STERLING WIPES GAINS AS FOCUS RETURNS TO BREXIT STALEMATE
Wall Street gained yesterday after earnings data overshadowed recent news about a slowing economy and interest rates. The Dow, Nasdaq, and S&P gained by 547, 214, and 60 points respectively. These results were helped by Goldman Sachs, Morgan Stanley, BlackRock and Johnson & Johnson. In the aftermarket, results from Netflix showed that revenues and earnings had beaten analysts’ forecasts leading to a sharp increase in the stock price. Today, the Asian markets followed Wall Street with the Nikkei, Hang Seng, and China A50 gaining by 331, 17, and 43 points respectively. In Asia-Pacific, the Australian ASX gained by 63 points.
Yesterday, sterling rose sharply after the UK released better-than-expected wage numbers. As a result, traders ignored the stalled Brexit negotiations and focused on the UK economy instead. In the Asian session, the sterling dropped as traders started to refocus on Brexit. Today, focus will turn to inflation numbers which will be released during the European session. Traders expect the numbers to show that consume prices in September rose by 2.6%. This will be lower than the 2.7% for August. On a MoM basis, the CPI is expected to drop from 0.7% to 0.2%. The core PPI is expected to be at 2.0%, which will be lower than August’s 2.1%.
This week, the euro has been little moved against the USD. This is most due to a lack of major economic and political news from the US and the EU but all could change today as traders receive important numbers from the US and EU. In the European session, Eurostat will release the CPI numbers for the region. Traders expect the data to show that the CPI rose by 2.1% in September. This will be in line with the growth in August. On a MoM basis, the CPI will rise to 0.5%. The core CPI will remain unchanged on an annual and monthly basis. Later in the day, the US will release important housing numbers. The housing starts are expected to fall from 1.282 million in August to 1.220M in September. September’s building permits are expected to increase by 2.1% on an annual basis.
The EUR/USD pair has traded within a range this week as evidenced by the narrow range of the Bollinger Bands. This was after a rally that started on Tuesday last week when the pair moved from 1.1430. Since the pair is trading within a range, there is a possibility that a breakout will happen in either direction. An upward breakout will push the pair to the 1.1700 level while a downward breakout will see it reach the previous low of 1.1430.
The GBP/USD pair declined to an intraday low of 1.3167 in the Asian session. This was as traders shifted their focus from employment numbers to Brexit negotiations. The pair is now trading at the 1.3174 level, which is slightly lower than the 14 and 28-day EMA. The two EMAs are starting a bearish crossover, which is an indication that the pair could continue the downward trend. If it does, it will likely move to the 1.3090 level, which is along the 50% Fibonacci Retracement level. However, traders should focus on the UK CPI numbers as they will play an important role on the pair.
Last week, the XAU/USD pair jumped sharply to 1230, which was the highest level since July. This was as traders moved to safe havens following the worries of a slowed economic growth and high interest rates. This week, the pair has remained closer to these levels as the focus on global growth cools down. It is now trading at 1220, which is lower than the neckline of the head and shoulder pattern. This is an indication that the pair will likely continue to move lower. This is confirmed by the slow change of direction of the 14 and 28-day EMAs.