24 Sep 2018

FOREX Newsletter

   

FOREX Newsletter

September 24, 2018

 

 

Pulse of the Market

·      The market is pricing in 100% chance of a quarter point U.S rate increase on September 26

·      Softer than expected Eurozone PMIs drove the euro lower

·      In one day, sterling lost all of the gains that it had built up during the week

·      All 3 commodity currencies ended the day unchanged after strong gains this week

 

 

Judging from the recent performance of USD/JPY, investors are preparing for a dovish hike. The market is pricing in 100% chance of a quarter point rate increase on September 26 and a 75% chance of tightening on December 19th but we think the risk of disappointment is greater than that. After 3 rounds of tightening, it would behoove the Fed to take a break especially given the President’s criticism, trade war uncertainty, and mixed data. Since July, there’s been the weakness in retail sales, inflation, housing, and manufacturing activity. However with strong corporate earnings, record highs in stocks and continued labor market strength, if the Fed wanted to raise interest rates again, the arguments are there. As a result, we expect the dollar to consolidate with a mild bias to the downside before the FOMC rate decision. There are a handful of other economic reports scheduled for releases such as consumer confidence, personal income, and personal spending but they will be overshadowed by FOMC flows. USD/JPY, in particular, is vulnerable to a correction back to 111.50. In one day, Sterling lost all of the gains that it had built up during the week and this shows just how sensitive the currency is to Brexit news. At the start of the month, it appeared that a deal was close but the talks broke down when Prime Minister May said they were at an impasse this week. She said they are far apart on two big issues and the UK expects respect from the EU rather than an outright refusal to accept their proposal. The biggest hangups are their post-Brexit economic relationship and the Irish border. May sees no deal as better than a bad deal, which is bad news for sterling especially as her own Eurosceptic MPs want her to abandon her Chequers plan. Stronger than expected retail sales and consumer price growth were completely forgotten as investors focused on renewed Brexit uncertainty. With no major UK economic reports on the calendar in this week, we expect further weakness in sterling. Softer than expected Eurozone PMIs drove the euro lower. Although service sector activity strengthened, growth in the manufacturing sector is slowing and we think it will affect today’s IFO report. EUR/USD hit a 2 month high this week but it is vulnerable to a correction down to 1.1650. The Swiss Franc rose to a 5 month high despite the Swiss National Bank’s growing concern about the currency. Diversification out of European currencies into the franc is the only reason that we see for the currency’s strength. All 3 commodity currencies ended the day unchanged after strong gains this week.

 

 

Time(GMT)   Economic Release IMP Actual Forecast Prior
08:00 German IFO Business Climate (SEP) Medium     103.8
08:00 German IFO Expectations (SEP) Medium     101.2
08:00 German IFO Current Assessment (SEP) Medium     106.4
10:00 U.K CBI Trends Total Orders (SEP) Low     7
10:00 U.K CBI Trends Selling Prices (SEP) Low     15
12:30 U.S Chicago Fed Nat Activity Index (AUG) Low     0.13
14:30 U.S Dallas Fed Manufacturing Activity (SEP) Low   31 30.9
23:50 SBOJ Minutes of Policy Meeting (SEP 19) Medium      

 

Euro

The single currency gains in the last week were largely driven by signs that the Italian government will fall in line with the European Union’s budgetary restraints. A surprising amount of negativity at the Brexit Salzburg summit this week knocked the British Pound lower, and dragged the Euro down alongside with it. Overall, the EUR/USD traded with a low of 1.1731 and a high of 1.1801 before closing the day around 1.1751 in the New York session.

 

Yen

The Japanese Yen was once again the worst performing currency last week, but USD/JPY only gained +0.47% percent in the process. The ongoing improvement in risk appetite across the board is helping keep the Yen down. In an environment where stocks rally, particularly in Japan and the US, the Yen should remain generally weak. Overall, the USD/JPY traded with a low of 112.41 and a high of 112.85 before closing the day around 112.56 in the U.S session.

 

British Pound

The British Pound plummeted on Friday as Theresa May admitted that the Brexit talks have reached an “impasse” and criticized the EU for its “unacceptable” rejection of her own plan in Salzburg last week. The currency dipped to $1.3092 as the Prime Minister delivered a special statement in Downing Street, down 1.3 per cent on the day. Overall, the GBP/USD traded with a low of 1.3052 and a high of 1.3274 before closing the day at 1.3081 in the New York session.

 

Canadian Dollar

The Canadian Dollar ended the session little changed against the greenback on Friday, holding near its highest in more than three months as data showing a pickup in underlying inflation boosted bets for a Bank of Canada interest rate hike next month. Canada’s annual inflation rate dipped to 2.8 per cent in August from 3.0 per cent in July. Overall, USD/CAD traded with a low of 1.2883 and a high of 1.2940 before closing the day at 1.2914 in the New York session.

 

Australian Dollar

The Australian Dollar has risen to three-week highs against its big US brother. This is perhaps surprising in an environment of terrible trade relations between Washington and Beijing. Australia has after all vast economic, political and/or security ties with both nations and can sometimes seem unfortunately sandwiched between the two. Rising tensions there don’t promise Australia any good.  Overall, AUD/USD traded with a low of 0.7289 and a high of 0.7302 before closing the day at 0.7284 in the New York session.

 

Euro-Yen

EUR/JPY is trading above 14, 50 and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is issuing a bullish stance. The Relative Strength Index is above 62 and lies above the neutral zone. In general, the pair has lost 0.13%.

 

Sterling-Yen

Currently, GBP/JPY is trading above 14, 50 and below 100 days moving average. Fast stochastic is issuing a bullish tone and MACD is also indicating a bullish stance. The Relative Strength Index is above 66 reading and lies above the neutral zone. On the whole, the pair has lost 1.32%.

  

Aussie-Yen

Currently, the cross is trading above 14 and below 50, 100 days moving average. Fast stochastic is giving a bullish tone and MACD is also indicating a bullish stance. The Relative Strength Index is above 57 reading and lies above the neutral region. In general, the pair has gained 0.01%.

 

Euro-Sterling

This cross is currently trading above 14, 50 and 100 days moving average. Fast stochastic is indicating a bearish tone and MACD is also issuing a bearish signal. The Relative Strength Index is above 42 and lies below the neutral region. On the whole, the pair has gained 1.20%.

 

Sterling-Swiss

This cross is trading below 14, 50 and 100 days moving average. Fast stochastic is issuing a bullish stance and MACD is also indicating a bullish tone. The Relative Strength Index is above 54 and lies above the neutral region. In general, the pair has lost 1.51%.

 

Appendix

  

FOREX Closing Prices for September 21, 2018
Currency Open High Low Close Net Chg
EUR/USD 1.17757 1.18013 1.17314 1.17513 -0.0024
USD/JPY 112.45 112.855 112.41 112.564 0.0960
GBP/USD 1.32637 1.32748 1.30529 1.30811 -0.0187
USD/CHF 0.95871 0.95965 0.95403 0.95772 -0.0010
USD/CAD 1.29062 1.29409 1.28834 1.29148 0.0013
EUR/JPY 132.472 133.107 132.135 132.301 -0.1710
GBP/JPY 149.186 149.69 146.959 147.271 -1.9660
CHF/JPY 117.272 118.04 117.224 117.511 0.2350
AUD/JPY 81.976 82.326 81.854 81.995 0.0060
EUR/GBP 0.8877 0.89937 0.88686 0.89812 0.0106
EUR/CHF 1.12909 1.1306 1.1220 1.1256 -0.0034
GBP/CHF 1.27189 1.2726 1.24997 1.25293 -0.0192

  

 

Daily Pivot Points
  Trading Range  
Contract S3 S2 S1 Pivot R1 R2 R3
EUR/USD 1.1651 1.1691 1.1721 1.1761 1.1791 1.1831 1.1861
USD/JPY 111.92 112.16 112.36 112.61 112.81 113.05 113.25
GBP/USD 1.2776 1.2914 1.2998 1.3136 1.3220 1.3358 1.3442
USD/CHF 0.9490 0.9515 0.9546 0.9571 0.9602 0.9628 0.9659
USD/CAD 1.2828 1.2856 1.2885 1.2913 1.2943 1.2971 1.3000
EUR/JPY 130.95 131.54 131.92 132.51 132.89 133.49 133.87
GBP/JPY 143.53 145.24 146.26 147.97 148.99 150.70 151.72
CHF/JPY 116.33 116.78 117.14 117.59 117.96 118.41 118.78
AUD/JPY 81.32 81.59 81.79 82.06 82.26 82.53 82.73
EUR/GBP 0.8777 0.8823 0.8902 0.8948 0.9027 0.9073 0.9152
EUR/CHF 1.1129 1.1175 1.1215 1.1261 1.1301 1.1347 1.1387
GBP/CHF 1.2218 1.2359 1.2444 1.2585 1.2670 1.2811 1.2897

 

Sources:  News, Charts & Quotes (Courtesy: Reuters, US Department Of Treasury)

 

Disclaimer

This information has been prepared for information only and does not constitute an offer or commitment. This information does not constitute investment advice as defined by the rules of the FCA.

The firm or its staff members may trade on their own account and may from time to time hold or act as market makers in investments mentioned in this document. Please note that the firm makes no warranty, expressed or implied, as to the accuracy or completeness of the information and opinions herein. All parties are advised to seek independent professional advice as to the suitability of any products and to their tax, accounting, legal or regulatory implications. City Credit Capital (UK) Ltd is authorized and regulated by the Financial Conduct Authority, reg 232015.