Prime Minister May’s Tory Conference speech was a major disappointment. Not only did she fail to provide any meaningful updates on Brexit, but sterling barely moved despite her pledge to accept no deal rather than a bad one. UK data was also worse than expected with the PMI services index falling to 53.9 from 54.3. Although some investors may have found comfort in UK Brexit negotiator, Raab’s comment that they hope to have a deal by November, speculative positioning is the main reason for sterling’s resilience. Traders are still heavily short the pound and unless there’s major negative news, they may need some convincing to add to their positions. If leaving the door open to no deal or weaker UK PMIs can’t do the trick, then a reversal would have to be driven by a much better than expected US jobs report.
Not only did EUR/USD decline for the sixth consecutive trading day, but it came very close to breaking 1.15. The downward revision to Eurozone PMIs and weaker retail sales contributed to the move but the primary reason for the euro’s decline was U.S. dollar strength. German bond yields increased significantly, which should have been positive for the single currency, especially as Italian yields declined but the market’s demand for U.S. dollars was just too strong. With that in mind, Italian Economy Minister Tria’s pledge to reduce debt in line with what is agreed with the EU helped to alleviate some of the selling pressure on Italian bonds. 1.1500 is the level to watch in EUR/USD. If it breaks, the next stop should be 1.14.
The worst-performing currencies were the Australian and New Zealand dollars. An unexpectedly steep decline in building approvals in Australia triggered the initial slide that gained momentum on the back of the rising U.S. dollar. Of the major economies, Australia and New Zealand are the most vulnerable to the U.S.’ trade conflict with China. The deterioration in local data reinforces the market’s concern that slower Chinese growth will dampen the recovery in Australia and New Zealand’s economy. While Australia reported softer housing data, New Zealand saw job ads and commodity prices fall. The Canadian dollar also declined against the greenback despite a strong increase in bond yields and the more than 1% rise in oil prices. This only goes to show the power of the U.S. dollar. The IVEY PMI report is due for release from Canada Thursday. If the Bank of Canada is to raise interest rates, stronger manufacturing activity is needed. Since the index descended from a multi-year high in April, we haven’t seen much improvement.
The greenback remains supported after some correction attempts earlier in the day on Wednesday. The Fed officials’ rhetoric confirms the central bank’s commitment to further gradual tightening which helps the USD index stay close to six-week highs registered yesterday.
The EURUSD pair is still under pressure despite the reports that Italy may offer concessions to the EU on deficit aims. It looks like traders refrain from euphoria amid a lack of details on the issue. However, the immediate downside pressure on the single currency has eased somehow. The price failed to challenge the 1.16 threshold during the Asian session and the risk of a decline towards the key 1.15 support remains.
The pair’s unwillingness to show a more sustainable recovery is partly due to positive market expectations ahead of Friday’s US NFP data. The bulls hope to see strong employment and wages data which could fuel dollar demand further. Otherwise, EURUSD could get back above the 1.16 figure and thus get into positive territory on weekly charts.
See courses on forex trading in India with Alpari.com
You must be logged in to reply to this topic.