Wednesday 25th February: European Open Briefing

Global Markets:

  • Asian stock markets: Nikkei down 0.15 %, Shanghai Composite fell 0.05 %, Hang Seng gained 0.45 %, ASX rose 0.30 %
  • Commodities: Gold at $1209 (+1.00 %), Silver at $16.63 (+2.40 %), WTI Oil at $49.12 (-0.30 %), Brent Oil at $58.80 (+0.55 %)
  • Rates: US 10 year yield at 1.99, UK 10 year yield at 1.741, German 10 year yield at 0.365

News & Data:

  • China HSBC Manufacturing Index 50.1, Expected: 49.5, Previous: 49.7
  • Australia Construction Work Done -0.2 %, Expected: -1.2 %, Previous: -2.8 %
  • Australia Wage Price Index 0.6 % q/q, Expected: 0.6 %, Previous: 0.6 %
  • Bank of Canada Governor Poloz: January rate cut buys bank some time to see how economy responds to effects of oil shock
  • Poloz: January rate cut gives greater confidence of reaching full capacity and stable inflation by end-2016
  • Poloz: Oil price shock has increased risk of below-target inflation and risk posed by higher household indebtedness
  • Poloz: World economy is still a long away from home, headwinds are strong, dissipating only gradually
  • China Said To Ready Policies To Aid Property If Slump Continues – Bloomberg
  • RBA Tipped To Leave Rates On Hold At Next Week’s Meeting – The Australian
  • Ecuador To Ask OPEC To Work With Russia To Raise Oil Prices – Bloomberg
  • Ecuador President Correa Pressing For OPEC Emergency Meeting, As Prices Have Fallen To “Unnecessarily Low” Levels – Bloomberg

Markets Update:

The US Dollar declined across the board after the Fed Chair Yellen testimony. The currency initially rose on the optimistic US economic outlook from the Fed Chair, but gave up those gains after she signaled that there are risks ot the US economy that could delay a Fed rate hike. All in all, Yellen’s statement was balanced. She noted that the labor market is clearly improving, long-term unemployment has fallen substantially and that there are fewer involuntary part-time workers. However, she also said that the participation rate and wage growth levels remain below optimal and that inflation will continue to remain below their 2 % target for a while amid declining Oil prices. Yellen also made clear that the “patient” phrase in the Fed statement means that the central bank will not raise rates for at least a couple of meetings. Further, removing “patient” in a Fed meeting would not automatically mean a rate rise two meetings later. This has pushed back expectations of a June rate hike a bit and put the Greenback under pressure.

The best performing currency in the G10 space was the Canadian Dollar. Bank of Canada Governor Poloz held a speech yesterday and was less dovish than expected. While he did not clearly signal what the BoC will do at the next meeting, the market now considers the chance of a rate cut in March as unlikely. USD/CAD declined sharply, reaching a low of 1.2448 in Asia, after posting a high of 1.2660 in yesterday’s European session. The other commodity currencies have received an additional boost by this, with the Aussie and Kiwi Dollar posting fresh highs overnight. AUD/USD broke above the 0.7870 resistance level after better than expected Chinese PMI data and is now on its way towards the 0.79 resistance level. The charts suggest that after this breakout, there is no significant technical resistance until 0.80. NZD/USD has made it back above 0.7550, but immediate resistance is seen at 0.7570, which is last Thursday’s high. Above, the next key resistance level is noted at 0.7620.

EUR/USD has benefited slightly from the rather dovish Yellen testimony, but still remains within the same old 1.1280-1.1450 range. The Greek problem is far from being fixed, but at least a short-term solution has been found. While it seems EUR/USD could be stuck in this range in the near-term, the risk of a short squeeze has increased after yesterday’s events. GBP/USD is testing the 1.5480 level as we are heading towards the European open. A breakout seems imminent and traders will then watch the 1.5550 level, where offers are expected to be resting. Above there, resistance is eyed at 1.5615, which is the December 31st low. Meanwhile, USD/JPY continues to trade with an offered tone. Dealers saw a good amount of position covering from leveraging names and short-term names that got caught on the wrong side after the breakout above 119.40. The pair has reached a low of 118.60 overnight and all eyes are now again on the key support area at 118.20/30.

Upcoming Events:

  • 09:00 GMT – Italian Trade Balance
  • 15:00 GMT – US New Home Sales (470k)
  • 21:45 GMT – New Zealand Trade Balance

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