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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.

 

20 / 11 / 17

LONDON OFFICE

 

British Pound

Reuters: Sterling inched up on Friday, trimming early gains as investors took profits after the European Union repeated an early December deadline for Prime Minister Theresa May to move on Britain’s Brexit divorce bill.

 

Sterling rose half a percent early on to hit a 2-1/2 week high of $1.3260 amid broad dollar weakness. But the pound gave up most of the gains to stand 0.1 percent higher on the day at $1.3203. It is set to rise for a second consecutive week. “Traders don’t want to carry any long sterling positions into the weekend due to headline risks around Brexit,” said a trader at a U.S. bank in London. With Britain’s autumn budget due next week, markets will trade in broad ranges. Capital Economics said in a note that flexibility to offer fiscal giveaways was very limited due to a struggling economy.

 

US Dollar

Reuters: The dollar index last stood at 93.927, staying above last week’s trough of 93.402, which was the greenback’s lowest level in about a month. Against the yen, the dollar briefly touched a one-month low of 111.89 yen but later regained its footing. The dollar firmed 0.1 percent to 112.08 yen, gaining a bit of reprieve after sliding more than 0.9 percent against the yen on Friday for its biggest one-day percentage drop since June.

 

The dollar has been weighed down recently by lingering doubts about the prospects for U.S. tax reforms, including tax cuts, which could give a boost to economic growth. Any potential delay in the implementation of tax cuts, or the possibility of proposed reforms being watered down, would tend to work against the U.S. currency.

 

South African Rand

BD Live: The rand was slightly weaker on Monday morning, as the local currency was unable to hold on to the gains made on Friday, when it firmed below R14 to the dollar. The dollar regained lost ground against the euro. Zimbabwean President Robert Mugabe defied expectations at the weekend and refused to resign, throwing the country into renewed political turmoil. Instead, Mugabe said he would preside over his party’s congress in December, even though the ruling Zanu (PF) party had removed him as its leader.

 

Exotix Capital analyst Hasnain Malik said the longer Mugabe delayed his exit, the less orderly it was likely to be. He said a full blown coup in Zimbabwe was now possible, as well as renewed opposition from the Southern African Development Community (Sadc) and the AU. At 8.34am the rand was at R14.0404 to the dollar from R14.0028, at R16.4849 to the euro from R16.5093 and at R18.5502 to the pound from R18.5108.

 

The euro was at $1.1741 from $1.179. Sue Trinh, head of Asian forex strategy at RBC, said the euro’s value did not properly reflect political risk in the region. The falling apart of German coalition talks added to her view that the euro was likely to fall further against the dollar, Dow Jones Newswires reported. On Friday, the rand was at a two-week high to the greenback, tracking a firmer euro. The dollar stumbled on news that top officials from President Donald Trump’s election campaign had been subpoenaed in a Russia probe, the newswires reported.

 

Euro

Reuters: The euro hit a two-month low against the yen on Monday, as German Chancellor Angela Merkel’s efforts to form a three-way coalition government failed, raising concerns over political uncertainty in the euro zone’s largest economy. Merkel said on Monday she would meet the German president to inform him that she had failed to form a coalition government with the Greens and the pro-business Free Democrats (FDP).

 

The decision to meet President Frank-Walter Steinmeier, who has the power to call a new election, signalled that Merkel would not seek a minority government with the Greens after the FDP unexpectedly pulled out of the coalition talks. The euro slid broadly in early Asian trade after news of the breakdown of the coalition talks among German parties reached the market, but later pared some of its losses.

HONG KONG OFFICE

 

Euro

Reuters: The euro hit a two-month low against the yen on Monday, as German Chancellor Angela Merkel’s efforts to form a three-way coalition government failed, raising concerns over political uncertainty in the euro zone’s largest economy. The euro slid broadly in early Asian trade after news of the breakdown of the coalition talks among German parties reached the market, but later pared some of its losses.

 

Against the yen, the euro was last down 0.4 percent on the day at 131.65 yen. At one point, the euro slipped to 131.16 yen, its weakest level since mid-September. The euro fell 0.4 percent on the day to $1.1744. It slipped to as low as $1.1722 in early Asian trade, pulling away from a one-month high of $1.1862 that had been set on Wednesday last week.

 

“I don’t think this is going to be a massive driver, but that’s certainly the influence that we’re getting right off the bat,” said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore, referring to the political developments in Germany. “For the longer-term...I think the main driver is going to be what the ECB does,” he said. The euro had been supported recently by the strength of euro zone economic data and speculation that the European Central Bank (ECB) could start sounding more hawkish about its monetary policy outlook, Innes added.

 

Australian Dollar

FXStreet: AUD/USD remains on the back foot despite the bearishness around the greenback at the moment.   0.7575 was tested last week but the move lacked conviction and the reversal of Asia's slide hit a brick wall at 15th Nov highs. Currently, AUD/USD is trading at 0.7560 with a high of 0.7569 and a low of 0.7557 in early Asia.

 

AUD/USD tried to recover after Thursday's disappointing headline employment figure and the subdued quarterly wages' inflation data released earlier in the week while the market continues to expect the RBA to remain on hold for an extended period of time. In stark contrast, Fed fund futures yields continue to price the chance of a December rate hike at almost 100%. For the day ahead, analysts at Westpac argued that the momentum remains negative and that the price is vulnerable to a break below 0.7535 as the minor support area if risk sentiment remains downbeat.

 

Japanese Yen

FXStreet: USD/JPY has been oscillating around 1.12 the figure in the open of Asia on Monday with a high of 112.19 and a low of 111.88 so far, currently trading at 112.06 at the time of writing. 

 

USD/JPY crash-landed last week as a flight to safety took the yen higher across the board while markets remain concerned about the tax bill which is weighing on stocks. The US House voted 227-205 to overhaul the tax code. 13 Republicans voted no. However, the Senate Finance Committee's vote on tax reform will not take place until after Thanksgiving though, (Thanksgiving is 23rd November), and that is where things could all fall apart, weighing on the greenback and stock markets. Meanwhile, however, the daily momentum indicators are pointing increasingly lower which brings in the 111.50/70 area below  111.90/112.00 current support as price remains resisted at 112.35 ahead of 112.60/00.

 

Global Markets

Reuters: Asian shares started the week on the back foot on Monday, pressured by a retreat on Wall Street amid tax reform uncertainty while the euro skidded after German coalition talks hit an impasse. MSCI’s broadest index of Asia-Pacific shares outside Japan was nearly flat in early trade. Australian shares were down 0.2 percent, while Japan's Nikkei stock average was 0.1 percent lower.

 

Spot gold was down 0.1 percent at $1,292.70 an ounce, after it jumped to a one-month high on Friday as the dollar softened amid tax reform uncertainty. Crude oil futures were mixed. Brent crude oil dipped 21 cents, or 0.3 percent, to $62.51 a barrel, while U.S. crude added 6 cents, or 0.1 percent, to $56.61 a barrel. Oil rebounded more than 2 percent on Friday after falling for five straight session as a major U.S. crude pipeline was shut and traders anticipated an OPEC deal to extend curbs on production.