· The yen and Swiss franc fell to five-week troughs on Thursday as investors looked for higher-risk currencies, emboldened by a report of German stimulus plans, diminishing chances of a no-deal Brexit and hopes of a trade war breakthrough.
and were also sold in the slide, that pushed the yen as low as 107.49 per dollar, and the franc to $0.9922, with both also losing ground to the euro.
· The pound stood just under a six-week high of $1.2385, hit overnight after a British law blocking a no-deal exit from the European Union came into force.
· The euro was flat at $1.1043, underneath an overnight high of $1.1067 hit following a Reuters report that Germany may set up public investment agencies to boost fiscal stimulus without breaching national spending rules.
· Market hopes for a trade breakthrough, meanwhile, rested on confidence overnight from U.S. Treasury Secretary Steven Mnuchin. He told Fox television that there had been “a lot of progress” on a U.S-China trade deal and that the U.S. side was “prepared to negotiate”.
The remarks pushed U.S. benchmark 10-year Treasuries to a three-week high where they held in Asian trade. The dollar was flat against a basket of currencies at 98.359.
· EURUSD SEARCHES FOR THAT BOTTOM
EUR/USD continues to grind lower without much vigor behind the move. The EURUSD Elliott wave forecast is that we are in a terminal wave of a larger bearish wave that began February 2018. It is possible to count this wave as complete. However, the sluggish nature of the pattern may allow it to dig a little deeper.
From not much further lower, a rally back to 1.18 and possibly higher levels (like 1.20 or 1.25) are not out of the question. In markets like this, I find it is best to employ breakout strategies where you identify a level of resistance and allow the market to break through the resistance to initiate the trade. That way, if the market does not break higher, then your bullish trade idea wasn’t triggered.
· USD/JPY in bullish consolidation below 107.50
USD/JPY holds the range below the 107.50 highs amid cautious mark mood following a drop in the Chinese factory-gate inflation. However, the renewed US-China trade optimism helps keep the spot underpinned.
US President Trump said that the US will be talking to China next week and that China wants a deal.
The USD/JPY pair is trading near a daily high of 107.19, maintaining a short-term positive stance, although below a critical Fibonacci resistance at 107.45, the 61.8% retracement of the August decline. In the 4 hours chart, the pair held above its moving averages, with the 20 SMA advancing below the larger ones, skewing the risk to the upside. The RSI indicator keeps heading north, currently at 66, while the Momentum indicator diverges lower, holding anyway within positive levels.
Support levels: 106.90 106.65 106.30
Resistance levels: 107.45 107.80 108.05
· If the White House wanted to push the Fed's hand, it could urge the ECB to come up snake eyes Thursday. That would catch majority of market off guard. Dependency on stimulus tips risk aversion. The market would be shell-shocked by next Wed when the Fed is up, forcing action, the ECB wouldn't have to expose itself to the loss of influence/credibility through its own monetary policy, the White House gets its Dollar rebalance in the end, markets get the support from the central bank they are really interested in
· Fed rate cut bets for the September #FOMC meeting so far little changed from last week's reading according to @CMEGroup data
· Growth in emerging markets has been the linchpin holding up the global economy at a time when advanced countries are threatening to unravel it.
That’s the view of former World Bank vice president Ian Goldin, who told CNBC Monday that the trade war’s limited impact on the U.S. has more to do with external factors than the country’s own economic health.
Goldin said the domestic U.S. economy enjoyed a “sugar rush” as a result of fiscal stimulus, such as tax cuts, that were introduced by President Donald Trump. But he noted that the underlying strength largely came from markets overseas.
“Emerging markets are growing, on average, by over 4.5%, and that is pulling up the world economy,” said Goldin who is currently an Oxford professor.
“If it wasn’t for emerging market growth,” he told CNBC’s Tanvir Gill, “we’d see much, much slower growth in the U.S. and in Europe.”
China and developing countries in Asia are at the forefront of that growth, Goldin noted.
He said he expects expansion in the world’s second largest economy to remain “robust” at 6% for the next decade, while surrounding emerging markets will closely mirror that.
· In a recent interview with China’s state news agency, Xinhua, the International Monetary Fund (IMF) Chief Economist Gita Gopinath notes that the prospect of trade tensions is one of the key risks to the precarious global recovery next year.
Key Quotes:
If the world's two largest economies can work together "cooperatively and productively" on trade, it will benefit themselves and the whole world.
Global growth is "sluggish" with many downside risks.
We continue to flag important downside risks for global growth.
We are seeing the effects of the trade tensions more starkly on global trade and on industrial production and manufacturing while noting that the effects on financial markets are somewhat mixed.
there are concerns "about where the trade policies headed, what's happening with global growth, that's generating volatility in the market,"
On the other hand, because most central banks in the world are being very accommodative, interest rates are very low and that's helping keep stock prices high.
· China will win the trade war with the U.S., and eventually wean itself off its reliance on American technology, a strategist told CNBC on Monday.
“China will never trust the United States again, and it will achieve its technology independence within seven years,” David Roche, Independent Strategy’s president and global strategist, told CNBC’s “Squawk Box.”
Roche predicted that the end of the trade war is not in sight, though talks are slated to resume in October.
That’s because the U.S.-China trade war isn’t about trade alone, he said.
“It is a conflict between a rising global power and a declining global power ... It’s not just about trade. It’s about technology, it’s about the free flow of ideas, it is rapidly becoming about the free flow of individuals,” Roche said.
“So it’s a really wide conflict, and it’s simply not gonna go away,” he concluded.
· Britain on Tuesday said there would be a return of duty-free shopping for travelers to the European Union if the country leaves the bloc without a deal.
Those going to the EU won’t have to pay UK excise duties on cigarettes and alcohol in a no-deal scenario, Britain’s Treasury said, adding that a bottle of wine bought at London’s Heathrow airport could be up to 2.23 pounds cheaper.
“As we prepare to leave the EU, I’m pleased to be able to back British travelers,” finance minister Sajid Javid said in a statement.
“We want people to enjoy their hard-earned holidays and this decision will help holidaymakers’ cash go that little bit further.”
· China’s factory-gate prices shrank at the sharpest pace in three years in August, falling deeper into deflationary territory and reinforcing the urgency for Beijing to step up economic stimulus as the trade war with the United States intensifies.
Analysts say flagging demand at home and abroad is forcing some Chinese businesses to slash prices to win new orders or cut output to contain costs, chipping away at already-lean profits and further dampening business confidence.
China’s producer price index (PPI) dropped 0.8% from a year earlier in August, widening from a 0.3% decline seen in July and the worst year-on-year contraction since August 2016, National Bureau of Statistics (NBS) data showed on Tuesday.
· Huawei dropped one of its lawsuits against the U.S., after equipment seized by Washington nearly two years ago was returned to the company.
In September 2017, U.S. authorities confiscated the gear which was on its way back to China from a Huawei testing facility in California. The equipment was not returned to Huawei, and the Chinese technology giant filed a lawsuit against the U.S. Commerce Department, as well as several other government agencies, in June.
· Jack Ma steps down as the chairman of Alibaba’s board on September 10.
Daniel Zhang will take up the role, and continue as the e-commerce giant’s CEO.
Ma intends to stay on the Alibaba board of directors until the 2020 annual shareholders meeting.
· Oil futures rose for a fifth day, rising to their highest in almost six weeks, on optimism that OPEC and other producing countries may agree to extend output cuts to support prices.
Brent LCOc1 was up 31 cents, or 0.5%, at $62.90 a barrel by 0544 GMT, while U.S. West Texas Intermediate (WTI) futures CLc1 were 32 cents, or 0.6%, higher at $58.17 a barrel.
Brent earlier climbed to its highest since Aug. 1, while U.S. crude rose to the highest since July 31.
· Crude oil prices have recovered close to eight percent in less than a week amid renewed risk appetite after the US announced President Donald Trump will be meeting with his Chinese counterpart Xi Jinping in October. The buoyancy in optimism has supported sentiment-linked assets – like crude oil – which may be given an additional tailwind if supply-disruption risks are resurrected as US-Iran relations continue to sour.
IRAN TENSIONS, CRUDE OIL PRICES – TALKING POINTS
Crude oil prices may get a boost from deteriorating US-Iran relations
Iran continuing to push legal limits outlined in the 2015 nuclear deal
Traders are also eyeing OPEC oil report, World Energy Conference
Reference: Reuters, CNBC, FX Street, Daily FX
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