Cautious optimism prevailed across Asia this Tuesday, as indicated by moderate gains on the Asian equities and US futures while Treasury yields fell back in the red after the overnight risk-on rally. The US Commerce Department granted a 90-day extension to the Chinese technology giant, Huawei, on Monday, triggering a fresh risk-on wave across the financial markets.
Across the fx space, the greenback retreated broadly from three-week tops while the Aussie emerged the top gainer, with no new surprises offered by the Reserve Bank of Australia’s (RBA) August meeting’s minutes. The AUD/USD pair headed towards 0.6800 levels while the Kiwi traded firmer above the 0.64 handle, even though oil prices stalled its latest rally. Further, China set the reformed lending rate slightly lower than the market expectations. The USD/JPY pair remained on the back foot just above the 106.50, with the upside capped below the 106.70 level. Meanwhile, the safe-haven gold kept its bearish momentum intact below the 1500 mark amid the latest trade-optimism.
Among the European currencies, EUR/USD kept its range below the 1.11 handle, despite increased German stimulus hopes. Meanwhile, the Cable traded better bid above the 1.21 handle, awaiting fresh Brexit/ UK political update.
Main Topics in Asia
EU unconvinced by Johnson's fresh bid to remove Brexit backstop – The Guardian
WTI technical analysis: Bulls in control with a test of the 50-DMA
US Pres. Trump: Great discussion with UK PM Johnson on Brexit and US-UK free trade deal
PBOC sets Yuan reference rate at 7.0454
RBA minutes: AUD fall to support exports, tourism
Sources: Japan approves further exports of high-tech material to South Korea - Reuters
China sets new 1-year loan prime rate at 4.25%
G7 may end without communique due to gaps on trade, climate - NHK
US Sec. of State Pompeo to travel to Ottawa for talks on trade, Venezuela, China
AUD Bullish: US-China trade spat not yet hurting demand for its commodities - BHP
Get used to US-China trade war, Australian PM warns - Australian Associated Press
PBOC: China's interest rate reform cannot replace monetary policy and other policies
PBOC’s Liu: There is room for cuts in both the reserve requirement ratio and lending rate
Key Focus Ahead
We have another thin-showing on the macroeconomic front in the session ahead, with the German Producer Price Index (PPI) dropping in at 0600 GMT alongside the Swiss Trade Balance report. Later on, the EUR, GBP traders will watch out for some fresh cues from the Eurozone Construction Output and UK CBI Industrial Orders Survey due on the cards at 0900 GMT and 1000 GMT respectively.
The NA docket also remains data-light, with the only Canadian Manufacturing Shipments, due at 1230 GMT, of relevance. Meanwhile, New Zealand’s GDT Prince Index data will drop in around 1400 GMT ahead of the US American Petroleum Institute (API) weekly Crude Oil Stock data slated for release at 2030 GMT. In the American afternoon, the FOMC member Quarles is scheduled to speak at 2200 GMT.
The macro news will continue to play second fiddle to the US-China trade updates, US President Trump’s comments and Brexit-related noise, all of which will have a significant impact on the market sentiment and volatility. However, the main event risks this week remain the July Fed meeting’s minutes and the 3-day Fed’s Jackson Hole Symposium.
EUR/USD registers its first five-day losing streak in three months
EUR's inability to score gains despite the recovery in yields likely indicates concerns that Germany's stimulus, if any, will not be enough to buttress the economy. So, while the path of least resistance remains to the downside.
GBP/USD bounces off 10-day EMA despite looming Brexit uncertainty
Despite the EU and Ireland having rejected the UK’s proposal to alter Irish backstop agreement, the GBP/USD pair keeps the recovery mode intact on the 1.21 handle heading into the London open. PM Johnson’s visit to Germany, France to be the key focus.
Gold technical analysis: Bearish outside bar reversal favors drop to $1,480
Gold confirmed a bearish outside bar reversal with a close below $1,504 on Monday. The daily chart MACD is about to cross below zero. That would indicate a bullish-to-bearish trend change. A drop to the immediate support of $1,480 could be seen in a day or two.
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