Once again Trump blamed China and the EU for taking advantage of the US economy. Also, he blamed the previous US leaders for allowing that to happen. These statements were made during his speech yesterday at the Economic Club of New York. UK improves its unemployment figure. RBNZ keep its cash rate at +1.00%. Today, UK and US will deliver their inflation numbers.
Yesterday, UK’s unemployment rate surprised everyone with a slide by one tenth of a percent, bringing the figure from the previous +3.9% to +3.8%. This improved number is something extra that the Tories may use during their debates before the UK elections. But unfortunately, both of the average earnings numbers including and excluding bonus declined from +3.8% to +3.6%. Initially, it seemed that that the pound could continue Monday’s move higher, but somehow the British currency started losing its attractiveness among buyers. The only currencies that GBP managed to gain against were the EUR, SEK and NOK. We believe that the pound might struggle with larger extensions to the upside, as the we get closer to the UK elections on December 12th. Also, the possibility of a no-deal outcome is still on the table. British politicians do not want to discuss this option yet, as it may harm them during the elections. They may start considering a no-deal option after we get the voting results.
The only two major currencies, against which the euro managed to come out on top were the SEK and NOK. The rest were too much handle for EUR. Yesterday, during the European morning, we received Germany’s ZEW current economic conditions and sentiment figures. The conditions number took a hit, coming out at -24.7, failing to meet its expectation of -22.0. But, the sentiment reading has improved significantly, showing up at -2.1, versus the previous -22.8. The number even managed to beat the expectation at -13.2. That said, the euro still depreciated slightly, as the negative numbers mean that, although Germany’s six-month economic outlook still improved from the previous month, investors continue to see obstacles on the way forward.
But the main focus yesterday was on Donald Trump’s speech delivered at the Economic Club of New York. Before the speech started, the equity market was once again hitting new all-time highs, but half way through the speech, the indices started sliding and by the end of the US trading session they almost wiped out their gains made during the day. The negativity arose mainly from Trump’s remarks on China and how unfairly it is treating the US economy. But China was not the only one that took the heat from the President, as he lashed out on the European Union for the same reasons, which is “taking advantage of the US economy”. But one of the main culprits for hurting American workers, according to Trump, were the previous US leaders, who negotiated bad deals with the Chinese. Again, all this is according to Donal Trump, who himself took advantage of the time in the Economic Club of New York to talk about his dissatisfaction with America’s biggest trade partners.
In the end of last week, we received good news surrounding the China-US trade sequel, which stated that both sides are planning to rollback some of the tariffs during phase one. Phase one was believed to be done before the end of this year. But what we’ve said as well was that no one should get their hopes up on the idea that this trade dispute will get sorted any time soon. Yes, the market got a good boost after the release of the good news, but that tends to happen every time, when the indices start to show potential reversal signs to the downside. The question here is, how much longer will they continue feeding the market with these positive news headlines, without actually reaching any feasible agreement?
During the early hours of the Asian morning today, the RBNZ delivered its monetary policy statement and also announced that it is keeping the cash rate unchanged. The market was already anticipating a 25bps cut, when suddenly the Bank decided to keep the rate the same as previous, at +1.00%. The Monetary Policy Committee stated that inflation and employment remain close to sustainable levels, at +1.5% and 4.2% respectively. But there are still a few major headwinds for the RBNZ, like the slowing of global and domestic economy in general. Geopolitical tensions in the world are having their affect on New Zealand’s economy, but the weaker NZD managed to help slightly offset that problem.
From around the end of October, GBP/NZD continues to trade inside a range, roughly between the 2.0000 and 2.0330 levels. Yesterday, it seemed that the pair might be on its way to break the upper side of that range, but after the RBNZ’s interest rate announcement, GBP/NZD took a strong U-turn and drifted lower, almost managing to reach the lower bound. For now, we will stay neutral, as we wait for a break of one of the sides of the range first, before we could examine any further short-term directional move.
If the rate drops below the lower bound of the aforementioned range, at the psychological 2.0000 hurdle, this would not only confirm a forthcoming lower low, but also place the pair below the 200 EMA on the 4-hour chart. This way, more sellers could start jumping in and driving GBP/NZD to the 1.9900 obstacle, a break of which may lead to a test of the 1.9775 level, marked by the high of October 1st.
Alternatively, for us to start examining higher areas, a break of the upper bound of the range, at 2.0330, is needed. We may then aim for the highest point of October, at 2.0557, a break of which could open the doo for a further move north. The next possible resistance barrier to consider could be the 2.0723 zone, marked by the high of June 21st, 2016.
Yesterday, USD/CHF took another dive, after failing to move above the 0.9965 barrier. This way, the pair established a new short-term tentative downside resistance line taken from the high of November 11th. If the rate rises again, but struggles to overcome the above-mentioned downside line, we will class this move higher as a temporary correction before another leg of selling, hence why we will stay somewhat bearish, for now.
As mentioned above, if the pair makes a move up, but fails to break above the aforementioned downside line, we will aim for the 0.9911 hurdle again, a break of which may lead USD/CHF to the 0.9895 zone, marked by the inside swing high of November 1st. If the selling doesn’t stop there, slightly below that zone sits another possible support area, at 0.9885, which is the low of November 5th.
On the upside, if the rate accelerates to the upside and breaks the aforementioned downside line and pushes above the 0.9965 barrier, marked by yesterday’s high, this could send the pair to the 0.9978 hurdle, a break of which might clear the path to the 0.9996 level. That level is the high of October 15th. This is where the USD/CHF could stall for a bit, or even correct back down. But if the rate stays above the 0.9978 hurdle, this may invite the bulls back into the field, who could push the pair beyond the 0.9996 obstacle and aim for the 1.0028 zone, marked by the high of October 3rd.
It will be Britain’s turn to deliver its inflation figures for the month of October. The core MoM and YoY figures are expected to have remained the same, at +0.2% and +1.7% respectively. But unlike the core, the headline ones are forecasted to have gone down a bit. The MoM reading is expected to go from +0.1% to -0.1%, and the YoY one – from +1.7% to +1.6%. This would not be good for the GBP, as it may slide a bit on those headline numbers, if they come below expectations. This is because the BoE has its target for inflation set at 2.0%. But we still understand that data might have only a temporary effect on the British currency, as its main driver right now are the headlines surrounding the Brexit saga.
Later in the day, we get CPIs for October from the US as well. Expectations are for both, the headline and core rates, to have remained unchanged at +1.7% and 2.4% respectively. At its last meeting, the FOMC cut interest rates by another 25bps, but signaled that it is planning to stay sidelined, unless things fall out of orbit. After the meeting, the employment report for October came in better than expected, the ISM manufacturing PMI rebounded, but less than expected and still stayed within the contractionary territory, while the non-manufacturing index rebounded by more than its forecast suggested. Despite the relative improvement in these releases, as well as the recent optimism surrounding the US-China trade saga, investors remained largely unconvinced that the Fed has stopped cutting rates. According to the Fed funds futures, they believe that the Fed will deliver another quarter-point decrease in September 2020. Thus, a disappointing set of CPIs may prompt participants to bring that timing forth, while a positive surprise could encourage them to push it back.
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