Another Brexit bounce

Another Brexit bounce

Global investors were encouraged by a breakthrough on the European political landscape when reports suggested the European Union chief Brexit negotiator Barnier has been given enormous latitude to get Brexit signed and even stated he expects a deal to happen within weeks.

US Markets
US equity market continues to climb that trade war wall of worry as US economic fundamentals, and the prospect of higher corporate earnings are just too juicy to ignore. Despite last weeks selloff which was arguably driven by emerging market tantrum, we’re still sitting near all-time highs as the S&P remains robust stable and seriously sturdy. So global cross-asset rotation out of riskier emerging market into the bullish S&P could continue given the optimistic overtones. Traders have thrown just about everything including the kitchen sink at US stocks, and a week in week out the indexes come roaring back for more.

Asia Markets
Not expecting too much of a reprieve in Asia markets today as risk sentiment in the regions remains on unsure footing. I suspect local investor continue to view the US equities markets safe harbour appeal in a positive light why shying local markets.

Oil Markets 
Supply-side disruptions continued to offer some temporary support for Oil prices moved higher after Libya’s National Oil Corp. headquarters in the Libyan capital of Tripoli was subject to a terrorist attack, but prices then reversed as after the company head Mustafa Sanallah assured that production had been unaffected. Brent had also remained gingerly supported by the delayed restart of the Buzzard field in the North Sea due to poor weather conditions.

Speaking of weather, US Hurricane season does raise the odds that eventually, a storm could take aim at gulf coast rigs and refiners as intense weather patterns continue to form in the Atlantic Ocean. With that in mind, the Industry is focusing on Hurricane Florence, and while there are no refineries in the path of the storm, the Colonial Pipeline is prepping for possible power disruptions given the wind could reach Category 5 intensity. It could lead to pressure at the pump in the northeast.

This week’s US crude Inventory data will be a big factor in traders near-term trading decision, so the market has been trading very rangy ahead of the data. But concerns about rising Cushing inventories and some pre-inventory analyst’s surveys suggesting US inventories could build are holding back markets.

After last weeks bearish outside week, oil bulls are having a tough time getting back in the saddle and in the absence of any significant positive drivers are prepared to sit on support bids near current levels. But the markets have not lost confidence and are expecting substantial price pressure as Iran sanction loom.

Gold Markets 

Gold prices caught a tentative bounce on a slightly weaker USD. But the prospects of rising US interest will ultimately tame this rally. If this week US economic data is hawkish Fed supportive, it could provide the catalyst to move gold through $ 1190 support as the US  dollar could surge.

Currency Markets

Why isn’t the dollar higher?

Despite the substantial US NFP payroll print suggests the Feds will remain on Dot Plot autopilot, but with the plethora of Fed speak this week there remains a level of uncertainty that trade slowdown, tariff worries that hit commodity and emerging markets could provide the Feds cause for pause. But I think the lingering effect of Chair Powell Jackson hole comments which were interpreted as dovish by many market participants are too fresh in some trader’s minds for those same reason mentioned above

The Euro and the British Pound

Barnier ’s optimism helped trigger a sterling relief rally as the markets were buying back volumes of Short Sterling position.

This positive shift could have a significant central bank effect over the medium term as its thought that a Brexit deal is a big piece of the EU puzzle that has been keeping both Bank of England and the European Central Bank on a defensive back. As such, the USD dollar was unnerved by the EU headlines with the Euro retracting from below 1.1530 eventually hitting 1.1615 before seller emerging and Sterling rocketed 100 pips register intraday highs above 1.3050.

But the Euro and Brexit sceptic in me suggests fading these moves as the divorce bill has yet to be announced, but I will become a believer if Cable trades +1.3130  on the follow through.

Japanese Yen

President Trump has throttled risk and has all but handcuffed USDJPY. And despite favourable differentials supporting the USD higher, risk hedgers remain seller at 111.25 which is capping moves higher.

The Australian Dollar

Should be a smooth move to .70 but trust me nothing ever comes easy in Forex trading and pushing through.7100 AUDUSD will be far from a walk in the park but should be in the offing. Overnight there was a reluctance to chase the market lower today. As perhaps some pause for cause in the absence of any definitive trade war rhetoric ratcheting up. It still feels bid at .71 despite AUDUSD precariously perched just above. Which suggests on a break on .7100 we could see a significant move lower as near-term stops trigger.

EM Asia

Rupee
The move higher in US yields post-NFP spilt over into the region and a negatively impacted the higher yielder. The Rupee was being preyed on by speculators due to current account deficit widening, and despite headlines about intervention but the effectiveness of intervention by central banks in a USD rising environment is one word ” Ineffective” and does little more than provide better levels to short the currency. The prospect of higher US interest rates and higher Oil prices on Iran sanctions is indeed a toxic elixir for the Rupee.

Malaysian Ringgit
Another quiet session in the Ringgit but remains pressured higher US interest rates but counterbalanced by robust oil prices

Korean Won

The second summit in the cards?, I’m following this positve regional development but awating further clarity .

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes
Stephen Innes

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