with a positive trade-related development kept a lid on any strong follow-through move for the dollar-denominated commodity.
It is worth reporting that China’s Commerce Ministry confirmed earlier this Thursday that top US negotiators will meet their Chinese counterparts and resume in-person trade talks in Beijing on July 31-August 1.
This coupled with the fact that investors have been scaling back expectations of a 50 bps rate cut by the Fed at its upcoming meeting might further collaborate towards capping gains for the non-yielding yellow metal.
Hence, it will be prudent to wait for a strong follow-through buying beyond weekly swing high resistance near the $1430 region before traders start positioning for any further near-term appreciating move for the commodity.
Later during the early North-American session, the US economic docket - highlighting the release of durable goods orders data, might influence the USD price dynamics and assist traders to grab some short-term opportunities.
Gold reversed an early dip during the Asian session on Thursday and climbed to fresh session tops, around the $1427 region in the last hour...READ MORE
Danske Bank analysts suggest that today's key event will be the ECB meeting as with economic data remaining lacklustre, the case for additional stimulus has strengthened.
“In a first step, we expect the Governing Council today to adjust the forward guidance to signal the possibility of lower policy rates in the future. This should set the scene for a comprehensive easing package to be unveiled at the September meeting. Markets continue to price in a c.40% probability of a 10bp cut at the July meeting and might hence be disappointed by the lack of action. However, we expect any sell-off to be short-lived as focus quickly reverts to the September meeting.”
“Earlier in the day, the German Ifo figures for July are due out and markets will monitor whether they bear the same dire message as yesterday's PMIs. Both the PMI and ZEW surveys point to more weakness to come for Ifo expectations.”
“As the US reporting season continues, markets will keep an eye on June durable goods orders for signs of weakness in the capex cycle ahead of tomorrow's Q2 GDP print.”
“Pedro Sanchez faces a second vote in parliament over his reappointment as PM. If he falls short of a simple majority, Spain is heading for its fourth election in as many years.”
“In the emerging markets space, focus reverts to Turkey. The muted reaction of the TRY to Erdogan's dismissal of central bank governor Cetinkaya and the U-turn by global central banks should allow the Turkish central bank to ease policy today without triggering a major sell-off in the TRY in our view.”
Danske Bank analysts suggest that today's key event will be the ECB meeting as with economic data remaining lacklustre, the case for additional stimulus has strengthened...READ MORE
Gold prices edged higher through the early European session on Wednesday and recovered a part of the previous session's slide to near one-week lows.
The precious metal stalled its recent corrective slide from fresh multi-year tops and managed to find decent support near the $1414 region on Tuesday, with reviving safe-haven demand helping regain some positive traction on Wednesday.
The International Monetary Fund on Tuesday lowered its global growth forecast for the second time this year, which fueled concerns over the global economic outlook and turned out to be a key factor that underpinned the precious metal's safe-haven demand.
However, the latest optimism over a positive trade-related development, coupled with the ongoing US Dollar bullish run to multi-week lows might keep a lid on any strong follow-through up-move for the dollar-denominated commodity.
Moreover, the fact that investors continued scaling back expectations for an aggressive monetary easing by the Fed at its upcoming meeting on July 30-31 might further collaborate towards capping gains or driving flows away from the non-yielding yellow metal.
Hence, it will be prudent to wait for a sustained move beyond weekly tops - around the $1430 region, before traders again start positioning for the resumption of the prior bullish trend and a possible move back towards challenging multi-year tops.
Gold prices edged higher through the early European session on Wednesday and recovered a part of the previous session's slide to near one-week lows...READ MORE
The chief EMEA FX and IR strategist at ING, points out that in the UK, after winning the leadership battle with a comfortable margin (with around two thirds of the votes), Boris Johnson is set to appoint senior cabinet figures this evening, with more pro-Brexit candidates being appointed.
“Like his predecessor, the new PM is likely to face an uphill battle given the divided parliament and no consensus on the shape of a Brexit deal among MPs. As a result, we think a general election is increasingly likely - maybe even inevitable. This suggests a softer pound (EUR/GBP closer to 0.95 and GBP/USD below 1.20 in the case of a general election) meaning that any GBP strength should be faded in our view.”
Like his predecessor, the new PM is likely to face an uphill battle given the divided parliament and no consensus on the shape of a Brexit deal among...READ MORE
The selling bias around the single currency stays everything but unabated so far today, with EUR/USD recording fresh multi-week lows in the vicinity of 1.1120.
EUR/USD now looks to ECB, YTD lows
The pair gained extra downside momentum after advanced prints from manufacturing PMIs in core Euroland are expected to deteriorate further in July.
In fact, the French PMI came in at 50.0 (vs. 51.6 forecasted), the German gauge is seen dropping to 43.1 (vs. 45.1 previously estimated) and the flash print in the broader euro area is forecasted to drop to 46.4 (vs. 47.6 anticipated).
Further publications saw the M3 Money Supply in the region expanding at an annualized 4.5%, also coming in short of expectations.
In a context where the greenback keeps dominating the sentiment, spot is expected to remain under heavy pressure in the next hours ahead of the ECB event and amidst increasing bets of an announcement of looser monetary conditions in the region.
What to look for around EUR
Rising odds for fresh monetary easing by the ECB later in the week - in the form of interest rate cuts, the resumption of the QE programme and potential changes in the forward guidance - have been hurting the mood in EUR while keeping buyers at bay at the same time. The deep pullback in the pair now carries the potential to visit yearly lows in the 1.1100 area and probably below in case the ECB delivers tomorrow.
EUR/USD levels to watch
At the moment, the pair is retreating 0.10% at 1.1140 and faces immediate contention at 1.1116 (monthly low May 30) seconded by 1.1109 (low Apr.26) and finally 1.1106 (2019 low May 23). On the upside, a breakout of 1.1286 (high Jul.11) would target 1.1311 (200-day SMA) en route to 1.1412 (high Jun.25).
The selling bias around the single currency stays everything but unabated so far today, with EUR/USD recording fresh multi-week lows in the vicinity of 1.1120...READ MORE
Extra buying impulse should lift the index to June tops around 97.80, at shouting distance from the key barrier at 98.00 the figure...READ MORE
24-HOUR VIEW EUR could drift lower to 1.1195. Expectation for EUR to “dip below the strong 1.1200 support” did not materialize as it traded within a tight range of 1.1204/1.1225. The underlying tone still appears soft and from here, EUR could drift towards 1.1195. The next support at 1.1180 is a stronger level and is unlikely to yield. Resistance is at 1.1225 but the stronger level is at 1.1240.
1-3 WEEKS VIEW EUR is expected to trade with sideways. EUR traded in a very tight range of 21 pips yesterday (between 1.1204 and 1.1225). This is the smallest 1-day range since April 2014. We continue to hold the same view wherein the “outlook for EUR is mixed” and it is “likely to trade sideways in an ‘undecided’ manner”. For now, a 1.1160/1.1300 range is likely enough to contain the price action in EUR, at least for several more days.
24-HOUR VIEW GBP is expected to trade sideways, likely between 1.2445 and 1.2515. GBP traded between 1.2456 and 1.2518, narrower than our expected sideway trading range of 1.2460/1.2550. Momentum indicators are still most ‘neutral’ and GBP is expected to continue to trade sideways, albeit likely at lower range of 1.2445/1.2515.
1-3 WEEKS VIEW GBP is likely to trade sideways. GBP slipped to 1.2456 and closed lower for the second straight day (1.2479, -0.21%). While we continue hold the view that GBP is “likely to trade sideways”, the positive underlying tone detected previously has dissipated. In other words, our expectation for GBP to “test the top of the expected sideway range of 1.2430/1.2640 first” is unlikely to materialize. From here, GBP is expected to continue to trade sideways, even though likely at a lower and narrower range of 1.2400/1.2580.
24-HOUR VIEW AUD is expected to continue to trade sideways, likely within a 0.7020/0.7060 range. AUD registered a range of 0.7031/0.7058, narrower than our expected range of 0.7020/0.7065. The quiet price action offers no fresh clue and AUD could continue to trade sideways for now. Expected range for today, 0.7020/0.7060.
1-3 WEEKS VIEW Prospect for further AUD strength has diminished. Despite breaking the strong resistance levels at 0.7050 and 0.7070 last week (and closing at a 3-month high last Thursday, 18 Jul), AUD has not been able to build on its momentum. For now, we continue to hold the view that AUD could extend its advance even though the prospect for further strength has diminished. On the downside, a break of the 0.7000 ‘key support’ (no change in level) would indicate that our view for a move to 0.7110 is incorrect.
24-HOUR VIEW NZD could drift lower but any weakness is viewed as a lower trading range of 0.6740/0.6785. We expected NZD to trade sideways within a 0.6740/0.6780 range yesterday. However, NZD traded in a quiet manner and within a narrower range than expected (0.6757/0.6786). The subsequent daily closing is on the soft side and from here, NZD could drift lower to 0.6740. For now, any down-move is viewed as part of a lower 0.6740/0.6785 range and a sustained decline is not expected.
1-3 WEEKS VIEW Risk of a short-term top has increased. Despite overall positive indications, NZD has not been able to capitalize on its strong advance from last week. The relatively rapid retreat from last Friday’s (19 Jul) 0.6789 peak has dented the upward momentum and our view for NZD to “extend its gains to 0.6815” is likely incorrect. From here, a dip below the 0.6725 ‘key support’ would indicate that 0.6789 is a short-term top and NZD is then likely to trade sideways for period. In order to revive the rapidly waning momentum, NZD has to move and stay above 0.6785 within these 1 to 2 days or the risk of a short-term top would increase quickly.
24-HOUR VIEW USD is expected to trade sideways, likely within a 107.70/108.10 range. We highlighted yesterday USD “could test 108.00 but any advance is viewed as a higher trading range of 107.40/108.00”. USD subsequently touched 108.06 briefly before trading sideways for rest of the session. Momentum indicators are mostly ‘neutral’ now and USD is likely to continue to trade sideways for today, albeit likely at a slightly higher range of 107.70/108.10.
1-3 WEEKS VIEW USD is likely to trade sideways. The relatively strong rebound from last Thursday (18 Jul) steep decline was not exactly expected. While we “have doubts about the sustainability of any USD weakness”, we expected USD to “trade with a downside bias”. The price action over the past couple of days suggests that USD is likely caught in a broad 107.40/108.40 range.
EUR could drift lower to 1.1195. Expectation for EUR to “dip below the strong 1.1200 support” did not materialize as it traded within a tight range of 1.1204/1.1225. The underlying tone still appears soft and from...READ MORE
The head of commodity strategy at TD Securities, suggests that fears that weak demand will negate OPEC+ cuts, speculation that millions of Iranians barrels are about to hit the market and outsized US inventories have depressed crude oil prices recently.
“This has occurred despite numerous escalations of tensions between the west and Iran in the Strait of Hormuz. WTI prices have fallen into $55/b territory last week, near levels which could well drive trend following CTAs to aggressively build additional short exposure.”
“Weak economic data in China and around the world has some observers believing that demand may drop by as much as 400,000 b/d next year, which could well drive the market into a surplus again and force prices lower. More immediately, as many as ten very-large crude carriers and two smaller tankers owned by the state-run National Iranian Oil Company are believed to be sailing toward or idling in Chinese ports. These vessels can carry some 20 million bbls combined, and have not been cleared by Chinese costumes.”
“Once this crude lands, it is likely that future Chinese imports would drop for a while, applying significant downward pressure on prices. This to some extent explains the recent price drop to support levels. The reason that crude is maintaining the current price is the rising tensions in the Middle East, particularly the Strait of Hormuz which is the most important global choke point which could cause a massive shortage.”
“The risk premium has gone up after Iran seized two UK-linked tankers in the area. The good news is that UK and Iran are de-escalating, but it could also mean that the pure fundamentals may take over, sending prices below $55/b and trigger CTA selling.”
“We judge that there is little appetite for a shooting war at this stage, but we also believe that tensions and the risk premium will remain, preventing a rout. We also see demand to remain firmer than many expect, and continue to see modest upside as the summer unfolds and US inventories fall.”
fears that weak demand will negate OPEC+ cuts, speculation that millions of Iranians barrels are about to hit the market and outsized US inventories have depressed crude oil prices recently...READ MORE