A consideration for markets is the more recent deterioration in US high tech stocks as the high tech sector has been a key driver of the US equity market in recent years, and the demise in high profile stocks may threaten broader confidence in US equities, the US economy, and global risk appetite, according to Greg Gibbs, Analyst at Amplifying Global FX Capital.

Key Quotes

“Some of the issues that have hit confidence in this sector are likely to linger.  These include regulatory pressure brewing on Facebook and setbacks for self-driving vehicles.  Fears over regulatory pressure in the sector spilt over to Amazon on Wednesday.”

“The rebound in the USD on Wednesday seems a bit odd in the context of weakness in its equity market and lower US yields.  As such we cannot be sure it will last.”

“The tech-centric sell-off in recent weeks has increased risk for the highly leveraged Tesla.  Its rapid slide in recent days is generating negative feedback for high yield bond markets and points to risk of broader contagion to other asset classes.”

“The prospect of more permanently elevated high yield spreads suggests downside risk for USD/JPY (notwithstanding its bounce in recent days).  It might threaten currencies of deficit EM countries.  It could spill over to weaker global growth expectations and undermine EM and commodity currencies more generally.”

“As the risk is coming more from the US tech sector, it might support the EUR against the USD as an alternative safe haven.”

“US Treasury bond yields have retreated in recent days along with weaker US equities; this may yet undermine USD/JPY and support EUR/USD in coming sessions.  However, it must be noted that the USD yield advantage has increased significantly over the last year, and just now as the yield spread has narrowed a bit, the USD is performing more strongly.  As such it is hard to say how the USD will react, if at all, to the recent fall in US yields.”

 

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   •  A modest USD weakness prompts some short-covering move.
   •  Technically seems vulnerable to extend the recent downfall.

The GBP/USD pair staged a goodish rebound on Friday and has now recovered a part of previous session’s slide to over 1-week lows.

The pair stalled this corrective slide from near 2-month tops and managed to defend the key 1.40 psychological mark on the back of a subdued US Dollar price action, which forced traders to lighten their bearish bets amid holiday-thinned liquidity conditions. 

With investors looking past the recent positive news over the Brexit transition deal and a hawkish BoE vote, the USD price dynamics has now been acting as an exclusive driver of the pair’s momentum since the beginning of this week. 

Apart from a modest greenback weakness, the uptick lacked any obvious trigger and hence, it would now be interesting to see if the pair is able to build on the momentum or the move is utilized as an opportunity to initiate some fresh short positions.

Even from a technical perspective, the pair on Thursday broke below a short-term ascending trend-channel support and remains vulnerable to extend its near-term bearish trajectory, suggesting any meaningful recovery attempts are likely to be short-lived.

Technical levels to watch

Immediate resistance is now pegged near the 1.4075 level and is followed by the 1.4100 handle, above which the pair could recover back towards the 1.4135-40 supply zone. On the flip side, the 1.4015-10 area now seems to have emerged as an immediate support, which if broken might prompt some additional weakness towards the 1.3965-60 horizontal zone.
 

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Analysts at Standard Chartered point out that US February personal consumption expenditure (PCE) data showed some reversal in the wages and salaries component, to 0.5% from 0.6% in January.

Key Quotes

“Disposable income increased by 0.2% after January’s 0.6% jump, likely helped by one-time bonuses. The PCE deflator was 1.8%, slightly higher than the 1.7% expected, resulting in a slight drop in real personal spending. The saving rate increased to 3.4% from 3.2% in January after 2.4% in December, suggesting that US consumers are not responding to the additional income from the Tax Cuts and Jobs Act (TCJA) in the profligate manner some had feared.”

“Spending on goods increased more than on services, but core goods prices edged higher only 0.14% y/y compared with January, while services prices moderately accelerated to 2.5% y/y.”

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   •  Subdued USD demand helps recover from over 1-week lows.
   •  Runs the risk of reversing gains amid holiday-thinned trading conditions.

The EUR/USD pair caught some bids on Friday and was now seen building on its positive move beyond the 1.2300 handle.

A subdued US Dollar demand helped the pair to gain some fresh traction and rebound from over one-week lows touched in the previous session. In absence of any fundamental trigger, the up-move could be attributed to some short-covering and seemed lacking any strong conviction. 

Moreover, with global markets shut on the back of Good Friday holiday, the bullish move runs the risk of a sudden reversal amid relatively thin liquidity conditions. Hence, it would prudent to wait for a strong follow-through buying interest before positioning for any further near-term up-move. 

Technical levels to watch

Immediate resistance is pegged near the 1.2340 level, above which a fresh bout of short-covering could lift the pair back towards reclaiming the 1.2400 handle.

On the flip side, sustained weakness below the 1.2300 handle is likely to accelerate the fall towards the 1.2240 horizontal support, which if broken might turn the pair vulnerable to slide further towards testing the 1.2200-1.2180 support area.
 

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According to Greg Gibbs, Analyst at Amplifying Global FX Capital, we cannot be sure that the AUD will continue to slide on trade war fears and in fact, it has regained some lost ground against the EUR, JPY, and NZD in trading on Wednesday, in the context of a bounce in the USD.

Key Quotes

“The bounce in the USD is a perhaps a sign that fears over trade wars may start to calm as we head into April.  The China/North Korea leaders’ meeting might be seen as a sign that China is seeking to help the denuclearization process as part of diplomatic efforts to contain US trade protectionism.”

“The USA has also reached a new trade pact with South Korea and this may point to less risk of a trade war breaking out between the US and China; showing that it is using a stick and carrot approach, and is willing to discuss and come to an agreement on trade.”

“If so, to the extent that the AUD’s recent fall has reflected a proxy role for a US/China trade war risks,  it is possible to see a rebound in global risk appetite and recovery in the AUD in coming weeks, perhaps more so against crosses.”

“On the other hand, Chinese commodity prices remain at recent lows, and this may reflect broader issues over demand for steel in China.  Recent property market data in China suggests that the sector is in a slowdown that might dampen construction activity.  Chinese authorities also appear to be paying more attention to tightening less regulated and shadow credit markets.”

“As such, we might keep a close eye on Chinese commodity prices and their influence, or otherwise, on the AUD.”

 

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   •  Investors looked past yesterday’s disappointing Canadian GDP print.
   •  Bullish oil prices underpin demand for the commodity-linked Loonie.
   •  Range-play intact amid holiday-thinned liquidity conditions.

The USD/CAD pair extended its consolidative price action and remained confined within a narrow trading range below the 1.2900 handle. 

The pair on Thursday spiked back to the 1.2940 in reaction to disappointing releases of monthly GDP print and Raw Materials Price Index (RMPI) from Canada. The up-move, however, quickly ran out of steam and was being capped by some renewed US Dollar weakness.

This coupled with bullish crude oil prices provided an additional boost to the commodity-linked currency – Loonie and dragged the pair to an intraday low level of 1.2860.

The pair now seems to have entered a consolidation phase and lacked any follow-through momentum amid holiday-thinned subdued trading action on Friday. Most global markets are closed in observance of Good Friday and hence, the pair seems more likely to continue oscillating in a narrow trading band on the last trading day of the week. 

Technical levels to watch

Any subsequent weakness is likely to find support near the 1.2840-35 region and is followed by a strong horizontal support near the 1.2810-1.2800 zone. On the upside, any meaningful up-move back above the 1.2900 handle might continue to confront strong resistance near the 1.2940 area, above which a fresh bout of short-covering could assist the pair back towards reclaiming the key 1.30 psychological mark.
 

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