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Daily Brief - 18/04/2019

London Office

 

British Pound

 

Reuters: Sterling struggled to make much headway on Wednesday after data showed British prices rose slightly slower than expected in March, easing the pressure on the Bank of England to tighten monetary policy. Annual consumer price inflation came in at 1.9 percent in March, below forecasts for a 2 percent rise and below the BoE’s target of 2 percent. Data on Tuesday showed that British workers’ pay is rising and outstripping inflation, and combined with the lowest unemployment rate in 44 years, has taken the edge off the uncertainty about Brexit. The pound dipped slightly from around $1.3055 to $1.3040 after the inflation numbers were published. Against the euro, sterling extended its losses and hit the day’s low of 86.81 pence, down 0.3 percent.


Economic data has failed to move the pound significantly in recent months as Brexit negotiations dominate the news agenda. “I think that sterling is a dangerous currency just purely because it runs a 4.5 percent current account deficit,” veteran hedge fund manager Crispin Odey told Reuters. The BoE has signalled that it will lift interest rates to stop inflationary pressures from building, but it is highly unlikely to act until the Brexit process is resolved. After the inflation data, ACLS Global analyst Marshall Gittler said the BoE would probably hold off on changing rates for quite some time “regardless of what happens with inflation”. European Union leaders last week granted Britain an up to six-month delay to Brexit. "It seems very unlikely we will get a resolution on Brexit much before the 31 Oct deadline so what that means is more uncertainty and sterling doing very little in the meantime,” said Justin Onuekwusi, fund manager at Legal & General Investment Management. “Without an agreement or hard Brexit I can’t see GBP doing much.” While implied volatility in the pound has fallen sharply as investors reduce their bets on the currency moving significantly one way or the another, Tuesday offered a reminder of the sensitivity to Brexit-related news. A report in the Guardian newspaper that talks between the Labour opposition party and the ruling Conservative had stalled sent the pound tumbling. A spokesman for the Labour party denied that the talks had hit an impasse.

 

US Dollar

 

Reuters: The dollar index (DXY), which tracks the value of the greenback against major currencies, is currently flatlined at 97.00, having hit a high of 97.05 earlier today. The DXY’s 50-day moving average (MA) has emerged as strong support this week. This is evident from the greenback’s defense of that average line in three out of the last four trading sessions.  As of writing, the 50-day MA support is located at 96.81. A break lower could happen later today if the US retail sales, due at 12:30 GMT, shows a big drop in consumer spending in March. Retail sales, however, are seen rebounding 0.9 percent month-on-month in April, having dropped 0.2 percent in the preceding month. The core retail sales are expected to have risen 0.7 percent in April following a 0.4 percent drop in March. 


Meanwhile, the retail sales control group, which is used to calculate the gross domestic product (GDP), is seen rebounding 0.4 percent. A better-than-expected data could put a strong bid under the greenback, helping the bulls capitalize on the repeated bounce from the 50-day MA. Apart from the retail sales figure, the American dollar may also take cues from the weekly jobless claims and the preliminary PMI readings for April.

 

South African Rand

 

BDL: The rand was firmer against major global currencies on Wednesday afternoon, given a boost by better than expected local and international data. The local currency led gains among its emerging-market peers, with sentiment lifted by faster than expected Chinese economic growth earlier. The major domestic economic releases were also positive, with inflation rising to 4.5% in March year on year, lower than the 4.6% expected by the market. Retail sales also surprised to the upside, growing 1.1% year on year in February, almost twice the 0.6% growth expected by analysts polled by Bloomberg. Although better than expected, February retail sales still represented a decline from the 1.2% growth seen in January, said Capital Economics senior emerging-markets economist John Ashbourne. 


Earlier economic releases, such as mining and manufacturing production, released last week, suggested the economy faltered at the start of 2019. At 2.57pm the rand was 0.7% firmer at R13.9355/$, having earlier reached an intraday best of R13.9258. It had strengthened 0.62% to R18.1896/£ and 0.45% to R15.7581/€. The euro was 0.22% higher at $1.1305. The benchmark R186 government bond was bid at 8.465% from 8.505%. The local currency has been somewhat range bound this week, with trading subdued by the forthcoming Easter holidays. Volatility may pick up next week as the May 8 national polls approach, analysts said.

 

Global Markets

 

Reuters: Asian shares were subdued on Thursday after a negative performance on Wall Street, with caution ahead of business surveys in Europe and Japan, and the Good Friday and Easter holidays keeping investors on the sidelines. MSCI’s broadest index of Asia-Pacific shares outside Japan inched up 0.08 percent, trading just below its highest since late July 2018 brushed on Wednesday. Australian shares advanced a quarter of a percent while Japan’s Nikkei was a shade lower. “We’re in this kind of hiatus in the global economy,” said Chris Weston, head of research at foreign exchange brokerage Pepperstone in Melbourne. “People are starting to believe that we’re going to see better times in the second quarter and probably into the third quarter as well, and that perhaps the first quarter has been that trough.”


Wall Street shares ended in the red on Wednesday, with the S&P 500 falling 0.2 percent as a drop in healthcare equities outweighed upbeat economic data from the United States and China. The U.S. trade deficit fell to an eight-month low in February as imports from China plunged, data on Wednesday showed. Separate figures from China earlier in the day showed the world’s second-largest economy grew at a steady 6.4 percent pace in the first quarter, defying forecasts for a slowdown. Attention is now turning to how much more stimulus Beijing will apply without triggering more financial risks. Investors’ immediate focus turned to the release of Purchasing Managers Indexes (PMIs) for the manufacturing and service sectors in Europe later on Thursday to provide more clues on the strength of the euro zone economy. In the currency market, the safe-haven yen was slightly up at 112.00 yen per dollar, sitting just above a near four-month low of 112.17 brushed overnight. The euro ticked up to $1.1297, while the Australian dollar was 0.1 percent lower at $0.7173 ahead of job data (0130 GMT). In commodity markets, oil prices were slightly lower as U.S. government data overnight showed inventories drew down less than an industry report had suggested on Tuesday. U.S. crude was last down 8 cents at $63.68 a barrel, while global benchmark Brent crude futures dipped 7 cents to $71.55. Spot gold held steady at $1,274.60 per ounce, hovering near its lowest for the year.

 

Daily Brief - 18/04/2019

Hong Kong Office

 

Euro

 

Reuters: The euro was buoyant on Thursday after more evidence of strength in China improved the outlook for the global economy, with the market looking next to European indicators to provide the currency with a further boost. The euro was a shade higher at $1.1298, having eked out a gain of 0.1 percent the previous day. The single currency has steadily recovered from a recent low of $1.1183 plumbed at the start of April. 


The euro was lifted after data on Wednesday showed China’s economy grew at a steady 6.4 percent pace in the first quarter, defying expectations for a further slowdown, as industrial production surged and consumer demand showed signs of improvement. “A recovering Chinese economy is also good news for the German economy, and thus positive for the euro. The ongoing surge in bund yields amid ‘risk on’ is a key factor supporting the euro,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo. The 10-year German bund yield rose to a one-month high of 0.10 percent overnight, in a sharp rebound from a 2-1/2-year low of minus 0.094 percent set at the end of March. 


The Purchasing Managers Indexes (PMIs) for the manufacturing and service sectors in Europe due later on Thursday will provide the next indication of strength for the European economy. “Data from China cleared the way for the euro, which needs follow through support in the form of strong euro zone indicators,” Ishikawa at IG Securities said. 

 

US Dollar

 

FXStreet: USD/JPY was flat overnight around 112.00 as markets consolidated following a brief burst of excitement pitched by the Chinesense data dump where GDP beat expectations, but only just and stayed in line with prior. U.S. stocks were undermined by a poor health care performance which capped the pair in its northerly trajectory. 


As for Us data, analysts at Westpac explained: The Fed’s Beige Book of regional economic conditions was little changed, again characterizing growth as “slight to moderate”. Fed speakers included Bullard, who expected the yield curve to continue to steepen as the economy improves this year and Harker, who also expected sustained growth and sees at most one hike in 2019 and one in 2020. The chances of a Fed rate cut by December, implied by Fed fund futures, remained at 50%.


Meanwhile, the U.S. 10yr treasury yield climbed from 2.58% to 2.61% for another high this month while the 2yr yield ranged between  2.39% and 2.43%, tailing off towards the close.

 

Japanese Yen

 

FXStreet: The USD/JPY pair settled at around 112.00 for a third consecutive day, once again confined to a tight intraday range. The pair surged to a fresh yearly high of 112.16 at the beginning of the day, as the market mood was up on the back of encouraging Chinese data, although thin volumes, caution ahead of Thursday's data, and a shortened holidays' week, all conspired to keep majors ranging. 


Data coming from Japan missed the market's expectations, weighing on the safe-haven currency even when sentiment turned dismal later in the day. Japanese Industrial Production increased by just 0.7% MoM in February, half the market's estimate, and decreased by 1.1% from a year earlier. The country will release early Thursday the April preliminary Nikkei Manufacturing PMI, previously at 49.2.


Technically, the pair maintains a neutral-to-bullish stance short term, as, in the 4 hours chart, the pair held around its 20 SMA, although the lack of follow-through has turned the moving average flat, anyway still well above the larger ones. In the mentioned timeframe, the Momentum indicator remains directionless around its 100 level while the RSI hovers around 60. The risk will remain skewed to the upside as long as the price holds above the 111.80 level, the immediate support.

 

Global Markets

 

Reuters: Asian shares were subdued on Thursday after a negative performance on Wall Street, with caution ahead of business surveys in Europe and Japan, and the Good Friday and Easter holidays keeping investors on the sidelines. 


MSCI’s broadest index of Asia-Pacific shares outside Japan inched up 0.08 percent, trading just below its highest since late July 2018 brushed on Wednesday. Australian shares advanced a quarter of a percent while Japan’s Nikkei was a shade lower. Wall Street shares ended in the red on Wednesday, with the S&P 500 falling 0.2 percent as a drop in healthcare equities outweighed upbeat economic data from the United States and China. The U.S. trade deficit fell to an eight-month low in February as imports from China plunged, data on Wednesday showed. 


In commodity markets, oil prices were slightly lower as U.S. government data overnight showed inventories drew down less than an industry report had suggested on Tuesday. U.S. crude was last down 8 cents at $63.68 a barrel, while global benchmark Brent crude futures dipped 7 cents to $71.55. Spot gold held steady at $1,274.60 per ounce, hovering near its lowest for the year. 

 

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