Trading news

All eyes on Jackson Hole, Risk appetite and oil

- Looking at US treasuries and fed funds futures, it seems that investors are turning slightly more hawkish as 2-year yields continue to trade within their uptrend channel

- FX markets seem far less hawkish as the US dollar has been under pressure over the last few days

- EUR/USD investors have been reluctant to increase their long EUR positions ahead of the early September ECB meeting

- As usual when uncertainty increases, the Swiss franc rises - USD/CHF may hit 0.97, while on the downside the closest resistance area can be found at around 0.96

- Not much volatility is expected today on the financial markets before Fed Chair Janet Yellen’s speech today at the Jackson Hole conference

- The odds that Yellen will give a hawkish signal for a September rate hike have increased and are now at pre-Brexit levels - around 32%

- Equity markets are also in wait-and-see mode, as the S&P 500 closed in negative territory for the second day in a row

- The Fed’s integrity is at stake and we now believe that a small increase in interest rates is possible this year if only for the sake of saving it

- Risk appetite and oil: It’s unlikely that the oil price slide will stop.  WTI traders should target $45 support defined by the 21d MA. In FX, oil-linked currencies such as NOK and CAD should continue to underperform as the weight of falling crude prices outweighs the improvement in risk appetite.

 

Here we go! it’s Friday and we’ll finally get Janet Yellen’s thinking regarding the eventuality of an interest rate hike. The market has been increasingly impatient to hear what the Federal Reserve Chairwoman has to say: will she or won’t she join with other Fed members and prepare the market for a tightening move? Looking at US treasuries and fed fund futures, it seems that investors are turning slightly more hawkish as 2-year yields continue to trade within their uptrend channel, while the probability extracted from the fed funds futures showed that the chance a September move rose to 32% yesterday. However, the FX market seems far less hawkish as the US dollar has been under pressure over the last few days. On Friday in Asia, the dollar index fell 0.25% to 94.54 as the greenback fell 0.16% against the single currency, 0.20% against the pound sterling and 0.14% against the Japanese yen.

 

After falling as low as 1.1245 on Wednesday, EUR/USD returned above the 1.13 threshold. However, investors have been reluctant to increase their long EUR positions ahead of the early September ECB meeting. Indeed, many expect the ECB to increase stimulus to boost growth and inflation.

 

Yann Quelenn, market analyst: Not much volatility is expected today on the financial markets before Fed Chair Janet Yellen’s speech at Jackson Hole. The odds that Yellen will give a hawkish signal for a September rate hike have increased and are now at pre-Brexit levels around 32%. It is clear that, once again Yellen will point out the better employment report, despite mixed and very volatile NFPs over the past few months. Equity markets are also sidelined, as the S&P 500 closed in negative territory for the second day in a row. Yet, bearish moves were very light, indicating that markets refuse to go lower and now expect a dovish signal from the Fed, to pursue their path to new record-highs. We clearly believe that there is strong likelihood that this will happen. The bonds markets are also impatient for Yellen’s address as, for example, the generic 10-year US Government Bond yield has increased again over the last months and is now not far from 1.6%.

 

Currency-wise, the dollar should remain strong as long as there are still hopes about a rate hike this year. The Fed’s credibility is clearly at stake and we believe that a small increase in interest rates is possible if only for the sake of saving its integrity. Repeating over and over that a rate hike will happen and not doing anything is strongly damaging. In the event of dovish signals, the dollar may have further downside potential and this would also weigh on US yields. We are definitely not in a period of rate normalisation but rather in a fight for credibility.” —

 

As usual when uncertainty increases, the Swiss francs rises. USD/CHF was the best performer amongst the G10 complex as it fell 0.23% to 0.9653 in Tokyo, after hitting 0.9688 in Wall Street yesterday. Over the medium-term, the currency pair will continue to trade within its downtrend channel as it failed several times to reverse momentum. On the upside, a first resistance can be found at around 0.97, while on the downside the closest resistance area can be found at around 0.96, then 0.9537 (low from August 18).

 

In the equity market, Asian regional indexes are trading in negative territory and will most likely close in red for a second day straight. In Japan the Nikkei and the Topix index were down 1.18% and 1.23% respectively. In mainland China, the CSI 300 edged down 0.08%. In Australia, the ASX was off 0.48%, while in New Zealand the NZX was down 0.48% also. In Europe, equity futures are pointing toward a lower open. Yesterday, European equities were trading broadly lower. Brace yourself for another tough day. However, Janet Yellen’s speech at CEST 4:00pm could provide a fresh boost… or trigger another sell-off.

 

Peter Rosenstreich, head of market strategy: Risk Appetite and oil: "While the favorable conditions for further risk taking remain intact, financial markets have become more prudish with positioning. High-yielding assets, including EM and equity markets have generally slowed or paused further appreciation, while risk gauges such as oil and gold have fallen. Liquidity has tightened as risk seeking traders feel crowded and overvalued. It’s easy enough to play the Monday morning quarterback with no skin in the game. With expectations that Fed Chair Yellen will not provide a signal for a hike in September or additional clarity on the directional slope of interest rates, we anticipate that risk-appetite will return in the short term.

 

Yet, within the risky universe it’s unlikely that the oil price slide will stop. Saudi Arabian oil minister, Khalid al-Falih has stated that there has so far been no substantial discussion on any OPEC action to lower production. This news reversed yesterday’s price bounce based on reports that Iran would join an unofficial OPEC meeting in Algeria in September. Expectations that major oil producers will find an agreement to halt the supply glut have declined significantly. In addition, demand is unlikely to pick up past currently subdued forecasts, particularity in India and China (marginal improvement in demand could occur in core-Europe as Brexit fears prove unfounded). WTI traders should target $45 support defined by the 21d MA. In FX, oil-linked currencies such as NOK and CAD should continue to underperform as the weight of falling crude prices outweighs the improvement in risk appetite.”---

 

Today traders will be watching GBP from France; retail sales from Spain; GDP from UK and the US; personal consumption, Michigan sentiment index, core PCE and Yellen’s speech from the US.

Friday, 26 Aug, 2016 / 8:44

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Source : http://en.swissquote.com/fx/news

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