· Sterling held gains in Asian trade on Tuesday, having hit a six-month high versus the euro and rising as much as 1% against the dollar overnight, as the risk of a hung parliament in UK elections eased slightly.
In a significant boost for Prime Minister Boris Johnson ahead of the Dec. 12 election, Brexit Party leader Nigel Farage said his party was standing down candidates in seats won by the Conservatives in 2017 and would instead focus on challenging anti-Brexit politicians.
The pound rallied to as high as $1.2896 on the news, which the market had interpreted as reducing the probability of a hung- or Labour led- government that would further complicate Britain’s exit from the European Union.
Cable gave up some of its overnight gains and was last at $1.2858.
· Sterling had already risen above $1.28 before Farage’s announcement, after data showed the UK economy had narrowly missed a recession in the third quarter of 2019, expanding 0.3%.
Currency analysts said the Brexit Party standing down candidates could clear the way for the Conservatives to pass their Brexit withdrawal deal.
The euro/dollar last changed hands at $1.1033 EUR=, flat on the day, while the greenback was a shade higher at 109.15 yen JPY=.
The Chinese yuan was little changed at 7.0040 per dollar in offshore trade CNH=D4, with traders awaiting developments on trade as well as Hong Kong.
· USD/JPY: 5-DMA caps the upside amid cautious trading
Amid looming concerns over the US-China trade deal and Hong Kong unrest, the USD/JPY pair faces stiff resistance at 5-DMA at 109.19 that now caps the further upside, with the Asian equities trading mostly mixed. But the downside remains limited by fresh dollar strength.
The USD/JPY is offering a neutral-to-bearish stance in its 4-hour chart, as it spent the day just below a flat 20 SMA, while the Momentum indicator turned south within negative levels. The pair is above directionless 100 and 200 SMA, while the RSI consolidates around 48, indicating limited selling interest. The pair could extend its short-term decline on a break below 108.90, while it would need to advance beyond the 109.30 level to shrug off the negative stance.
Support levels: 108.90 108.65 108.40
Resistance levels: 109.30 109.60 110.00
· Here are the 5 biggest risks for currencies this week:
1. Fed Chairman Powell's semi-annual testimony to Congress on the economy & monetary policy (Wed)
2. US President Trump speaks to economic club of NY (Tues) & Ongoing focus on trade
3. Reserve Bank of New Zealand rate decision (Wed local time)
4. Australia's Employment Report (Thursday local time)
5. US Retail Sales (Friday)
· U.S. President Donald Trump is scheduled to discuss the country’s trade policy at the Economic Club of New York on Tuesday, and the markets are likely to hang on every word.
“You can expect the president to highlight how his policies of lower taxes, deregulation, and fair and reciprocal trade have supported the longest economic recovery in U.S. history with record low unemployment, rising wages, and soaring consumer confidence,” White House spokesman Judd Deere said. He declined to give further details.
A positive speech on U.S.-China trade would likely satisfy market participants even without specific details of the “Phase 1” agreement under negotiation, said Jim Paulsen, chief investment officer at The Leuthold Group in Minneapolis.
Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas, had little hope Trump’s speech would mark an end to uncertainty. It remains notoriously hard to predict whether Trump will take a positive or negative tone on trade.
Gregory Daco, chief U.S. economist at Oxford Economics, estimated the trade war had chopped about eight-tenths of a percentage point off U.S. growth. After starting the year with growth running at 3.1%, output throttled back to 1.9% in the third quarter, with weak business investment factoring heavily in the slowdown.
· Egypt’s central bank will likely make a third consecutive cut to its key interest rates on Thursday, a Reuters poll showed, as inflation fell to its lowest in nearly 14 years in October.
· Oil prices rose on Tuesday, reversing early losses on hopes that U.S. President Donald Trump may signal progress on trade talks with China in a speech later in the day.
Brent crude futures were up 31 cents, or 0.5%, at $62.49 a barrel by 0644 GMT, after dipping to as low as $61.90 earlier in the day.
U.S. West Texas Intermediate (WTI) crude was up 23 cents, or 0.4%, at $57.09 a barrel, having fallen to $56.55.
Worries about the impact on oil demand from the fallout of the 16-month U.S.-China trade war, which has weighed on global economic growth, sent prices lower on Monday.
Reference: Reuters, CNBC, FXStreet,
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