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A Wild Ride For The Pound And Greenback

Published 16/07/2018, 09:42 am
Updated 06/07/2021, 05:05 pm

Originally published by AxiTrader

Welcome to my daily Markets Musings.

You’ll see things are different from now on. That’s because the full note was approaching 2,000 words some days and I’m breaking it up into a number of reports each day now.

That way traders can subscribe easily and then cherry pick the yarns and markets of interest

Feedback always welcome

Greg

Market Summary (7.47 am Monday, July 16)

President Trump continues to cut a a swathe through Europe, and markets, on his summer trip. Having put sterling under pressure with comments about Brexit, Boris Johnson, and the chance of a trade deal in his interview with the Sun the President turned things around in a press conference saying there is a chance of a “great” trade deal and then lavishing praise on the PM.

As a result GBP/USD traded through a ~1.36 cent range over the twenty four hours of trade to end the week from 7am my time Friday. That bounce from 1.3102 to close around 1.3236 would normally put the bears to bed. But weekend comments from May saying it’s her way or “no Brexit at all” – that’s a ham fisted way of saying HARD Brexit – and that the President had told her to “sue” the EU might reverse some of that reversal. It’s sounds desperate and HARD Brexit has to be a 40% chance.

Anyway GBP/USD is at 1.3226 this morning. It’s run down and up was reflected, to varying degrees, in other pairs against the US dollar. Initially stronger, the US dollar gave up the ghost and finished at 1.1688 in EUR/USD terms, 94.67 in US Dollar Index terms, and 112.33 in USD/JPY terms. Maybe the dip in Uni Michigan consumer confidence to 97.1 didn’t help the US dollar…but the data recently remains strong and the Atlnata Fed is projecting a 3.9% Q2 growth rate based on its GDPNow tracker.

Against the commodity bloc it was a similar story. The Aussie fell to 0.7367 but climbed back toward the 0.7425 region at the close. It’s opened a little weaker in early trade at 0.7409 though – sellers got to sell – but is back at 0.7413 now. The kiwi also had a long tailed candle and is at 0.6758 while USD/CAD is at 1.3157 after the rally in oil and the US dollar reversal helped the Canadian dollar.

To stocks then and it was less eventful in index terms. The banks fell after reporting their earnings with the financials the second worst performer on the S&P 500 which rose just 3 points, 0.1% to 2,801.That’s still the best close since the carnage began on February 1 and the record highs are less than 3% away now. The Dow rose 0.38% to 25,019 and the Nasdaq 100 was up 0.13% at 7,375.

Europe had a mostly positive night with the DAX and CAC up 0.4% and the FTSE up 0.14%. SPI traders were more circumspect than usual Friday wiping 7 points off the flat, indecisive, and mid range close for the S&P/ASX 200 on Friday at 6,268.

To commodity markets now and the big news is that gold is still just clinging to important support. After a low in the $1236 region Friday it’s at $1241 under pressure still, but holding. Oil was higher initially on supply disruptions. But a Bloomberg story that the US was looking to tap the SPR reversed most of those gains. Don’t rule this out folks if the President doesn’t get what he wants, lower prices. WTI finished at $71.01 while Brent was at $75.33. Copper continued to climb off the mat to close the week at $2.77amid what’s still a mixed outlook for many industrial metals.

To bonds and the curve is even flatter now at 24.50 with the 10’s at 2.83% and the 2’s at 2.58%. Dallas Fed president Robert Kaplan told Reuters he doesn’t want to do anything that flattens the curve too much but does ant to raise rates back to neutral which he said was around 2.5-2.75%. And the Fed’s report to congress on the economy supported the continuation of higher rates amid a “solid” economy.

It was the weekend so Bitcoin had a rally. It’s up 3% to $6,361.

The day ahead is going to be a big one of data here in Asia. We get the monthly triple treat of Chinese retail sales, urban investment, and industrial production data. But we also get Q2 GDP. Economists are forecasting GDP to print 6.7% yoy and are expecting a yooy growth of retail, investment, and production to 9%, 6%, and 6.5% respectively. That’s a big data dump and then tonight we get retail sales in the US for Jun which are expected to rise 0.5% the Reuters poll says.

Have a great day.

Macro Stuff that affects everyone and everything – either today or eventually

  • President Trump both belted Theresa May and praised her, and the chances of a trade deal with the US. That he did that in the space of 24 hours shows the difference between his conduct when he talks to his different audiences – in this case Rupert Murdoch’s Sun and then the world. The impact of his recommitment to May and the trade deal was enough to help Sterling ratchet higher and that in turn helped the US dollar give back it’s gains. It’s a confusing time for the US dollar right now. Dat (see forex section) has improved in the US but also elsewhere and that has halted its run higher. What’s next depends on many things and a break in the euro of it’s 1.15-1.1850 range is probably as good a guide as any to the outlook.
  • What I found intriguing about the Trump/May/Brexit moves over the past few days was that on the weekend Prime Minister May seemed to threaten her colleagues with either getting on her bus or things would fall apart. She said that they should prepare for “no-deal’ Brexit. That’s code for a hard Brexit and its something German industry is also preparing for. And the Telegraph reported that David Davis deputy has said May has presided over a “cloak and dagger” plot to undermine Brexit, in a move that will “blow apart” public trust in democracy. Hard Brexit odds to me seem around 40:60 but could shift materially in the next week or two.
  • Oh and President Trump called the EU a “foe” on telly during a weekend interview.
  • The Fed gave Congress its views on the outlook for the economy and the wrap is that it thinks things are currently “solid”. No surprise that there are some concerns about trade but it reiterated it is on track to continue to raise rates. And on that tack Robert Kaplan said he’s worried about trade and it’s his job to call out the risks of the Administrations policies. But he also said he thinks that rates need to continues to rise until they hit neutral which he sees around the 2.5-2.75% region for Fed Funds.

I'll post Australia Today, Forex Today, And Oil Today very soon

Have a great day's trading.

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