TALKING POINTS – YEN, CHINA, VIACOM, TRADE WAR, SHUTDOWN, BREXIT
- Yen gains, Aussie and NZ Dollars fall as Viacom signals China exit
- Dour Chinese trade statistics add to evidence of trade war damage
- Brexit uncertainty might compound risk-off mood ahead of key vote
The sentiment-geared Australian and New Zealand Dollars followed Asia Pacific stocks lower while the anti-risk Japanese Yen outperformed in a dour start to the global trading week. News that media giant Viacom might divest from China appeared to trigger the selloff.
As if that were not enough, December’s Chinese trade data offered further evidence that trade tensions between Washington and Beijing are hurting economic activity. Exports plunged 4.4 percent on year, marking the worst result in two years. Imports sank 7.6 percent, the largest drop since July 2016.
TRADE WAR, US SHUTDOWN, BREXIT UNCERTAINTY MENACE MARKETS
Looking ahead, a lull in top-tier economic news flow opens the door for risk-off dynamics to carry through to European and US trade. Indeed, the bellwether S&P 500 futures are pointing conspicuously lower. Evidence of continued deadlock in talks to end the US government shutdown may compound selling pressure.
Last-minute posturing ahead of Tuesday’s House of Commons vote on the UK government’s Brexit withdrawal bill might spur de-risking further. Prime Minister Theresa May will make a last-minute appeal for the plan, warning that its defeat could compromise withdrawal from the EU altogether.
See our market forecasts to learn what will drive currencies, commodities and stocks in Q1!
ASIA PACIFIC TRADING SESSION
EUROPEAN TRADING SESSION
** All times listed in GMT. See the full economic calendar here.
FX TRADING RESOURCES
— Written by Ilya Spivak, Currency Strategist for DailyFX.com
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter
GBPUSD Fell, Another Vote on Brexit Deal Blocked. AUDUSD May Rise
Asia Pacific Market Open Talking Points
- GBP/USD already fell before third vote on May’s Brexit deal was blocked
- Sentiment improved, placing the S&P 500 closer to achieving record highs
- Risks for AUD/USD tilted to the upside on RBA minutes, Yen may weaken
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Key FX Developments Monday
The British Pound was the worst-performing major currency on Monday. Newswires attributed this to John Bercow, the Speaker in the House of Commons, blocking a third vote on Theresa May’s Brexit deal unless there are major changes to it. Looking at the immediate chart below reveals the full story behind volatility in Sterling.
GBP/USD vs. US Dollar and US Bond Yields
Chart Created in TradingView
When Mr Bercow’s block crossed the wires, GBP/USD had already been drifting lower. This was partially due to a slightly higher US Dollar that trimmed losses from earlier in the session. The Greenback appreciated alongside front-end government bond yields, suggesting ebbing dovish bets ahead of this week’s highly-anticipated FOMC meeting. In fact, the risk for USD on the Fed may be tilted to the upside, posing as a risk for certain ASEAN currencies.
The S&P 500 still edged higher, building on top of a major resistance break from Friday’s session. Now that there is confirmation of a second close above 2824, the index is another step closer towards achieving a new record high. Still, negative RSI divergence persists which shows fading upside momentum. This may precede a turn lower. Gains in equities on Monday bolstered the pro-risk Australian and New Zealand Dollars.
Tuesday’s Asia Pacific Trading Session
As Tuesday gets underway, AUD/USD looks to the RBA minutes from the March policy meeting. Markets are becomingly increasingly confident that the central bank may deliver a cut by the end of this year. Earlier this month, Governor Philip Lowe underpinned confidence in the economy despite rising concerns over a property slump.
Like with the US Dollar, the risks for Aussie seem to be tilted to the upside if the minutes of the text show more confidence in the economy than what overnight index swaps are pricing in. Looking at sentiment, S&P 500 futures are pointing cautiously higher. We may see APAC equities follow Wall Street higher, sapping the appeal of the anti-risk Japanese Yen.
US Trading Session Economic Events
Asia Pacific Trading Session Economic Events
** All times listed in GMT. See the full economic calendar here
FX Trading Resources
— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
Regulators Set Sights on Facebook and Google
S&P 500 Outlook Talking Points:
- US regulators have expressed intentions to reduce power, monopolistic attributes, of FAANG group members Facebook and Google
- The tech-names have offered meaningful contributions to the recent S&P 500 rebound which could be undone by regulatory scrutiny
- Learn tips to trade breaking news with our Trade the News Trading Guide
S&P 500 Outlook: Regulators Set Sights on Facebook and Google
The S&P 500 could face trouble in the weeks ahead if US regulators look to pursue tighter restrictions on some of the tech industry’s biggest names. Support for regulatory action first gained steam last September when state attorneys met to discuss suspicions that conservative views were being suppressed on certain online platforms. In the discussions, officials argued the alleged issue was emblematic of a larger one, namely big-tech’s market power and handling of personal data, issues they could look to combat through aggressive antitrust action.
The companies most at risk – Alphabet’s Google and Facebook – have drawn criticism from both sides of the aisle. Democratic Senator Elizabeth Warren was recently supported by Republican Senator Ted Cruz upon the announcement of a sweeping legislative regulatory plan that will explore the idea of regulating big-tech companies as public utilities.
A similar idea was originally put forth by Stephen Bannon, President Trump’s former Chief Strategist. The rare bipartisan agreement could see legal action gain pace, particularly as politicians look to garner public support into election season. Such an outcome could pose a significant threat to Google and Facebook, two members of the FAANG group.
S&P 500 Price Chart: Daily Time Frame (January – March 2019) (Chart 1)
The group of tech stocks has offered robust returns for the year-to-date as tech tries to recapture its former glory from mid-2018. At present, FAANG has returned roughly 15% in comparison to the S&P 500 which has climbed nearly 14% in the same span. Despite a disastrous performance last week, Facebook remains a pillar of strength in the group with an 18% return YTD.
View our Economic Calendar for big events scheduled in the week ahead.
Although the threat of antitrust action amounts to a significant risk for the tech-sector, adverse price action from the risk appears muted thus far. However, the threat could be weighing on a more determined drive higher, particularly for Facebook and Google.
Given the nature of Washington and lobbying power of the industry, the threat looks to remain an ancillary risk for the time being. That said, state attorneys will meet on March 26th at the American Bar Association’s spring meeting on antitrust. The FTC will also meet that week for a two-day hearing which has technological change, privacy and competition scheduled as major topics according to Bloomberg.
Together, the meetings could see regulators find actionable steps forward but immediate price action for the S&P 500 will arise from Wednesday’s FOMC rate decision. For live coverage of the rate decision, join John Kicklighter on Wednesday at 1:45 EST.
–Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
DailyFX forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.
Weekly Trade Levels for EUR/USD, GBP/USD, USD/CAD, Gold, Oil & More
US Dollar Crosses in Focus Ahead of FOMC Interest Rate Decision
The FOMC rate decision takes center stage on Wednesday with market participants eagerly awaiting the updated quarterly economic projections as they pertain to growth, employment and inflation. We discussed the importance of the interest rate dot-plot as Fed Fund Futures continue to highlight expectations for no hikes this year. From a trading standpoint, the majors are on the menu this week with numerous setups stretching into key technical zones heading into the release. In this webinar we review updated technical setups on DXY, EUR/USD, GBP/USD, GBP/NZD, USD/CAD, NZD/USD, AUD/USD, Gold, Crude Oil (WTI) and EUR/JPY.
Why does the average trader lose? Avoid these Mistakes in your trading
Key Levels in Focus
DXY – Key support at the monthly open at 96.22 backed by the 61.8% retracement at 96.05– Close below is needed to validate the break. Initial resistance with bearish invalidation at 97.20.
EUR/USD – Looking for possible price exhaustion on a move towards 1.1367 or ~1.1390s. Support at 1.1280 with broader bullish invalidation at 1.1215. Critical yearly open resistance at 1.1445.
GBP/USD – Risk for a pullback while below 1.3363. Near-term support at 1.1312 with broader bullish invalidation at 1.2985.
AUD/USD – Aussie has set a well-defined monthly opening-range and we’re looking for the break for guidance. Risk for price exhaustion heading into key resistance 7140 with support eyed at the March low / 2019 low-day close at 7003/05.
Gold – Price remains vulnerable for further losses while below 1321 (initial resistance at the monthly open at 1313). Support at 1292 with backed by the yearly open at 1280 and 1275/76 – both areas of interest for possible price exhaustion / long-entries IF reached.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
Key Event Risk This Week
Economic Calendar – latest economic developments and upcoming event risk
Active Trade Setups:
—Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex
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