Sterling Mildly Lower on Brexit, Dollar Eyes ECB For Next Move

Market overviews

Markets are rather quiet in Asian session today and trading could remain subdued ahead with US and Canada on holiday. Sterling is generally lower on Brexit news but losses are so far limited. Canadian Dollar is dragged down slightly by oil prices but it has been very resilient so far. On the other hand, Dollar and Aussie are the firmer ones. The greenback’s fate could very much depend on ECB press conference later in the week, as traders are eager to know how nervous are ECB members on Euro’s exchange rate.

Technically, WTI crude oil is one to watch today as it’s now pressing 38.58 near term support. Firm break there should confirm that deeper correction is underway to 34.36 support before finding a bottom. We’ll see if Canadian Dollar would finally follow, and push USD/CAD through 1.3239 resistance to confirm short term bottoming. AUD/JPY is another one to watch as the recovery from 76.77 has been weak so far. Firm break of 76.78 key resistance turned support level would hint on a deeper correction downwards.

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In Asia, Nikkei is currently down -0.42%. Hong Kong HSI is down -0.07%. China Shanghai SSE is down -0.46%. Singapore Strait Times is up 0.16%. Japan 10-year JGB yield is up 0.0039 at 0.044.

UK Johnson to set Oct 15 decline for deal with EU, or accept and move on

It’s reported that UK Prime Minister Boris Johnson is prepared to set an October 15 deadline for a deal with EU after the Brexit transition. Or, the UK and EU should both accept that there won’t be a free trade agreement and “move on”. A no-deal would means “having a trading agreement with the EU like Australia’s” using WTO protocols, and “that would be a good outcome” for the country.

Foreign Minister Dominic Raab warned that this week is “a wake-up call for the EU”, adding “the EU’s best moment to strike a deal is now.” Fisheries and state aid rules are “the only two points holding us back”. “All the UK is asking for it to be treated like any other country in free trade negotiations,” he said. “No other country would accept being bound by or controlled by the EU’s rules.”

UK’s chief negotiator David Frost told The Mail on Sunday: “We are not going to accept level playing field provisions that lock us in to the way the EU do things; we are not going to accept provisions that give them control over our money or the way we can organise things here in the UK and that should not be controversial – that’s what being an independent country is about, that’s what the British people voted for and that’s what will happen at the end of the year, come what may”.

Separately, the Financial Times also reported that the UK government is planning legislation that would override key parts of the Withdrawal Agreement. The sections of internal market bill to be published on Wednesday would “eliminate the legal force of parts of the withdrawal agreement” in areas including state aid and Northern Ireland customs.

Australia AiG services dropped to 42.5, all sectors in contraction, employment decreased significantly

Australia AiG Performance of Services Index dropped to 42.5 in August, down from 44.0. Looking at some details, employment plunged -7.9 pts to 39.4. But sales were steady, down -0.1 to 43.3. New orders also dropped -1.7 to 45.2. Average wages dropped -2.4 to 43.4.

All sectors remained in contraction in trend terms. AiG added, “the introduction of stage 4 restrictions in the greater Melbourne area following some optimism in July weighed heavily on business activity in Victoria and the impact was felt across other states. All indicators were firmly negative for August and employment decreased significantly from the previous month.”

China exports rose 9.5% in Aug, but imports contracted -2.1%

In USD terms, in August, China’s total international trade rose 4.2% yoy to USD 411.6B. Exports rose 9.5% yoy to USD 235.3B, above expectation of 7.1% yoy. Imports, however, dropped -2.1% yoy to USD 176.3B, well below expectation of 0.1% yoy. Trade surplus narrowed to USD 58.9B, but still above expectation of USD 49.8B.

Year-to-August, total trade dropped -3.6% yoy to USD 2854B. Exports dropped -2.3% yoy to USD 1572B. Imports dropped -5.2% to USD 1283B. Trade balance recorded USD 289B surplus.

With EU, year-to-August, total trade dropped -1.5% yoy to USD 401B. Exports rose 2.1% yoy to USD 245B. Imports dropped -6.8% yoy to USD 156B.

With US, year-to-August, total trade dropped -3.5% yoy to USD 344B. Exports dropped -3.6% to USD 266B. Imports dropped -2.9% yoy to USD 78B.

Eyes on ECB Lagarde’s comments on Euro exchange rate

Two central banks will meet this week. Both ECB and BoC are expected to keep policies unchanged. ECB press conference will be of highest interest to the markets. Euro was weighed down last week by reports that ECB policymakers were getting more uncomfortable of the currency’s strength. The rumors surfaced after Chief Economist Philip Lane warned that exchange rate “does matter” for monetary policy. Eyes will be on President Christine Lagarde’s take on the topic.

Here are some highlights for the week:

  • Monday: Australia AiG services; China trade balance; Japan leading indicators; Germany industrial production; Swiss foreign currency reserves; Eurozone Sentix investor confidence.
  • Tuesday: Australia NAB business confidence; Japan average cash earnings, household spending; current account, Q2 GDP final; Germany trade balance; France trade balance; Italy retail sales; Eurozone Q2 GDP, employment final.
  • Wednesday: New Zealand manufacturing sales, ANZ business confidence; Australia Westpac consumer sentiment; China CPI, PPI; Swiss unemployment rate; Canada housing starts, BoC rate decision.
  • Thursday: France industrial production; Italy industrial production; ECB rate decision; US jobless claims, PPI.
  • Friday: New Zealand BusinessNZ manufacturing index; Japan BSI manufacturing index, PPI; Germany CPI final; UK GDP, trade balance, productions; US CPI.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8894; (P) 0.8923; (R1) 0.8946; More…

EUR/GBP recovers mildly today but stays below 0.8974 resistance. Intraday bias remains neutral first. On the downside, break of 0.8864 support should confirm completion of the choppy rebound from 0.8670 at 0.9175. Deeper fall should be seen to 0.8670 support. On the upside, however, break of 0.8974 will dampen this bearish case and turn bias back to the upside for rebound, back to 0.9148/9175 resistance zone.

In the bigger picture, at this point, we’s still seeing the fall from 0.9499 as developing into a corrective pattern. That is, up trend form 0.6935 (2015 low) would resume at a later stage. This will remain the favored case as long as 0.8276 support holds.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
22:30 AUD AiG Performance of Services Index Aug 42.5 44
3:15 CNY Trade Balance (USD) Aug 58.9B 49.8B 62.3B
3:15 CNY Exports (USD) Y/Y Aug 9.50% 7.10% 7.20%
3:15 CNY Imports (USD) Y/Y Aug -2.10% 0.10% -1.40%
3:15 CNY Trade Balance (CNY) Aug 417B 385B 442B
3:15 CNY Imports (CNY) Y/Y Aug -0.50% -0.70% 1.60%
3:15 CNY Exports (CNY) Y/Y Aug 11.60% 2.10% 10.40%
5:00 JPY Leading Economic Index Jul P 86.9 84.6 85
6:00 EUR Germany Industrial Production M/M Jul 4.80% 8.90%
7:00 CHF Foreign Currency Reserves (CHF) Aug 846B
8:30 EUR Eurozone Sentix Investor Confidence Sep -10.8 -13.4