Brexit progress drives USD down The greenback remains on the defensive for a third day in a row on Thursday. The key reason behind its local weakness is a meaningful progress on Brexit as Theresa May got cabinet approval for her draft agreement which fuelled sterling and euro rally. By the way, the buck is also lower against the Japanese yen even as inves-tor sentiment in the global financial markets is improving gradually on Thursday.
USDJPY failed to make a clear break above the 114.00 threshold earlier this week and remains under a limited selling pressure, holding above 113.00. On Wednesday, the pair was dragged down by risk aversion and lower US 10-year Treasury yields which declined to the lowest since late-October.
As the sentiment improves, the price could resume the upside move down the road. But the key obstacle for dollar bulls is Brexit-fuelled pound optimism. So any negative headline from London or Brussels could spark a bearish correction in the cable, which in turn will support the greenback.
In the short term, traders will focus on the US retail sales report. Market expectations are for a recovery in the retail sales excluding cars by 0.5% versus the previous result of -0.1%. If so, the USD bulls will regain control as strong numbers will cement the December rate hike expectations.
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EURUSD remains vulnerable It looks like the dollar demand is back after yesterday’s correction, with EURUSD is under a bearish pressure again, while the pound seems to be losing its Brexit-related enthusiasm. Despite the fresh headlines from Lon-don could yet fuel another sterling rally, a wider picture shows that the greenback remains strong, mainly due to monetary policy divergence.
The euro rallied against the USD on Tuesday but failed to regain the 1.13 figure which confirms that the Europe-an currency stays rather unattractive for buyers because of budget issues in Italy and more signs of slowing growth in the euro area. As such, the Q3 German GDP contracted 0.2% vs. -0.1% expected. That's the weakest quarterly growth since Q1 2013 and another argument against a rate hike by the ECB.
Another bearish factor for the European currency is the prevailing risk aversion in the global financial markets. There are still a number of risks including trade wars, Italy, Brexit, slowing global growth and falling oil prices. The latter is the strongest drag on risk sentiment right now. So should crude oil prices fail to shift to a recovery mode any time soon, the euro could get under additional pressure.
Technically, EURUSD needs to firmly regain the 1.13 threshold in order not to challenge the 1.12 support in the days to come.
Oil prices depressed by dollar rally Crude oil prices lick wounds after another aggressive sell-off. Brent slipped below the $69 figure for the first time since April and struggles to get back above $70 on Tuesday as concerns over a weaker global demand still prevail in the market.
The recent decline in prices was fuelled by dollar rally. The American currency is on the rise due to monetary policy divergence coupled with the issues on Brexit and Italy’s budget. And the prevailing risk aversion only adds to the selling pressure in commodities.
On Monday, Saudi Arabia announced crude oil production cut by 500K barrels per day starting from December. But this was not enough to fuel a sustainable rally as traders continue to focus on demand prospects amid signs of slowing global growth.
Technically, Brent needs to get back above the $70 threshold in order to see a weaker selling pressure. To do this, the market needs a more sustainable improvement in risk sentiment along with a healthy USD correction.
The immediate risk event for the market is API report due later today. Further increase in crude oil stockpiles will limit the recovery potential.
Further EURUSD weakness may be in the cards The euro continues to grind lower on Monday with the EURUSD pair has lost the 1.30 handle for the first time since mid-2017 against the backdrop of a stronger USD index that hit a 17-month high earlier in the day.
The buck is widely supported by investor expectations on further tightening by the Federal Reserve. By the way, the December rate hike has been priced in already, and the current market optimism is more based on expectations of at least three more hikes in 2019. And the solid economic fundamentals from the US only support this view.
Apart from strong dollar, the euro is under pressure amid the continued Italy’s budget woes. Tomorrow the deadline expires that the EU officials set for the country to present a revised budget plan. But as we know, Rome has refused to change its initial plan, so there are further risks from this front for the European currency.
Technically, the initial target for the euro bulls now comes at 1.13. Meanwhile, on the downside, the pair may extend losses to 1.12 and below should the dollar strength persist in the nearest future.
Crude oil market lays hopes on OPEC Crude oil market has mostly ignored the speculations on a possible OPEC output cut in 2019. Brent has expended its bearish path to seven-month lows marginally above the $70 crucial handle on Friday as concerns over global oversupply weight. The dollar continued its advance after the hawkish FOMC statement, which adds to the selling pressure.
As the US sanctions on Iran turned out less aggressive than investors expected, the worries about oversupply reemerged, in addition to risks of a weaker demand amid the increasing signs that world economic growth is slowing. Besides, the US and Russia are pumping record volumes.
But Brent still has a chance to refrain from a more aggressive plunge as OPEC'sJoint MinisterialMonitoring Committee will meet this weekend in AbuDhabi, where ministers could discuss and recommend a cut in production, citing the mentioned risks.
In the short-term, however, Brent will likely remain under pressure, especially if today’s Baker Hughes report points to another rise in rig counts in the US.
Gold sell-off could intensify after FOMC The yellow metal is suffering losses for a fifth day in a row after an impressive rally that took place last Thursday. Today, gold prices have eroded the $1,222 handle and now threaten to challenge the $1,220 support level. The dollar regains strength following a bearish knee-jerk reaction to the midterm election outcome, which increases the downside risks for the bullion.
The market focus has shifted to the FOMC meeting that concludes later today. The Federal Reserve is expected to take a positive stance on further monetary tightening, citing healthy economic fundamentals in the US. The central bank will also likely confirm its commitment to another rate hike in December. Such a scenario will be USD-positive and could accelerate its recovery against major rivals.
If so, gold prices could grind even lower amid the combination of a stronger greenback and a relatively robust risk appetite. However, the downside potential looks limited at this stage as the Fed will hardly be able to spark a sustainable rally in the buck.
Dollar may regain strength after the election dust settles The greenback is edging lower on Wednesday amid profit-taking as midterm election outcome matched market expectations. During the European session the dollar got under the renewed selling pressure as investors continue to digest election results.
However, after the dust settles, the buck could regain strength and move to the offensive amid positive expectations ahead of the FOMC meeting which concludes on Thursday. The fact that Democrats took control of the House of Representatives will hardly affect the Fed policy, at least in the medium term. Therefore, the central bank will likely reiterate that the policy remains accommodative and that further progress on hiking rates is needed.
As soon as the market shifts its focus from the elections to the Fed meeting, the downside pressure on the USD could ease, which will open the way to a rebound in the greenback across the board. In this scenario, EURUSD will fail to challenge the 1.15 barrier, while GBPUSD could get back below 1.31.
USDJPY: upside risks ahead The USDJPY pair is extending gains on Tuesday with the price has refreshed a one-month high of 113.44 before a partial retracement. The risk-on sentiment is prevailing in the global financial markets, which caps the safe haven yen demand.
Investors are rather cautious ahead of midterm elections in the US. The base case scenario implies that Republicans retain a majority in the Senate while with Democrats reclaim control of the House of Representatives. As history shows, such an outcome could bode well for stocks and riskier assets. As such, risk appetite could improve following the elections and thus put the Japanese yen under a more intense downside pressure.
And let’s not forget that the two-day FOMC meeting that concludes on Thursday could fuel USD demand. Despite the central bank is not expected to hike rates in November, the buck could be well inspired by confirmation of the tightening path against the backdrop of still solid fundamentals.
As such, the pair still has a chance to challenge the 114.00 threshold should the upcoming events play in favor of the greenback.
GBPUSD: Irish border remains the key sticking point The volatile pound rose decently last week, though the gains were still modest as compared to the decline a week earlier. GBPUSD regained the 1.30 handle and keeps above this level on Monday but struggles to proceed with the recent rally amid the conflicting signals.
The optimism was capped by another disappointing UK economic data. October’s service PMI fell to a seven-month low and the composite index was the weakest since July 2016. Importantly, business expectations fell to 63.1 in October – this is the weakest reading in over two years. The figures point to Brexit uncertainty is dragging down the UK economy.
Meanwhile, the latest Brexit developments look confusing as the reports on the upcoming deal were followed by the signals that the Irish border issue remains unresolved. The downside pressure on the pound is capped by a subdued dollar demand for now, while Brexit remains in market focus.
On Tuesday, May’s cabinet will meet to discuss the PM’s plan. Traders need to see a progress in order to send the sterling higher. Otherwise, GBPUSD will get back below 1.30 and could attract some profit-taking.
Dollar remains in the defensive Dollar dropped dramatically yesterday and remains under the selling pressure on Friday. The risk-on environment coupled with pound strength and weaker US economic data fuelled a more aggressive sell-off in the buck across the board.
Today, the greenback may get a chance for a recovery. The US NFP employment report could serve as a catalyst for bulls should the jobs and wages come on a stronger side. Traders have been focused on wages data lately as this is one of the inflation indicators. So the increase by 0.2-0.3% could cap the negative pressure on the USD and cement the Fed rate hike expectations as well.
Market participants will also closely monitor the US-China trade war developments after the recent speculations about the prospects for resuming the constructive and healthy dialog between the two countries. Against this backdrop, investors resumed buying riskier assets and if the sentiment continues to improve, dollar safe-haven demand will ease further.
So the buck has a chance for a recovery in the short term, while in a wider picture, the currency may stay on the defensive.
Gold bulls cheer USD weakness The greenback has eased across the board yesterday and remains under a heavy pressure on Thursday. Against this backdrop, gold prices managed to bounce from three-week lows and trim weekly losses. As such, the precious metal is back above the $1,215 handle and is targeting the $1,230 level again.
Earlier this week, the bullion retreated heavily amid some signs of recovery in risk appetite coupled with strong dollar demand. The current corrective rebound brightens the short-term prospects of the yellow metal but the wider picture shows that the downside risks still persist.
First, the sentiment in the global financial markets remains unstable and riskier assets are vulnerable to further losses due to a number of risk factors and events, including trade wars and political uncertainty globally. Second, the greenback may yet regain its strength before the end of this week should the US NFP employment data point to a healthy rise in jobs and wages.
Therefore, it is possible that after the current correction, gold prices will resume the decline, though the potential pressure will likely be limited at this stage.
Yen stays soft in the wake of “dovish” BoJ meeting USDJPY refreshed three-week high of 113.33 on Wednesday and stays above 113.00 due to a combination of a generally stronger dollar, dovish Bank of Japan, and risk-on sentiment.
As expected, the Japanese central bank left its monetary policy unchanged and reiterated that rated will remain ultralow for an extended period. The regulator has also said that risks are skewed to the downside for economy and prices. Moreover, Kuroda mentioned that the central bank is ready to adjust monetary policy if downside risks materialize. So it’s not surprising that the selling pressure on the yen has intensified after the meeting as the bank’s rhetoric was extremely dovish and has supported the riskier assets at the same time.
The greenback demand remains robust, and the pair could climb further amid the widening monetary policy di-vergence, signs of the improving risk sentiment and technical factors – a break above 113.00 opens the way to the previous highs around 114.50.
However, we could see some correction at this stage should investor sentiment turn sour in the short term as USDJPY looks attractive for profit-taking. Generally, considering the list of global risks ranging from trade wars to slowing growth, the yen may yet attract bulls at some point.
Brent at the crossroads Crude oil prices are making shallow recovery attempts on Tuesday after the yesterday’s decline. Despite the general risk sentiment has improved somehow, commodity traders refrain from buying due to some conflicting signals.
Investors seem to believe that the threat of supply shortfall has abated. Some economic signals point at the prospects of slowing global growth and weaker oil demand as a result. These fears coupled with the potential increase in OPEC production make traders worried that sanctions on Iran won’t bring supply deficit. In this con-text, the downside risks for Brent continue to persist as the previous fears over US sanctions look overestimat-ed now.
And let’s not forget about the USD strength. The buck continues to receive support from a risk-off environment and from the “hawkish” Federal Reserve stance. The US currency could strengthen its positions ahead of the next Fed meeting in December when another rate hike will likely take place.
From the technical point of view, Brent needs to hold above the $77 handle in order to proceed with recovery attempts with the initial target at $78. Otherwise, the price will focus on the $75.65 area again.
EURUSD struggles to recover EURUSD is trading marginally higher today after finding a bottom at 1.1335 on Friday. The pair is clinging to the 1.14 handle but still lacks the impetus to stage a more robust and stable rebound.
Over the weekend, S&P revised the Italy’s outlook to ‘negative’ but kept the country’s credit rating unchanged. Meanwhile, Italy’s officials hinted at the possibility of changing some parts of the budget that was rejected by the EU. These developments help the euro to stay afloat for the time being.
However, the general dynamics shows that traders are still nervous and the prospects for a steady rebound in the pair look limited as the greenback remains supported amid the prevailing risk aversion, though the sentiment has marginally improved in Europe after a sell-off in Asia.
In the short term, EURUSD will likely fail to firmly regain the 1.14 figure as the political risks in Italy and Germa-ny persist, while USD demand could reemerge at any moment as investors still prefer a cautious approach.
GBPUSD: further losses ahead The pound remains under a heave selling pressure with the short-term outlook has deteriorated after attempts to break the 1.28 handle yesterday. GBPUSD has settled marginally above this level on Friday but more challenges will likely come in the days ahead.
First, Brexit issues continue to discourage the GBP bulls. The fact that Prime Minister Theresa May has strengthened her position after her recent speech doesn’t bring any relief to sterling. The Irish border issue is still unresolved, and the risk of a no-deal divorce remains.
Second, interest rate hikes expectations could decline even further next week if the Bank of England downgrades inflation or growth outlook on ‘Super Thursday’ next week. Traders will pay a close attention to the Quarterly Inflation Report, while no changes to monetary policy are expected.
Third, the greenback demand remains robust due to solid US economic fundamentals and hawkish Fed. The dollar is supported by heavy month-end rebalancing as well.
As such, the risk challenging the 1.28 figure remains high, and after a potential break below the 1.2785 support, GBPUSD will target 1.27 and then – 1.2660, where mid-2017 lows lie.
AUDUSD still has room to fall The Aussie dollar makes some recovery attempts on Thursday after yesterday’s rejection from the 0.71 figure. The local corrective rebound is due to some pickup in risk sentiment capping the USD demand. However, despite the selling pressure has eased, the wider picture shows that AUDUSD still vulnerable to further declines.
The AUD rallies still look unsustainable and attractive for sales as the US-China trade tensions are far from being resolved and there are no signs of progress on this front. Besides, the greenback remains supported by the “hawkish” Federal Reserve, solid US economic data and the prevailing risk-off environment globally amid a number of risks.
So the pair will likely get back below the 0.7050 support and register fresh 32-month lows in the near term, but we could see a more robust rebound before the bears reenter the game. The driver for AUDUSD local rise could come from the US 3Q GDP report due tomorrow if the numbers disappoint.
Brent struggles to recoup steep losses Crude oil prices plunged 5% yesterday after Saudi Arabia highlighted that OPEC+ countries were ready to pump more oil in order to meet any supply shortfalls due to sanctions on Iran. Despite traders have already heard sim-ilar hints from some exporters, the reaction was rather painful for the market. The relatively strong dollar and widespread risk-off tone have also played against prices.
As a result, Brent dived to early-September low of $75.65 and staged the largest daily decline since mid-July. On Wednesday, the barrel is making some timid recovery attempts but remains under pressure, despite the risk sentiment has improved somehow. The additional negative factor for the market is another surprisingly large build up in US crude oil inventories. API data showed that the stockpiles increased by nearly 10 million barrels last week.
Later in the day, the EIA will release its official data. Should the numbers similarly disappoint, and crude oil production rises after the recent decline in activity, Brent will struggle to recoup steep losses and could target even lower. In this scenario, the price may target the $75 handle if the $75.60 area gives up.
Yen has a bullish potential The market optimism over the Chinese officials’ comments on stimulus has evaporated on Tuesday and gave way to renewed political fears. As a result, the risk-off sentiment is driving stock markets lower, while the Japanese yen safe-haven demand has surged significantly.
The US-Saudi tensions, Italian budget issues, Brexit woes and trade-war fears propel the safe haven assets higher, with yen is the main beneficiary in this environment. As such, the USDJPY pair is re-treating after two days of gains, being rejected from nearly two-week highs marginally below the 113.00 handle.
Considering the depth of investor worries and the growing concerns over the political chaos globally, the risk-off trade will prevail in the markets in the medium term, while moments of relief will likely be short-lived. In this context, the Japanese currency has a bullish potential, with spikes in the pair look like selling opportunities. Moreover, the bearish pressure on USDJPY could intensify should the Fri-day’s US Q3 FGP numbers disappoint.
Gold: upside risks persist Gold has registered the third consecutive weekly gain and continues to hover close to the July highs, although buyers’ enthusiasm seems to be abating gradually. However, the precious metal could still retain the bullish tone down the road as global risk sentiment remains somehow unsteady.
A good sign for gold bulls is the fact that the metal stays afloat even as the selling pressure on the greenback looks limited. Moreover, the speculative positioning shows that net shorts are now at the highest levels in almost twenty years. So there is still scope for further rise in prices should the buck refrain from any impressive rally in the coming week.
The Friday’s US GDP report will be important in this context. The figure will likely decline from 4.3% to 3.3-3.2%, which is a dollar-negative scenario and another bullish opportunity for the bullion at the same time.
From the technical point of view, as long as the yellow metal keeps above the $1,215 support, the chances for further rise remain rather high.
Rise and Dawn of Canadian Dollar Canadian Dollar is the star of the day, as it managed to rise to 1.3027 area in the morning, and then to lose all the gains in an hour touching 1.5-month low at 1.3119. Canadian Retail Sales and CPI Data are to blame. Retail sales ex autos decreased by 0.4% in August compared to a 0.1% rise forecasted. CPI also fell down by 0.4% m/m compared to a 0.1% rise expected.
The sharp reaction of the USDCAD to the weak data is related to market expectations on the coming BOC monetary meeting. There was some confidence in looming rate hike among the investors. And positive economic reports could only support the expectations.
The weaker numbers ease pressure on the regulator to bring up a hawkish stance at Wednesday's meeting. Part of the market still expects the hike, that’s why we perceive the current spike of USDCAD as an attractive opportunity to enter the market with a sell order. Most probably investors will be busy pricing in the looming tightening up till next Wednesday, thus the slide to recent lows is not ruled out.
The nearest target on the way lower for USDCAD is 1.3050 with 1.2980 to follow.
AUD May Resist China Trade War Woes AUDUSD had a hard time trying to break above 0.7140, but it was rejected on Thursday again losing almost 50 pips during the day.
While US-China wars are still on the agenda putting the Australian currency under pressure, there is a light in the end of the tunnel. The Australian employment data posted early in the morning continued to show underlying strength.
Full-time jobs added another 21K while the unemployment rate slipped to 5.0%. Overall, the employment trend participation rate stayed unchanged at 65.6 percent. And in retrospective, trend employment increased by over 290,000 persons or 2.4 percent over the last year, which was above the average year-on-year growth over the past 20 years (2.0 percent).
What does it mean? It means that Australian labor market as well as economy on the whole feels pretty good despite all these Chinese trade war fears. Given the small size of the local economy, the recent sharp depreciation of the national currency may attract tourists and support service sector activity. It means there is more positive news ahead supporting the pair provided Trump keeps silence during all that time.
The next target for AUDUSD may lie at 0.7150 followed by 0.72 round number resistance level.
3 Reasons To Buy CAD NowThere is something interesting going on in Canada. And it may become a serious argument in favor of future CAD appreciation.
This Monday Business Outlook Survey was out confirming the robust business prospects even before the NAFTA deal was finalised. It means that we would see even more optimistic outlook within the report next month.
What does it mean? It means that the chances of Bank of Canada hiking rates on October, 24 are really high. And the scheduled for Friday release Canadian CPI and the retail sales may confirm the positive picture triggering the interest to Canadian Dollar.
If you add a bullish oil trend as a strong supporter of CAD appreciation, you may realize that USDCAD has all the chances to show sharp sell-off in the nearest future with initial target at 1.2870 and 1.28 to follow.
Pound - I have a dream While EURUSD stays under pressure, GBPUSD managed to show an amazing appreciation – it adds around 100 pips a day two days in a row.
Positive UK data only supported the move, as average wages increased to 2.7% from 2.6% forecasted reaching the highest level in 9 years.
However, there was a fly in the ointment - claimant count number climbed to 18.5K from 10.0K expected hinting on possible decrease of demand for workers.
Investors are in positive mood ahead of tomorrow’s EU summit expecting some form of a deal will be done. European officials only heat up the expectations with hopeful comments, despite Irish border issue is still on the table.
GBPUSD already managed to touch 1.3227 daily high with 3-weeks high 1.3297 as a next level. Once the breakout is confirmed, the next level to move will be at 1.3430
