The EUR/GBP cross seesawed between tepid gains/minor losses through the mid-European session and was last seen hovering in the neutral territory, around the 0.9125 region.
Following the previous day’s rather volatile price swings, the cross now seems to have entered a consolidation phase in the absence of any fresh catalyst. It is worth recalling that the EUR/GBP cross witnessed a dramatic turnaround on Thursday and rallied around 90 pips from one-week lows after the Bank of England said that it had briefed policymakers on how negative interest rates could be implemented.
The strong intraday positive move lost steam near the 0.9170 region in reaction to optimistic Brexit comments by the European Commission President Ursula von der Leyen, saying that a trade deal between the EU and the UK is still possible. As investors digested the overnight developments, the EUR/GBP cross struggled to a firm direction and was confined in a range through the first half of the trading action on Friday.
Nevertheless, the EUR/GBP cross remains on track to end the week with heavy losses, eroding a part of the last week’s strong positive move to the 0.9300 neighbourhood, or six-month tops.
The US Commerce Department is planning to publish an order at 1245 GMT on Friday that will bar people in the United States from downloading TikTok or WeChat starting September 20, Reuters reported on Friday, citing three officials familiar with the matter.
“US will order Apple, Google and others to remove the Chinese apps from platforms accessible from within US.”
“US will not seek to bar Google or Apple from offering TikTok or WeChat outside the US.”
“US Commerce Department will not bar US companies from doing business on WeChat in China.”
“US could scrap the ban on TikTok downloads if Trump approves deal to separate TikTok US assets.”
This headline doesn’t seem to be having a significant impact on the market sentiment so far. As of writing, the S&P 500 futures were up 0.1% on a daily basis. However, the geopolitical tensions could escalate and cause risk aversion if China responds to this development.Full Article
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The AUD/USD pair climbed to a daily high of 0.7334 in the early trading hours of the Asian session but reversed its direction amid a lack of significant market drivers. As of writing, the pair was virtually unchanged on a daily basis at 0.7310.
In the absence of macroeconomic data releases from Australia, the sharp upsurge witnessed in the positively-correlated NZD/USD pair helped AUD/USD gain traction n Friday. Earlier in the day, New Zealand’s finance minister, Grant Robertson, said a stronger-than-expected economic recovery would likely allow the Reserve Bank of New Zealand to keep the policy rate unchanged in early 2021.
Meanwhile, the US Dollar Index (DXY) is staying relatively calm below 93.00 following Thursday’s drop and not providing a direction clue to AUD/USD.
In the second half of the day, the University of Michigan will release its preliminary Consumer Sentiment Index data for September. Investors expect this data to show a slight improvement in consumer confidence.
Westpac analysts expect AUD/USD to advance toward 09.7400 over the next month.
“Local and regional economic trends underscore a continuing bullish A$ story. August employment grew 111K, well ahead of expectations for a 35K decline,” analysts explained. “There are always grounds for caution over the quality of the jobs being reported and unemployment will rise as JobKeeper is reduced in Q4, but the RBA’s 10% end-2020 forecast will need to be revised.”
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EUR/USD has been advancing as the dollar pares some of its Fed-related gains but US consumer sentiment and coronavirus headlines from Europe may reverse the recovery, in the opinion of FXStreet’s analyst Yohay Elam.
“The Fed signaled no rate rises through 2023 – but also no imminent action despite rising uncertainty about the outlook. Federal Reserve Chairman Jerome Powell also indicated that policymakers would be wise to act – adding fiscal stimulus.”
“It seems that Republicans and Democrats seem to be making some progress toward agreeing on a new relief package. Nevertheless, there is still no white smoke above Capitol Hill, potentially as politicians have little incentive to compromise ahead of the elections. Failure to boost the economy could trigger further flows into the greenback.”
“Looking at the old continent, there are is a good reason to expect the euro to fall. Coronavirus cases continue rising rapidly in Spain, France, and even Germany and Austria – countries that initially coped well with coronavirus.”
“Later on Friday, investors will be looking at the University of Michigan’s preliminary Consumer Sentiment Index for September. A minor advance is expected yet the disappointing retail sales figures for August imply that consumers may be struggling. The withdrawal of emergency government support is limiting the recovery in consumption.”Full Article
Aside from Dec 2020 contract implied yields on all of short sterling contracts out to September 2023 are below zero with 2 and 5 yr gilt yields also having negative yields.
A BoE shift to negative rates increasingly priced in.
10 year UK gilt yields at 0.167.
EUR/USD alternates gains with losses on Friday, now dropping to the negative territory after the failed attempt to advance beyond daily highs near 1.1870.
Next on the upside appears the 1.19 neighbourhood. If cleared, it could pave the wave for an initial test of recent peaks near 1.1920 ahead of the August top at 1.1965. On the flip side, the 1.1740 region, or monthly lows, remains the magnet for sellers ahead of the more relevant contention zone around 1.17, where converge late August lows and a Fibo level (of the 2017-2018 rally). The 55-day SMA, today at 1.1713, also reinforces this critical juncture.
Looking at the broader scenario, the bullish view on EUR/USD is expected to remain unchanged as long as the pair trades above the critical 200-day SMA, today at 1.1220.
The session started with USD weakness helping push the major pairs up. The day promised potential volatility with quadruple witching in play, but that was illusory. See here for an explanation on what this is.
The NZD was the star performer for the session assisted by New Zealand Finance Minister Grant Robertson who suggested that a stronger than expected economic recovery might be likely to temper a dovish Reserve Bank of New Zealand. However, analysts still expect the RBNZ to move to Negative Interest Rates next year. RBNZ meet Wednesday 23 next week.
Close behind was the JPY and that was despite the risk on tilt. This took USDJPY down through the lows of the day. Could this be due to ‘Suganomics’ which Eamonn reported on earlier? Bloomberg report that Japanese sentiment has been boosted toward the Yen thanks to a pledge from new PM Yoshihide Suga for deregulation and reform.
The EURUSD was sat under a large option of over €1 billion euros. The option had a 98% call bias split, so that should be acting like a magnet pulling prices up from 1.1850 at the start of the session. At the moment EURUSD is doing little and stayed in a tight 30+ pip range.
The DXY flirted with a key intraday trend line for most of the session doing little in sympathy with the EURUSD.
Well that’s all folks. A pretty low volatile end to the week despite the quadruple witching. It’s been a pleasure. Justin will return next week after a well deserved break. I will maintain my daily post and will of course update everyone on how I managed my gold longs from FOMC. Have a great weekend
It’s been fun!Full Article
The index has come under further downside pressure after being rejected once again from the 93.60/70 band on Thursday.
Further decline thus remains likely with the next target at the weekly lows at 92.70. A move further south of this level should put the 2020 low near 91.70 back on the investors’ radar.
As the American dollar remains weak, the USD/JPY pair trades at fresh monthly lows. The pair fell to 104.29, and trades nor far above this last, ready to pierce July’s monthly low at 104.18, FXStreet’s Chief Analyst Valeria Bednarik reports.
“Japan published August National inflation figures, which missed expectations. Annual CPI increased by just 0.2%, while the core reading came in at -0.4% as expected. The US session will bring the preliminary estimate of the September Michigan Consumer Sentiment Index, foreseen at 75 from 74.1 in August.”
“The 4-hour chart shows that the USD/JPY pair keeps developing below a firmly bearish 20 SMA, while the larger ones slowly turn south well above the shorter one, signaling strong selling interest in the short-term. Technical indicators are directionless although well into negative territory.”
“The immediate support level is 104.18 July monthly low, with a break below it anticipating a steeper decline ahead.”Full Article
UOB Group’s Economist Enrico Tanuwidjaja and Haris Handy give their opinion on the recent interest rate decision by the Bank Indonesia (BI).
“Bank Indonesia (BI) decided to leave its benchmark rate unchanged at 4.00% at its September 2020 monetary policy meeting (MPC), which is in line with consensus forecast. Consequently, Bank Indonesia (BI) maintained the Deposit Facility rate at 3.25%, as well as the Lending Facility rate at 4.75%. BI reiterated that the decision is consistent with the need to maintain exchange rate stability, with inflation expected to stay low, yet conducive to support the economic recovery.”
“BI’s macroprudential policy stance will remain accommodative, in line with its policy mix and steady coordination with the government’s policy supporting the process and progress of economic recovery and to mitigating the risk in the financial sector due to the COVID-19 outbreak.”
“We keep the view that BI may cut the BI 7 Day Reverse Repo rate by another 25bps in Q4 to 3.75% as growth recovery trajectory may be slower than expected. However, this is likely to be the last rate cut for 2020, bringing the BI 7 Day Reverse Repo rate to a record low level. BI forecast GDP growth at 4.8% in 2021 while stating that current account deficit may narrow below 1.5% of GDP this year. Inflation is expected to remain within the 2-4% target for this year and next year. Going forward, we still expect BI to deploy other easing measures and may implement more macroprudential measures to ensure ample liquidity.”Full Article