Morning brief for April 12
It seems that investors are still spooked by heightened geopolitical tensions as we see gold, Treasuries and yen looming large to King Kong sizes. The VIX, so-called fear barometer for Wall-Streeters, spiked to the levels last seen in November, after North Korea threatened to use nuclear strike if provoked, while Trump’s fingers aggravated situation tweeting something like North Korea is asking for troubles, the US will solve the problem with or without China, the key political player in Asian region (hopefully, Trump did discuss this issue with Xi Jinping by phone tonight; both parties are determined to resolve the problem through peaceful means).
US Secretary of State Rex Tillerson headed for Moscow striving to convince Mr. Putin to abandon his support for Assad, which has been crucial in keeping the regime in power after six years of Syrian civil war. He will meet with Russia Foreign Minister Sergei Lavrov later today. The meeting with Russian President is not on agenda, as it is still not clear whether Putin will agree to see Tillerson amid the increasing tensions in US-Russian relations.
Political uncertainty in France in the countdown of the first round of presidential election doesn’t work for the euro’s benefit. It sends the single currency to 1.0595 against the greenback as Melenchon’s steady rise in polls makes the outcome of French already topsy-turvy elections unpredictable. At the present moment, the downward pressure is easing; EUR/USD edged up to 1.0605 in Tokyo morning. But only a break above 1.0665 would be a sign of the uptrend restoration.
GBP/USD is still consolidating in broad range of 1.2355 – 1.2615 levels. Theresa May has already triggered the Article 50, but she will probably have to wait until a new French President is elected and a new German government is installed (well, basically, until the fall, as German parliamentary election is scheduled for September). The UK labor force report is in focus today (it is due at 11:30 am MT time). The market participants are looking for unchanged outcome in the unemployment rate and the average weekly earnings. BoE Governor Carney will be speaking before the publication of the labor data. It would be interesting to see whether he gives any comments on the decline in real wages.
USD/CAD has recovered in today’s session having risen to 1.3335 from 1.3310. The Bank of Canada will announce its interest rate decision at 5:00 pm MT time. While a “no change” statement is expected, the improvement in recent data releases and recent surge in oil prices could push the BoC’s official to change their neutral policy guidance to the hawkish one.
Brent oil futures got additional boost overnight after Saudi Arabia told OPEC officials it is determined to support the extension of the output cut agreement for additional six months. The quotes hit $56.35 mark in the Asia today.
Aussie rose a little bit higher against the USD in the past session. China inflation data played a role: there was a small dip in CPI figures, and a modest tick in the PPI data. With a stronger PPI, Chinese senior officials will not be dissuaded from their winding back of accommodation. Although the recent downward momentum is gradually waning, there is still a scope for the additional dip in AUD/USD towards the support at 0.7470.
The technical outlook for NZD/USD is neutral. The prices are ranging within 0.6920 – 06970 levels. On the downside, there is a steady support at 0.6900. A break of the upper border of the range (0.6970) will allow us to count on the continuation of the rally.