In two trading days it lost more than 1,300 points and fell more than 5%.
The last time there was a decline of this size was in February and on the day the UK decided to leave the European Union. Both times the decreases were short-lived and with stocks picking up again on Friday, many investors wonder whether buyers will return just as quickly this time. We will discuss this in more detail in the section of our notes, but the stock sale last week pushed the greenback down against most of the major currencies. The biggest beneficiary was the, which is not a surprise because the yen is a safe-haven currency. However, the gains in the dollar are unusual because risk aversion is usually negative for these currencies. There are a number of reasons why they did better, but the most important is that investors saw the recent decline in shares as a US dollar story and the weakness of the greenback was exacerbated by softer data. For the future, the big question is whether the meltdown in stocks will change the currency exchange rate because the US dollar has had a great run this year and is vulnerable to a correction.
5-day USD
US dollar
Data overview
Final demand expected 0.2% versus 0.2%
0.2% versus 0.2% expected
PPI Ex Food Energy and Trade expected 0.4% vs 0.2%
0.1% vs 0.2% expected
0.1% vs 0.2% expected
University of Michigan 114.4 vs. 115.2 expected
University of Michigan 89.1 versus 90.5 expected
University of Michigan 99 against 100.5 expected
Data example
Empire and – Potential for upward surprise, increase in Redbook retail sales and steady wage growth. Gas prices also remained stable
and Production – will have to see how Empire State does it
and – Potential for negative surprises in view of the rising interest rates that should temper the housing business
FOMC – Fed minutes that are likely to be aggressive
Philadelphia Fed – Will have to see how Empire State flies
– Potential for surprise at the bottom given a stronger dollar
Key Levels
Support 111.00
Resistance 114.00
It falls back because investors look at the fall in stocks as an American dollar story. The Federal Reserve raised interest rates by 75 basis points this year and is expected to resume in December. For next year, the market starts to tighten because even the devil’s devil (Fed President) thinks the central bank should take 50 basis points above neutral. Nobody, including the Fed, really knows what the neutral rate is, but earlier this month Fed Chair said that we have a long way from neutral & # 39; are, which suggests that it is at least 3%, so 50bp above neutral would mean 3.5%. Although it will take some time before this percentage is reached, investors fear that these rate hikes will cause an economic crisis. We know that rising rates are a big problem for the housing market, but trade wars combined with higher interest rates make companies and investors more conservative, which could lead to permanent weakness in US equities. The past two years have been great for US stocks and the recent decline gives investors a good reason to ease their positions. For all these reasons, buyers may not be able to return as quickly because US interest rates were 75 basis points lower in February and Brexit was considered the UK problem.
However, the meltdown in equities should not change the exchange rate for currencies because a contraction of the US economy is bad for all countries. If the sell-off is rooted in equities in anticipation of higher US interest rates, rising yields in the US should keep the dollar attractive. The Fed should still be the most aggressive central bank next year and the signs of weakness in the US economy have been minimal for the time being. Inflation and consumer confidence surprised the downward pressure of last week, but the price pressure is strong according to the Fed. The real test for the dollar is coming this week when retail sales and FOMC minutes are scheduled for release. If consumer spending is strong, the dollar should rise again, as investors are reminded of the outperformance in the US economy. The FOMC minutes must also be ragged. If the slide is extended, there is support between 111.80 and 111.25.
Euro
Data overview
GE expected -0.3% versus 0.3%
GE 17.2b vs 16.2b expected
GE Current Account Balance 15.3b vs 16.2b expected
GE expected 0.4% vs 0.4%
EZ 1.0% versus 0.4% expected
Data example
EZ and GE Survey – Stronger GE trade compensated by weaker FR trade. The prospects for investor confidence are unclear
EZ – Revisions are difficult to predict, but changes can be market-changing
Key Levels
Support 1.1400
Resistance 1.1700
Like many other major currencies, the euro found a low point last week, but it is still too early to announce the victory for the bulls. The rally was modest, it was not supported by data and the 20- and 100-day simple moving averages were rejected. While the German grew and declined while industrial production shrank. We are starting to see some softness in German data and that could have a negative effect on this week’s investor report (ZEW). The only thing the euro is about is hawkish comment from ECB officials. A number of them, including Mario, have talked about the upside risks to inflation. Despite the decline last week, oil prices have been strong and, more importantly, the weaker euro is pushing up the price pressure. This message should not be ignored, because the longer the euro remains weak, the louder these comments will be. There is also a very good chance that these hawkish views on inflation will be strengthened in this month. For the trend of the euro to become bullish, it must close above 1.1630.
British pound
Data overview
Like for Like (YoY) -0.2% versus 0.1% expected
-1.274b vs -1.2b expected
Visible trade balance -11.195b vs -10.850b expected
-4.219b vs -3.1b expected
0.2% vs 0.1% expected
-0.2% versus 0.1% expected
0.0% vs 0.1% expected
3M / 3M Change 0.7% versus 0.6% expected
Data example
– Potential for surprise, given a sharp increase in services and construction work. Production jobs are also increasing
– Potential for surprise, given sharp price increases in the services, construction and industry sectors
– Will have to see how wage growth is doing, but BRC reported a decline in spending
Key Levels
Support 1.2900
Resistance 1.3100
The primary focus for Brexit and data is only a distraction. The softer report last week had little impact on the currency and GBP even ignored the movements in stocks. Instead, it began at the beginning of the week after the EU head Brexit negotiator said that they could close a deal next week and eventually end up reporting that the prime minister would not agree to be trapped in a customs union. The clock is ticking and a deal is coming closer, but after being burnt out by false hope, investors ignore the conflicting headlines and wait for an official confirmation. When a deal is announced, GBP rises, but until then, investors are skeptical. Data on employment, inflation and retail sales are planned for this week and although all of these are big reports, the progress of Brexit or setbacks will still be the main driver for GBP flows.
AUD, NZD, CAD
Data overview
Australia
Westpac 1.0% versus -3.0% Prior
AU consumer 4.0% versus 4.0% prior
New Zealand
Canada
188.7k vs 210k expected
0.4% vs 0.5% expected
Index 0.0% versus 0.1% expected
Data example
Australia
RBA Oct. – RBA maintains a neutral view
AU – Potential for negative surprises for weaker employment in construction and services. Stronger jobs in production
Chinese and Chinese data are difficult to predict, but can be very market-shattering. The growth has to become weaker as the tensions in the trade grow
New Zealand
– Potential for surprises at the bottom given PMI decline for the industry
– Potential for surprises at the bottom, because food and commodity prices fell in the third quarter
Canada
and – Stronger wholesale outlets for stronger retail sales, but lower prices according to IVEY suggest a weaker CPI
Key Levels
Support AUD .7000 NZD .6400 CAD 1.2800
Resistance AUD .7200 NZD. 6600 CAD 1.3100
In addition to the, dollars and dollars were the best performing currencies last week and their movements had little to do with data. While and confidence grew in Australia, activity on the housing market continued to weaken. The Reserve Bank acknowledged the problem by saying that downside risks have increased due to the increase in protectionism. In New Zealand the production activity slowed down and yet AUD and NZD exchanged well. There are two main reasons for this: firstly, AUD and NZD were the worst performing currencies this year, making the anti-US sentiment particularly positive for these oversold currencies. Second, on Thursday, when AUD and NZD traded significantly higher, the Chinese experienced their strongest day-profit in 5 weeks. Following closely on the US warning against devaluation of currencies and the Chinese government’s promise not to weaken the currency, some investors believe that this could mean a bottom for the yuan. Although we are skeptical of these expectations, if the yuan were too low, it would be exceptionally positive for AUD and NZD. Looking ahead, the Australian and New Zealand dollars will be moving next week with the introduction of Chinese, Australian and New Zealand. The downtrends for both currencies remain intact until they rise above .7230 and above 66 cents.
The Canadian dollar also participates and at the end of the week the report. The loonie was the only currency that did not benefit from the decline in the. Despite a deal with NAFTA and Canadian interest futures with a 94% chance of one this month, it refused to fall. Weaker and contributed to the decline, but lower are the main reason for the weakness of the currency. We still believe that USD / CAD should fall, especially after the recent decline in the greenback, but next week’s economic reports may not help because the data is scheduled for Friday. If the US defeat, it would raise the USD / CAD. Technically, last week’s rally came to a standstill at the 100-day SMA, which would be the most important place for a reversal
