Originally published by AxiTrader
Markets Overview:
- Equities: Nikkei (+0.54 %), Hang Seng (+0.84 %), CSI 300 (+0.41 %), KOSPI (+0.69 %), S&P/ASX 200 (+0.96 %)
- Commodities: WTI Crude $44.94 (+0.45 %), Brent Crude $47.46 (+0.32 %), Natural Gas $3.09 (-0.26 %), Gold $1251.81 (+0.20 %), Copper $269.55 (+0.73 %)
Summary: Euro and pound extend gains after comments from Draghi and Carney. Greenback is under pressure, while oil recovers. APAC equities are all up on the day, following a rally in US markets.
What traders are talking about:
Asian stock markets rallied, supported by the reversal in US equity markets. The S&P 500 rose 0.90 percent, while the Nasdaq managed to finish the trading day with a 1.40 percent gain. APAC indices had a solid performance as well. The Nikkei is up 0.50 percent on the day, while Australia’s S&P/ASX 200 has rallied almost one percent. Sentiment has improved somewhat, following optimistic comments from central bankers and a recovery in oil prices.
Aren’t the hawkish comments by ECB President Draghi and his colleagues from the UK and Canada a threat to equity markets? The market certainly doesn’t seem to be too concerned. It will take a while until the ECB is ready to shift monetary policy, as inflation is still running low.
Does this mean the FX market is overreacting? Well, it doesn’t seem that the euro rally was caused solely by the Draghi comments. Euro sentiment has improved a lot in the past twelve months. While rate expectations in the United States have declined amid disappointing data, the Euro Zone economy continues to show strength. This has made the euro an attractive currency, and it has remained robust even after the post-FOMC Dollar rally earlier this month. Speculators have waited for the right moment to add to euro longs, and saw a good opportunity after the Draghi’s speech. Momentum buying and position covering from shorts certainly had an impact as well.
The last Fed meeting revealed already a lot, and it is unlikely that we will see any surprise from the FOMC in the next couple of weeks. The Greenback could therefore remain under pressure unless US economic data starts to improve again. While the EUR/USD rally seems stretched in the near-term, further gains seem likely. A daily close above 1.14 would signal that the currency pair could extend to 1.1620. However, a pullback seems likely before the rally continues. Expect solid support at 1.1370 and in the area between 1.1280 and 1.13.
The pound rallied after hawkish comments from BoE Governor Carney, and the odds for a rate hike in August have increased. Inflation has accelerated sharply since Brexit, and the pressure on the central bank is growing. At the last meeting, 3 out of 8 members voted for a rate hike. While increased rate expectations could support the pound somewhat in the near-term, political uncertainty and concerns about the Brexit negotiations with the EU are likely to prevent a large rally.
Looking ahead, the focus today will be on German inflation and US GDP data. The month-on-month CPI figure is expected to arrive at 0.0 % and the year-on-year number at 1.4 %. Further, the market is expecting a 1.2 % quarter-on-quarter GDP print.