Posted Wednesday, November 13, 2019 by
• 3 min read
In the last two days, financial markets have been pretty quiet, waiting for Donald Trump to hold a speech on trade. Trump didn’t offer much to get markets excited, but he didn’t sound too upbeat either, so markets proceeded with caution after that and today the sentiment has been mildly negative. Risk assets have been retreating higher, most notably GOLD. While safe havens have turned bullish, with USD/JPY sliding lower and Gold climbing higher.
Although, the NZD has been the strongest currency in forex today, after the RBNZ left interest rates unchanged at 1.00% last night, against expectations of another 25bps rate cut. That sent NZD/USD surging more than 80 pips higher.
We also had two inflation reports being released today. In the UK, inflation turned softer once again, falling to 1.5% from 1.7% previously. It didn’t hurt the GBP much though since politics are driving it at the moment. In the US, inflation came stronger than expected, which was encouraging after CPI fell flat in September. But, earnings ticked lower, which had a bigger impact in the USD.
The European Session
- UK Inflation Report – the UK CPI (consumer price index) report was released this morning. The headline inflation figure slipped to 1.5% vs. 1.6% forecast, down from 1.7% previously. Although, core CPI remained unchanged at 1.7%. The headline rate of output inflation for goods leaving the factory gate was 0.8% on the year to October 2019, down from 1.2% in September 2019. Overall, the UK house prices grew by 1.3% in the year to September 2019, unchanged from August 2019.
- Eurozone Industrial Production – Industrial production has been quite volatile recently in Europe, just like manufacturing production. In the last six months, we have seen three declines in industrial production. Today’s report was expected to show a 0.2% decline in production, but it grew by 0.1%, beating expectations for the second month in a row, which is a positive sign.
- OPEC not so Confident on Further Production Cuts Now – OPEC’s secretary general Mohammed Barkindo made a few comments a while ago which pointed down for Crude Oil. He said that it’s too early to say if there is a need for further output cuts. It’s premature to discuss OPEC+ decision in December. OPEC still to hold five technical meetings before December meeting in Vienna. OPEC is following progress in US-China trade talks closely. So, now OPEC members are not so sure that they want to cut production further.
- SNB’s Jordan Speaks – This week the CHF has turned bullish again and USD/CHF has been declining. The SNB chief, Thomas Jordan, made a few comments on the stronger CHF, saying that the Swiss franc remains highly valued. Foreign exchange market remains fragile. Negative rates, readiness for intervention still necessary. Danger of a worsening international situation remains large. Imbalances in Swiss real estate market still persist.
The US Session
- US Inflation Report – The US inflation report was released a while ago and CPI did turn higher in October at 0.4% against 0.3% expected. Core CPI also increased, coming at 0.2% as expected. CPI YoY ticked also higher to 1.8% versus 1.7% estimated. But, core CPI YoY which excludes food and energy came at 2.3% versus 2.4% estimated.
- US Average Earnings – The earnings figures were released along with the inflation report. Real average weekly earnings YoY missed expectations, ticking lower to 0.9% from 1.0% last month. The real average hourly earnings YoY also ticked lower to 1.2% versus 1.3% last month.
- FED Chairman Powell Testimony Statement – The prepared remarks from Fed chair Powell’s testimony before the joint economic committee in Congress go as follows:
- Policy appropriate as long as economy stays on track
- Baseline Outlook favorable but noteworthy risks remain
- Sluggish growth abroad, trade uncertainty pose risks
- Monitoring financial risks that are at moderate levels
- Price pressures mute, expectations at low end of range
- Business debt high, core of financial sector resilient
- Says he remains concerned by high, rising federal debt
- Investors risk appetite elevated in some asset classes
- Fiscal policy support important for economy in downturn
- Consumption solid; job market, incomes favorable
- A sustainable expansion of economic activity, strong labor market and inflation near symmetric 2% goal as most likely
- Persistent below target inflation could lead to slide in longer-term inflation expectations
- Levels of vulnerabilities and financial system at a moderate level
- Federal government debt could restrain fiscal policy makers ability to support US economic activity in a downturn
Trades in Sight
- The trend has bullish this month
- the retrace down is almost complete
- The 50 SMA is providing support
The 50 SMA is providing support for USD/CAD today
USD/CAD has turned pretty bullish this month, after bouncing higher at the end of October after the soft employment report from Canada. Since then, the pressure has been to the upside and the 20 SMA has been defining the trend on the H4 chart, providing support on pullbacks and pushing this pair higher. On the H1 chart. the 50 SMA (yellow) has done that job a couple of times recently and seems like it is offering support again today on this pullback. Stochastic is almost oversold as well, which means that the retrace is complete.
Inflation was quite upbeat in the US in October as today’s report showed, but earnings softened, which had a bigger impact on the USD. Right now though, we are seeing a surge in Crude Oil prices, after OPEC’s Barkindo suggested that oil production might decline next year due to lower US shale extraction.