The risk sentiment in Asia, at the start of a new week, was lifted across the financial markets, as the US President Trump’s trade-negative remarks were outweighed by the German stimulus hopes and China’s interest rates reform news. The Treasury yields and US equity futures extended their bounce while the Asian equities rose as the US yield curve inversion reversed amid improved risk tone. Oil prices rallied nearly 1% alongside the equities while Gold eased towards 1515 levels.
On the fx front, most majors traded in a tight trading range amid a lack of significant fundamental drivers and as markets digested the latest trade/ political headlines. The Aussie traded modestly flat, capped below the 0.68 handle while the Kiwi traded on the back foot ahead of the 0.64 handle despite the growth in New Zealand’s factory gate prices in Q2. The USD/JPY pair enjoyed good two-way business within a 25-pips range, as traders absorbed dismal Japanese exports data.
Among the European currencies, EUR/USD kept its range near the 1.11 handle, but remains vulnerable ahead of key macro data due later this week. Meanwhile, the Cable hovered around the 1.2150 level amid looming Brexit anxiety.
Main Topics in Asia
UK: Leaked government document foresees shortage of food and medicine in no-deal Brexit
UK's Gove: Some concerns about a no-deal Brexit have been exaggerated
White House adviser Kudlow: There is no recession in sight
Trump: Trade deal with China harder if there's violence in HK
WTI bounces off 7-day old support-line amid mixed growth concerns
Japan's exports to US rise for tenth month in a row
Gold technical analysis: Under pressure after bearish outside day, eyes sub-$1,500 levels
PBOC sets Yuan reference rate at 7.0365
China introduces market driven lending rate to boost cheap funding for businesses
Germany’s Merkel: “We're prepared for a disorderly Brexit”
Asian stocks rise as US yield curve reverses inversion
Germany’s Scholz: Germany has fiscal muscle to counter next crisis - Reuters
Key Focus Ahead
Markets gear up for a relatively data-light start to a busy week ahead, with the Eurozone June Current Account dropping in at 0800 GMT. The EUR traders watch out for the bloc’s July final Consumer Price Index (CPI) release for fresh trading impetus.
The UK docket is data-empty and therefore, Brexit-related developments will hold relevance amid the recent upbeat UK fundamentals.
The NA session also lacks macro news, as the risk sentiment will remain the main market driver amid ongoing US-China trade spat, stimulus expectations and recession fears. All eyes now remain on a US decision later on Monday on whether to continue to allow China's Huawei Technologies to buy supplies from American companies.
Looking ahead, the main event risks this week remain the July Fed meeting’s minutes and the 3-day Fed’s Jackson Hole Symposium for fresh hints on the global monetary policy outlook.
EUR/USD: Focus remains on German bond yields
EUR/USD is at the mercy of the action in the German bond yields amid rising dovish European Central Bank (ECB) expectations and the talk of German fiscal boost. Eurozone Current Account and CPI data are unlikely to move the needle on the EUR pairs.
GBP/USD: All eyes on UK PM Johnson’s EU trip after Yellowhammer leak
GBP/USD holds on to recovery gains as the UK lawmakers step forward to defend the Yellowhammer reports’ leak. The UK PM Johnson travels to the EU later this week. Recovery in risk sentiment and likely receding tension between the UK and Iran also offer support.
The summer lull will continue into next week as economic releases will remain sparse. However, central bank minutes and the annual gathering of central bankers at the Jackson Hole Economic Symposium should generate plenty of headlines.
GBP/USD Forecast: life would be perfect if it weren’t because of Brexit
Brexit chaotic future offsets encouraging UK data. Pound so far ignoring US data and recession fears. GBP/USD corrective advance could extend once above 1.2205. The FOMC Meeting’s Minutes and the Jackson Hole Symposium will be closely watched.
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