STERLING JUMPS SHARPLY AS THERESA MAY ADDRESSES PARLIAMENT
Global stocks fell today as traders continued to worry about trade. In Asia, the Chinese Shanghai Index, Hang Seng, and Nikkei dropped by 1.70%, 2.60%, and 0.45% respectively. In Europe, the Stoxx, DAX, and CAC fell by 0.65%, 0.56%, and 0.83% while the S&P and Nasdaq futures fell by 0.25% and 0.30% respectively. US-Canadian talks will resume today as the two countries try to iron out key differences. Justin Trudeau said that his country will likely walk out of NAFTA if the issue of cultural sectors and conflict resolution are not agreed on. The hard-line positions by Trudeau and Trump will likely hinder any deal from happening. Traders are also waiting for a new set of US tariffs on Chinese goods, which will be announced this week. In addition, stocks fell as the Emerging Markets continued to disappoint. The South African rand fell after the country entered a recession while the Indonesian rupiah fell to a 20-year low.
The Australian dollar fell today to the lowest level since January last year. This is despite the better-than-expected GDP growth for the second quarter. The final revision of the data showed that the economy grew by 3.4%, which was better than the 2.8% analysts were expecting. This growth was attributed to the increased government spending. This data came a day after the RBA left interest rates unchanged and signalled that the expansionary policies would remain for the foreseeable future.
The sterling rose sharply after Theresa May said that the UK was working towards reaching a Brexit deal in October. In the past week, there have been disagreements between the UK and the EU on the content of Theresa May’s ‘divorce’ proposals. The EU has vehemently said it will reject some of the proposals. This has led the chances of a no-Brexit deal to increase. At the same time, Theresa May addressed parliament on the Russian Novichok poisoning findings. Today, a survey of purchasing supply managers in the services sector showed increased activity. Data from Markit showed that the PMI for the sector was 54.3, which was higher than the expected 53.9. This was the fastest growth since July.
The Canadian dollar was little moved against the US dollar ahead of the BOC interest rate decision. The bank is not expected to raise rates today but it will likely provide forward guidance on whether it will hike in October. This will be the second rate hike this year. The decision will come shortly after the country released trade data. Exports in August rose to C$51.27 billion while imports rose to C$51.38 billion. The trade deficit was C$0.11 billion, which was better than the expected C$0.88 billion. The labour productivity rate of 0.7% was better than the expected 0.3%.
The EUR/USD pair was little moved today. It traded between a narrow range of 1.1542 and 1.1597. It is now trading at 1.1586, which is along the 61.8% Fibonacci Retracement level. It is also along the 50 and 100-day EMA. The Bears power has eased slightly and is trading slightly below the zero level. If the pair continues to go down, it will likely test the 38.2% Fibonacci level of 1.1490.
The USD/CAD pair was little moved ahead of the interest rate decision by the Bank of Canada. It reached an intraday high of 1.3207. This was an important resistance and a double top level for the pair. It is also the 61.8% Fibonacci Retracement level. A hawkish BOC will likely lead the pair lower to the important support of 1.3080.
The GBP/USD pair jumped sharply to reach an intraday high of 1.2960. This was the highest level since Friday last week. It effectively ended the sharp decline that started on Thursday last week. The current level is above the 61.8% Fibonacci Retracement level. More upward movements will likely take the pair above the 1.3000 level.