Reuters reports overnight comments by the US House of Representatives Speaker Paul on the government shutdown threatened by President Trump.
Don't think Govt shutdown is necessary
Most people don't want it
Won’t have to choose between shutdown & border wall
‘Completely agrees’ with trump need for physical barrier on the border
China’s Commerce Ministry (MOFCOM) out with the following headlines:
China will use all necessary means to defend interests of China and Chinese firms against US probe
China will deepen reforms over its overseas investment policies
China will intensify checks over the authenticity of Chinese overseas investment
China still has obvious advantage in attracting Foreign direct investment in medium to long term
China says feels sorry US has given up on continuing negotiation on China-US agricultural quota dispute
The HSBC research team published a brief preview of the UK’s second estimate of Q2 GDP report, which will be reported at 0830GMT later today.
“The ONS's initial estimate showed GDP growing by 0.3% q-o-q in Q1 - a slight uptick from Q1's 0.2%.
Subsequent updates to the Q2 industrial production and construction numbers have been minor so we do not expect GDP to be revised in the second estimate.
The forthcoming release will contain the first estimates of Q2 expenditure. The monthly goods trade numbers suggest that net trade might make a positive growth contribution, while consumer spending is likely to be weak, given the squeeze from higher inflation.
The ONS's preliminary GDP print embodied an initial estimate for June services growth of 0.3% m-o-m. That helped deliver Q2 services growth of a respectable 0.5% q-o-q. We see no reason to aim off these estimates for the full IoS data release.
A more granular breakdown of the data might offer insights, particularly with regard to momentum going into Q3.”
Reuters out with the latest comments from the China’s President Xi Jingping, as cited by the official Xinhua news agency on Thursday, citing that Xi pledged to make concerted efforts with South Korea's President Moon Jae-in to properly address differences between the two countries.
AUD/USD’s recovery from near 0.7880 region continues to run into resistances located around 0.7915, now sending the rate lower to test 0.79 handle.
AUD/USD flirts with 20-DMA at 0.7923
Amid a data-quiet Asian affair, the Aussie came under renewed selling pressure, as the Japanese traders hit their desks and sold-off higher-yielding/ risk assets, in response to increased nervousness heading into the 2-day Jackson Hole Symposium starting today.
The latest leg down in the spot can be mainly attributed to some fresh buying interest seen around the US dollar against its main peers, as markets prefer to hold the US currency, in light of Fed Chair Yellen’s speech at the Symposium due tomorrow.
Markets are widely expecting Yellen to announce a Sept QE run-off, while a Dec rate hike still could be on the table, despite the recent concerns on weak inflation prospects. Any hawkish surprise could offer the much-needed impetus to the USD bulls.
Meanwhile, a fresh selling wave seen across the commodities’ space in the Asian trades, also drags the resource-linked AUD lower versus its American counterpart. Later today, apart from the Jackson Hole event, the US jobless claims and existing home sales data will provide some incentives to the pair.
AUD/USD Levels to watch
Valeria Bednarik, Chief Analyst at FXStreet explained, “Having failed to regain the upside momentum earlier this week, the pair is back to neutral, with an increasing bearish potential according to technical readings in the 4 hours chart, as the price remains below an anyway horizontal 20 SMA, currently around 0.7930, while technical indicators remain within negative territory, but lack directional strength. A strong static support comes at 0.7870, with a break below it exposing this month low of 0.7807. Support levels: 0.7870 0.7840 0.7805 Resistance levels: 0.7930 0.7965 0.8000.”
People's Bank of China set the Yuan reference rate at 6.6525 vs. Wednesday's fix of 6.6633
The US-based ratings agency, Fitch ratings, posted its latest review report on the US sovereign credit rating, in light of the latest concerns over the debt ceiling.
Fitch reiterated that prioritizing payments may not be compatible with a Triple-A rating
And, a government shutdown would not have a direct impact on the AAA rating but would "highlight how political divisions pose challenges to the budgetary process"
Currently, USD/JPY is trading at 109.03, down -0.01% on the day, having posted a daily high at 109.07 and low at 108.85.
USD/JPY is currently making a meager effort onto the 109 handle in the Tokyo opening hour, creeping higher with some momentum gathered as the open progresses.
The tone overnight was a mild risk off play on the back of Trump’s latest comments in Phoenix pulling US stocks, bond yields, and the dollar all lower. The US 10yr treasury yields fell from 2.22% to 2.17% while the Fed fund futures yields remained at around 36%. Subsequently, USD/JPY fell from 109.80 to 108.96 as the safe-haven yen took up one of the top slots across the board.
Meanwhile, all eyes are on the Jackson Hole, just in case there are key takeaways from the event in Yellen's speech, however, it does not appear to particularly lend itself to a talk of the nuances of monetary policy. Also worth noting is that Japan will release its latest National and Tokyo inflation figures tomorrow.
Here's Why Dollar is On Back Foot Before Jackson Hole
Support levels are 108.84, 108.45 and 108.10 ( 108.84/13 support zone is made up of April and June lows.) The resistance levels are 109.60, 110.00 and 110.45. On the wide, the key upside level is 111.05 as the current August high and to the downside, a break below 108.10 would bring in the July 2016 high at 107.49.
From a technical point of view, Valeria Bednarik, chief analyst at FXStreet explained that the risk remains towards the downside while technical indicators retreated to establish around their mid-lines, with no certain strength at the time being, but with the risk still towards the downside.
The European Central Bank (ECB) policy maker and Estonian central bank chief Ardo Hansson crossed the wires late-Wednesday, via Bloomberg, speaking on the recent Euro appreciation in an interview in his office in Tallinn.
Not concerned about the strength of the euro as officials are preparing to discuss winding down their bond-purchase program
"We've been moving in a corridor where I don't think it's a big change,"
“It’s not surprising that markets might react and say, on balance, we’re more upbeat about Europe than we were a while ago, which will cause the currency to be a bit stronger.”
“There are two things here: one is an easing bias and the other is a bias in favor of a particular instrument.”
“Maybe we want an easing bias, but we will deliver it in somewhat different combination. We are not going to tie ourselves to a particular instrument, but leave more flexibility to how we technically deliver that degree of accommodation.”
Gold bulls are again struggling to push through the key resistance zone of $1290-1300, despite Wednesday’s sharp rally from the low of $1282.
The curve or the spread between the 10-year Treasury yield and the 2-year Treasury yield narrowed to 86 basis points yesterday, thus keeping USD gains under check.
Still, the bullish move stalled at $1291 in Asia, largely due to caution ahead of the Yellen’s speech at the Jackson Hole event. The central bank chief will speak on financial stability. Investors will look for clues on when the Fed plans to unwind its balance sheet and whether a December rate hike is still on the table.
Yellen may throw caution to the wind and hint at September balance sheet runoff, although the reaction in gold prices depends on how the bond markets receive Yellen’s comments. A steeper yield curve would be bearish for gold and vice versa.
Gold Technical Levels
The metal was last seen trading around $1288/Oz. A break above $1293.83 [Aug 21 high] would open up upside towards $1300 [zero levels]. On the downside, breach of support at $1287.51 [5-DMA] could yield a sell-off to $1282 [previous day’s low].
Analysts at Nomura offered their projections for today's USD/CNY fix.
"Our model1 projects the fix to be 112 pips lower than the previous fix (6.6521 from 6.6633) and 115 pips lower than the previous official spot USD/CNY close of 6.6636. The basket implied change is 141 pips lower than the previous official spot USD/CNY close (6.6495 from 6.6636)."
Analysts at Nomura noted the data from the US session and offered their GDP tracking update.
"New home sales: July new home sales fell 9.4% m-o-m to an annualized pace of 571k, below expectations (Nomura and Consensus: no change at 610k). However, sales for the three previous months (June, May, and April) were all revised upwards notably. Recall that new home sales tend to be highly volatile due to a relatively small sample. July sales lowered the current sales pace very slightly. The three-month moving average in July, at 606k, was about 1.1% lower than the average pace in Q2 (613k). We expect modest growth in new home sales to continue in Q3.
Besides supply constraints that have been weighing on new home sales, fast rising prices pose looming challenges to demand. Strong job markets and demographic factors remain favorable for consumer demand, but worsening affordability may adversely affect the demand. Low inventories stemming from shortages of skilled labor and of developable lots could be a persistent problem as it would take a significant amount of time for supply levels to adjust. Read our full report: Despite Weak Reading, New Home Sales Remain on Pace, First insights, 23 August 2017.
GDP tracking update: While new home sales were slightly weaker than we expected, implying less brokers’ commissions in Q3, after rounding, our estimate Q3 GDP growth remains unchanged at 2.9% q-o-q saar. More information on residential investment from July’s existing home sales data will be released tomorrow."
Currently, NZD/USD is trading at 0.7231, up 0.12% on the day, having posted a daily high at 0.7237 and low at 0.7220.
NZD/USD is currently testing the upside of the narrow range of overnight between 0.7197 and 0.7237. The trade data was the catalyst for 10 pip spike due to there being a surplus of NZ 85m vs the expected deficit of 200m. The data came after yesterday's offer in the bird post the 'government reigning in funding news' ahead of the elections on the 23rd September this year. A key factor in the trade data was that there had been a recovery in dairy export prices that helped boost July 2017 exports.
Here's Why Dollar is On Back Foot Before Jackson Hole
However, and as analysts at Westpac noted, NZD/USD has broken down technically, with 0.7200 vulnerable today.
NZD/USD 1-3 month:
The analysts at Westpac also explained that if the RBNZ remains firmly on hold, as we expect, and the US dollar rises on tighter Fed policy, then NZD/USD could fall as far as 0.70 by year end. "Pre-election jitters may also weigh on the NZD," noted the analysts.
Trump bluffing a US government shutdown
To the upside, 0.7240 and then 0.7280/00 ahead of the aforementioned 0.7337 recent highs and 0.7370 (9th Aug high) are the immediate resistance areas. To the downside, 0.7220 0.7205, the 06 June 22/21 low and 0.7186, the June 15th low, along with the 50% of the move up from the 2017 low (May low) at 0.7187 are key areas of support ahead of 0.7150 June 5 high; 0.7127 June 6 low and 0.7100.
Analysts at ANZ explained that US President Trump caused a mild risk-off move in markets overnight with his comment that he would shut down the Government if necessary, in order to secure funding for his signature project, the border wall with Mexico.
"This is seen as further imperilling Trump’s policy agenda, as well as increasing concern around the more important question of raising the debt ceiling. At his rally, Trump also threw in the comment that the US would “probably” terminate the NAFTA agreement “at some point.” In other developments, the firmer-than-expected national and euro area PMI data provided the euro with some support, whilst sagging US home sales in July underscored the weak recovery in residential construction activity.
Market flows remain thin given the holiday period, whilst participants remain wary over the potential for some market-sensitive comments at Jackson Hole this weekend.
Equities gave back some of the previous day’s gains with the DAX off 0.5%, CAC 40 off 0.3% and the S&P 500 down 0.3% at the time of writing.
Bonds firmed slightly with the yield on the US 10-year note easing 4bp to 2.17%.
Oil was stronger with WTI up 1.2% at $48.41/bbl on another decline in US inventories.
Gold is up 0.4% to USD1289.6/oz."
Analysts at Westpac explained their outlooks for the Aussie and Kiwi cross and rates.
"AUD/NZD 1 day: Potential to continue rising while the NZD remains out of favour and iron ore prices remain elevated, 1.0965 vulnerable.
AUD/NZD 1-3 month: A retest of the 1.0900 area seen in May is possible if iron ore’s rally since mid-June continues and global risk sentiment remains elevated. (8 Aug)
AU swap yields 1 day: The 3yr should open around 2.08%, the 10yr around 2.81%.
AU swap yields 1-3 month: Our RBA outlook (on hold for some time) is anchoring short-maturity interest rates and should keep 3yr swap rates in a 1.8% to 2.3% range, as long as core inflation remains below 2%. Longer maturity rates will largely follow US rates. (8 Aug)
NZ swap yields 1 day: NZ 2yr swap rates should open down 1bp at 2.17%, the 10yr down 3bp at 3.13, in response to US interest rates movement overnight.
NZ swap yields 1-3 month: Our RBNZ outlook (on hold throughout 2018) is anchoring is anchoring short-maturity interest rates and should keep 2yr swap rates in a 2.1% to 2.6% range, as long as inflation remains below 2%. Longer maturity rates will largely follow US rates. (8 Aug)"
Currently, AUD/USD is trading at 0.7904, up 0.00% on the day, having posted a daily high at 0.7910 and low at 0.7904.
Trump bluffing a US government shutdown
AUD drifted higher overnight but within a narrow range between 0.7882 and 0.7913 vs the dollar as markets await the Jackson Hole. A more risk averse day in the US session was due to Trump’s latest comments in Phoenix within a fickle market place. Stocks US, US bond yields, and the dollar were all lower as a result.
The Aussie remains on a neutral footing for today while a lack of domestic data leaves traders focussed on Tokyo and China before Yellen likely repeats what she has already testified to Congress in last month's testimony.
Here's Why Dollar is On Back Foot Before Jackson Hole
AUD/USD 1-3 month:
Analysts at Westpac recently argued that if the RBA remains firmly on hold, as we expect, and the US dollar rises on tighter Fed policy, then AUD/USD could fall to 0.76 by year end.
Valeria Bednarik, chief analyst at FXStreet explained that having failed to regain the upside momentum earlier this week, the pair is back to neutral, with an increasing bearish potential according to technical readings in the 4 hours chart.
"The price remains below an anyway horizontal 20 SMA, currently around 0.7930, while technical indicators remain within negative territory, but lack directional strength. A strong static support comes at 0.7870, with a break below it exposing this month low of 0.7807," explained Bednarik.
Analysts at Westpac noted today's event risk's.
"NZ: trade balance is expected to post a $200m deficit for July, imports higher and exports lower than in June.
UK: Q2 GDP second estimate is released. The first estimate was in line with consensus at 0.3% reflecting softness in household spending and manufacturing.
US: Jul existing home sales are expected to rise 0.6% after falling 1.8% last month. The trend has flattened of late as supply continues to be cited as an issue, while the proportion of sales to first-home buyers is also tracking below average. The Jackson Hole policy symposium begins. The theme is ‘Fostering a Dynamic Global Economy’ with Yellen and Draghi scheduled to speak on Friday."
Data source: FX Street
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