Trading news

Risk-off sentiment weighs on financial markets, Russia – Buying gold starts to pay off

- Traders are reluctant to hold massive positions during the long week-end, especially when US GDP is due for release on Friday
- The risk-off sentiment supporting gold is ironically helping the Russian economy to fight in the currency war and some of the previous losses against the greenback are likely to be erased
- We are reversing our position on the USDRUB and we think that the ruble should appreciate further to 65 for one green note over the next two weeks
- Besides the oil story, the Australian dollar is feeling the burn of renewed downward pressures as iron ore prices free-fall
- We maintain our negative view on the AUDUSD believing the Aussie to be overvalued, moreover the increasing pressure on iron ore prices should also exacerbate selling. The Aussie will find a first support at 0.7415
- Just like the Aussie, we expect the Kiwi to remain under selling pressure as the market starts to once again price in the monetary policy divergence story.
- EUR/USD may continue to move lower with a first support at 1.1144, erasing last week gains, as markets once again start to price in a potential rate hike in April. In our view however it is very unlikely that we will see a rate hike at the next FOMC
 
Commodity currencies felt the heat in overnight trading as the West Texas Intermediate slid below the $40 threshold amid massive storage increase. Indeed, the EIA’s weekly report showed that US commercial crude inventories rose by 9.4 million barrels last week, compared to an expected increase of 2.5 million barrels. The market reacted strongly to these figures and dragged the WTI down to $39.50 a barrel from $41.25 on Wednesday morning. Besides the oil story, the Australian dollar is feeling the burn of renewed downward pressures as iron ore prices free-fall. The most active iron ore future contracts (for delivery in September) on the Dalian commodity exchange fell almost 6% overnight amid concerns about the Chinese growth outlook. AUD/USD was down 0.60% in Sydney, dipping below the 0.75 mark. We maintain our negative view on the pair as we still see the Aussie as overvalued, moreover the increasing pressure on iron ore prices should also exacerbate selling. The Aussie will find a first support at 0.7415 (low from March 16th), while on the upside a resistance can be found at 0.7649 (high from March 23rd).
 
EUR/USD continued to move lower, erasing last week's gains as the markets again started to price in a potential rate hike by the Fed in April. However, from our standpoint, it is very unlikely that we will see a rate hike at the next FOMC given, especially when you take into consideration the surprisingly dovish statement coming out of the last meeting. The Fed is treading carefully for the moment and the data and in any case financial markets are not supportive for such a move. EUR/USD reached 1.1150 in early European session, down from 1.12 on Wednesday. Bias remains on the downside with a first support at 1.1144 (Fibo 38.2% on early March rally), then 1.1082 (Fibo 50%).
 
In this environment, the Kiwi also lost ground against the US dollar and the better-than-forecasted trade surplus did not stop traders from dumping their long NZD positions. The February trade balance printed at NZ$339m versus NZ$90m expected, thanks to a strong pickup in exports, which rose NZ$4.25bn versus NZ$4.01bn expected and compared to a revised figure of NZ$3.89bn in January. NZD/USD fell 0.40% in Wellington, down to 0.6675 from 0.6722. Just like the Aussie, we expect the Kiwi to remain under selling pressure as the market starts to once again price in the monetary policy divergence story.
 
In the equity market, Asian regional markets traded broadly lower on Wall Street’s negative lead. In Tokyo, the Nikkei fell 0.64%, while the broader Topix index was down 0.70%. Chinese shares were also widely sold-off as the Shanghai and Shenzhen Composites settled down 1.63% and 1.39% respectively. In Hong Kong, the Hang Seng slid 1.41%, while in Singapore the STI was down 1.15%. In Europe, equity futures are pointing to a lower open as the negative mood spreads. Moreover, traders are also reluctant to hold massive positions during the long week-end, especially when the US GDP is due for release on Friday.
 
***Yann Quelenn, market analyst: “Russia – Buying gold starts to pay off: Earlier in 2016, the ruble reached its all-time low against the dollar (above 82 rubble) against a backdrop of collapsing crude oil. Russia’s economic situation is concerning. Its double-digit inflation makes any action from the central bank difficult. Yet, commodities have experienced a large surge over the past months. Gold has gained more than 14.19 since the start of the year and a barrel of Brent is now trading above $40. This is a great news for Russia for which Gold represents 13% of its foreign exchange reserves and crude oil is a major source of revenues.
 
Elvira Nabiullina, the head of the Central Bank has already made it clear that one of its primary objectives is to increase these reserve holdings up to $500 billion. For the time being, holdings amount to $381.1billion. Today new data on forex reserves will be released and we expect it to increase. The current upside momentum for gold is definitely helping the central bank to remove some pressures on the ruble. Indeed, the Russian currency has strengthened against the dollar and the price of gold. The risk-off sentiment is ironically helping the Russian economy to fight in the currency war and some of the previous losses against the greenback are likely to be erased. We are reversing our position on the USDRUB and we think that the ruble should appreciate further to 65 for one green note over the next two weeks.”***
 
Today traders will be watching Gfk consumer confidence from Germany; manufacturing confidence from France; PPI from Sweden; industrial orders from Italy; retail sales from the UK and Italy; Turkey’s rate decision (no change expected); initial jobless claims, durable goods orders and Markit service and composite PMI from the US.

Thursday, 24 Mar, 2016 / 10:17

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

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