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GBP/USD Muted Following UK GDP, Brexit Latest Remains Dominant Driver

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GBP/USD Price Analysis & News

  • UK GDP Misses Expectations, GBP Muted
  • Brexit Remains the Dominant Driver for GBP

UK GDP Misses Expectations, GBP Muted

UK GDP for August grew 2.1%, notching a fourth consecutive monthly increase, however, the figure was notably below expectations of 4.6%. Additionally, while UK growth is now 21.7% higher than its April low it remains 9.2% below pre-COVID levels. More than half of the contribution (1.25ppts) to GDP in August had stemmed from the accommodation and food services sector amid the continued easing of restrictions, while the “Eat Out to Help Out” scheme also boosted consumption. In reaction, GBP/USD saw a very muted reaction and thus continues to hover around 1.2950. Keep in mind, that the monthly GDP figures a typically a volatile reading, while the data which provides a rear view mirror of the UK economy will unlikely move the needle for the Bank of England, who are likely to increase QE at the November monetary policy report.

GBP/USD Muted Following UK GDP, Brexit Latest Remains Dominant Driver

Source: ONS

GBP/USD Muted Following UK GDP, Brexit Latest Remains Dominant Driver

Source: Refinitiv, DailyFX

Brexit Remains the Dominant Driver for GBP

As we near the de-facto deadline for a Brexit agreement (Oct 15th EU Summit), EU-UK trade negotiations will remain the dominant driver for GBP. As it stands, fisheries is among the key stumbling blocks to making an agreement, however, given its small contribution to growth overall in the UK, it is unlikely to lead to a breakdown in talks and thus my base is still for a deal to be eventually made. In turn, GBP sensitivity to Brexit related headlines will remain heightened.



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Change in Longs Shorts OI
Daily -17% 3% -6%
Weekly -9% 11% 2%

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Forex

BlackRock Sells Dollar for Asian Currencies Into U.S. Election By Bloomberg

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© Reuters. BlackRock Sells Dollar for Asian Currencies Into U.S. Election

(Bloomberg) — The world’s biggest money manager is shorting the dollar on expectations that unprecedented fiscal and monetary stimulus will prolong its losses — regardless of who wins the U.S. election.

BlackRock Inc (NYSE:). holds a “modest” short in the greenback against the likes of the , Indian rupee and Indonesia rupiah, said Neeraj Seth, head of Asian credit in Singapore. The three Asian nations are among those best positioned to benefit from a weakening dollar as investors seek out higher-yielding assets and growth.

“My base case is that we still have at least one- to three years of more moderate dollar weakness on the cards — that’s not going to change,” Seth said in a phone interview on Thursday. “Regardless of the election outcome, some of the policy actions have already happened.”

The $7.3 trillion giant joins global peers including Goldman Sachs Group Inc (NYSE:). and UBS Asset Management that favor selling the dollar with just a week to election day. On Monday, BlackRock strategists downgraded their views on Treasuries on growing likelihood of significant fiscal expansion under a unified Democratic government.

A Bloomberg gauge of the dollar has fallen over 1% this month as Joe Biden extended his lead in polls over President Donald Trump. The yuan has risen 1.3% against the dollar, Indonesia’s rupiah has gained 1.6% while India’s rupee is little changed.

The downtrend in the greenback may see a “temporary pause” depending on the election outcome, but its weakness is likely entrenched over the long term, said Seth.

“The dollar still is on the expensive side from a fundamental standpoint,” he said. “I don’t think that direction reverses or changes because of elections.”

Here some comments from Seth on other asset classes:

Credit Bets

There are three broad areas in Asia which look appealing — high yield, China credit and private credit. Asian high yield overall looks attractive on both a relative and absolute basis compared to U.S. or Europe. We are also looking at illiquid opportunities in countries where there is a shortage of credit, but reasonable growth potential.

Asia Rates

In Indonesia, we do like the intermediate part of the curve so maybe toward the 10-year. In the case of China the positioning is broader so it is across government bonds, banks, higher quality state-owned enterprises, some local government and credit exposure. For India, it’s more toward the five-to-seven year part of the curve.

Downside Hedges

Rather than take a lot of duration risk at these levels in U.S. Treasuries, we are trying to overall look at portfolio structures, portfolio beta and cash levels. Nothing stands out cheap when you think of hedges today. Depending on the mandate and portfolio, we do look at a combination of CDS or equity options or FX for that matter as potential ways to hedge downside.

India Opportunities

We have a cautious and selective view in terms of our positioning in India given that the rebound after Covid shock is still at a very early stage. We do see the central bank potentially having room to ease further as we go into the next quarter. The gap in the on-shore credit markets provides some interesting investing opportunities for global investors. Especially in the illiquid space, we do see India actually providing fairly good opportunities along with China.

©2020 Bloomberg L.P.

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Dow Jones Pulls Nikkei 225, ASX 200 lower on Alarming Covid-19 Resurgence

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DOW JONES, NIKKEI 225, ASX 200 INDEX OUTLOOK:

  • Dow Jones had its worst day in more than a month amid virus, election and stimulus concerns
  • US corporate earnings continued to beat forecasts, but failed to lift market confidence
  • Nikkei 225 and ASX 200 index may lead Asia-Pacific market lower. Ant Financial IPO in focus

Dow Jones Index Outlook:

The Dow Jones Industrial Average (DJIA) index fell 2.29% on Monday, marking its worst trading day since 21st September. A worrying virus resurgence across the US and Europe and a pending US relief package are among the top weighing factors. US corporate earnings continued to fare well, but investors are perhaps looking beyond the current season and assessing a potentially slower pace of growth in the winter.

The US has registered 59,691 new coronavirus cases on October 25th, marking a decline for the second day after hitting a record on 23rd. Yet there appears to be lack of incentive from the government to impose lockdown measures before the US election, rendering risk assets vulnerable to further pullback should coronavirus cases continue to climb.

Map of cases (last 14 days)

Dow Jones Pulls Nikkei 225, ASX 200 lower on Alarming Covid-19 Resurgence

Source: Google

Asia-Pacific stocks look set to trade broadly lower on Tuesday. They may, however, demonstrate resilience against external headwinds. Virus situations are better managed across the Asia-Pacific region, with China remaining a key growth engine. Some 137 new confirmed Covid-19 cases were reported in Xinjiang province on Friday, resulting in a rapid response to test 3 million people in the area.

Chinese fintech giant Ant Financial, possibly the world’s largest IPO ever, has been priced at HK$ 80 per share. Ant will be listed in both Shanghai and Hong Kong on November 5th, shortly after the US election.

Equities Forecast

Equities Forecast

Recommended by Margaret Yang, CFA

What is the road ahead for equities this quarter?

On the macro front, Chinese industrial profits and US durable goods orders and consumer confidence are among the top events. Find out more on our economic calendar.

Sector-wise, all 9 Dow Jones sectors closed in the red, with 96.7% of the index’s constituents ending lower on Monday. Industrials (-3.07%), materials (-2.84%) and financials (-2.80%) were among the hardest hit, whereas defensive-linked consumer staples (-1.15%) and healthcare (-1.54%) were performing slightly better.

Dow Jones Index Sector Performance 26-10-2020

Dow Jones Pulls Nikkei 225, ASX 200 lower on Alarming Covid-19 Resurgence

S&P 500 Index Q3 Earnings Update – October 26th 2020

Name

Date

Period

Actual

Estimate

Surprise

Otis Worldwide Corp

26/10/2020

Q3 20

0.69

0.554

24.50

Hasbro Inc

26/10/2020

Q3 20

1.88

1.596

17.80

HCA Healthcare Inc

26/10/2020

Q3 20

1.92

2.283

(16.10)

Cincinnati Financial Corp

26/10/2020

Q3 20

0.39

0.39

0.00

F5 Networks Inc

26/10/2020

Q4 20

2.43

2.376

2.30

Alexandria Real Estate Equitie

26/10/2020

Q3 20

1.83

1.831

(0.10)

Principal Financial Group

26/10/2020

Q3 20

0.85

1.399

(39.20)

Packaging Corp of America

26/10/2020

Q3 20

1.57

1.424

10.30

National Oilwell Varco Inc

26/10/2020

Q3 20

(0.02)

(0.117)

86.60

Forex for Beginners

Forex for Beginners

Recommended by Margaret Yang, CFA

Why do interest rates matter for currencies?

Technically, the Dow Jones index has decisively broken down the 50-Day Simple Moving Average line at 28,040 (chart below). Breaking this immediate level may have opened the room for more downside towards the next support levels at 27,755 (the 50% Fibonacci retracement) and then 27,470 (the 61.8% Fibonacci retracement) respectively.

The MACD indicator formed a “Death Cross” last week and prices have been trending lower since. This suggests that bearish momentum is dominating for now. The index price has also pierced through its lower Bollinger Band, signaling strong downward momentum.

Dow Jones IndexDaily Chart

Dow Jones Pulls Nikkei 225, ASX 200 lower on Alarming Covid-19 Resurgence

Nikkei 225 Index Outlook:

Technically, the Nikkei 225 index has likely formed a “Rising Wedge” on its daily chart, with the 20-, 50- and 100-Day SMA lines all trending up steadily over the past few months. The Nikkei may risk a temporary pullback against the backdrop of external headwinds, potentially breaking the “Rising Wedge” lower if selloff pressure in the US market persists. An immediate resistance level can be found at 24,000 – the previous high seen in mid-February 2020. The 50-Day SMA can be perceived as an immediate support level.

Nikkei 225 Index Daily Chart

Dow Jones Pulls Nikkei 225, ASX 200 lower on Alarming Covid-19 Resurgence

ASX 200 Index Outlook:

Technically, Australia’s ASX 200 stock benchmark hit a major resistance level at 6,200 and has retraced since then. The near-term trend appears to be bearish-biased, with the MACD forming a “Dead Cross” recently. Immediate support levels can be found at the 6,000- 6,020 area, where the 50-Day and 100-Day SMA lie.

ASX 200 Index Daily Chart

Dow Jones Pulls Nikkei 225, ASX 200 lower on Alarming Covid-19 Resurgence

How to Use IG Client Sentiment in Your Trading

How to Use IG Client Sentiment in Your Trading

Recommended by Margaret Yang, CFA

Improve your trading with IG Client Sentiment Data

— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter





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Dollar holds small gains as markets buffeted by COVID-19 woes, election uncertainty By Reuters

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By Tom Westbrook

SINGAPORE (Reuters) – The dollar clung to small gains on Tuesday as the greenback’s safe-haven appeal was burnished by worries about a second wave of COVID-19, which drove the steepest stock market selloff in a month and underpinned a bond rally.

The United States, Russia and France all hit new daily records for coronavirus infections and overnight the S&P 500 index () fell 1.9% and Germany’s DAX () dropped 3.7%.

Moves in the currency market were more muted, though the () lifted about 0.3% overnight and held there early in Asia trade while regional equities fell.

The largest gains for the greenback on Monday came against the (), up 0.4%, which was hit by a drop in German business confidence, and a 0.7% rise on the Canadian dollar as oil prices slumped.

The yuan nursed a 0.5% loss as Sino-U.S. tensions flared over arms sales to Taiwan.

“The dollar is broadly stronger, but not massively,” said National Australia Bank (OTC:) senior FX strategist Rodrigo Catril.

Structural forces, like low real yields, have held back further gains, he added, and so has a wait-and-see approach to the U.S. election.

“I think many would probably remember the bad experiences we had going in to the Trump-Clinton election (in 2016),” said Catril.

“If you had a position on, you would have been whipsawed big time. I think the strategy this time is to travel light, and to choose the opportunity on the day rather than take on a very, very strong position going into the election.”

The usually risk-sensitive Australian and New Zealand dollars dipped only marginally overnight and were firm in the early part of the Asia session. [AUD/]

The Japanese yen did not move much as U.S. equities sold off, and was steady at 104.76 per dollar in Asia. Sterling slipped overnight but was back above $1.30 on Tuesday.

A week out from polling day, national polls give Democrat Joe Biden a solid lead but the contest is much tighter in battleground states that could decide the outcome.

Biden and President Donald Trump both spent Monday campaigning in Pennsylvania.

Analysts regard a Biden victory, and especially Democrat control of the Senate, as negative for the dollar since it is expected to deliver big stimulus spending that would boost investor sentiment and drive demand for riskier currencies.

Positioning data showed long bets on the yen shrank for a fourth straight week last week, as investors wagered on a Biden victory, though short bets against the yen also fell – pointing to heightened uncertainty around the vote.

The euro nursed losses at $1.1809, having borne the brunt of worries about fresh coronavirus lockdowns and slipping after the German Ifo business climate index fell by more than expected and for the first time in six months in October.

Traders are waiting for any news to emerge from a meeting of China’s Communist Party leaders to set the next five-year plan, while keeping a wary eye on the potential fallout from U.S. arms sales to Taiwan.

China said it will impose sanctions on Lockheed Martin (N:), Boeing Defense (N:) and Raytheon (N:).

Elsewhere the Turkish lira hit a record low on Monday amid a slew of geopolitical concerns and as a surprise central bank decision to keep its policy rate on hold last week reveberates through markets.





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