Overnight Headlines
- Trump Signals China Trade Deal Could Happen Sooner Than People Think
- Majority Of US House Lawmakers Supports Trump Impeachment Inquiry
- Fed's Bullard: We Still Have A 'Little More To Go' With Rate Cuts
- Germany's Sabine Lautenschlager Resigns From ECB Board
- UK PM Johnson Comes Out Fighting and Demands a Brexit Election
US equities climbed on positive trade talk tweets from the Commander-in-Chief, having initially sold off on the impeachment news and hitting three week lows. The S&P looks to be back in its 75 point range that its traded in over the last few weeks.
USD was bid on Wednesday, cementing its status as a safe-haven following the launch of a formal impeachment inquiry into Trump. Having broken out from recent sideways trade, DXY closed above 99 and its sights should be firmly set on the two and a half year highs at 99.37.
US bond yields rallied from two-week lows on Wednesday, after falling for seven straight sessions,
bolstered by strong US housing data and Trump's trade deal comments.The strong long-term downtrend has stalled for the time being with near-term support in the 10-year at 1.63%.
It's been an interesting week with major political news grabbing alot of the headlines. President Trump was set be only the fourth President to face impeachment proceedings; the last one being Clinton in 1998 and no President has been directly removed - Nixon eventually resigned. The process has generally been a drawn-out affair run along party lines, which may especially be the case potentially this time in an election cycle. However, yesterday the release of a rough transcript of Trump’s call with Ukrainian President Volodymyr Zelensky by the White House gave some relief to markets.
The ruling by the UK Supreme Court that Prime Minister Johnson’s prorogueing of Parliament was unlawful means that a no-deal Brexit is less likely. However, there is now the increased likelihood of a general election and all the many uncertainties that may result. Together with Labour leader Corbyn’s speech yesterday in which he urged Johnson to step down, sterling is looking more prone to price in political risks.
Once again this week we have seen further poor European data. The dismal flash September manufacturing, the worst since 2009, and services readings for Germany were released before Tuesday's worst-for-the-cycle Germany IFO expectations survey for September. Yesterday also saw a key hawk of the ECB Executive Board step down. There is some speculation that Sabine Lautenschläger’s resignation was a protest against the September easing package and it does seem slightly odd when new President Lagarde is about to start. Even though Lautenschläger will no doubt be replaced with another hawk, the doves continue to be in the majority at the ECB.
The RBNZ kept rates on hold as expected and further easing, like the RBA , will only come if warranted. The bank remained positive on the 1 year outlook but expects interest rates to remain “low for longer” to help support the Kiwi. The market has scaled back its odds of another rate cut in November, when we get the next full monetary statement, although they still remain high at 80%.
Currency Majors
EUR dropped sharply yesterday, registering its largest 1-day decline in 8 weeks (-0.7%). Downward momentum has picked up considerably and the risk of a break of the year-to-date low of 1.0925 has increased. A close below this level would certainly suggest EUR is ready to tackle the next support at 1.0870. Unless it can move above strong resistance at 1.1025 within the next few days, the single currency should remain under pressure.
GBP plummeted yesterday and is already testing the bottom of our expected 1.2350/1.2550 sideway trading range (overnight low 1.2349). Price action suggests 1.2582 is a significant top, especially as this coincides with the 38.2% retracement level from this month's lows to March's highs. Short-term signals are tilting more bearishly now which means the pull-back in GBP can extend lower to the next support at 1.2250.
JPY is ending up as one of the weakest majors this month. It looks like we are stuck in a 107.10/108.20 range around the 100 day moving average, as despite the sharp drop to 106.95 earlier this week, USD does not appear to be ready for a sustained down-move. Only a close below 106.90 would suggest that the buck wants to challenge the major 106.20 support.
Key Events
Due to the weak reading in Monday’s flash PMI employment index, weekly US jobless claims could prove interesting. The final US Q2 GDP data should confirm 2% growth.
Of more importance will be further developments on the political front in the shape of the PM Johnson's and his rivals next move as well as any news on the Trump saga and trade war.
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