· The euro struggled to make headway against a resilient dollar on Wednesday and was stuck near $1.11, with forex markets mostly calm ahead of a crucial meeting of central bankers later this week.
Officials from major central banks will gather at Jackson Hole, Wyoming, on Friday with markets focused on a scheduled speech by Federal Reserve Chair Jerome Powell.
“In the big scheme of things, markets are relatively range-bound, with the focus on Jackson Hole later this week,” said Manuel Oliveri, a strategist at Credit Agricole.
The euro was last down 0.1% at $1.1092 EUR=EBS. The dollar, measured against a basket of currencies, rose 0.1% to 98.265 .DXY.
· US Dollar May Rise vs Euro if FOMC Minutes Cool Fed Rate Cut Bets
The US Dollar may rise at the expense of the Euro and equity markets if the Fed meeting minutes hammer investors’ hopes for aggressive stimulus. As outlined in my US Dollar forecast, the Greenback may continue to gather momentum as a dimming fundamental outlook and growing recession fears place a premium on liquidity above return.
At the most recent FOMC meeting, Fed Chairman Jerome Powell cooled rate cut bets after he said the reduction was not the start of an easing cycle but rather insurance against rising uncertainty. San Francisco Federal Reserve President Mary Daly on Tuesday had a similar message when she said that the 25-basis point cut was delivered to “[continue the] economic expansion” and not due to the perception of an impending downturn.
Markets may be disappointed that their expectations for accommodative monetary policy may be further away than they had hoped. The rift in their forecasts vs reality may result in volatility and uncertainty which will likely end up being tailwinds for anti-risk assets like the US Dollar and the Japanese Yen. However, souring sentiment may then cause cycle-sensitive FX and equities to fall from capital outflow.
· Euro Faces Mixed Signals Post Italy PM Resignation
The Euro brushed off news over the past 24 hours that Italian Prime Minister Giuseppe Conte resigned. This means that the country needs to either form a new government or risk heading for snap elections. The former may result in Deputy Prime Minister Matteo Salvini, who has been leading in local polls, creating an alternative coalition while the latter risks relatively more uncertainty over future budget clashes with Brussels.
The markets may be placing their bets on a new alternative coalition for the time being as the less-risky outcome. Italian government bond yields, which can be used as a proxy for default risk, ended up aiming lower over the past 24 hours. Meanwhile, markets me be hesitating to commit to Euro exposure ahead of critical event risk this week such as the FOMC minutes and the Jackson Hole Symposium.
Euro Technical Analysis
Taking a closer look at EUR/USD, the near-term downtrend from the retest of descending resistance – red parallel lines below – is once again struggling to continue its journey downward. Support is holding just above the 78.6% Fibonacci extensions at 1.10484. Meanwhile, positive RSI divergence shows fading downside momentum. At times, this can precede a turn higher or translate into consolidation.
· As the global economy threatens to slow down, central banks around the world have been slashing interest rates. But that alone may not be enough to boost growth, especially in some of Asia’s emerging markets, economists say.
Instead, more government spending is needed to lift economic activity, they say.
“It takes two to tango,” Kunal Kumar Kundu, India economist at investment bank Societe Generale, told CNBC. He explained that greater government spending, alongside lower interest rates, could more effectively spark growth at a time when business sentiment has been badly hit by the ongoing U.S.-China trade fight.
In August alone, central banks in India, Thailand, the Philippines, and even New Zealand cut their benchmark rates.
Cutting interest rates lowers the cost of borrowing and increases money supply in the economy — that typically encourages consumers and businesses to spend and invest more. Meanwhile, an increase in government spending could create demand for goods and services, which helps to boost economic activity.
· China’s biggest e-commerce company Alibaba Group has delayed its up to $15 billion listing in Hong Kong amid growing political unrest in the Asian financial hub, two people with knowledge of the matter told Reuters.
· Japan and the United States will seek to narrow gaps on trade when their top negotiators meet this week, but hopes for a deal in September are fading as both sides fail to make concessions on agriculture and automobiles, sources say.
Japanese Economy Minister Toshimitsu Motegi and U.S. Trade Representative Robert Lighthizer will hold two-day talks in Washington D.C. from Wednesday, which will be their second meeting this month.
The talks aim to lay the groundwork for a possible meeting between Japanese Prime Minister Shinzo Abe and U.S. President Donald Trump on the sidelines of a Group of Seven summit later this month in France, where the two could discuss trade.
· With the market focused mostly on the Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Symposium on Friday, O'Connell warned that the U.S. central bank will likely remain cautious and will try not to put itself into a corner to avoid scaring the consumers.
"What Powell did at the July press conference laid the groundwork for Friday … He gave himself breathing space, which is a sensible thing to do because he is not in control of the global economy," she noted. "The rate cut in July almost triggered uncertainty amongst the consumers because it raised concern around whether they should be spending right now."
· Huawei is facing a “life or death crisis” amid continued pressure from the U.S. government, Ren Zhengfei, its founder and CEO told employees.
The Huawei boss laid out plans to bring more efficiencies to the organization, including simplifying the reporting structure and moving managers to other positions where required.
· Brent crude oil futures rose above $60 a barrel for the first time in over a week on Wednesday after a data report showed a larger-than-expected drop in U.S. crude inventories, but ongoing worries about a possible global recession capped gains.
Brent crude had gained 32 cents, or 0.5%, to $60.35 a barrel by 0403 GMT, after settling 0.5% higher on Tuesday.
U.S. crude was up 25 cents, or 0.45%, at $56.38 a barrel.
· WTI remains firm on API inventory data, rising geopolitical tension
With the escalating tension concerning Iran and a surprise draw in API stockpiles, WTI takes the bids to $56.15 during early Wednesday.
In its Crude Oil Stocks report for the week ended on August 16, the American Petroleum Institute (API) says that a surprise 3.5 million barrels of decline was witnessed versus previous addition of 3.7 million barrels.
The US Secretary of State Mike Pompeo recently said that the US will take every action consistent with its sanctions to prevent Iranian tanker from delivering Oil to Syria. Elsewhere, Australia’s Prime Minister Scott Morrison said, as per the Australian, that Australia will join the international mission to protect shipping through the Strait of Hormuz, contributing a navy frigate, a maritime patrol aircraft, and planning and operations personnel.
Technical Analysis
FXStreet Analyst Ross J. Burland spots price run-up towards 50-day moving average (DMA) as a bullish signal:
The price of oil is resting up in the high end of the 55 handle in WTI while the price finally got above the 20 daily moving average and then pierced the 50-DMA into the 56 handle overnight. Bulls are back in control and there is room for an advance to the 58 handle to meet trend line resistance from here while on the downside, bears can target a drop to the 52 handle and the 61.8% Fibo at 51.70 on the wide.
Reference: CNBC, Reuters, FX Street, Daily FX
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