Category Archives: Forex News

Euro crosses and their outlooks – Nordea

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Martin Enlund and Andreas Steno Larsen, analysts at Nordea offered some FX quickies for those of a tactical persuasion.

Key Quotes:

  • "EUR/USD: still slightly downwards biased, with resistance on the upside around 1.1448."
  • "EUR/NOK: rising liquidity a seasonal problem for the NOK even as a first rate hike beckons. Shorts should stay away until mid-September. If EUR/NOK reaches 9.80 before mid-September, this would be very attractive levels to re-enter a short from."
  • "EUR/SEK: Swedish politics and weak inflation has paved the way for an upside break-out. We still recommend to buy-on-dips."
  • "EUR/GBP: Sell on rallies above 0.90, as Bank of England doesn’t tolerate a much weaker GBP."
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Weekend highlights: Italy, Turkey, ECB, China, Brexit, North Korea – its all here

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The open this week is subdued, ranges 12 pips at the most in the case of cable.  We are lacking price action catalysts on the calendar, leaving us to look at what has occurred from Friday's close and a browse over the weekend. 

Markets found further solace on headlines that the US and China as reported in the WSJ, are 'mapping out talks' and 'to try to end their trade standoff ahead of planned meetings between President Trump and Chinese leader Xi Jinping at multilateral summits in November, said officials in both nations.' 

This news was cheered by Wall Street and the DJIA rose 110.59 points to 25,669.32, with all benchmarks finishing in the green. US yields ranged sideways for the best part of the close, with the 10yr treasury trading inside 2.84% and 2.88%, while 2yr yields moved between 2.60% and 2.62%. The greenback actually lost ground on the US/China optimism, also weighed by poor data in the University of Michigan’s preliminary August consumer sentiment survey falling a larger than expected 2.6pts to 95.3 – its lowest in eleven months. 

From the weekend, there was nothing particularly catalytic but there had been a weekend focus on the current key themes in the FX space that all got their share of headlines. 

Europe

In Europe, Italy has been a concern and Friday's close was dominated by weakness in the Italian banking sector. Well, just as we see the final day of Greece bailout of which funding formally comes to end on Monday 20th, the  UK's Telegraph had a column on Italy's populist government that is drawing up "a 'Marshall Plan' of up to €80bn to rebuild the country's dilapidated infrastructure after the Genoa bridge collapse, seizing on the politically-charged disaster to smash EU budget rules." The article further writes, "Officials aim to invoke the 'Golden Rule' championed by Britain's Gordon Brown to remove chunks of public investment from the headline budget deficit, a ruse that would make it easier for the radical Five Star-Lega coalition open the floodgates of fiscal stimulus and reflate Italy's stagnant economy."

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Another concern for investors in that neck of the woods that equally threatens creditors in the EZ is Turkey. However, there seems to be some faint air of optimism on the back of Qatar and Turkey's central banks signing a currency swap agreement to provide liquidity and support for financial stability according to announcements made by Qatar's central bank on Sunday. Moreover, the S&P revised the Turkish sovereign rating to B+ from BB-; (maintains outlook at stable).

However, in the German finance ministry monthly report, there is a much different light shed over Turkey. In the report it states that "The economic developments in Turkey present a new, external economic risk," which comes in addition to "The persistent debate about tariffs and the threat of a trade war are choking trade activity."

Also for the EZ, Bundesbank President Jens Weidmann said the European Central Bank is on course to reduce stimulus. In an interview with Frankfurter Allgemeine Sonntagszeitung, he argued that after the latest decisions, a normalisation of monetary policy is foreseeable but that the process will be gradual and it will "take a while".  On Turkey, he said, "the currency crisis in Turkey would have limited impact on German banks" and that "Turkey was number 16 on the list of German trading partners", accounting for just 1% of global economic output.

Brexit

Meanwhile, and across the channel, the same paper, The Telegraph, reports that EU migrants will be given the right to stay in event of no-deal Brexit amid fears of labour shortages, Cabinet papers revealed. This further cements the reality of how negotiations are steering, weighing on sterling this week – The papers also highlight the fact that much of the UK's no deal planning will rely heavily "on the availability of existing labour" in the event that talks break down, The Telegraph reported.

Asia-Pacific

There was a dead spot on the US-China trade headlines as much was already revealed on Friday. However, there was some chatter around the RMB where the PBoC is making moves to curb arbitrage funds from shorting RMB with newly implemented policies aim to reduce the amount of overseas yuan circulation. Also from the Pacific, Weekend news stated that North Korea will allow the UN agency to conduct on-site missile safety inspection and North Korea is to permit an on-site inspection – we step closer to world peace.  
 

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US market wrap: optimism rising over US-China talks – Westpac

Analysts at Westpac, in a market wrap, noted that after lukewarm trade in Europe, risk appetite improved in the NY session, with optimism rising over US-China talks, including a possible Xi-Trump summit in November. 

Key Quotes:

"AUD/USD bounced to 0.7315. Today's calendar is light, as it is for much of the week, ahead of the Fed's Jackson Hole conference."

"A resumption of Turkish lira weakness (-3.1%) was brushed aside in Friday London/NY trade. US equities remained supported by Q2 earnings and in late trade, a Dow Jones/WSJ story claiming that US and Chinese officials were, “mapping out talks to try to end their trade standoff ahead of planned meetings between President Trump and Chinese leader Xi Jinping at multilateral summits in November.”

This was supported by White House economic adviser Kevin Hassett, who talked up this week’s meeting between lower level US and China officials (in contrast to adviser Kudlow’s dismissive comments) and also sounded upbeat on NAFTA negotiations."

"The US dollar lost ground on the optimism over trade talks. EUR/USD rose from 1.1380 to 1.1440, GBP/USD +30 pips to 1.2745 early Monday. AUD/USD edged up to 0.7280 in the NY morning, then bounced to 0.7315 on the US-China story. Outperformer NZD/USD starts the week around 0.6640, up 0.8% overall. AUD/NZD ranged sideways between 1.1000 and 1.1040. USD/JPY did not follow risk sentiment higher, edging down -0.3% to 110.55."

"The University of Michigan’s preliminary August consumer sentiment survey fell a larger than expected 2.6pts to 95.3 – its lowest in eleven months, but a still historically elevated level of optimism. Less upbeat views on buying big-ticket durable items drove the index lower while negative news recalled on trade tensions continued to trend higher.

Canada July CPI was much stronger than expected, up 0.5%mth, 3.0%yr versus expectations for inflation to hold at 2.5%yr. Underlying inflation however was a touch softer than expected, 1.9%yr, so the Bank of Canada should not be too concerned by the highest headline inflation since 2011. Markets place around a 1/3 chance of the BoC hiking to 1.75% on 5 September. USD/CAD responded sharply to the data, sliding from 1.3140/50 to 1.3070. NAFTA headlines also helped CAD."

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