Analysts at Danske Bank suggest that the EUR/GBP has stabilised above the 0.90 level and the future direction will be impacted by the outcome of the EU Summit tomorrow, where the EU leaders will discuss Brexit.
“Focus for the cross remains on (1) whether the UK Prime Minister can get sufficient concessions from the EU in order to change the Commons’ stance on the deal and (2) timing of a potential vote in the House of Commons. The latter seems most likely in January and we expect EUR/GBP to remain volatile and range bound for longer. Meanwhile, speculation of a ‘no confidence’ vote on the PM is brewing and could send EUR/GBP higher if triggered.”
In the latest report published by the United Nations Economic and Social Commission for Asia and the Pacific on Wednesday, the United Nations (UN) predict that the US-China trade war will cause global trade to slow in 2019, cutting the growth of exports to 2.3% compared to the nearly 4% growth seen this year.
Key Highlights (via FT):
“The world’s largest trading region, would see a net loss of 2.7m jobs due to the trade war with unskilled workers.
Global trade “decelerated significantly” in the second half of this year, and that tariff hikes that had already taken place were expected to cut global GDP by $150bn and GDP in Asia by a little over $40bn next year if they remained in place.
The report also calculated the likely cost of what the UN called “a full-blown trade war”.”
Today Last Price: 1.1323
Today Daily change: -5.0 pips
Today Daily change %: -0.0441%
Today Daily Open: 1.1328
Previous Daily SMA20: 1.1361
Previous Daily SMA50: 1.1409
Previous Daily SMA100: 1.1508
Previous Daily SMA200: 1.1733
Previous Daily High: 1.14
Previous Daily Low: 1.1306
Previous Weekly High: 1.1424
Previous Weekly Low: 1.1311
Previous Monthly High: 1.15
Previous Monthly Low: 1.1216
Previous Daily Fibonacci 38.2%: 1.1342
Previous Daily Fibonacci 61.8%: 1.1365
Previous Daily Pivot Point S1: 1.1289
Previous Daily Pivot Point S2: 1.1251
Previous Daily Pivot Point S3: 1.1195
Previous Daily Pivot Point R1: 1.1383
Previous Daily Pivot Point R2: 1.1439
Previous Daily Pivot Point R3: 1.1477
FX option expiries for Dec 12 NY cut at 10:00 Eastern Time, via DTCC, can be found below.
EUR/USD: EUR amounts
GBP/USD: GBP amounts
USD/JPY: USD amounts
AUD/USD: AUD amounts
Analysts at Westpac point out that the Australian economy has lost momentum in the second half of 2018 led by housing and the consumer as the GDP rose just 0.3% in Q3 weighed down by some additional one–offs.
“We continue to expect growth to slow, moderating from 3.0% in 2018 to a forecast 2.6% in 2019. Dwelling prices are falling on weaker demand and tighter lending conditions, with falls to extend into 2019 and potentially 2020. The key uncertainty is the extent of spill–over effects from this dynamic to the consumer.”
“A Federal election, due by May 2019, will add to uncertainty and may see businesses temporarily delay investment and hiring. Growth drivers going forward are government spending and exports, the latter supported by a lower dollar and strong demand from the Asian region. We continue to expect the RBA to remain on hold throughout 2019 and 2020.”
Analysts at ANZ are expecting the seasonally adjusted deficit of New Zealand economy to narrow around $0.4bn from Q2, driven by a narrowing goods deficit as growth in exports outpaces that of imports.
“The 0.3% fall in the Q3 OTI terms of trade suggests this will be entirely volume driven. The services surplus is expected to narrow a touch as seasonally adjusted exports partially retrace some of Q2’s strength and imports lift.”
“The income deficit is expected to widen, with primary income outflows lifting on the back of growing international debt and equity liabilities. The annual current account deficit is expected to widen 0.3%pts of GDP to 3.6%, owing to base effects.”
As noted by Bloomberg in an interview with AMP’s Shane Oliver, Australia’s housing market is priced in for a precipitous decline as lagging markets catch Aussie home prices in a downward spiral, which is seen as a primary risk for Australian growth looking forward.
“The positive feedback loop of recent years of rising prices bringing higher demand and further price gains has given way to a negative feedback loop of falling prices leading to reduced demand and further declines,” Oliver said of housing. “This could all be made worse if immigration levels are cut sharply.”
Sydney’s property market slump has reached a new milestone, with values falling further than the late 1980s when Australia was on the cusp of entering its last recession. The downturn in Australia’s most populous city is accelerating as tighter mortgage lending standards crimp the amount people can borrow and as nervous buyers sit on the sidelines.
Key downside factors for Australia:
Michael Gordon, Senior Economist at Westpac, expects New Zealand’s annual current account deficit to widen from 3.3% to 3.6% of GDP even as the quarterly balance for September should see some improvement compared to June.
“To some extent, the current account deficit follows the economic cycle: when the economy is strong, demand for imports rises and the outflows of interest and profit increase. However, temporary factors have also played a part. Milk production has been lower and oil prices have risen over the past few years, but these are set to reverse course. The current account remains on a path that we’d consider to be sustainable over the long term.”
“In seasonally adjusted terms, the goods trade deficit narrowed to around $900m in the September quarter, with a strong lift in export volumes and a drop in import volumes. However, the improvement in the goods balance was largely offset by a fall in the services surplus, as tourist spending reversed its June quarter gains. We expect little change in the investment income deficit, with profits of overseas-owned firms and interest paid on overseas debt relatively flat over the past year.”
As GBP/USD trades into the 1.2500 critical level heading into Wednesday’s London market session, Brexit continues to hang over the Cable like a cloud, and Prime Minister Theresa May’s decision to pull her Withdrawal Proposal at the last moment is drawing plenty of ire, and risk sentiment continues to skew towards the downside as May’s hopes of pulling any eleventh-hour concessions out of the EU are looking slim.
Sterling falls to new 2018 low with lower targets on rumors of May facing a no-confidence vote
The current Brexit landscape has come a long way in the last 48 hours, with the tense run-up into PM May’s parliamentary vote on her current (ad likely only) divorce proposal giving way to what amounts to a wheel-locked waiting period: one of May’s spokespeople noted that the House vote on May’s Brexit deal could be postponed for up to six weeks, and while May’s withdrawal initially saw a glimmer of hope that she would head to Brussels in an effort to secure any last-minute concessions that would help her win over any of the nay votes on her home turf, Angela Merkel dashed those hopes in short order, and now the UK headings into the mid-week inflection point with no vote, no deal, and no talks.
Wednesday will be clean of UK economic data, and Thursday will be likewise empty, with only RICS Housing Prices on the docket early Thursday at 00:01 GMT, well before the London markets open, and the clear lack of actionable figures will see the Cable facing down a steady stream of Brexit headlines, and Prime Minister May is now faced with the growing reality that a no-confidence vote in her government may be much closer than she’s prepared for; 48 letters of no-confidence are required to trigger the process of unseating the PM, and while we don’t have an exact count of how many have been delivered, it’s safe to say that the count likely sits far closer to the critical number than PM May is comfortable with.
GBP/USD Levels to watch
Cable bears are really beginning to put the rubber to the road, according to FXStreet’s own Valeria Bednarik:
The pair is down for a sixth consecutive week but there are no signs of downward exhaustion, neither of an upcoming change in the current downward trade. The pair is trading below Monday’s closing level and posted a lower low and a lower high daily basis, signaling bears hold the grip tight. In the shorter term, and according to the 4 hours chart, the risk is also skewed to the downside, as the 20 SMA accelerates south well above the current level, while technical indicators quickly resumed their declines after correcting oversold conditions, now maintaining strong downward slopes.
Support levels: 1.2490 1.2465 1.2430
Resistance levels: 1.2550 1.2590 1.2640
Today Last Price: 1245.28
Today Daily change: 2.4e+2 pips
Today Daily change %: 0.191%
Today Daily Open: 1242.9
Previous Daily SMA20: 1227.98
Previous Daily SMA50: 1225.04
Previous Daily SMA100: 1212.49
Previous Daily SMA200: 1231.99
Previous Daily High: 1249.51
Previous Daily Low: 1241.1
Previous Weekly High: 1250.1
Previous Weekly Low: 1221.39
Previous Monthly High: 1237.4
Previous Monthly Low: 1196.4
Previous Daily Fibonacci 38.2%: 1244.31
Previous Daily Fibonacci 61.8%: 1246.29
Previous Daily Pivot Point S1: 1239.5
Previous Daily Pivot Point S2: 1236.1
Previous Daily Pivot Point S3: 1231.09
Previous Daily Pivot Point R1: 1247.9
Previous Daily Pivot Point R2: 1252.91
Previous Daily Pivot Point R3: 1256.31
Annette Beacher, Chief Asia-Pacific Macro Strategist at Westpac, opined that the Reserve Bank of Australia (RBA) is unlikely to move the rates lower, although could keep the rate at 1.5% for longer.
“A loss of conviction in the Federal Reserve tightening cycle, an escalation of UK Brexit vote woes, and a Chinese growth slowdown all offer an uncertain global backdrop heading into 2019.
Closer to home, house prices have been falling for over a year, and concerns escalated last week when consumer spending growth was markedly absent in the Sep qtr GDP report.
Subsequently, market pressure on the RBA to cut to support house prices and consumer spending has intensified. The OIS strip is currently tracking below the 1.5% cash rate through to Q2 2020.
We are unconvinced that a rate cut can boost house prices, given now-entrenched enhanced ADI prudential supervision. The AUD is calmly trading around $US0.72-0.73 despite global market volatility. We see no need for a cash rate reduction to lower the currency, as trade continues to thrive.
The risk to our base case (November 2019 hike) is skewed towards low for longer for the RBA, staying at 1.5% into 2020.”