Here are the latest developments in global markets:
FOREX: The dollar was little changed versus a basket of currencies on Wednesday, consolidating the considerable losses from previous days and especially after President Trump’s comments on Monday; he criticized rate normalization efforts by the Fed. Updates on the US-China trade relationship and Fed minutes from the central bank’s latest meeting may determine positioning during today’s trading.
STOCKS: The Dow Jones, S&P 500 and the Nasdaq Composite finished Tuesday’s trading higher by 0.2%, 0.2% and 0.5% respectively. The absence of any escalation in the Sino-US trade standoff was one of the reasons behind the positive sentiment and the advances in recent days. It is of note that the S&P touched a record high during Tuesday’s session, though it later gave up on gains to close at its highest since January. In Asian markets, the Japanese Nikkei 225 and Topix indices moved up by 0.6% and 0.8% on Wednesday correspondingly. Hong Kong’s Hang Seng was up by 0.4%. At 0700 GMT, futures markets were pointing to a lower open for major European benchmarks, though it is noteworthy that contracts were not deeply in the red. The same held true for futures tracking the Dow, S&P and Nasdaq 100.
COMMODITIES: WTI traded higher by around 0.6%, at $66.21 per barrel, extending on gains instigated by a US plan to sell strategic oil reserves that stressed concerns about tightening global supplies. In the meantime, Brent crude was 0.5% up, at $73.01/barrel. In precious metals, gold was down by around 0.2%, trading at $1,193.85/ounce. The dollar-denominated metal has been flirting with the $1,200 round figure over the last couple of days, benefitting on the back of the greenback’s weakness. Earlier on Wednesday, it touched $1,197.76, its highest since August 14.
Major movers: Trump’s monetary policy talk throws dollar to two-week low
The dollar’s index against a basket of six major currencies was close to flat on Wednesday, trading not far above 95.08, its lowest since August 9 hit on Tuesday. The greenback seems to be maintaining negative momentum after Trump expressed his displeasure with the Fed’s rate hiking on Monday.
Easing trade concerns on the back of upcoming trade talks between the world’s two largest economies also took away from the US currency’s allure which has been on the receiving end of safe-haven flows as tensions between the US and China intensified previously.
The euro and sterling both rose by around 0.8% versus the greenback on Tuesday, while today they’re largely consolidating gains from previous days. At their highest on Tuesday, euro/dollar touched 1.16 and pound/dollar rose to as high as 1.2925, both two-week peaks. The common currency has since retreated below the 1.16 handle, while the pound is attempting to hold the 1.29 level.
Some analysts attributed the British currency’s strength yesterday on positive developments on the Brexit front. Specifically, following yesterday’s talks in Brussels, Britain’s chief Brexit negotiator, Dominic Raab, said the UK is still confident it can reach an exit deal with the EU in October. Given though that euro/pound was not much changed, it could be argued that sterling’s advancing merely came on the back of broad dollar weakness; the pound tends to gain against the euro as well whenever positive Brexit news hit the markets.
Dollar/yen recovered from Tuesday’s near two-month low of 109.76 and continues to build on yesterday’s gains on Tuesday, trading not far below 110.50. The absence of safe-haven flows is hurting the Japanese currency.
In the antipodean sphere, kiwi/dollar was marginally higher and aussie/dollar was underperforming, trading lower by 0.4% despite data out of Australia showing spending on construction work jumped 1.6% in Q2, outstripping analysts’ forecasts. New Zealand retail sales for Q2 rose by 1.1% q/q, far above Q1’s 0.1%, suggesting a brighter outlook for the economy.
Lastly, in EM, the Mexican peso was boosted after the US and Mexico appeared to be getting close to a NAFTA deal.
Day ahead: US-Chinese trade talks kick off; FOMC meeting minutes to attract attention
On Wednesday, US and Chinese officials will be meeting in Washington to start the widely awaited trade talks, with investors hoping for the discussions to bring a breakthrough in US-Sino relations despite them being of “low-level” nature.
Staying in the US, the Federal Open Market Committee (FOMC) is scheduled to release minutes of its latest meeting at 1800 GMT. During that meeting, policymakers decided to leave rates unchanged and communicated that the central bank will continue to hike rates gradually as economic indicators overall continue to grow at a strong pace; this boosted the odds for two more rate rate increases by the end of the year.
The minutes are expected to confirm the Fed’s bullish assessment on the economy. Beyond this, investors will be paying attention to any trade commentary and whether any deterioration on this front could turn policymakers more cautious on rate normalization in the future. Should the minutes signal that trade frictions and further escalation in tensions could weigh on the economic outlook, the dollar could head south. However, if policymakers appear more hawkish than previously thought, the greenback is likely to gain ground.
In terms of data releases, existing home sales out of the US at 1400 GMT are expected to rise by 0.6% m/m in July after declining by 0.6% in June.
Earlier, at 1230 GMT, Canadian retail sales could move the loonie. Analysts anticipate retail sales growth to have slowed down from 2.0% m/m in May to 0.1% in June. Excluding automobiles, retail sales are projected to contract by 0.1% m/m after rising by 1.4% in May. An upbeat report could help the loonie continue its rally against the greenback, and vice versa.
Any updates on Brexit will be closely watched as they have the capacity to move the British currency.
In energy markets, weekly EIA data on US crude stocks are due at 1430 GMT. Crude inventories are anticipated to have fallen by around 1.5 million barrels during the week ending August 17 after rising by roughly 6.8m in the previously tracked week.
A meeting between US Secretary of State Mike Pompeo and British Foreign Secretary Jeremy Hunt at 1330 GMT may be of interest.
Lastly, politics are also at play in the US, though they do not seem to affect market positioning much thus far. In particular, Trump’s former personal lawyer Michael Cohen testified on Tuesday, saying he had been instructed by a presidential candidate to commit a crime ahead of the 2016 presidential election. Meanwhile, ex-Trump campaign manager Paul Manafort was convicted yesterday on the grounds of financial wrongdoing. Developments will be monitored.
Technical Analysis: USDCAD flattens at 2-week lows; double-top bearish formation in focus
USDCAD broke a key support around 1.3050 yesterday to reach an almost two-week low of 1.3012, confirming the double top formation around 1.3173 in the four-hour chart, a negative signal for the pair. However, the downside break was not extended lower – at least thus far – and the price is currently moving sideways with momentum indicators suggesting that the consolidation could continue in the near-term; the RSI is largely moving sideways below 50 and the MACD is roughly at the same level as its red signal line below zero.
A beat in Canadian retail sales, however, could bring fresh downside to the pair, sending the market back down to the 1.3012 bottom. If this level proves a weak support, bearish actions could extend towards the 1.3000 psychological level, where the 78.6% Fibonacci of the upleg from 1.2961 to 1.3173 is located, before the August 7 low of 1.2961 comes into view.
On the other hand, a data miss could benefit USDCAD, with resistance possibly taking place between the 61.8% Fibonacci of 1.3041 and the 50% Fibonacci of 1.3066. Even higher, bulls could try to overcome the 38.2% Fibonacci of 1.3091, where the 50-day (simple) moving average roughly lies as well.
