There was no shortage of factors damaging stocks and spurring the US dollar. US indices had the highest rally since October technology companies were damaged by downgrade in outlook by Apple's suppliers and by Goldman Sachs' further engulfing in the Malaysia sovereign wealth fund scandal. The pound fluctuated +-100 pips before sinking later in the session as Brexit worries flared on talk that some cabinet members won't support current offers.The Premium DOW30 short trade hit its final target for 580-pt gain. Today's Premium video, titled "4-Point Plan" lays out the Ashraf's take on the future course for indices, yields and USDJPY. The US dollar was the top performer while the pound lagged. UK employment data is due up on Tuesday.
Cable fell 120 pips on Monday as the market's patience wears thin for a Brexit deal. Finding an Irish border deal that can be supported by May, the DUP, Conservatives the EU and UK parliament is proving to be a near-impossible task.
The main negotiators continue to highlight progress but repeated leaks highlight problems and discord. Cable made a huge jump at the start of last week but has now given most of it back in three days. There is still some breathing room before the 1.2662 August low but that's a critical level. The recent series of lower highs isn't encouraging.
The eurozone is facing its own problems as EUR/USD fell a full cent to start the week with the Italian deadlock continues as the ruling coalition continues to challenge Brussels' budget limits.
There was no help from stock markets as the S&P 500 tumbled nearly 2% led once again by technology shares. Apple fell to the 200-day moving average and is down 17% from the October high in a sign of how aggressive the selling has become.
Oil bulls continue to take a beating as the OPEC chatter led to a climb at the open followed by a wave of selling that sent WTI down $1.38 to $58.82 in an eleventh consecutive day of declines. USD/CAD rose to the highest since July with Canadian oil down to $16.
Looking ahead, UK fundamentals will briefly steal the spotlight on Tuesday with employment data due out at 0.930 GMT. The unemployment rate is expected to be steady at 4% with weekly earnings forecast to rise to 3.0% from 2.7%. A weak reading could send cable down to the August lows.
|Average Earnings Index (3m/y)|
|3.0%||2.7%||Nov 13 9:30|
Less than 15 minutes before starting to write this IMT, GBPUSD spiked by more than half a cent on an FT report stating that EU's chief Brexit negotiator Barnier has said the core elements of their exit text text are ready to present to the UK cabinet on Tuesday. The pound started the week lower as a deal failed to materialized on the weekend as Brussels rejected May's latest proposal. In the Premium Insights, the latest index short extended into the green, while the EURUSD short hit the stop loss at 1.1270. Will EURUSD extend weakness to 1.10 or is it nearing a recovery? This will be covered in today's Premium video. Over the last 8 years, the USD Index has ended the month of November higher -- with the exception of 2017.
Cable started the week down 50 pips on a Times report saying that the EU had declined the UK's latest Brexit offer. There is also increasing pressure on May to hold her government together and fear that a deal will be voted down after Jo Johnson quit cabinet.Juncker said he sees a Brexit deal coming together but time is slowly running out as the EU will soon have to make a decision on a November summit.
USD resumes its climb, dragging EURUSD below 1.1300 as oil prolonged its fall for a record 10th consecutive day (until today). Saudi Arabia tried to arrest the decline by saying at the weekend's OPEC meeting that they will cut exports by 500K bpd in December. There was also talk of a wider OPEC production cut in December.
USD/CAD rose to a four-and-a-half month high and will need some help from risk trades, oil or Canadian economic data to reverse the slide.
Note that Monday is a holiday in severall markets, including the US bond market, so that could sap liquidity.
CFTC Commitments of TradersSpeculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.
EUR -47K vs -33K prior GBP -57K vs -52K prior JPY -89K vs -92K prior CHF -20K vs -17K prior CAD -3K vs -10K prior AUD -66K vs -70K prior NZD -26K vs -35K prior
The notable move was in the euro and the short position is now the most-extreme since March 2017. Some of that undoubtedly reflects a bet that Draghi and the ECB will push out forward guidance as economic data continues to disappoint.
The FOMC statement changed almost nothing and yet the US dollar climbed in the aftermath, we look at why. Since the start of the Friday FX trading session (as of 10 pm London last night), the US dollar is up against all currencies, with the exception from the JPY and CHF. The euro is weaker after Draghi made a slight dovish shift on Thursday. UK Q3 GDP grew to 1.5% y/y as expected from 1.2% in Q2. US Oct PPI is up next. A new EUR trade was issued ahead of yesterday's Fed statement and a new Index trade has been issued today, abcked by 3 charts & 3 technical reasons.
The only changes in the FOMC statement were an indication stating that business investment had moderated from a strong pace earlier in the year. Previously it was characterized as strong. Yet the US dollar climbed 20-50 pips across the board in the aftermath. Some of that might have been USD flows that were restrained until after the dust settled but the move was also about monetary policy.
FIRST: Heightened certainty of a December rate hike. There was some speculation that the Fed might want to keep its options open after the October drop in stock markets and the 20% fall in oil prices. Instead, they continued to categorize growth and employment as strong.
SECOND: Over the longer term, the Fed debate shifted to what will happen in 2019. Considering expectations of a tapering in fiscal policy after the Republicans' loss of the House, economist expectations range from one hike to four hikes. If the Fed intends to slow the pace early in 2019, now would have been a good time to offer a hint. By maintaining the upbeat tone, that's an endorsement of the current pace and a tailwind for the dollar.
Contrarily, Draghi took a small step towards something more dovish. Speaking in Irish parliament he said that the ECB could push out forward guidance if growth disappoints. That's a hypothetical and is stating the obvious to some degree but it's a crack in the door and economic data has clearly disappointed lately.
Chartwise, Ashraf suggests that 10-year yields are heading down towards 3.13% to form a right shoulder support (as part of an inverted H&S formation), before pulling back up into the Santa Rally. This could mean a bounce for the VIX from 16 to 22, implying fresh downside for equities.
Risk trades are higher after Democrats regained control of the House in a vote that tracked close to what polls were expecting. Kiwi is the highest performer after a solid jobs reports ahead of the RBNZ decision. EURUSD is attempting to close the day above 1.1440 to make it above the Sep 24 trendline resistance. The DOW30 was stopped out and the EURUSD long was closed for 145 pip-gain. A special note was issued on EURUSD post-elections & pre-Fed.
There was no major surprise in the US midterms. Democrats won a dozen-seat majority in the House which is slightly less than forecast. Republicans did better in the Senate, expanding their majority and winning a pair of very tight races. Overall, Republicans did a bit better than expected but there were no surprises and the balance of power has tilted back towards gridlock.
So what's behind the surge in indices? As we wrote before the vote, elections are by definition uncertain events and increasingly emotional events. Almost any result would have led to a sigh of relief to some extent. This means that further tax cuts are less likely in the US but it's also a check on the President's trade war and some of his darker impulses. The S&P 500 opened 21 points higher and is now up 42 pts. DOW30 is up 358 pts, above its 55-DMA for the 1st time since Oct 10.
Looking ahead the RBNZ is largely expected to leave rates at 1.75% .The currency jumped after the unemployment rate dropped to 3.9% from 4.5% earlier today. That's the lowest in 10 years and could be a game changer for the central bank. The drop in unemployment came despite a 0.2 pp rise in participation. Wages also jumped 1.4% q/q compared to 0.8% expected. NZD/USD has rebounded nicely from a test of the 2015/16 lows in the past six weeks but is still 500 pips below April levels. A shift from the RBNZ and continued USD selling could help to close that gap.