Market Drivers September 26, 2016

Johnson comments continue to rattle Cable
IFO beats
Nikkei -1.25% Dax -1.58%
Oil $44/bbl
Gold $1339/oz.

Europe and Asia:
NZD Trade Balance
EUR IFO 109.5 vs. 106.3
GBP BBA Mortages 37K vs. 37.2K

North America:
USD New Home Sales 10:00

A very quiet and lackluster night of trade in the FX market with most of the majors stuck in very narrow ranges at the open of the week.

The only report of note – German IFO sentiment survey – produced no reaction whatsoever in the EUR/USD despite the fact that results were markedly better than expectations. The IFO survey came in at 109.5 versus 106.3 as German sentiment rebounded post Brexit shock.

According to the IFO institute the post Brexit news has been digested by the business sector and appears to have minimal impact on trade despite the better than 15% depreciation in the pound. Meanwhile private consumption in Eurozone’s largest economy remains robust although some slowdown is expected in H2 of this year.

The better than 3 point jump in IFO was one of the strongest upside surprises in more than 3 years, but EUR/USD showed no reaction at all to the news trading near the 1.1240 level for most of the night. Fundamental data out of Europe is unlikely to have meaningful impact on policy for the time being, as ECB remain committed to its long term QE policy and the euro will only be moved by US data for now of which there is a woeful dearth this week.

Elsewhere, cable remained weak selling down to 1.2916 in early London trade as foreign minister Boris Johnson continued to make comments about the schedule of Brexit trigger. Although the office of PM May has been much more circumspect about the pace of negotiations and the exact timing of invocation of Article 50, Mr. Johnson’s cavalier comments continue to rattle the market. As the prospect of Brexit nears, cable is sure to feel more downward pressure and may see 1.2500 by year’s end.

In North America today the only report of note will be New Home sales at 14:00 GMT which is unlikely to move the market. The dollar, as well all the other majors remain in a state of suspended animation very likely until next week, when the market will get a much more complete idea of US economic conditions. In the meantime the biggest event risk could be political rather than economic as the first US Presidential debate takes place tonight with an expected audience of more than 100M viewers. The race has tightened to a near dead heat and any further weakness by Hillary Clinton could see dollar weakness in Asia trade.

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