Market Brief
Asian regional equity markets stabilized on Friday after a week that strained investors’ nerves. Even though most regional indices were wearing green on the last trading day of the week, a few continued to slide lower. Overall, the decision from China’s securities regulator to suspend the new “circuit breaker” -- the mechanism that shortened trading sessions on Monday and Thursday -- was welcomed by investors and helped Chinese and Asian emerging markets turn green. Officials declared that the system, aimed at stabilising the stock market, didn’t work as expected and even intensified market losses. Mainland Chinese stocks bounced back overnight with the Shanghai Composite rising 1.97% and the Shenzhen Composite moving higher by 1.05%. In Hong Kong the Hang Seng went up 1.02%. On the other hand, Japanese equities paired losses as the Nikkei fell 0.39%, while both Kiwi and Aussie equity markets paired losses, down 0.39% and 0.89% respectively.
Commodity prices recovered in Tokyo with futures on wheat, corn and soybeans up 0.75%, 0.42% and 0.46% respectively. After a tough week, crude oil prices bounced back with the West Texas Intermediate up 2.28% or $0.75 to $34.03 a barrel, while its North Sea counterpart, the Brent crude, jumped from 2.60% to $34.63. Natural gas edged up 0.63%. Metals were trading broadly lower and erased early week’s gains as risk-off sentiment faded away. Gold fell 0.90%, silver 1.91% and platinum edged down 0.12%. Palladium rose 1.45%.
In spite of a collapse in iron ore prices, which are down more than 2% since yesterday, the Australian dollar held ground and even extended gains on weaker risk-off sentiment and a recovery in oil prices. The Aussie rose 0.54% in Sydney to move above the $0.70 mark and reached $0.7047. AUD/USD broke two key supports this week and is now trading close to the bottom of its 5-month range. The $0.6896 level (low from September 7th) is the next key support. A break of this level would open the road towards the next support area standing at around $0.6250. The other commodity currencies were also recovering with the loonie up 0.12 and the Kiwi up 0.45%.
EUR/USD erased previous gains and returned below the 1.09 level, currently trading at around 1.0880. The release of the NFP report due this afternoon should gather little attention from the market, just like the ADP figures earlier this week. However, we believe that the market’s reaction will be asymmetrical as a weaker result could push the pair higher while a better-than-expected reading would provide little boost to the greenback.
GBP/USD fell as much as 2.10% since the beginning of 2016 and tested the key support lying at 1.4566 (low from April 13th 2015). Nevertheless the cable bounced back to $1.4645 before stabilizing around $1.4615. The next key support can be found at 1.4231 (low from May 2010). We believe the pound sterling will remain under pressure as long as the threat of Brexit lingers. Moreover, subdued inflationary pressures should delay any tightening by the BoE (market consensus 1Q 2017).
Today traders will be watching CPI and unemployment rate from Switzerland; industrial production from Sweden and Norway; trade balance from the UK; inflation report from Brazil; building permits and unemployment rate from Canada; unemployment rate, participation rate, Nonfarm Payrolls and wholesale inventories from the US.
Currency Tech
EUR/USD
R 2: 1.1387
R 1: 1.1095
CURRENT: 1.0878
S 1: 1.0458
S 2: 1.0000
GBP/USD
R 2: 1.5529
R 1: 1.5242
CURRENT: 1.4625
S 1: 1.4321
S 2: 1.3657
USD/JPY
R 2: 125.86
R 1: 123.76
CURRENT: 118.37
S 1: 115.57
S 2: 105.23
USD/CHF
R 2: 1.0676
R 1: 1.0328
CURRENT: 1.9987
S 1: 0.9786
S 2: 0.9476