24th October 2019 - Further Brexit uncertainty sees consolidation mode



Good morning


OVERNIGHT DATA AND HEADLINES


• World stock indexes edged up, S&P 500 boosted by gains in shares of Apple that offset Texas Instruments forecast. GBP steadied as EU leaders consider London's request for a Brexit delay.

• Wall Street was supported by gains in Apple and Boeing shares. Dow Jones rose 45 points (0.17%) to 26,832, S&P 500 gained 9 points (0.28%) to 3,004 and the Nasdaq added 16 points (0.19%) to 8,119.

• European Union leaders considered Britain's request for a Brexit delay, expected to grant a three-month extension to the Oct. 31 deadline for its departure. European Council President Donald Tusk said on Twitter he had recommended late on Tuesday that EU leaders back a delay. British Prime Minister Boris Johnson was forced by parliament to ask for three months, but there is still a chance that some EU countries, notably France, could demand a shorter extension. Johnson has said if the deadline is deferred to the end of January he would call an election by Christmas.


CURRENCIES

• The USD Index (DXY) lost steam at the end of the New York session. DXY fell from 97.65 towards 97.46 lows.

• GBP was last up 0.37% to $1.2920 from 1.2844 earlier lows.

• EUR gained 0.1% from 1.1105 lows towards 1.1140 highs.

• Against the EUR, the GBP was 0.28% stronger at 86.17

• JPY was last 0.18% lower at 108.65

• AUD found good support at 0.6830 trading back up towards 0.6857 highs

• NZD followed higher from 0.6400 towards 0.6425.

• AUDNZD struggled to make gains, falling back below 1.0700 towards 1.0665.

• AUDEUR stabilised yet again, trading in and around 0.6145 / 0.6165.

INTEREST RATES

• U.S. Treasury yields slid for a second straight session, in line with Europe, as investors grew more concerned about persistent uncertainty surrounding Britain's long-delayed exit from the EU.

• German 10-year Bund and British government bond yields fell, pushing Treasury yields lower as well.

• U.S. two-year yields were down at 1.567% from 1.591% - U.S. 10-year note yields fell to 1.738% from 1.766%. - Yields on 30-year bonds were down at 2.221% from 2.251% on Tuesday.

• Australian 3yr government bond yields fell from 0.75% to 0.72%, the 10yr yield from 1.12% to 1.08%. Markets pricing 6bp of easing at the 5 Nov RBA meeting, and a terminal rate of 0.48%.

COMMODITIES

• Gold gained as many sought refuge after UK lawmakers pushed the pause button on Brexit. Expectations of further monetary easing by central banks lent support. Spot gold up 0.2% at $1,491 per ounce.

• Chinese steel futures rose for a second straight session as more cities in the northern part of the country issued pollution alerts, curbing production at mills. Seven cities in the province of Shandong and some in Shanxi issued yellow or orange smog alerts this week on expectation of heavy pollution, following similar steps by Tangshan and the central province of Henan. Dalian iron ore rose as much as 2.5% & Spot 62% iron ore down to $85.5 per tonne.

• Copper prices rose as a wave of protests in Chile began to disrupt supplies. Gains were limited by fears over the health of the global economy and the outlook for demand. LME 3 month copper ended up 1.1% at $5,881 a tonne after reaching $5,885, the highest since Sept. 16.

• Oil rose nearly 2% after government data showed a surprise draw in U.S. crude stocks and as the prospect of deeper output cuts by OPEC and its allies offered support. U.S. crude stocks fell 1.7 million barrels last week as refineries hiked crude runs by 429,000 barrels per day (bpd) and oil imports fell. Brent crude futures settled at $61.17 a barrel (+$1.47 or 2.5%). WTI crude futures rose $1.49 (2.7%) at $55.97 a barrel.


ECONOMIC CALENDAR


• No Australian Economic data today

• A raft of October Markit flash PMI’s are released for Japan, Europe and the US.

• Europe: The ECB meeting is expected to leave policy unchanged at -0.5%. A key focus will be questions surrounding the resumption of the asset purchase program given reported disagreement within the Governing Council as well as a lack of guidance on how the Bank will manage self-imposed constraints around the issuer limit and capital key. Note, this is President Draghi’s last meeting.

• US : Sep durable goods orders are expected to decline 0.7% while core capital orders edge down 0.1%.

• US :Sep new home sales are anticipated to decline 0.4% after a 7.1% increase in Aug with sales having resumed a moderate uptrend after softening through 2018.


AUD THOUGHTS


The lack of macroeconomic data releases caused markets to stay calm overnight - AUD struggled to find any meaningful direction overnight, trading down to 0.6830 week lows / 0.6850 highs.


Tonight PMI markit manufacturing and services PMI data, durable goods orders and new home sales data from the US could cause volatility to heighten. The key event will be the European Central Bank (ECB) meeting. It will be the last time from Mario Draghi and no change in monetary policy is expected. Most directional risks favour moderate downside as we expect Draghi to ride off on a dovish note. Market attention will soon turn to any early hints on policy preferences from incoming President Lagarde.

Any continued upside for both GBP & EUR is probably fairly limited until further clarity on the (Brexit) situation appears. Surprising to see GBP able to recover given that a ‘no-deal Brexit’ has seemingly been taken off the table. Expect to see AUD remain in consolidation mode for the remainder of the week however my bias for a weaker AUD starts to gain traction.

Developments surrounding the U.S. - China trade conflict and significant macroeconomic data releases is forcing major currency pairs to stay in a consolidation phase.


TECHNICAL OUTLOOK


AUD opens unchanged after day of consolidation in a fairly narrow range - failure to test Sept peak at 0.6895 results in minor corrective pullback.

Rally slows as risk sentiment turns cautious on lack of clarity on Brexit - optimism on US-China trade talks, increased pessimism on US economy supports.

RSI’s have turned lower which points to bias for AUD weakness.

Support 0.6830-35 followed by 0.6810 (moving average). Following that 0.6784, 0.6771. Resistance ; resistance 0.6880, 0.6895, 0.6910




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