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DAILY BRIEF

 

 

The Daily Brief is a free email sent out each morning with information about overnight market movements and insights into the issues of the day. The brief is free and will help you keep an up-to-the-minute eye on the currency markets.

 

24 / 01 / 20

 

LONDON OFFICE

 

British Pound

Reuters: The pound extended gains on Thursday, building on the one-month high it reached against the euro in the previous session, as data this week reduced market expectations of a central bank rate cut as early as next week. Money-market pricing suggests investors now see around a 50% chance of a quarter-point rate cut at next week’s Bank of England policy meeting, down from 70% on Monday, Refinitiv data showed. “We have had some decent data this week that has pointed to a pick-up in economic sentiment, and that is helping the pound,” said Lee Hardman, a currency strategist at MUFG in London. Versus the euro, the pound was last up 0.2% at 84.27 pence, after rising to a more than one-month high of 84.18 pence. Against the dollar, however, the pound was on the back foot at just above $1.31.


Data this week showed the Confederation of British Industry reporting a pick-up in manufacturers’ sentiment, while jobs data on Tuesday showed the British economy created jobs at its strongest rate in nearly a year in the three months to November. The focus now is Friday’s January purchasing managers’ index, widely viewed as a forward-looking indicator that could swing the rate debate one way or another. Broader market positioning has also become favourable towards the pound’s outlook. Latest data showed hedge funds ramped up their long positions on the pound to their highest in more than 1-1/2 years.

 

US Dollar

Reuters: The euro hovered near a seven-week low against the dollar on Friday after the European Central Bank was seen as more cautious than expected, while anxiety over China’s coronavirus outbreak propped up the safe-haven yen. The euro changed hands at $1.1055, having touched a seven-week low of $1.1036 on Thursday. The currency flirted with five-week low against the British pound and 33-month low against the Swiss franc. The ECB launched a broad review of its policy, seeking to redefine its main goal and how to achieve it, as years of the central bank’s experiment with negative interest rates and quantitative easing have failed to deliver targeted inflation levels. ECB President Christine Lagarde told a news conference that risks to growth in the euro zone remained tilted to the downside and traders took her overall tone as dovish. “Some people were hoping that Lagarde could talk about the possibility of policy normalization after Riksbank ended negative interest rates late last year. But there was absolutely no such indication from her,” said Kazushige Kaida, head of foreign exchange at State Street Bank.


Riksbank, the central bank of Sweden, ended five years of negative interest rates last month, despite a slowdown in the Swedish economy, a decision which many investors thought was made to allay concerns about side-effects such as housing bubble damages to pension funds. Purchasing Managers’ Index (PMI) data from Germany and the euro zone due later on Friday is the next focus for the currency. The common currency was also undermined by the coronavirus threat in China because some countries in the bloc, notably Germany, have big trade exposures to the Asian economic giant. Concerns about the spread of the new disease bolstered the yen, which traded at 109.45 yen to the dollar, having risen to a two-week high of 109.26 on Thursday. The World Health Organisation (WHO) said on Thursday it was “a bit too early” to declare the new virus a global health emergency, providing financial markets with some relief. Yet many investors were anxious as the epidemic spreads within China, killing 25 people in China and infecting more than 800. “The Lunar New Year holiday in China has just begun and they say the virus could be latent for about a week. So at least for the next couple of weeks it will be difficult to gauge how much the new disease will have spread,” said Shinichiro Kadota, senior FX strategist at Barclays. “That suggests the yen is likely to have a strengthening bias during this period,” he added. Chinese financial markets will be closed through Thursday. Many other markets in the region will be shut on Monday. The offshore yuan was little changed at 6.9275 per dollar, after touching a two-week low of 6.9423 on Thursday. The Australian dollar fetched $0.6843, having erased all of the gains made after a firm payrolls figure the previous day, and was on track for a fourth consecutive week of losses. Elsewhere, sterling traded at $1.3121, little changed on the day but up 0.9% so far this week as solid UK economic data prompted traders to wind back expectations of a rate cut by the Bank of England at its policy meeting next week. UK PMI data, due at 9:30 a.m. local time (0930GMT) on Friday, will be closely watched for any clues on the BoE’s next policy decision on Jan. 30.

 

South African Rand

EWN: The rand and stocks fell on Thursday, as world markets dropped on mounting concern over a coronavirus outbreak in China. At 1444 GMT, the rand traded at R14.4000 versus the dollar, 0.56% lower than its previous close. The rand’s losses ate into some of the gains made on Wednesday, when demand for riskier assets had rebounded. While it has struggled with a weak economy — both the International Monetary Fund and the South African Reserve Bank downgraded their growth predictions in recent days — and rolling power cuts, on Thursday the rand largely reflected trends on global markets. Shares fell worldwide and Chinese stocks took their biggest tumble in more than eight months, with investors abandoning riskier currencies like the rand for safe havens like the Swiss franc and the yen.


China put two major cities on lockdown on Thursday amid an outbreak of the flu-like virus that has killed 17 people and infected nearly 600, with health officials concerned the transmission rate will accelerate during an upcoming holiday. Stocks also suffered, with the Johannesburg Stock Exchange’s Top-40 index closing 1.87% lower at 50,848 points and the broader all-share index finishing down 1.75% at 56,895 points. Even gold producers struggled to benefit from the usual boost to their share prices from a shift to safe havens like gold, with only Goldfields and AngloGold Ashanti up, and both less than 1% higher. Government bonds were flat, with the yield on the benchmark 2026 bond at 8.135%.

 

Global Markets

Reuters: Asian shares held their ground on Friday as trade slowed for the Lunar New Year, despite investors fears that a new coronavirus in China could spread faster as millions of people would be travelling over the week-long holiday. Markets had steadied overnight, as investors took some solace from the World Health Organisation labelling the outbreak an emergency for China, where 25 people have died and at least 800 have been infected, but not, as yet, for the rest of the world. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.1%, while Japan’s Nikkei eased a marginal 0.05% and Australian stocks added 0.3%. Trade in Asia is already slowing down for the Lunar New Year holiday, with financial markets in China, Taiwan and South Korea closed on Friday. “Investors are worried that the outbreak of coronavirus will dampen consumption in China when the Chinese economy has been already cooling down,” said Yasuo Sakuma, chief investment officer at Libra Investments.


Indeed, National Australia Bank’s research team tentatively estimated China’s GDP growth for the first quarter could be hit by around 1% point by this deadly coronavirus outbreak. “The impact on Chinese growth could be significant given the outbreak coincides with the Chinese New Year,” said Tapas Strickland, NAB’s director of economics. “Measures to isolate the outbreak has meant 26 million people in cities or near urban areas are in lockdown or have limited travel. New Year festivities are also curbed in Beijing and Macau.” The stance taken by WHO over epidemic provided enough relief for U.S. markets to advance further. The Nasdaq Composite rose 0.2% to a record closing high, while the S&P 500 added 0.1% and the Dow Jones Industrial Average eased 0.1%. In the currency market, the concerns about the virus supported the safe-haven yen. The Japanese currency traded at 109.47 per dollar, having risen to a two-week high of 109.26 yen on Thursday. The euro fell to a seven-week low versus the dollar of $1.1036 overnight after the European Central Bank left its policy rates unchanged but President Christine Lagarde struck a slightly dovish tone than some had expected. The common currency last stood at $1.1053, down a marginal 0.05% on the day. The offshore yuan softened to 6.932 per dollar, one day after hitting a 2-1/2 week low of 6.942 yuan. Coronavirus fears continued to weigh on commodity prices. Oil prices remained under pressure on growing concern that fuel demand will weaken as the spread of a respiratory virus from China dents travel and darkens the economic outlook. Brent crude futures shed as much as 0.16% to below $62 a barrel in early Asian trade on Friday, its lowest since Dec. 4, after falling 1.9% the previous session. U.S. West Texas Intermediate (WTI) futures declined as much as 0.22% to $55.47 and were on course for a 5% fall for the week. Elsewhere, copper prices fell to their lowest in more than six weeks overnight.

HONG KONG OFFICE

 

British Pound

FXStreet: GBP/USD remains below 50% Fibonacci retracement for two weeks in a row. An ascending trend line since early-November acts as strong support. An upside break beyond Wednesday’s high could challenge the monthly top. GBP/USD remains mildly negative while trading near 1.3120 during the Asian session on Friday. The pair took a U-turn from 50% Fibonacci retracement of its November-December 2019 upside on the previous day. Even so, prices carry the 21-day SMA breakout registered on Wednesday. Hence, a daily closing beyond the 45-pip range between 1.3145 and 1.3100, including 50% Fibonacci retracement and 21-day SMA respectively, becomes necessary for the pair to register increased volatility.

 

61.8% Fibonacci retracement at 1.3054 and an upward sloping trend line stretched since early November at 1.3000 now, can question the sellers during the pair’s downside below 1.3100. Should there be increased selling under 1.3000 mark, December monthly low near 1.2900 will lure the bears. Alternatively, the monthly high surrounding 1.3285 will be the buyers’ choice if prices manage to cross 1.3145. Further, 23.6% Fibonacci retracement and December month top, near 1.3340 and 1.3515, will be in focus during the pair’s rise after 1.3285.

 

Euro

Reuters: The euro hovered near a seven-week low against the dollar on Friday after the European Central Bank was seen as more dovish than expected. The euro stood at $1.1055, touching a seven-week low of $1.1036 hit in U.S. trade on Thursday after the ECB held interest rates steady and launched a broad review of its policy. ECB President Christine Lagarde on Thursday sought to redefine the ECB’s main goal and how to achieve it, as years of the central bank’s experiment with negative interest rates and quantitative easing have failed to deliver targeted inflation levels. Lagarde told a news conference that risks to growth in the euro zone remained tilted to the downside and traders took her overall tone as dovish. Purchasing Managers’ Index (PMI) data from Germany and the euro zone due later on Friday is the next focus for the currency.

 

Japanese Yen

FXStreet: USD/JPY is extending the recovery from overnight lows near 109.25. Yen is losing ground despite the upbeat Japanese inflation data. The BOJ minutes reiterated the need for continued stimulus. Coronavirus scale may put a bid under the yen. USD/JPY is flashing green in Asia with yen failing to gain ground on the back of upbeat Japanese inflation data. The pair is currently trading at 109.52, having bounced up from the overnight low of 109.27. 

 

Japan's core consumer price index (CPI) rose 0.7% in December from a year earlier following November's 0.5% rise. The headline CPI rose 0.8%, bettering the forecast of 0.4% by a big margin. The inflation data was released at 23:30 GMT, but so far has done little to strengthen the bid tone around yen. After all, inflation remained well away from the central bank’s elusive 2% target despite the acceleration from the previous month. 

 

The Japanese yen may find love, helping the pair reverse the bounce from 109.26 to 109.53 if the equities remain risk-averse on coronavirus scare. As of Jan. 23,  there were 830 confirmed cases in China. The futures on the S&P 500 are currently reporting marginal gains.

 

Global Markets

Reuters: Stocks made a barely positive start in early Asian trade on Friday after the world’s health body called it a little too early to declare a coronavirus outbreak a global emergency. But worries over rapid spread of the deadly virus kept investors on guard as millions of Chinese travel during the Lunar New Year holiday period. MSCI's broadest index of Asia-Pacific shares outside Japan rose a marginal 0.1%, while Japan's Nikkei stood flat and Australian stocks added 0.4%.

 

Trade in Asia is already slowing down for the Lunar New Year holiday, with financial markets in China, Taiwan and South Korea closed on Friday. Key indices on Wall Street bounced from lows after the World Health Organisation (WHO) said the latest coronavirus did not yet constitute a global public health emergency. The Nasdaq Composite rose 0.2% to a record closing high, while the S&P 500 added 0.1% and the Dow Jones Industrial Average eased 0.1%. The WHO called a new coronavirus that has killed 18 people in China and infected around 650 globally “an emergency in China” on Thursday, but stopped short of declaring the epidemic of international concern. “Investors are worried that the outbreak of coronavirus will dampen consumption in China when the Chinese economy has been already cooling down,” said Yasuo Sakuma, chief investment officer at Libra Investments.

 

U.S. West Texas Intermediate (WTI) crude futures were up a marginal 0.05% at $55.61 a barrel, after hitting $54.77 in the previous session, the lowest level since Nov. 20.

 

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