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European Update: Sterling recovers, bears refuses to commit

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ActionForex.com

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Nov 13 18, 12:27 GMT

Sterling rebounds broadly today, except versus Kiwi, as bears refuse to commit further selling. Stronger than expected UK wage growth in September does provide some support. But more importantly, there are rumors flying around about an imminent Brexit deal with the EU. It’s reported that the “texts” are ready and they’re just waiting for the nod from UK Prime Minister Theresa May. We’ll see if both sides can really agree on something that paves the way to a November EU summit.

Australian and New Zealand Dollar are also strong on improved sentiment over optimism on US-China trade spat. China Vice Premier Liu He might travel to the US to meet with Treasury Secretary Steven Mnuchin shortly, to prepare for the meeting between Trump and Xi on November 30 at the G20 summit. Yen and Dollar are trading as the weakest ones, paring some of this week’s gain. Canadian Dollar is back under pressure as WTI crude oil resumes recent free fall and hit as low as 58.33.

In other markets, major European indices are trading higher at the time of writing:

FTSE is up 0.23%
DAX is up 0.91%
CAC is up 0.54%
German 10 year yield is up 0.003 at 0.404
Italian 10 year yield is up 0.020 at 3.467. German-Italian spread is above 300

Earlier in Asia

Nikkei closed down -2.06% at 21810.52
Hong Kong HSI rose 0.62% to 25792.87
China Shanghai SSE rose 0.93% to 2654.88
Singapore Strait Times dropped -0.47% to 3053.6
Japan 10 year yield dropped further by -0.0026 to 0.117

Stocks surge as Chinese VP Liu will visit US for trade shortly

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ActionForex.com

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Nov 13 18, 04:46 GMT

Hong Kong stocks opened the day sharply lower with HSI hitting as low as 25092.30. That followed -2.32% decline in DOW overnight. But sentiments were then lifted by US-China trade news. The HSI just had an over 500pts swing and is now at 25060.49, down just -0.1%. AUD/USD is also lifted notably after breaching 0.7182 minor support earlier today.

It’s firstly reported that US Treasury Secretary Steven Mnuchin has resumed discussed with China Vice Premier Liu He on Friday. While there was certainly no breakthrough, it’s a positive step on preparation for Xi-Trump meeting at G20 summit on November 30.

Then, another report emerged saying that Liu would visit the US shortly to carry on with the preparations. The Hong Kong SCMP newspaper said two sources, on both sides, have confirmed the development, even though there is no final schedule yet.

Today’s top mover: A very interesting picture in EUR/NZD

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ActionForex.com

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Nov 12 18, 15:19 GMT

At the time of writing, EUR/NZD is the biggest loser for today. Just an hour or two ago, it should be GBP/NZD. But thanks to the current recovery, GBP/NZD is relegated to the second place.

Nevertheless, EUR/NZD does give us an interesting picture to study.

It’s clear that 1.7928 is a medium term top. Firstly, the up trend from 1.4534 has completed a five-wave sequence. Secondly, bearish divergence conditions are seen in both daily and weekly MACD. EUR/NZD is now approaching a key support zone between 1.6569 and 38.2% retracement of 1.4534 to 1.7928 at 1.6631. Could this cluster support zone hold? Based on current momentum, it’s rather hard to say.

Instead of predicting whether 1.6569/6631 would hold, we’ll look at the implication of break or hold instead. Strong rebound from 1.6569/6631 and break of 1.7060 minor resistance will indicate completion of the decline 1.7928. More improtantly, with the end of wave four at 1.6569 defended, it will suggest that price actions from 1.7928 are merely forming a corrective pattern. That is, EUR/NZD is still in a medium to long term up trend and break of 1.7928 should be seen afterwards.

However, another possible interpretation is that price actions from 1.3881 (2015 low) could have just completed a three wave corrective pattern at 1.7928. And being the third leg of the pattern, rise from 1.4534 to 1.7928 is correct as an impulsive move. Sustained break of 1.6569/6631 will shift favor this very bearish case that could see EUR/NZD revisiting 1.3381/4534 zone in medium to long term.

Fundamentally, the latter bearish case got its arguements too. Markets were rather bearish on New Zealand Dollar due to dovish RBNZ outlook. RBNZ has just reiterated last week that it expected to keep OCR unchanged at 1.75% “through 2019 and into 2020”. And, the next move could both be a hike or cut.

However, it should also be reminded that New Zealand just posted last week a stellar Q3 job data, which saw unemployment rate dropped to decade low. The data has already had some positive impact on Kiwi. Should improvement in employment and inflation persist, markets would continue to pare back bet on RBNZ cut or even turn to bet on a hike. And if situation in Eurozone worsen, ECB might keep interest unchanged even after summer of 2019. Flips in sentments on both sides could indeed set up a free fall in EUR/NZD back to 1.38/45.

Well, admittedly, it’s really too far-fetched for now. But it would be an interesting pair to watch in the coming months.

European Update: Sterling soldoff on Brexit regress, Euro follows closely

By

ActionForex.com

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Nov 12 18, 11:47 GMT

Selloff in European majors, led by Sterling, intensify in European session today. It now looks like Brexit negotiation has not just stalled, but regressed. UK Prime Minister Theresa May’s spokesman James Slack said the Cabinet has backed May in Brexit and expects them to continue to do so. But apparently, May is starting to lose support even from the remain camp in her party. May is moving backward.

Euro is not far behind with EUR/USD taken out 1.13 key support firmly. EUR/JPY also broke 128.60 near term support. Italian Prime Minister office denied that there would be a cabinet meeting on budget today. Deputy Prime Minister Luigi Di Maio continued with populist rhetoric and said respecting EU budget limit is suicidal. We’ll see what revised plan they’re going to re-submit to the European Commission tomorrow.

For now, Canadian Dollar is trading as the strongest one for today. But that’s firstly because it’s digesting last week’s broad based loss. Secondly, Canada is not at the center of any storm for now. Third, WTI crude oil recovers today on Saudi Arabia’s export cut and is back above 60. Dollar is the second strongest, followed by Yen and both are showing promising technical developments.

In other markets, major European indices are soft today. At the time of writing:

FTSE is flat
DAX is down -0.70%
CAC is down -0.16%
German 10 year yield is down -0.0198, at 0.389, back below 0.4
Italian 10 year yield is up 0.034 at 3.432. That is, spread with German is back above 300

Earlier in Asia:

Nikkei rose 0.09% to 22269.88
Hong Kong HSI rose 0.12% to 25633.18
China Shanghai SSE rose 1.22% to 2630.52. But that’s seen mainly as gap covering.
Singapore Strait Times dropped -0.32% to 3068.15

BoE Broadbent warns sequence of Brexit events in the coming months could change economic outlook materially

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ActionForex.com

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Nov 12 18, 10:46 GMT

BoE Deputy Governor Ben Broadbent reiterated in a CNBC interview that the central bank’s forecasts were “conditioned on an assumption that there will be a deal” on Brexit. In particular, there would be a “transition period agreed”. And to him, a Brexit deal is still “the most likely outcome”. However, he also emphasized that “the sequence of events over the next two to three months could change the outlook materially,”

On recent volatility in Pound exchange rate he noted “obviously, over time, every day there are headlines, positive, negative, which will send the currency in particular in one direction or the other.”

On the economy, He said that “even though GDP (gross domestic product) growth has been weaker than certainly pre-crisis rates, it’s been strong enough to allow the unemployment rate to fall further to reach 40-year lows and that in turn has been strong enough to push our wage growth which is momentarily higher since any time since the crisis,”

He added that “we’ve certainly seen stronger figures, not just in the official data but in many of the pay surveys, than we’ve seen for many years.” And, the MPC “always believed that the same old rules applied — that as the labor market tightened you would begin to see faster wage growth, and that’s indeed what we’ve seen.”

While Broadbent was still optimistic on Brexit deal, the developments from the weekend were negative. Prime Minister Theresa May has called off an special cabinet meeting on Brexit today, due to objections to her plan from within the party. Fresh selling is seen in the Pound on news that the extra EU summit is now ruled out as there won’t be enough progress to make it meaningful.