Trading news

Silver tests 2-year high, Upside pressures on the loonie

- London plans to cut the corporate tax rate in an attempt to safeguard foreign investment, which may further strengthen the sterling pound to 1,3846

- AUD may weaken further after elections reveal the possibility of another hung parliament

- Raised concerns about Australia's ability to contain budget deficit, risks the loss of its triple A rating

- RBA likely to further ease amid temporary results

- Silver: Long, non-commercial positioning has reached 50% of total open interest, suggesting substantially increased odds of a correction

- EURUSD remains in range trading between 1.1120 and 1.1144 as investors await key data from the US

- As we believe no US rate hikes will occur this year we target USDCAD 1,25 over medium term


The pound sterling rose 0.20% during the Asian session after George Osborne, Chancellor of the Exchequer, unveiled his plans to cut the corporate tax rate to 15% over the coming years The plan is aimed at increasing incentives to invest in the UK. The current UK tax rate is 20% but this should reach 17% by 2020. The pound sterling tested 1.3308 on Monday morning before easing slightly to 1.3290. On the downside, the closest support lies at 1.3206 (low from June 30th), then 1.3121 (low from June 27th). On the upside, it is wide open to 1.3534 (high from Jun 29th), then 1.3846 (Fibonacci 38.2% on June’s debasement).

The Australian dollar fell strongly at the opening after the elections held on Saturday revealed the possibility of another hung parliament. For now, the Liberal-National coalition has been unable to secure the 76 seats required at the House of Representative for a majority government. The prospect of a minority government is raising concerns about the ability of the new government to contain the budget deficit. Australian sovereign bond yields rose across the curve this morning, with the 2-year rate hitting 1.629%, while 5-year yields tested 1.677%, suggesting that another three years of weak political strength will increase the risk of a credit rating downgrade - Australia may indeed lose its AAA credit rating. The Australian dollar opened 50pips lower on Monday before bouncing back to 0.7513, boosted by the strong yield recovery. Australian equities were about to end in green for a fifth straight session, up 0.67%, on the prospect of the increasing likelihood of further easing from the central bank amid the temporary results.

Silver continued its mad run, surging more than 3% to $20.38 during the Asian session, as speculators jumped into long silver positions. Long, non-commercial positioning reached 50% of total open interest (CFTC commitments on June 28th), suggesting that the odds of a correction have increased substantially. Since the beginning of the year, silver has risen almost 50% against the backdrop of a worsening global outlook. Gold has also continued to gain ground, rising 0.70% to $1,350.80 an ounce on Monday. The yellow metal surged almost 30% since January.

EUR/USD traded sideways in Tokyo, remaining within the 1.1120 - 1.1144 range as investors await this week’s key data from the US (NFP, durable goods orders, unemployment rate, June FOMC minutes). A support can be found at 1.1024 (low from June 30th), while on the upside a resistance lies at 1.1169 (high from July 1st).

Yann Quelenn, market analyst: “Upside pressures on the loonie: The Canadian currency has been trading around 1.300 for the last two months. It has been stuck at this level since crude oil prices began stalling below the 50 dollar mark. This afternoon will see the release of the Canadian Manufacturing PMI, which should print in line with previous month at around 52. It is clear that the rebound in commodity prices since the beginning of the year has added upside pressures on the manufacturing index. The oil oversupply, associated with the increasing global demand, should keep oil trading at around this level, therefore limiting upside pressures on the CAD.

Nonetheless, we believe that in the medium-term, there are other bearish pressures on the USD/CAD. Other than commodity prices, the other key driver of the pair is of course US monetary policy. We continue to maintain our view that the Fed rate path was largely overestimated and that markets are now pricing in a rate cut before year-end, even though the probability remains small and despite the fact that some policymakers still claim that at least one raise is possible. With this in mind we believe that financial markets have still not fully priced in the weakness of the US economy and in our view no further rate hike will take place this year. As a result, upside pressures on the loonie are set to continue and we target an exchange rate of 1.25 for the USD/CAD over the medium-term.” ---

Today traders will be watching sight deposits from the SNB; manufacturing PMI from Canada; CPI from Turkey; unemployment from Spain.

Monday, 04 Jul, 2016 / 8:20

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