Analysts at MUFG Bank, see the likelihood of the pound suffering a setback in the run up to the election has now been reduced although certainly not eliminated. They consider It will still be difficult for the GBP/USD pair to break above 1.3000 until there is more clarity.
The path of least resistance is higher in the view of Rabobank analysts, as the herd of systematic funds begin accumulating a “long” oil position and risk parity funds increase position sizing in 2020.
Analysts at MUFG Bank explained that improving Eurozone data flow and diminishing downside risk has been offering little support to the euro so far. They expected broad-based weakens in the euro to continue in the near-term.
- USD/CAD is trading above its main SMAs, suggesting bullish momentum in the medium term. However, buyers must break above the 1.3280 resistance to reach the 1.3320 level on the way up, according to the Technical Confluences Indicator.
“After some recent sharp dislocation, the Japanese Government Bond market looks a little more under control – helped by a rally in US Treasuries. The BoJ probably doesn’t mind the JGB sell-off too much, given its preference to steepen the yield curve and help the local banking system. Barring a surprise break-down in US-China trade negotiations, we see the coming week as a reasonably benign one – meaning that USD/JPY should be range-bound to slightly higher. True the US data has been softening a little, but the industrial slow-down is well-priced and, so far, the US consumer (like consumers elsewhere in the world) is holding up quite well.”
“Locally Japan sees October trade data and also the national CPI figure for October. The latter is rarely a market mover and the core rate, expected at 0.4% YoY, is still miles away from the BoJ’s target. Equally, the market doesn’t really believe the BoJ’s threats to take rates more negative – in fact, the BoJ has led the way in the...
Industrial production declined by 0.3% during October. While the strike at General Motors and utilities accounted for most of the pullback, mining continues to retrench and the underlying trend in manufacturing output remains subdued, explained analysts at Wells Fargo.
"Data-wise, PMIs may point to further manufacturing weakness but should once again have limited market impact; on the political side, the first television debate between Mr Johnson and the Labour leader, Jeremy Corbyn, will be the highlight of the week."
"The general perception of who comes out as the “winner” may affect some markets expectations, although more opinion polls are probably going to be the major driver of the pound in the next few weeks.",
"The slew of data in the UK this week failed to drive any move in sterling as markets continue to focus solely on the upcoming general election. In the past few days, the Brexit Party pledged not to contest Conservative Party seats while presenting a candidate in all Labour-held seats. When adding a rising lead of Boris Johnson’s Conservatives in latest opinion polls, investors have been able to cement their expectations around a (market-friendly) Tory majority win."
- The crude oil West Texas Intermediate (WTI) is currently holding above $57.00 a barrel and the 200-day simple moving average (DMA). The market has been trading sideways throughout the first half of November.
The precious metal struggled to find demand on Friday as the upbeat market mood on renewed hopes of the United States and China reaching a trade deal to avoid a tariff hike in December caused investors to move away from safe havens. Nevertheless, the broad-based USD weakness didn't allow the XAU/USD pair to fall sharply.
As of writing, the pair was down 0.3% on the day at $1,466 but was on track to post small weekly gains.
According to the latest GDPNow report published by the Federal Reserve Bank of Atlanta, the real gross domestic product (GDP) in the United States (US) following this week's macroeconomic data releases is expected to expand by 0.3% in the last quarter of the year.
"After this morning's retail trade releases from the U.S. Census Bureau, and this morning's industrial production report from the Federal Reserve Board of Governors, the nowcasts of fourth-quarter real personal consumption expenditures growth and fourth-quarter real gross private domestic investment growth decreased from 2.1 percent and -2.3 percent, respectively, to 1.7 percent and -4.4 percent, respectively," the Atlanta Fed explained in its publication.
- USD/JPY is trading just below the 109.00 handle and the 200-day simple moving average (DMA) on the daily time frame. In the last two months, the market has been gaining considerable ground.
Previewing next week's key macroeconomic events, "We expect the FOMC minutes from the October meeting to elaborate on the Committee's decision to ease while also setting a high bar for additional accommodation," noted TD Securities analysts and elaborated:
"We anticipate discussions to touch upon what "material reassessment" of the outlook would lead the FOMC to shift its policy stance. The minutes may also provide further insights into the Framework Review debate."
The Federal Open Market Committee's (FOMC) October meeting minutes will be released on Wednesday, November 20th, at 19:00 GMT.
According to the Federal Reserve Bank of New York's latest Nowcasting Report published on Friday, the United States' (US) economy is expected to expand by 0.4% in the last quarter of the year.
"News from this week's data releases decreased the nowcast for 2019:Q4 by 0.3 percentage point," the NY Des said in its publication. "Negative surprises from capacity utilization and industrial production data drove most of the decrease."
In the meantime, the US Dollar Index stays in the negative territory near the 98 handle, looking to register a weekly loss of around 0.4%.
Commenting on the Federal Reserve's monthly data that showed both the Manufacturing Production and the Industrial Production in the United States declined in October, "US industrial output plunged again in October as the combination of weak global activity, trade uncertainty and a strong dollar weighed on activity," said ING analysts. "Unfortunately, business surveys suggest there is more pain ahead for the sector."
- DXY is trading below the 50 and 200 SMAs, suggesting a bearish bias in the medium term. A break below the 98.00 handle can lead to further weakness to the 97.80 support level.
Wall Street indexes are higher today, trading at daily highs at moment with gains around 0.40%. At the same time US yields remain steady, following days of sharp declines. Those moves weakened the demand for the Japanese yen that is among the worst performers.
The euro found support today and the rebound of the EUR/USD back above 1.1050 added more momentum to EUR/JPY. The pair is having the best performance in more than a month and in a few hours trimmed most of this week losses.
While speaking at a conference in Rome earlier in the day, "European single currency needs to interact with a single fiscal policy," European Central Bank governing council member Ignazio Visco argued, as reported by Reuters.
"The small and uncertain benefits of a debt restructuring mechanism must be weighed against the huge risk that the mere announcement of its introduction may trigger a perverse spiral of expectations of default, which may prove to be self-fulfilling," Visco further added in his prepared remarks, which were largely ignored by market participants.
According to a Panelbase poll published on Friday, British Prime Minister Boris Johnson's Conservative Paty widened the gap with the Labour Party to 13 points this week, as reported by Reuters.
Panelbase sees the Conservative Party getting 43%, 3 points higher than the 40% announced last week, while Labour stays unchanged at 30%.
The British pound's reaction to the poll was muted with the GBP/USD pair clinging to small daily gains above the 1.2900 handle and remaining on track to end the week modestly higher.
Data released today showed retail sales rebounded in October with a 0.3% increase. Analysts at Wells Fargo explained control group sales continued to rise at a solid pace, but have cooled from their breakneck pace earlier this year. They continue to expect a solid holiday sales season.
- GBP/USD is breaking above the 1.2874/1.2910 resistance zone. The spot is trading above its main SMAs, suggesting bullish momentum in the medium term. If the market breaks the 1.2910 resistance on a daily basis, the spot could reach the 1.2950 level and the 1.3000 handle on the way up, according to the Technical Confluences Indicator.
- The Indian Rupee has been gaining ground amid market calm. Optimism about US-Sino trade talks has supported the currency, but it may be misguided. The technical outlook for USD/INR remains bullish.
- US Dollar Index retreats to 98 area on Friday. Industrial Production in US declines more than expected. Hopes of the US and China reaching a trade deal helps AUD find demand.
The pair has accelerated the upside on Friday and is now printing new weekly highs in the 1.1050 region, where coincide the 10-day and 55-day SMAs. A clear breakout of this hurdle should reassert the upside pressure in spot.
Extra upside in the second half of the week came in pari passu with the deteriorating outlook on the dollar follwing renewed trade jitters, mixed data and declining yields.
Indeed, the US docket showed upbeat results from October’s Retail Sales, although the Empire State Manufacturing Index, Industrial/Manufacturing Production and Capacity Utilization all came in short of expectations.
Earlier in Euroland, final October headline inflation figures tracked by the CPI matched the preliminary readings at 0.1% MoM and 0.7% YoY.
Wall Street's main indexes started the last day of the week in the positive territory supported by renewed hopes of the United States and China finalising the phase one of the trade deal to avoid tariff hikes in December. As of writing, the Dow Jones Industrial Average was up 0.3% on the day while the S&P 500 and the Nasdaq Composite were adding 0.35% and 0.5%, respectively.
Earlier in the day, United States Commerce Secretary Wilbur Ross told Fox Business Network that they were "much farther along with details of the trade deal with China," and noted that there was a very high probability that they will reach a deal.
Boosted by the improved market sentiment, the risk-sensitive Technology Index is adding 0.5% on the day to lead the rally alongside the Industrials Index, which was up 0.6% at the time of press. On the other hand, the defensive Real Estate, Utilities, and Consumer Staples indexes are registering modest losses.
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