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Daily Roundup – Markets review

December 5th

 

There has been a wholesale reversal in risk sentiment since the start of the week, with hopes of progress in US – China trade talks now being questioned, driving flows back into the safe haven of the dollar, despite falling US treasury yields. With the US observing a day of mourning today for former President Bush, there will be no fresh economic data released here and that potentially pivotal testimony by Jerome Powell to congress is also being rescheduled. The DXY dollar index may be off its recent highs, but it does seem as if attempts to push the dollar lower remain highly speculative.

There’s no shortage of volatility around Sterling right now either, with the currency oscillating wildly in recent trade. Yesterday cable was pushed as high as 1.2840 on the back of news that the UK could abandon Article 50 and re-join the European Union without each member state having to ratify this, although the pair then tumbled close on two cents after the UK government lost a series of votes in Parliament. Political risk in the UK remains very high right now and the uncertainty that any leadership contest would cause is potentially going to be far more damaging for the currency than even a hard Brexit. Interestingly, despite a big shortfall in UK Services PMI this morning, Sterling has been unmoved, again suggesting it’s the politics rather than economics which counts for everything right now.

The yen has lost a little of the ground it gains yesterday, although USD/JPY remains off recent lows suggesting the Yen continues to hold some safe haven appeal, too. Friday is forecast to see Japanese household spending data for October being released and this has the potential to show a notable spike higher. Positive news like this could well serve to bolster support for the Yen.

Technicals

The AUD/NZD position we called last week still remains in play (sell at 1.0651 on 29/11), currently standing 130 points in profit but still short of our target of 1.0500. This remains a sell, but moving the stop from 1.0802 to previous support at 1.0575 seems prudent.