Trading news

Disappointing Chinese trade date, Greek issue is back on the table

- USD was marginally stronger after a somewhat disappointing NFP read on Friday and a shift in Fed Fund futures suggests a close to zero probability of a June rate hike

- In the Philippines, presidential elections will be held today with the front runner Rodrigo Duterte’s populist approach to financial markets annoying bond investors. The election could further damage market sentiment.

- Australia: July political election announcement combined with clear evidence of economic weakness and complex issues such as immigration should add additional selling pressure on AUD

- Chinese FX reserves rose for a second month indicating that fears of destabilising capital outflows are subsiding providing markets with additional confidence in the Chinese economy

- Although the Greek issue is back on the table and EURUSD should further suffer on the medium term we remain bullish on the pair on the end of monetary policy divergence. 1,2000 is our target within the next few weeks

 

Risk appetite was mixed in the Asian session as Tokyo returns from the Golden Week holiday, but trading lacked conviction. USD was marginally stronger after a somewhat disappointing NFP read on Friday and shift in Fed Fund futures that suggest a close to zero probability of a June rate hike. The recovery in USD could reflect that IMM data, which indicated that USD speculative shorts were at their the highest since February 2013. USDJPY rallied continuing to reach 107.69, while EURUSD traded in a tight 30 pip range between 1.1380 and 1.1413. The weaker JPY supported demand in Nikkei which rose 0.80%. The rest of Asia was mixed as the Hang Seng rose 0.41% and the Shanghai composite fell -2.45%. Commodities prices were slightly higher, supported by crude oil which rose 2% to $45.95 as wildfires in Canada threaten supply. In the Philippines, presidential elections will be held today. The front runner Rodrigo Duterte’s (provocative mayor of Davao City) populist approach to financial markets has unnerved bond investors and the election could worsen market sentiment. In Australia, April job ads data was weak printing at -0.8% m/m newspapers -6.2% and internet -0.7%, providing further indication of cooling of labor markets. On the political front, Australian Prime Minister Malcolm Turnbull dissolved both houses of parliament and confirmed a double dissolution election to be held on July 2. The political uncertainty generated from this move, combined with clear evidence of economic weakness and complex issues such as immigration should add additional selling pressure on AUD.

Mixed data was release from China. April FX reserves rose $3.22trln, above an expected $3.20trln, from March $3.21trln. Although a majority of the increase was due to valuations effect especially the drop in USD, this result should be viewed as positive for China. FX reserves rose for the second month, indicating that fears of destabilising capital outflows are subsiding. The read should provide markets with additional confidence in the Chinese economy. Chinese house prices continue to trend higher, which will provide domestic investors with an asset to invest in without leaving. Slightly less optimistic was the foreign trade data which disappointed in April after a strong improvement in March. Exports declined -1.8% y/y and shrinkage in imports extended to 10.9% y/y in USD terms. Key for the direction of commodity prices the volume growth of commodity imports declined. Crude oil import fell to 7.6% y/y in April from 21.6% in March. The decline in export growth was driven by falls in demand from the US (-9.3% ) and Japan (-11.8%), while exports to EU and Asia were strong.

Yann Quelenn, market analyst: “The Greek issue is back on the table: In Brussels today, the Euro-Area Finance ministers will be discussing Greece and approving a transfer of €86 billion bailout amid the Greek pensions and tax reforms approved this weekend by the Greek parliament. The text has been accepted in a very tight 153-146 vote. It is important to note that the text was defended by Prime Minister Alexis Tsipras, elected on an anti-austerity platform and who, contrary to the public’s wishes, accepting to negotiate a bailout deal with the Eurozone. This vote was hugely significant for Greece as it finds itself in serious need of cash by July with a looming repayment of €3.5 billion debt due at that point.

Value added tax will rise from 13 to 14%, the minimum, taxable income will lowered by €500 to €8,600 and taxes on small business will also climb to 29% from 26%. Over the weekend, massive anti-austerity protests took place. There is a major paradox as the majority of Greek people want to stay in the Eurozone but do not agree to austerity measures. Protests are far from over, especially knowing that Greek debt cannot be reimbursed. The price of each new bailout means less freedom and less sovereignty for Greece.

Currency-wise, the EUR/USD will further suffer in the medium-term on the back of these uncertainties. Greece is simply the tip of the iceberg with other European countries also at stake. For the time being we remain bullish on the EUR/USD on the end of monetary policy divergence and 1.2000 is still our target over the next few weeks.” —

On the calendar today traders will get German factory orders, UK home prices and Euroarea Sentix investors’ confidence. With images of Greek protests dominating the weekend news cycle after the passing the pension and tax reform measures, the Euro-area financial ministers will hold an emergency meeting to discuss additional austerity measures for Greece in case budget targets are missed. It is unlikely that these images will not influence the UK's “Brexit “ debate.

Monday, 09 May, 2016 / 8:36

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Source : http://swissquote-fx.com/en/research-and-analysis/

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