· Sterling scaled an 11-week high on Friday after The Sun reported that Northern Ireland's Democratic Unionist Party has privately decided to offer conditional backing for Prime Minister Theresa May's Brexit deal next week.
The pound has climbed about 1.8 percent this week, moving above the key psychological level of $1.30 to the dollar on hopes the United Kingdom might avoid a no-deal Brexit on March 29.
The Sun report pushed the pound 0.4 percent higher to $1.3114, its highest since Nov. 8, in Asian trade.
· "If this report is true, I expect sterling to rally to 1.32 versus the dollar. A technical breakout to 1.38 is also a possibility," said Michael McCarthy, chief markets strategist at CMC Markets in Melbourne.
· The euro <EUR=> gained 0.1 percent to $1.1321, although
· Analysts expect the euro to underperform peers in the near term as monetary policy is expected to remain accommodative in the euro area this year.
· The dollar index, a gauge of its value versus six major peers, fell 0.19 percent to 96.41.
· Against the yen, the dollar gained 0.16 percent to 109.8 on Friday. Despite weakening global sentiment due to fears of a sharp economic slowdown, the safe-haven yen has not attracted much buying interest.
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· The AUD/USD pair is currently trading at 0.7108, having hit a three-week low of 0.7076. The uptick in the Asian stocks is likely boding well for the Aussie dollar.
As seen above, the previous hourly candle closed just above 0.71, confirming a bullish divergence of the relative strength index (RSI).
A break above 0.7115 would further bolster the bull RSI divergence and allow a rally to 0.7140.
However, forcing a convincing break above 0.7115 is easier said than done for the bulls, given the rising odds of RBA rate cut.
Trend: neutral-to-bearish
· World economic growth slowed more than expected in the second half of last year, while recent activity and confidence figures have been disappointing in general. In particular,
Our new GDP growth forecasts take this new context into account. They are based on the presumption that the marked level of financial volatility may continue for the first six months of the year, assuming that the uncertainty hanging over the international panorama does not slacken off with an agreement between the US and China that brings the trade war between the two to a close without the need for further tariff hikes, a solution that avoids a
Growth rates in emerging economies will stay relatively stable, although the pattern will vary somewhat from country to country. In general, Asian economies are expected to slow, held back by deceleration in China, where unchanged forecasts have growth falling from 6.6% in 2018 to 6% in 2019 and5.8% in 2020, while recovery in Latin America will gain traction (1.6% in 2018, 2.1% in 2019 and 2.4% in 2020).
· Freight rates for dry-bulk and container ships, carriers of most of the world’s raw materials and finished goods, have plunged over the last six months in the latest sign the global economy is slowing significantly.
The Baltic Dry Index,
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Dry-bulk commodities are taken as a leading economic indicator, because they are used in core industrial sectors like steelmaking and power generation, and analysts say the recent declines in activity point to a serious economic slowdown.
”Signs that the U.S. and China remain well apart in trade talks continued to weigh on sentiment in commodity markets,” ANZ bank said in a note on Friday.
“The global economy and dry-bulk shipping market are showing us very real signs of distress,” said Jeffrey Landsberg, managing director of commodity consultancy Commodore Research.
“While dry-bulk rates often face at least some pressure during the early stages of a year, the magnitude of the declines being seen lately have been very rare,” he said.
The Harpex Shipping Index, which tracks container rates, has dropped by 30 percent since June 2018.
· Amid a collapsing economy sparked by government corruption, social unrest and a global commodity bust, oil-rich nation faces even more uncertainty in the wake of President Donald Trump's decision to back a Venezuelan opposition leader instead of President Nicolas Maduro.
"I am the only president of Venezuela," Maduro said in response to a White House statement recognizing 35-year-old Juan Guaido as the interim leader of Venezuela. "We do not want to return to the 20th century of gringo interventions and coups d'état," Maduro added.
Maduro then gave all U.S. diplomatic personnel 72 hours to leave Venezuela.
· The State Department said it would ignore the order because it "does not consider former president Nicolas Maduro to have the legal authority to break diplomatic relations with the United States or to declare our diplomats persona non grata."
· Secretary of State Mike Pompeo said Thursday that "the United States is ready to provide more than $20 million in humanitarian assistance to the people of Venezuela" in order to address the "severe food and medicine shortages."
· China's central bank Friday skipped open market operations for the fifth trading day, citing abundant liquidity in the banking system.
With 10 billion yuan (1.47 billion U.S. dollars) of reverse repos maturing, the People's Bank of China (PBOC) effectively drained the same amount of liquidity from the market.
· However, a lot of what happens in the near future will depend on how Maduro reacts to these recent developments, according to Marczak of the Atlantic Council.
"Part of this depends on Maduro's next move," he said. "Whether he seeks to escalate the situation.We have to be very attentive to what happens to U.S. diplomatic personnel in Venezuela."
Marczak added: "The larger groundswell of support for the interim government likely mean any action that would threaten it will be some type of action from the international community."
· Germany and France are making fun of Italy and the European Union with their treaty to give Germany a permanent seat at the United Nations, Italian daily Corriere della Sera on Friday cited Italy’s Prime Minister Giuseppe Conte as saying.
“They are only thinking of their national interests,” Corriere cited Conte as saying.
On Tuesday, the leaders of France and Germany signed a new treaty, saying it would be a priority of German-French diplomacy for Germany to be accepted as a permanent member of the U.N. Security Council.
· China's central bank Friday skipped open market operations for the fifth trading day, citing abundant liquidity in the banking system.
With 10 billion yuan (1.47 billion U.S. dollars) of reverse repos maturing, the People's Bank of China (PBOC) effectively drained the same amount of liquidity from the market.
· Japan’s factory output is expected to have slipped for a second straight month in December, a Reuters poll found on Friday, in yet another sign slowing global demand and trade frictions would hobble the economy for much of this year.
Industrial production was forecast to fall 0.4 percent in December from the previous month after a 1.0 percent decline in November, the poll of 16economists showed.
Worries are growing about the repercussions on Japan’s economy from trade frictions between the United States and China. Already, there are indications businesses will be facing increasing pressure to safeguard margins and profits, with Japanese exports in December falling the most in more than two years, dragged by plummeting shipments to China.
· Oil prices rose on Friday as turmoil in Venezuela triggered concerns that its crude exports could soon be disrupted.
Washington on Thursday signaled it could impose sanctions on Venezuela’s oil exports as Caracas descends further into political and economic turmoil.
Brent crude oil futures were at $61.62 a barrel at 0755 GMT, 53 cents, or 0.9 percent, above their last close. At one point earlier on Friday, the international benchmark crude rose as high as $61.92 a barrel.
Brent, however, has shed about 1.8 percent this week and was on track to post its first week of losses in four weeks.
U.S. West Texas Intermediate (WTI) crude futures were at $53.70 per barrel, up 57 cents, or 1.1 percent.
· “The oil market is partially pricing in the risk to Venezuela’s crude production, which has been plummeting in recent years and currently languishes just above 1 million barrels per day,” Vandana Hari of Vanda Insights said in a note on Friday.
Fundamentally, however, global oil markets are still well supplied, thanks in part to surging output in the United States, where crude production rose by more than 2 million barrels per day (bpd) last year to a record 11.9 million bpd.
Reference: Reuters, CNBC, FX Street, Daily FX
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