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AETOS Market Commentary 20/02/2019

AETOS Capital Group Partnership


The Euro strengthened against the greenback on Tuesday, closing at 1.1339(+28 pips). The pair traded to as high as 1.1357 after hitting a daily low of 1.1274, holding on to gains by the end of the US session. The greenback relieved alongside Treasury yields as down after a long weekend, as equities lost the momentum triggered by optimism about a US-China trade deal. Concerns hit the common currency as US President Trump intends to put tariffs on cars' imports, which will affect the EU's industry. Comments from Fed's Mester, however, brought back the fact that the Federal Reserve has now adopted a dovish stance. Mester said that the reduction in the balance sheet was likely putting upward pressure on the long-term interest rates, now comfortable with slowing the pace of reducing it. She added that economic growth could slow this year, while she sees inflation near the Fed's target of 2.0%. In the data front, the most relevant release was the February ZEW survey, which showed that business sentiment improved modestly in Germany and the EU, printing -13.4 and -16.6 respectively. Early Thursday morning (02:00 AEST), the EU will release February preliminary Consumer Confidence, foreseen at -7.8 vs. -7.9 previously, while the FOMC will release the Minutes(Thursday 06:00 AEST) of its latest meeting when the central bank decided to keep rates unchanged and announced a more 'patient' stance. Investors now believe that the Fed could pull the trigger one time this year, and will search for clues in the document of whether there those odds could be changed somehow.


The Aussie bolstered on Tuesday, closing at 0.7163(+33 pips) against the greenback. Major catalyst for the strength for the Australian dollar could be because the Chinese Yuan was trading higher, after news indicating that the talks between the United States and China resumed. In domestic news, the RBA indicated that they are getting anxious about the housing downturn. At its February meeting yesterday, it noted: “if prices were to fall much further, consumption could be weaker than forecast, which would result in lower GDP growth, higher unemployment and lower inflation than forecast”. On what is lining up for today’s economic calendar, at 11:30 AEST, Australia’s December quarter Wage Price Index is set to be released. Given the implications for household spending, broader economic growth, labour market conditions and the outlook for inflation and official interest rates, the WPI is now arguably the most important data release in Australia, especially at time when financial markets are fully priced for the RBA to cut Australia’s cash rate by the middle of next year.


The Japanese Yen made minimal movements yesterday, with the Yen closing at 110.58(-1 pip) against the greenback. The safe natured Yen weakened at the beginning of the day after BOJ's Governor Kuroda said that he would contemplate on adding more stimulus to accomplish the inflation target if needed, or if the currency's moves impact the economy. Yen's weakness was counterpoise by the poor performance of Asian and European equities, and weaker US government bond yields. Wall Street managed to post modest gains, also limiting the pair's decline in the last trading session of the day. In the data front, Japan is scheduled to release January trade data, with the merchandise trade deficit expected to widen sharply to ¥-1,011.0B vs. the previous ¥-56.7B.

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Source: https://www.aetoscg.com/uk/market-commentary
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