Originally published by AxiTrader
Markets Overview:
- Equities: Nikkei (-0.91 %), Hang Seng (-1.00 %), CSI 300 (-0.59 %), KOSPI (-0.56 %), ASX 200 (+0.48 %)
- Commodities: WTI Crude Oil $52.49 (+0.23 %), Brent Crude $55.60 (+0.27 %), Natural Gas $3.45 (+0.99 %), Gold $1203.76 (+0.54 %), Copper $268.10 (-0.33 %)
Summary:
- GBP plunges on fear of hard Brexit
- Asian equity markets decline as risk appetite decreases
- Precious metals rise; Dollar and Yen in demand amid risk-off
- Busy week ahead with May speech, Trump, BoC, ECB
What traders are talking about:
Asian stock markets came under pressure overnight, as risk appetite decreased amid renewed Brexit worries and uncertainty about what the presidency of Donald Trump will bring. The Nikkei 225 fell 0.80 %, while the Hang Seng and China's CSI 300 lost more than 1 % on the day. Australia's S&P/ASX 200 was the exception, as it managed to close the day up almost 0.50 %.
The British Pound declined sharply at the Asia open, after a report from the British press that UK Prime Minister Theresa May will signal a hard Brexit in her speech this week. Such a plan would mean an exit from the European Union's single market for goods and services, which would then allow the UK to make trade deals with other countries and have better control over their borders and laws. The prime minister's office declined to comment on the report, but it seems very likely at this point that May will indeed announce a hard Brexit tomorrow.
GBP/USD opened around 1.20 in New Zealand, down almost 200 pips from Friday's close. It was able to recover slightly during the trading session (to a high of 1.2054) due to comments from Donald Trump who said that "UK is doing great after Brexit vote" and that "trade deal will be done quickly and properly". However, that alone is unlikely to comfort traders and investors a lot, and the Pound will remain under pressure into May's speech. Whatever the outcome, prepare yourself for high volatility in all GBP pairs tomorrow.
From a technical perspective, resistance is now seen at 1.2120 (Friday's low), followed by 1.22 (Friday's close). Major weekend gaps usually get filled within the same week, but it is unlikely that we will see that happen ahead of May's speech. To the downside, there is now little support until the October 6 low at 1.1841.
The Aussie dollar fell from 0.7505 to 0.7470 in Asia. There were no major data releases out of Australia today, but the Melbourne Institute released their latest inflation gauge data, and it showed an increase of 0.5 % month-on-month (vs. 0.1 % previously) and 1.8 % year-on-year (vs. 1.5 % previously). The trimmed mean arrived at 0.5 % month-on-month and 1.4 % year-on-year.
Resistance at 0.7520 proved to be too tough on Friday, and AUD/USD is also looking slightly overbought in the near-term. The key area to watch is 0.7385-0.74, where decent demand can be expected. The short-term technical outlook remains bullish, and it would need a clear break below 0.7350 to change that. To the topside, if AUD/USD clears 0.7520, there is little in its way until 0.77.
USD/JPY fell below 114 overnight. The outlook continues to be bearish and it is very likely that we will see a test of the 113 level soon. A clear break sub-113 would signal a deeper retracement, to at least 111.40, if not 110.
USD/CNH (offshore Yuan) started the new trading week around 6.8450 and rallied to a high of 6.8650 shortly after the Shanghai open. However, it was not able to sustain momentum and eventually fell back to 6.85. The PBoC set today's reference rate at 6.8874, slightly lower from Friday's 6.8909 fix.
Looking ahead, this week will be a quite busy one for traders.
Tomorrow, we will get the latest UK inflation data, and UK Prime Minister May will hold her speech.
The following day, Germany will publish its latest CPI figures, followed by UK employment data and US inflation numbers. Later in the day, the Bank of Canada will decide on interest rates (expected to remain unchanged) and Governor Poloz will hold a speech.
On Thursday, the focus will be on Australian employment data, as well as the ECB interest rate decision (rates & QE expected to remain unchanged).
Finally, on Friday, China will release its latest GDP and retail sales numbers, and we will also get UK retail sales and Canadian inflation figures.
Economic Calendar:
- 10:00 GMT - Euro Zone Trade Balance
- 18:30 GMT - Bank of England Governor Carney speaks
- 21:00 GMT - New Zealand NZIER Business Confidence