I. Market focus
The U.S. dollar continued to decline at the beginning of Tuesday’s session, weighed down by yesterday’s comments of the U.S. President Donald Trump, who again criticized the Federal Reserve. If previously the object of Trump’s criticism was the Fed as a whole, now he focused on the head of the regulator Jerome Powell. However, the reason for criticism remained the same: the U.S. president is not happy about the Fed's policy of a gradual rise in interest rates. Trump said that he had expected Powell to keep interest rates low when he nominated him to the position. But Powell disappointed him by raising interest rates. According to Bloomberg, Trump's disapproving comments were announced on Friday at a closed meeting with influential donors of the Republican Party. Later, Trump repeated his criticism of the Fed’s Chair to Reuters.
In the same interview, Trump said he did not expect much to come out of this weeks’ trade negotiations with the delegation of the Chinese Ministry of Commerce in Washington. The U.S. president added that he had “no time frame” for resolving a trade dispute with China. Trump’s pessimistic mood regarding the upcoming negotiations with China’s representatives is expected to transform into the instructions to the U.S. delegation to stick to a tough position and not make concessions. So, the anticipated talks are unlikely to be a positive event for the markets.
Tuesday’s session will not be busy with macroeconomic reports. The most important data will be New Zealand’s statistics on retail sales, set to be released at 22:45 GMT. But the focus of the market participants is on the Fed’s annual conference, which will begin in Jackson Hole, Wyoming, later this week.
II. The market highlights are:
The Reserve Bank of Australia (RBA) published on Tuesday the minutes from its August 7 policy meeting, at which the benchmark cash rate was expectedly left unchanged at a record-low 1.5 percent. The minutes revealed the members of the Reserve Bank Board continued to agree that “the next move in the cash rate would more likely be an increase than a decrease.” However, they noted they did not see a strong case for a near-term adjustment in monetary policy, as progress on unemployment and inflation was likely to be gradual. The minutes confirmed the market views that the RBA is ready to hold a wait-and-see attitude until unemployment falls, wages rise, and inflation returns to the target range of two to three percent. “Forward-looking indicators of labour demand, including vacancy rates, continued to point to above-average growth in employment in the near term,” the RBA’s policymakers said. “It was possible that ongoing above-trend growth in output could see the unemployment rate fall faster than expected and wages growth pick up more strongly as a result,” they added.
III. Market Situation
The currency pair EUR/USD rose moderately, continuing the previous day’s trend, and updating its high of August 10. The pair was supported by the U.S. currency’s widespread weakness, which was a response to the U.S. president Donald Trump's latest criticism of the Fed. Trump said he disagrees with the Fed's decision to increase interest rates and that the regulator should do "what's good for the country." Some of the president’s political advisers fear that if the Fed continues to tighten its monetary policy, the pace of economic growth and job creation may slow down, as the 2020 presidential campaign heats up next year. With an empty economic calendar in the Eurozone and the U.S. ahead, market participants will focus on the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.1628 (high of August 8). Support level - $1.1393 (low of August 20).
The currency pair GBP/USD traded higher, near the high of August 10, due to the broad weakening of the U.S. dollar and the improvement of investor appetite for risk assets. Market participants are also awaiting the meeting of Britain’s Brexit minister Dominic Raab with the EU’s chief negotiator Michel Barnier, set to begin later today. The sides are expected to resolve the remaining withdrawal issues related to the UK leaving the EU and discuss the future relationship during the meeting. Resistance level - $1.2973 (high of August 7). Support level - $1.2662 (low of August 15).
The currency pair AUD/USD demonstrated moderate growth as the U.S. currency weakened. Investors also digested the minutes from the Reserve Bank of Australia’s (RBA) latest policy meeting, at which the benchmark cash rate was expectedly left unchanged at a record-low 1.5 percent. The minutes revealed the members of the Reserve Bank Board continued to agree that “the next move in the cash rate would more likely be an increase than a decrease.” However, they noted they did not see a strong case for a near-term adjustment in monetary policy, as progress on unemployment and inflation was likely to be gradual. The minutes confirmed the market views that the RBA is ready to hold a wait-and-see attitude until unemployment falls, wages rise, and inflation returns to the target range of two to three percent. “Forward-looking indicators of labour demand, including vacancy rates, continued to point to above-average growth in employment in the near term,” the RBA’s policymakers said. “It was possible that ongoing above-trend growth in output could see the unemployment rate fall faster than expected and wages growth pick up more strongly as a result,” they added. Resistance level - AUD0.7453 (high of August 9). Support level - AUD0.7202 (low of August 15).
The currency pair USD/JPY rose moderately on the back of partial profit-taking after yesterday's drop. The further increase was limited by the weakness in the US dollar. In addition, investors are preparing for the publication of the inflation report in Japan for July, which may show a faster inflation growth compared with June. Experts expect that the closely watched consumer price index (CPI), which excludes volatile fresh food prices, rose by 0.9 percent y-o-y after gaining 0.8 percent y-o-y in June. Even if the inflation in Japan accelerates in July, the Bank of Japan's (BoJ) monetary policy is likely to remain unchanged for some time. Resistance level - Y111.43 (high of August 15). Support level - Y109.68 (low of June 27).
U.S. stock indexes closed moderately higher on Monday amid optimism over renewed U.S.-China trade talks and Trump’s criticism of the Fed’s policy. The Wall Street Journal (WSJ) reported the Chinese and U.S. officials are mapping out talks to try to end their trade standoff ahead of planned meetings between President Trump and Chinese leader Xi Jinping at multilateral summits in November. In an interview with Reuters, the U.S. president said he disagrees with the Fed's decision to increase interest rates and that the regulator should do "what's good for the country." He also repeated his accusations that China artificially lowers its currency and Europe manipulates the euro.
Asian stock indexes closed mostly higher on Tuesday, underpinned by hopes the resumed talks between the U.S. and China could resolve their trade dispute. The new round of the U.S.-China negotiation is set to kick off on Wednesday. In addition, investors also digested comments from the U.S. president Donald Trump, who said he was disappointed with Fed rate increases and accused China and the European Union of manipulating their currencies.
European stock indexes are expected to trade higher in the morning trading session.
Yields of US 10-year notes hold at 2.83% (+1 basis points)
Yields of German 10-year bonds hold at 0.31% (0 basis points)
Yields of UK 10-year gilts hold at 1.23% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in October settled at $65.61 (+0.29%). The crude oil prices rose moderately, due to the strengthening of the U.S. dollar and concerns that the U.S. sanctions against Iran, expected in November, could cause supply shortages. Market participants are now preparing for the publication of the U.S data on oil inventories. Today, the American Petroleum Institute (API) will publish its weekly data on the U.S. crude oil stockpiles. Tomorrow, the focus will be on official report on crude inventories in the U.S. from the U.S. Energy Information Administration (EIA).
Gold traded at $1,195.40 (+0.40%). Gold prices rose, reacting to the negative dynamics of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, decreased by 0.43 percent to 95.49. Since gold prices are tied to the dollar, a weaker dollar makes the precious metal cheaper for holders of foreign currencies.
IV. The most important scheduled events (time GMT 0)
CBI industrial order books balance
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