European open: Stimulus options boost risk

 

Indices starting positive

Rumours of bold announcement regarding easing policy and adding stimulus are keeping most asset classes buoyant as the European session gets under way. With the Jackson Hole Symposium from Thursday onward being the major focus of the week, date releases and other inputs are looking as if they will take a back seat for the rest of the week.

US index futures are all higher on the day, with gains of between 0.05% and 0.11% so far, while UK shares are looking to notch up gains of 0.26%. The Germany30 index is currently up 0.15% today. On the currency front, activity again is a bit more subdued. The US Dollar Index is trading slightly softer from 2019 highs and the broader risk-on sentiment has boosted the Aussie but the pound cannot seem to benefit from the other inputs as Brexit uncertainty remains a dominant cloud. Conservative Party Chairman Cleverly declared that the EU needs to show more flexibility in Brexit negotiations.

Germany30 Index Daily Chart

Source: OANDA fxTrade

 

China says room for more RRR cuts

China’s recent announcements on rate reform are receiving a bit more clarity today, with PBOC Deputy Governor Liu Guoqiang stating that the new benchmark, the Loan Prime Rate (LPR), is not intended to replace monetary and other policies, but has the aim of lowering funding costs for small and private firms. In addition, the PBOC’s Department Head of Monetary Policy said there is room for cuts in both the Reserve Requirement Ratio and the lending rate. Generally, the move is seen as accelerating the scope to provide stimulus to the Chinese economy, and hence a boost to risk appetite.

 

RBA says low rates to stay

The minutes of the last RBA meeting indicated that committee members judged it reasonable to expect an extended period of low interest rates was necessary in order to make sustained progress towards full employment and achieve more assured progress towards the inflation target. Despite this sentiment, AUD/USD was better bid on the day, rising 0.24% to 0.6781.

 

AUD/USD Daily Chart

Source: OANDA fxTrade

 

Does the data calendar matter?

As mentioned above, the market’s focus is on Fed Chairman Powell’s Jackson Hole speech on Friday, so data releases are expected to take a back seat. For the record, today’s data slate could pass unnoticed. German producer prices in July were in line with expectations at +1.1% y/y and Euro-zone construction output for June (old data) is up next. From the US side, we can expect the weekly Redbook Index followed by a speech from the Fed’s Quarles.

 

The full MarketPulse data calendar can be viewed at https://www.marketpulse.com/economic-events/

 

 

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.

Andrew Robinson

Andrew Robinson

Senior Market Analyst at MarketPulse
A seasoned professional with more than 30 years’ experience in foreign exchange, interest rates and commodities, Andrew Robinson is a senior market analyst with OANDA, responsible for providing timely and relevant market commentary and live market analysis throughout the Asia-Pacific region. Having previously worked in Europe, since moving to Singapore he worked with several leading institutions including Bloomberg, Saxo Capital Markets and Informa Global Markets, proving FX strategies based on a combination of technical and fundamental analysis as well as market flow information. Andrew began his career as an FX dealer with NatWest and the Royal Bank of Scotland in the UK.