Market Drivers August 28, 2017
UK Labor 4 more years in EU
Harvey continues to wreak havoc
Nikkei -0.01% Dax -0.68%
Oil $47/bbl
Gold $1287/oz.
Europe and Asia:
No data
North America:
US Goods Trade Balance 8:30
After a tumultuous trade on Friday, the FX market was in a quiet consolidative mood on Monday as traders absorbed the news of last week amidst the slow end of summer holiday dealing. With no major data in Asia or Europe and London banks on summer holiday, the dealing in FX was very languid with most of the majors remaining in very narrow ranges for the day.
As many analysts pointed out, the surprise from Jackson Hole came from what Ms. Yellen and Mr. Draghi didn’t say rather than from what they did state. Ms. Yellen ignored policy guidance altogether focusing on Fed regulation matters instead, which disappointed dollar bulls who were eager to hear her reaffirm the FOMC commitment to another rate hike in December. Meanwhile, Mr. Draghi was surprisingly sanguine about EZ economic prospects and offered no concern about the rising exchange rate. Perhaps the ECB has concluded that the current speculative sentiment is too strong to fight the move in the euro and has quietly accepted the fact that the single currency could break the 1.2000 barrier quite soon.
The EURUSD gapped higher on Asia open, then sold off a bit but quickly found a bid ahead of the 1.1900 level and remains near three-week highs going into North American trade. The momentum is certainly on its side and the pair looks eager to run stops at the 1.2000 level especially if the stalemate in Washington heightens the prospect of a government shutdown.
Elsewhere, the massive devastation and flooding in US Gulf Coast from Hurricane Harvey is taking it toll on gasoline prices as refining in the region could be off line for a week or more. So far crude prices haven’t reacted much and were actually trading lower this morning, but if oil catches a bid as shortages begin to squeeze prices USDCAD could quickly tumble to test the key 1.2400 level.
Finally, after weeks of relative weakness cable could see the light of day if markets begin to realize that a hard Brexit is unlikely. The latest cable positive news came from the Labor party which suggested that UK should remain in the EU for at least 4 years as Brexit terms are negotiated. There is now a growing body of evidence that the majority of the British population is beginning to realize the devastating impact that a hard Brexit would have on the UK economy and that could create a more conciliatory environment in negotiations with EU. Cable gapped higher to 1.2940 in early Asian trade only to give up the gains Europe, but with UK corps at full force tomorrow the pair could see a revived bid on improved sentiment and make a run towards the 1.3000 level as the week proceeds.
