Trading news

Equity rally loses steam as crude oil falls, US existing home sales to rebound after 6-year low in February

- Fed: There is now only a 12% chance that the Fed will further tighten its monetary policy at the June meeting

- USD/JPY should continue to trade within the 107.63 - 109.73 range as traders await fresh news from either the BoJ or the Fed before making a move. On the medium-term, the bias remains on the downside

- The Australian economy is continuing to suffer from the low commodity price environment and the adjustment process is not yet done. We therefore expect the RBA to reiterate its call for a weaker Aussie 

- Similarly, the NZD/USD fall was primarily driven by a correction in crude oil price with a first support lying at 0.6966, while on the upside the nearest resistance can be found at 0.7232

- US existing home sales will be closely scrutinized today as there are growing concern that the housing market is too deep into a bubble as a result of loose monetary policy over the past decade

- We believe that the US dollar is overvalued as US difficulties are not fully priced in and as a result we remain long EURUSD until 1.2000

 

The strong rally in iron prices did little good for Chinese equities, which slumped substantially in overnight trading. The Shanghai Composite slipped 3.90%, erasing the week’s gains, while the tech-heavy Shenzhen Composite fell even more, down 5.19%. The People’s Bank of China set the USD/CNY fixing down 0.19% to 6.4579.

US treasury rates remained desperately low as the markets still expect the Federal Reserve to hold rates in June. Looking at the probabilities extracted from the overnight index swap, there is only 12% chance the Fed will further tighten its monetary policy at the June meeting. In such an environment, USD/JPY lost momentum and erased yesterday’s gains, returning below the 109 level. Since the beginning of the month, the pair traded within the 107.63 - 109.73 range as traders await fresh news from either the BoJ or the Fed before making a move. On the medium-term, the bias remains on the downside.

China aside, Asian regional equity returns were mixed. Japanese shares edged slightly higher with the Nikkei and Topix index up 0.19% and 0.20% respectively. In Australia, the S&P/ASX was up 0.52%, while in New Zealand, shares rose 0.41%. In Singapore, the STI slid 0.70%, Thailand’s BGK edged down 0.09% and the Indonesian JCI fell 0.13%.

In Australia, the Aussie reversed gains against the US dollar and fell 0.38% amid falling oil prices and disappointing Westpac leading index’s print. Indeed, the gauge contracted -0.12%m/m in March after shrinking 0.23% in the previous month, suggesting that the economy is still suffering from the low commodity price environment and that the adjustment process is not done yet. We therefore expect the RBA to reiterate its call for a weaker Aussie. Overnight, AUD/USD hit 0.7767 before stabilising at around 0.7790.

Similarly, the New Zealand dollar consolidated in Asia with NZD/USD moving below 0.70 after reaching 0.7054 in Wall Street on Tuesday. The fall of the Kiwi was primarily driven by the correction in crude oil price - the West Texas Intermediate slipped 2.70% - and commodity prices in general. On the downside, a support lies at 0.6966 (previous resistance, now support), while on the upside the nearest resistance can be found at 0.7232 (high from mid-June last year).

 

Yann Quelenn, market analyst: US existing home sales to rebound after 6-year low in February: Though markets are mainly focused on verbal interventions from Fed members, right now any and all data is being closely analysed for clues concerning the future Fed rate path. Recent releases show that the fundamentals of the US economy seem to have improved, inflation has been growing since the beginning of the year, and unemployment remains stable around 5%. In contrast, retail sales disappointed with a last negative release at -0.3% in March. On top of that, there are growing concerns that the housing market is buried too deep in a bubble as a result of the loose monetary policy of the past decade.

Existing home sales will be closely analysed today and are expected to rise by 4% from February according to estimates. We believe that in the current environment, where rates are so low, there is no benefit for sellers as expectations for higher rates are pushing sales to decrease. Also, it is more difficult than before to get a mortgage. However, financial markets are still expecting low interest rates and steady unemployment to provide the necessary traction to underpin the housing market. Currency-wise, this underlines our opinion that the greenback is overvalued. We believe that US difficulties are not fully priced in and as a result we remain long EURUSD until 1.2000.” ---

Today traders will be watching the inflation report from South Africa; the jobs report and Ian McCafferty’s speech from the UK; ZEW survey from Switzerland; interest rate decision from Turkey (no change expected); mid-month inflation data, current account balance and foreign direct investment from Brazil; existing home sales and crude oil inventories from the US.

Wednesday, 20 Apr, 2016 / 8:13

Note: Company News is a promotional service of the Directory and the content isn't created by Finance Magnates.

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

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