October 15, 2018
Pulse of the Market
· In 2 trading days, the Dow Jones lost more than 1,300 points and the S&P500 fell over 5%
· The real test for the Dollar comes this week when retail sales and the FOMC minutes are scheduled
· The Euro found a bottom this past week but it is too soon to declare victory for the bulls
· Last week’s softer GDP and trade balance report had very little impact on the British Pound
|The U.S Dollar fell because investors are looking at the decline in stocks as a U.S Dollar story. The Federal Reserve raised interest rates by 75bp this year and is expected to tighten again in December. For next year, the market is starting to price in 3 rounds of tightening as even the dovish of doves (Fed President Evans) feel that the central bank needs to take rates 50bp above neutral. No one including the Fed really knows what the neutral rate is but earlier this month Fed Chair Powell said we are a “long way from neutral” which suggests that it is at least 3% so 50bp above neutral would mean 3.5%. While getting to this rate will take some time, investors are worried that these rate hikes will create an economic crisis. We know that rising rates is a big problem for the housing market but trade wars combined with higher interest rates makes businesses and investors more conservative which could lead to lasting weakness in U.S equities. The past 2 years have been great for U.S stocks and the recent decline gives investors a good reason to lighten up on their positions. For all of these reasons, buyers may not return as quickly because U.S interest rates were 75bp lower in February and Brexit was viewed as the UK’s problem. However, the meltdown in equities shouldn’t change the course for currencies because a contraction in the U.S economy is bad for all countries. If the sell-off in stocks is rooted in the prospect of higher U.S interest rates, then rising yields in U.S. should keep the dollar attractive. The Fed should still be the most aggressive central bank next year and for now, the signs of weakness in the U.S economy have been minimal. Inflation and consumer confidence surprised to the downside last week but price pressures are strong according to the Fed. The real test for the Dollar comes this week when retail sales and the FOMC minutes are scheduled for release. The primary focus for sterling is Brexit and data is only a distraction. This week’s softer GDP and trade balance report had very little impact on the currency. Instead GBP rallied at the start of the week after the EU’s Chief Brexit negotiator Barnier said they could have a deal next week and fell at the end on reports that Prime Minister won’t agree to be trapped in a customs union. The clock is ticking and a deal is drawing close but having been burned by false hopes, investors are ignoring the conflicting headlines and waiting for official confirmation. When a deal is announced, GBP will soar but until that happens investors are skeptical. Employment, inflation and retail sales data are scheduled for release this week.|
|04:30||Japan Industrial Production (YoY) (AUG)||Medium||0.6%|
|08:00||Switzerland Total Sight Deposits CHF (OCT 12)||Low|
|12:30||U.S Retail Sales Advance (MoM) (SEP)||High||0.5%||0.1%|
|12:30||U.S Empire Manufacturing (OCT)||Low||19|
|12:30||U.S Retail Sales Ex Auto and Gas (SEP)||Medium||0.2%|
|12:30||U.S Retail Sales Control Group (SEP)||Medium||0.1%|
|13:00||Canada Existing Home Sales (MoM) (SEP)||Medium||0.9%|
|14:00||U.S Business Inventories (AUG)||Medium||0.6%|
|21:45||New Zealand Consumer Price Index (YoY) (3Q)||High||1.5%|
The single currency weathered the worst of the acute breakdown in risk appetite last week, even as concerns about Italy linger. The economic calendar remains mostly barren, and the current environment in financial markets means that minor data releases will most likely be overlooked. The Euro finished in the middle of the pack last week. Overall, the EUR/USD traded with a low of 1.1533 and a high of 1.1609 before closing the day around 1.1557 in the New York session.
The Japanese Yen was the best performing major currency last week as global equity markets were slammed. The Japanese Yen was one of the beneficiaries during the global equity market selloff last week, posting gains against every major currency en route to its best week of the year since mid-February. Overall, the USD/JPY traded with a low of 111.86 and a high of 112.47 before closing the day around 112.17 in the U.S session.
The British Pound ended lower after lack of a concrete breakthrough in Brexit negotiations. The pound may surge toward a five-month high if the U.K and the European Union agree on a divorce deal this week. The summit is seen as a key moment for the negotiations, with May set to have dinner with her European counterparts on Wednesday. Overall, the GBP/USD traded with a low of 1.3144 and a high of 1.3256 before closing the day at 1.3151 in the New York session.
The Canadian Dollar was little changed against a broadly stronger greenback as oil and stock prices rebounded, but the loonie lost ground for the week as investors worried about threats to the global growth outlook. For the week, the loonie was down 0.7 percent as investors worried that higher bond yields and trade conflicts could hurt global economic growth. Overall, USD/CAD traded with a low of 1.3000 and a high of 1.3050 before closing the day at 1.3028 in the New York session.
The Australian Dollar failed to make new lows despite gloomy news flow. All of the factors that have weighed on it over the past year remained very much in place. Some of them even intensified. The huge differential in monetary policy between a still-tightening Federal Reserve and a Reserve Bank of Australia stuck in post-crisis accommodation mode was as obvious as ever. Overall, AUD/USD traded with a low of 0.7100 and a high of 0.7137 before closing the day at 0.7111 in the New York session.
EUR/JPY is trading below 14 and above 50, 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also issuing a bearish stance. The Relative Strength Index is above 42 and lies below the neutral zone. In general, the pair has lost 0.27%.
Currently, GBP/JPY is trading below 14 and above 50, 100 days moving average. Fast stochastic is issuing a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 51 reading and lies above the neutral zone. On the whole, the pair has lost 0.60%.
Currently, the cross is trading below 14, 50 and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 40 reading and lies below the neutral region. In general, the pair has lost 0.11%.
This cross is currently trading below 14, 50 and 100 days moving average. Fast stochastic is indicating a bullish tone and MACD is issuing a bearish signal. The Relative Strength Index is above 38 and lies below the neutral region. On the whole, the pair has gained 0.31%.
This cross is trading above 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish stance and MACD is indicating a bullish tone. The Relative Strength Index is above 66 and lies above the neutral region. In general, the pair has lost 0.35%.
|FOREX Closing Prices for October 12, 2018|
|Daily Pivot Points|
Sources: News, Charts & Quotes (Courtesy: Reuters, US Department Of Treasury)
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