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.|
|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|
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.
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.
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.
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.
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.
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%.
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%.
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%.
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%.
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%.
|FOREX Closing Prices for September 21, 2018|
|Daily Pivot Points|
Sources: News, Charts & Quotes (Courtesy: Reuters, US Department Of Treasury)
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