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Dagelijkse Markt Analyse 11 Januari 2019
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• Iran continues to oppose preliminary OPEC+ output increase deal
• Crude oil prices may fall on fears of free-for-all absent an accord
• Gold prices may resume drop as US PMIs fuel Fed rate hike bets
All eyes are on a gathering of OPEC+ officials in Vienna on Friday. Officials from cartel members and like-minded oil-producing countries will lay out an update to their coordinated output cut scheme. After weeks of back-and-forth sparring, Saudi Arabia and Russia have reportedly reached a preliminary deal with most of their counterparts to boost crude supply by 1 million barrels per day.
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- The Euro may have established a near-term low against many major currencies as bottoming efforts have emerged in the week after the European Central Bank’s dovish June rate decision.
- ECB President Draghi pledged to be “patient” on tightening monetary policy, so traders have started to weigh more heavily data that will directly impact the timeline of rate hikes.
The Euro was one of the top performing major currencies last week, gaining ground across the board save for against the Japanese Yen and the Swiss Franc. Despite the European Central Bank’s continued efforts to lay the groundwork for the next year-plus of monetary policy, President Draghi pledged to be “patient” on tightening monetary policy, so traders have started to weigh more heavily data that will directly impact the timeline of rate hikes.
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- The US China trade war continues to prompt demand for safe havens, with flows into the Japanese Yen, the Swiss Franc and the Euro.
- However, one traditional safe haven, Gold, is singularly failing to benefit.
The prospect of a US trade war with China, the European Union and others continues to prompt flows into assets seen as safe havens at times of market turmoil. That is again boosting two of the traditional havens: the Japanese Yen and the Swiss Franc. However, the Euro seems to be joining the haven ranks at the expense of Gold, which is seeing little demand.
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- A tortuous grind lower with further losses expected.
- Retail remain heavily long XRP from much higher levels.
The third-largest crypto token by market capitalization continues to leak lower and changes hands at levels last seen nearly three months ago. After rallying back to around $0.90 - $0.95 in late-April/early-May, XRP has shed 50% of its value and now threatens weak support around $0.45. If this support breaks - which currently looks likely when observing recent momentum – XRP may well fall all the way back to the $0.20 area seen before the sharp December rally.
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- The US crude oil price continues to surge and a further advance seems likely, perhaps after a short period of consolidation.
- Lower inventories and developments in Canada, Libya and Iran are all pushing prices upwards.
The price of US crude oil has reached levels not seen since November 2014 and a further advance is now on the cards, perhaps after a few sessions to catch its breath. Data from the US Department of Energy, released Wednesday, showed that crude oil inventories dropped by 9.891 million barrels in the week to June 22, more than three times the draw predicted by analysts.
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• Eurozone Inflation hits 2%, however, core inflation remains subdued
• Euro supported by month-end USD selling and EU immigration deal
Eurozone inflation hit the ECB’s target for the first time in more than a year, rising 2% Y/Y from 1.9% in June, matching estimates. Yet again the headline figure had been led by energy prices, which surged by 8% (Prev. 6.1%), while food, alcohol and tobacco jumped by 2.8% from 2.5% in May. Core inflation printed at 1%, meeting forecasts, however dipped from the prior month by 0.1ppt.
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- German coalition government rattled further and may not survive.
- US President Trump see leverage in automobile tariffs.
All is not well in Europe’s economic engine and the euro is set to be hit further lower in the coming weeks. In Germany, Angela Merkel’s ruling coalition government is under threat after CSU party leader and interior minister Horst Seehofer offered to resign in response to the recent EU migration deal. If Seehofer’s resignation is accepted it will call into question the future of Angela Merkel’s government at a time when Europe needs its strongest of pillars.
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- The Euro has made little progress despite an immigration deal between German Chancellor Angela Merkel’s CDU and its Bavarian sister party the CSU.
- That suggests it could ease further, with trendline support for EURUSD in danger of breaking.
The Euro remains under downward pressure despite an agreement on immigration between German Chancellor Angela Merkel’s Christian Democratic Party (CDU) and its sister conservative party, Bavaria’s Christian Social Union (CSU). The deal means special transit zones at the German border with Austria, where migrants already registered in other EU countries will be held, and potentially sent back.
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- The gold price has traded within a downward sloping channel since mid-April.
- Having bounced from support at the lower boundary, it could be heading towards resistance at the upper boundary.
The price of gold has singularly failed to benefit from the recent “risk off” tone in the markets. Despite its traditional role as a “safe haven” it has been falling steadily since mid-April even though fears of a trade war between the US and other nations have led to a broad flight to quality.
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- Suggestions that the European Central Bank could increase Eurozone interest rates well before the end of next year is boosting EURUSD.
- Technically, it has broken above near-term trendline resistance – a positive signal.
A report suggesting that the European Central Bank’s rate-setting Governing Council could increase Eurozone interest rates earlier than previously expected, alongside signs of economic recovery in the region, are lifting the Euro.
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- Updates to the U.S. Non-Farm Payrolls (NFP) report may tame the recent rebound in EUR/USD as the world’s largest economy is anticipated to add another 195K jobs in June.
Moreover, Average Hourly Earnings are expected to uptick to an annualized 2.8% from 2.7% in May, and signs of stronger job/wage growth should keep the Federal Open Market Committee (FOMC) on course to implement four rate-hikes in 2018 as the central bank largely achieves its dual mandate for full-employment and price stability.
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- The Euro has continued with its bottoming process started two weeks ago, gaining ground against all but two currencies last week.
- Economic data has started to improve more broadly alongside inflation expectations, and now traders will look to ECB President Mario Draghi’s two speeches this week for clues on monetary policy.
The Euro was a top three performing currency last week, gaining ground against all but two of the majors. EUR/USD was the performing EUR-cross, gaining +0.53% during the holiday shortened week as the US Dollar was hampered by the official commencement of the US-China trade war.
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• UK GDP shows growth continues to pick
• Brexit Uncertainty amid political disarray weighs on Sterling
The UK economy continued to pick up in May after the slowdown seen in Q1 amid the boost in service sector growth, while manufacturing and industrial activity data disappointed. Today saw the release of a new monthly reading for GDP, which will be looked at closely by the BoE as they decide on whether to raise the bank rate at next month’s policy meeting.
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• AustralianDollar sells off after the Trump administration announces $200bln worth of tariffs
• AUDbears look to make a move towards the 2018
Overnight, the Trump administration stated that they will impose another round of tariffs of 10% on $200bln worth of Chinese goods. This came in response to China implementing reciprocal tariffs of $34bln on US goods following the US implementation of tariffs on July 6th.
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- Attention in the UK is on the publication of the government’s Brexit plans and a visit by US President Donald Trump.
- However, from a technical perspective, GBPUSD is at risk of breaking lower, with 1.30 in sight.
GBPUSD is at a critical point technically and a move down to the 1.30 level is looking increasingly likely as the UK government issues its long-awaited Brexit plans in the form of a “White Paper” and a visit by US President Donald Trump looks set to be accompanied by widespread demonstrations.
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• Sterling roiled by US President Trump’s comments on Brexit.
• GBPUSD also hit by a resurgent US dollar.
The British Pound is under pressure on Friday the 13th after US President Donald Trump openly criticised the latest UK Brexit White Paper saying that it would kill off any UK/US trade deal as it would effectively mean that the US would be dealing with the EU not the UK.
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• Crude Oil prices fell on reports that Trump may tap into US Emergency Oil Stockpile.
• Options under review range from a test of 5mln barrels followed by a release of 30mln barrels
Crude Oil prices fell late on Friday’s session following reports that the Trump administration is actively considering a release from the Strategic Petroleum Reserve (SPR), which is the world’s largest oil stockpile. The options that are under review range from an initial test of 5mln barrels followed by a release of 30mln barrels, whereby the release could come ahead of the US midterm elections in November.
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• Libyan production of crude oil is rising, as is Russian output, and Saudi Arabia is pumping record volumes.
• That is keeping crude oil prices on a downward tack as Chinese economic growth slows.
Crude oil prices continue to fall on increased supply and a likely reduction in demand as Chinese economic growth slows. In Libya, several ports that were closed have been reopened, although output at one oilfield has been cut after two staff were kidnapped. Russia is planning to boost exports in the third quarter after the major oil producers agreed to lift production at the end of June. Oil workers are on strike in Norway and US shale output is rising to record levels.
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• USDJPY remains in a strong upward trend as traders shun traditional safe havens like the Japanese Yen and Gold preferring to buy the US Dollar.
• Levels above 114.00 now seem increasingly likely.
USDJPY has hit its highest level since January 8 and could make further gains as the pair remains on a strong upward trend. It is now only just below the 2018 high at 113.39 and could well top the 1.40 level before hitting the November 6, 2017 high at 114.74.
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• USD remains on an upward path as Powell’s testimony and trade war fears outweigh profit-taking.
• That is weakening other currencies such as EUR, JPY and GBP, as well as gold.
USD remains on an upward trajectory after Federal Reserve Chairman Jerome Powell reiterated Wednesday that he thinks the US economy is in rude good health, implying that the Fed will continue to raise US interest rates this year – perhaps twice more. In a second day of testimony to Congress, he also downplayed trade war fears but that failed to boost the “risk on” currencies despite some profit-taking in USD after its recent strength.
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