25th October 2019 - Draghi farewell & Brexit delay sees AUD weaker



Good morning


OVERNIGHT DATA AND HEADLINES


• British Prime Minister Boris Johnson's made a call for a Dec. 12 election to break the country's deadlock over its planned exit from the European Union. Johnson said in a letter to opposition Labour leader Jeremy Corbyn he would give Parliament more time to approve his Brexit deal but that lawmakers must back a December election. Johnson stated that the way to get Brexit done is for Parliament agreeing with the December election and that MPs could study the Brexit Bill before the dissolution, which would take place early November. Labour and other opposition parties are against it, and would prefer to have first a guarantee against a no-deal Brexit.

• U.S. economic data showed new orders for key U.S.-made capital goods fell more than expected in September and shipments declined, reflecting weak business investment during the trade war. Orders for non-defence capital goods excluding aircraft (seen as a measure of business spending plans on equipment), fell 0.5% last month, exceeding the 0.2% decline forecast. The report showed slow demand for transportation equipment, motor vehicles and parts, computers and electronic products.

• Sales of new U.S. single-family homes fell in September as low inventories continue to weigh on sales even as prices saw the biggest monthly fall in five years. New home sales declined 0.7% to a seasonally adjusted annual rate of 701,000 units last month, matching expectations. August's sales pace was revised down to 706,000 units from the previously reported 713,000 units. Sales were up 15.5% from a year ago. The median new house price fell 8.8% to $299,400 in September from a year ago. Prices were down 7.9% from the prior month, the biggest decline since September 2014.

• ECB’s Mario Draghi, finished his eight years mandate with discretion. The central bank left the monetary policy unchanged, as expected, and reaffirmed the goodness of monetary stimulus. Draghi refused to make comments about the future of the ECB and Mrs. Lagarde. Preliminary Markit October PMI showed that the economic slowdown extended into Q4..

• S&P 500 and Nasdaq index rose, boosted by gains in Microsoft and PayPal. Dow Jones fell 28 points (0.11%) to 26,805, the S&P 500 up 6 points (0.19%) to 3,010 and Nasdaq up 66 points (0.81%) to 8,185.

CURRENCIES


• U.S. DXY jumped up from 97.28 lows towards 97.77.

• EUR struggled to hold above 1.1100, falling after the ECB announcement from 1.1162 highs towards 1.1090.

• GBP whipsawed in choppy trade after PM Johnson called for a national election, dropping from 1.2950 towards 1.2786 lows but eventually bouncing back up to close 1.2850.

• JPY lagged, unable to move against the dollar away from the 108.50/60 price zone.

• CNY rose to 7.0730 (10-day high) however strengthened back towards 7.0650 after cabinet announced certain steps to help the economy.

• AUD was becalmed overnight as a lack of progress on either Brexit or the Sino-U.S. trade dispute sucked momentum out of further gains. AUD dropped from 0.6850 towards 0.6808 lows.

• NZD followed AUD lower, dropping from 0.6400 towards 0.6373 lows.

• AUDNZD relatively unchanged, trading a tight 1.0680 / 1.0695 range.

• AUDEUR saw reduced action with most currencies falling against USD, trading between 0.6131 / 0.6148.

INTEREST RATES

• U.S. Treasury yields fell for a third straight session in choppy trading, as increasing economic, political, and global uncertainty spurred investors to seek safety in the bond market. Issues surrounding Britain's exit from the European Union, the impeachment inquiry into U.S. President Donald Trump and mounting evidence of U.S. economic weakness have dampened Treasury yields.

• U.S. two-year yields were down at 1.56% from Wednesday's 1.58%. U.S. 10-year note yields slid to 1.75% from 1.76% late on Wednesday. Yields on 30-year bonds fell to 2.23%, from 2.25%.

• Euro zone bond yields traded marginally lower after the ECB kept interest rates unchanged, with President Mario Draghi saying in his last press conference that negative interest rates have been a "very positive experience." "Negative rates have stimulated the economy, have affected positively employment. And so all in all, we are exactly in the direction we wanted them to be," Draghi said.


COMMODITIES

• Gold scaled a near two-week peak after weak economic data from the U.S. raised expectations for another interest rate cut by the Federal Reserve. Spot gold was up 0.7% to $1,501.97 per ounce.

• China's iron ore futures recovered early losses to extend gains for a fourth session, on renewed demand optimism as steel mills look towards restocking for raw materials. Prices for spot cargoes of benchmark iron ore with 62% iron content for delivery to China rebounded to $86.50 a tonne.

• Normal operations resumed at top copper producer Codelco after workers struck a deal with the government after staging a one-day strike in solidarity with a nationwide protest in Chile. LME 3 month copper touched a one-month high but ended unchanged at $5,880 a tonne. LME aluminium edged down 0.3% to $1,724 a tonne.

• Oil prices extended their gains, with Brent rising above $61 a barrel as a surprise drop in U.S. crude inventories and the prospect of further market-supporting action by OPEC and its allies offset some concern over the outlook for demand. Brent crude was up 50 cents (0.82%) at $61.67 a barrel. U.S. crude futures settled at $56.23 a barrel, up 26 cents (0.46%).


ECONOMIC DATA TODAY


• No Australian Economic data today

• Europe : IFO business climate indexes will be released

• U.S. : The university of Michigan sentiment


AUD THOUGHTS


AUD dropped to one week lows as the USD rose across the board overnight amidst risk aversion and the absence of any further Brexit / Sino trade developments. AUD broke below 0.6825 and fell to 0.6808, reaching fresh weekly lows. The USD Index broke above 97.55 and jumped to 97.75, the highest level since October 17.


No Australian Economic data today with limited data offshore.

It will now be interesting to see if the pair is able to find any meaningful traction or continues with its downbeat trading action as investors now look forward to the US Vice President Mike Pence's speech on China, which might influence sentiment surrounding the China-proxy Australian Dollar.


From a technical perspective, AUD remains bearish in the short-term and will likely continue unless it rises back above 0.6850, breaking a downtrend line.


TECHNICAL OUTLOOK


AUD failure to test September high (0.6895) leads to correction and further weakness in the absence of any development in risk events.

Profit-taking ensues after rise of 3.2% from 0.6670 to 0.6883 in October - Brexit uncertainty & China criticism by U.S. Vice President Pence weigh. Downside likely limited on mounting evidence of U.S. economic weakness. RSI’s (Relative strength index) has officially turned lower after 3 trading days of lower lows.

Support level @ 0.6810 followed by a cluster of Fibonacci and moving average levels hovered in and around 0.6774 / 0.6784.

Resistance (immediate) top of the downward trendline @ 0.6845 followed by 0.6860 and last highs 0.6883.




ACN: 615 699 888 | AFSL : 502711

Copyright © Navigate Global Payments All rights reserved.