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Notes/Observations

• European Indices mostly higher following mixed session in Asia; FTSE lags on stronger Sterling
• Norway raises rates, Swiss rates left on hold
• UK Retail sales beat forecasts as consumer spending remains buoyant despite Brexit uncertainty
• Various commentary regarding Brexit from the second day of the Salzburg Summit, PM tells EU leaders extending Brexit talks is not an option

Asia:

• China reportedly plans a 'broad' import tax cut as soon as October for the majority of its trading partners
• China Premier Li reiterates multilateral trade regime should be upheld; reiterates China to further open up markets
• Japan PM Abe wins ruling LDP leadership election (as expected)
• New Zealand Q2 GDP grows at fastest pace in 2 years, Kiwi rallies

Europe:

• Swiss National Bank leaves rates unchanged; Reiterates the Swiss franc is highly valued, and the situation on the FX market is still fragile; upgrades 2018 GDP forecast; trims inflation outlook for 2019 and 2020
• Norway raised rates as expected noting that policy rate will most likely be increased further in Q1 2019; Central bank cuts policy rate forecasts
• UK August Retail Sales showed a positive increase on the month ahead of expectations with warm weather a factor. Sterling approaches yesterday's highs on the positive data.
• Italy reportedly studies selective VAT hike, the VAT hike would offset lower income tax
• Italy PM Conte will propose a credible, courageous budget; doesn't plan budget exceeding 2%
• UK PM May reportedly told EU leaders that extending Brexit talks is not an option; there will not be a second referendum; Reiterates Northern Ireland cannot have a separate customs regime

Americas

• Trump to name economist Nellie Laing to Fed board

Economic Data:

• (CH) SWISS NATIONAL BANK (SNB) LEAVES SIGHT DEPOSIT INTEREST RATE UNCHANGED AT -0.75%; AS EXPECTED
• (NO) NORWAY CENTRAL BANK (NORGES) RAISES DEPOSIT RATES 25BP TO 0.75%, AS EXPECTED
• (UK) AUG RETAIL SALES (EX AUTO FUEL) M/M: 0.3% V -0.2%E; Y/Y: 3.5% V 2.4%E
• (DK) Denmark Sept Consumer Confidence: 6.9 v 7.8 prior
• (CH) Swiss Aug Trade Balance (CHF): 2.1B v 2.3B prior
• (NL) Netherlands Sep Consumer Confidence: 19 v 21 prior
• (NL) Netherlands Aug Unemployment Rate: 3.9% v 3.8%e

Fixed Income Issuance:

• (ES) SPAIN DEBT AGENCY (TESORO) SELLS TOTAL €4.49B VS. €4.0-5.0B INDICATED RANGE IN 2021, 2022, 2025 AND 2028 BONDS
• (FR) FRANCE DEBT AGENCY (AFT) SELLS TOTAL €7.5B VS. €6.5-7.5B INDICATED RANGE IN 2021, 2024, 2026 BONDS

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx50 +0.3% at 3,379, FTSE +0.1% at 7,334, DAX +0.2% at 12,248, CAC-40 +0.4% at 5,415, IBEX-35 +0.4% at 9,526, FTSE MIB +0.5% at 21,396, SMI +0.4% at 8,974, S&P 500 Futures flat]
• Market Focal Points/Key Themes: European indices open broadly higher and continued the trend as the session progressed; comments out of informal EU leaders summit in focus; financial sector with materials among better performers, with the latter supported by Rio Tinto's share buyback program; consumer discretionary underperforming, with Tom Tailor down significantly after updating outlook; upcoming earnings expected in the US session include Darden Restaurants and Micron Technology

Equities

• Consumer discretionary: British American Tobacco BATS.UK -0.5% (CEO steps down), Diageo DGE.UK -0.2% (trading update), Intertrust INTER.UK +1.3% (outlook), OVS OVS.IT +3.0% (results), SafeStyle SFE.UK +3.2% (results), Tom Tailor TTI.DE -13.3% (outlook)
• Financials: Danske Bank DANSKE.DK +2.6% (potential fine), IG Group IGG.UK -9.0% (results)
• Healthcare: GrandVision GVNV.NL +4.4% (outlook)
• Industrials: Kier Group KIE.UK +3.5% (results)
• Materials: Rio Tinto RIO.UK +2.0% (buyback)
• Technology: Rocket Internet RKET.DE +2.5% (results, buyback)
• Telecom: Inmarsat ISAT.UK +2.9% (partnership with Panasonic)

Speakers

• (CZ) Czech PM Babis: a second Brexit vote would be better, EU and UK have to find some compromise on Brexit
• (IT) Italy Deputy PM Di Maio (Five Star party leader):government is considering increasing deficit to fund a credible plan for growth
• (UK) Austria Chancellor Kurz: Brexit discussion was more positive inside the room
• (NO) Norway Central Bank (Norges) Gov Olsen: There's a small probability of December hike still; Rate will most probably rise in Q1 (in-line with statement) - post rate decision press conference
• (CN) China Commerce Ministry (MOFCOM): hopes U.S. to show goodwill to solve trade dispute; studying measures to mitigate tariff impacts
• (UK) Dutch PM Rutte: Expects no decision today on Brexit, but good to discuss what could be good landing ground for agreement in October and November
• (SE) Sweden Central Bank (Riksbank) Dep Gov Skingsley: 2% inflation target is a suitable level
• (UK) Malta PM Muscat: EU leaders would welcome second Brexit referendum
• (UK) Belgian PM Michel: Must continue to be creative on Brexit; Proposals are not enough to have deal on Brexit
• (UK) Govt official Lidington (de facto Dep PM): 85-95% for getting Brexit deal; has put on table proposals on customs that believe will work
• (EU) ECB's Villeroy (France): bitcoin probably a bubble; raises money laundering problems
• (UK) MP Liam Fox reportedly planning to use controversial “Henry the 8th” powers to scrap European food standards in order to pave the way for a trade deal with the US after Brexit
• (IR) Iran Oil Min Zanganeh: warns it will veto OPEC decisions that harm its interests; OPEC+ can't decide oil output quotas at Algiers meeting

Currencies

• The Swiss Franc weakened following the SNB rate decision after the SNB said the Franc remains highly valued and has appreciated noticeably. The EURCHF pair traded above 1.13 following the announcement.
• EURNOK initially fell following the Norway Central Bank rate hike but quickly reversed with the NOK weakening considerably after the Bank cut its policy rate forecasts, with the pair trading above 9.59.
• GBPUSD rises sharply on Brexit talk and stronger than expected UK retail sales as Cable breached 1.32 once again, testing yesterday's highs.

Fixed Income

• Bund Futures trades at 158.73 up 4 ticks as German 10-year Bund yield falls back below 0.50% . Resistance moves to 161.82 then 163. A downside break of 158.25 sees 157.69 initially.
• Gilt futures trades at 120.73 up 2 ticks following the move in Treasuries. Continued support at 120.50, with a continued move higher targeting 123.93 then 124.00.
• Thursday 's liquidity report showed Wednesday's excess liquidity fell from €1.867T to €1.862T. Use of the marginal lending facility fell from €119M to €30M.
• Corporate issuance saw 5high grade issuers raise $3.4B in the primary market

Looking Ahead

• 06:00 (IL) Israel Aug Unemployment Rate: No est v 4.2% prior
• 08:00 (PL) Poland Central Bank (NBP) Sept Minutes
• 08:05 (UK) Baltic Dry Bulk Index
• 08:30 (US) Initial Jobless Claims: No est v K prior; Continuing Claims: No est v M prior
• 08:30 (US) Weekly USDA Net Export Sales
• 08:30 (US) Sept Philadelphia Fed Business Outlook: No est v 11.9 prior
• 08:30 (CA) Canada Aug ADP Payrolls Report: No est v 11.6K prior
• 09:00 (MX) Mexico Q2 Aggregate Supply and Demand: No est v 2.4% prior
• 09:00 (BE) Belgium Sept Consumer Confidence: No est v -3 prior
• 09:00 (RU) Russia Gold and Forex Reserve w/e Sept 14th: No est v $ prior
• 10:00 (US) Aug Existing Home Sales: No est v 5.34M prior
• 10:00 (US) Aug Leading Index: No est v 0.6% prior
• 10:00 (EU) Euro Zone Sept Advance Consumer Confidence: No est v -1.9 prior
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 12:00 (US) Fed Reports Q2 Financial Accounts: Household Change in Net Worth: No est v $1.028T prior
• 15:00 (AR) Argentina Q2 Unemployment Rate: No est v 9.1% prior

Lots of inflexion but a lack of direction

A day of inflexion in currency markets but we ended up with little direction.

Most of today was spent trying to find a reason, but with the USD looking battle worn and genuinely fatigued, dollar bulls are talking to the sidelines. While the US treasury yields approached the highest level for the year, the USD remains meek. But if the dollar cannot get a bump from higher US yields, where do we go??

Highlights:

NZD

New Zealand’s Q2 GDP surprised the street and printed 1% (0.8% expected). NZDUSD reacted from 0.6600 to 0.6650. Again proving you can never keep a good ” kiwi” down. But, another gut check for dollar bulls, who are falling by the wayside one by one.

EUR

As London picks up the pace, the Euro finds itself back at that familiar 1.1700 teeter-totter level. Indeed, battle lines are getting drawn ahead of next week Fed meeting.

Asia FX

Everyone is dipping into the magic book of tricks to tame the effect of US tariffs and the strong USD

INR

USDINR NDF fell abruptly this afternoon on wire reports suggesting RBI is studying the efficacy of taking oil companies USD demand away from the market. The state-run oil companies were now sourcing their entire dollar demand in markets, and the RBI is now considering opening a swap window to alleviate the pressure, something they have baulked at in the past.

Indeed, desperate times lead to drastic measures.

China

Mainland authorities are reportedly cutting import tax from most of its trading partners as soon as next month. Of course, the breadth and the actual tax % will be the key. Current estimates are the tax cut will be applied to around 1,500 consumer products.

Oil Markets

WTI

Oil prices continued to firm throughout the day as the drop in US inventories coupled with the rise in exports suggests demand is robust.

Traders are banking on $80 Brent not being a near-term cap and have turned their targets higher. All supported by Saudi comments earlier in the week suggest that they are tolerant to prices moving above that level

Iran sanction continues to provide the underbelly of support for oil prices.

The ducks are aligning for a push higher suggesting the ” “The bulls are back in charge,”

EUR/USD has posted slight gains in the Thursday session. Currently, the pair is trading at 1.1694, up 0.28% on the day. On the release front, the eurozone releases consumer confidence, which is expected to post a decline of -2 for a second straight month. In the U.S, the Philly Fed Manufacturing Index is expected to jump to 17.5 points, while unemployment claims are forecast to climb to 210 thousand.

U.S President Trump has fired another tariff salvo, and the Chinese have vowed to retaliate. This has become an all-too familiar script, which was repeated on Monday, as the U.S announced 10% tariffs on some $200 billion worth of Chinese goods. Only this time, investors didn’t panic and the euro and other currencies have held their own against the greenback. Why have the currency markets not reacted so calmly? Investors appeared to have been ready for a move by Trump, and may be sighing in relief that the tariff was set at 10% rather than at 25%. One senior economist summed up Trump’s most recent salvo as “bad but manageable”. However, if the Chinese do indeed retaliate and the U.S takes further measures, this would likely shake up the currency markets and boost the U.S dollar.

U.S construction numbers were a mixed bag on Wednesday. Building Permits disappointed, dropping from 1.31 million to 1.23 million. This was well short of the estimate of 1.31 million and marked the weakest gain since September. There was better news from Housing Starts, which jumped from 1.17 million to 1.28 million, above the estimate of 1.24 million. This was a three-month high. On Thursday, we’ll get a look at Existing Home Sales, which has been on a nasty downtrend, losing ground for four straight months. The indicator is expected to improve slightly, to 5.36 million.

The US dollar continues to trade above the 112.00 level against the Japanese currency on Thursday, as the US ten-year Treasury yield trades at levels not seen since May this year. The USDJPY pair may continue to rise as price trades above the neckline of a bullish head and shoulders pattern, while the MACD indicator on the daily time frame trend higher.

The USDJPY pair is strongly bullish while trading above the 112.00 level, key resistance is found at the 112.80 and 113.20 levels.

If the USDJPY pair starts to trade below the 112.00 level, key support is found at the 111.65 and 111.10 levels.

The British pound has moved back towards 1.3200 level against the US dollar after retail sales data from the United Kingdom economy came in stronger than expected. The GBPUSD pair now has to keep price above the 1.3200 level or face a further technical rejection lower. The 1.3213 level is a key bullish breakout level while the 1.3100 level is major technical support.

The GBPUSD pair is only bullish while trading above the 1.3140 level, key resistance is found at the 1.3213 and 1.3255 levels.

If the GBPUSD pair moves below the 1.3170 level, key support is found at the 1.3040 and 1.3100 levels.

The Aussie dollar consolidates after three days of strong rally but holds bullish tone for further extension of recovery from 0.7085 (11 Sep low).

Bulls probed again above pivotal 0.7268 barrier (Fibo 61.8% of 0.7381/0.7085 bear-leg) on Thursday, but so far without clear break.

Strong bullish momentum supports the action, but bulls may show further hesitation at 0.7268 as slow stochastic is strongly overbought on daily chart.

Broken 30SMA offers initial support at 0.7241, with deeper dips expected to hold above 20SMA (0.7215) to keep bulls in play.

Eventual firm break above 0.7268 pivot would open way for extension towards falling 55SMA (0.7315).

Res: 0.7275, 0.7315, 0.7362, 0.7381
Sup: 0.7241, 0.7215, 0.7198, 0.7177

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.16627
Open: 1.16720
% chg. over the last day: +0.06
Day's range: 1.16836 – 1.16980
52 wk range: 1.0571 – 1.2557

There is a variety of trends on the EUR/USD currency pair. Trade conflict between the US and China is still in the focus of attention. At the moment, the key support and resistance levels are 1.16750 and 1.17100, respectively. We recommend opening positions from these marks.

The news feed on 2018.09.20:

Philadelphia Fed manufacturing index at 15:30 (GMT+3:00);

Existing home sales in the US at 17:00 (GMT+3:00)

The price has fixed above 50 MA and 200 MA, which signals the power of buyers.

The MACD histogram has moved to the positive zone, which indicates the EUR/USD quotes growth.

Stochastic Oscillator is in the neutral zone, the %K line is above the %D line, which signals to buy EUR/USD.

Trading recommendations

Support levels: 1.16750, 1.16400, 1.16000
Resistance levels: 1.17100, 1.17400

If the price fixes below 1.16750, the EUR/USD quotes are expected to decline. The movement is tending to 1.16400-1.16000.

An alternative may be the further growth of the EUR/USD currency pair to the level of 1.17400-1.17600.

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.31469
Open: 1.31339
% chg. over the last day: -0.07
Day's range: 1.31513 – 1.31783
52 wk range: 1.2361 – 1.4345

Yesterday, there was a variety of trends on the GBP/USD currency pair. At the moment, quotes are growing. Local support and resistance levels are: 1.31450 and 1.31900, respectively. The positions should be opened from these marks. The trading instrument has the potential for further growth.

At 11:30 (GMT+3:00) a report on the volume of retail sales will be published in the UK.

Indicators point to the power of buyers: the price has fixed above 50 MA and 200 MA.

The MACD histogram moved into the positive zone, which indicates the GBP/USD quotes growth.

Stochastic Oscillator is in the neutral zone, the %K line is above the %D line, which signals to buy GBP/USD.

Trading recommendations

Support levels: 1.31450, 1.31000, 1.30500
Resistance levels: 1.31900, 1.32300

If the price fixes above the resistance level of 1.31900, the GBP/USD quotes are expected to rise. The movement is tending to 1.32300-1.32500.

An alternative may be the decrease of the GBP/USD currency pair to 1.31000-1.30700.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.29783
Open: 1.29160
% chg. over the last day: -0.42
Day's range: 1.29075 – 1.29256
52 wk range: 1.2059 – 1.3795

The bearish sentiment is observed on the USD/CAD currency pair. During yesterday's trading, quotes decreased by more than 70 points. At the moment, the key support and resistance levels are 1.29000 and 1.29300, respectively. We recommend opening positions from these marks. In the near future, technical correction is not ruled out.

The news feed on the economy of Canada is calm.

Indicators point to the power of sellers: the price is being traded below 50 MA and 200 MA.

The MACD histogram is in the negative zone, but above the signal line, which gives a weak signal to sell USD/CAD.

Stochastic Oscillator is located in the neutral zone, the %K line has crossed the %D line. There are no accurate signals.

Trading recommendations

Support levels: 1.29000, 1.28700
Resistance levels: 1.29300, 1.29800, 1.30200

If the price fixes below the round level of 1.29000, the USD/CAD quotes are expected to decline. The movement is tending to 1.28700-1.28500.

Alternative option. If the price fixes above 1.29300, it is necessary to consider purchases of USD/CAD. The target movement level is 1.29800-1.30200.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 112.354
Open: 112.254
% chg. over the last day: -0.02
Day's range: 112.183 – 112.258
52 wk range: 104.56 – 114.74

The technical pattern on the USD/JPY currency pair is ambiguous. Quotes are in a sideways trend. Investors expect additional drivers. At the moment, the local support and resistance levels are: 112.100 and 112.300, respectively. The positions should be opened from these marks. We recommend paying attention to the 10-year US government bonds yield.

The news feed on the economy of Japan is calm.

Indicators do not send accurate signals: the price is being traded between 50 MA and 200 MA.

The MACD histogram is located in the negative zone, below the signal line, which gives a strong signal to sell USD/JPY.

Stochastic Oscillator is located in the neutral zone, the %K line is above the %D line, which gives a signal to buy USD/JPY.

Trading recommendations

Support levels: 112.100, 111.800, 111.500
Resistance levels: 112.300, 112.550

If the price fixes above the resistance level of 112.300, the USD/JPY quotes are expected to rise. The movement is tending to 112.550-112.800.

Alternative option. If the price fixes below the support of 112.100, we recommend looking for entry points to the market to open short positions. The target movement level is 111.800-111.500.

As the informal EU summit in Austria continues today, there are more comments regarding the Brexit deal that UK Prime Minister Theresa May is selling. There are still notable different in the issue of Irish border. EU chief negotiator Michel Barnier will brief the leaders of the 27 nations today and a unified position should be reached afterwards. For now, comments from EU officials suggested that they're working towards deal, rather than away from it.

Irish Prime Minister Leo Varadkar met with May this morning. He said afterwards that "Ireland is a country that obviously wants to avoid a no deal scenario, we want to avoid a no deal Brexit, (but) we are preparing for that. Also, "we need to double our efforts over the next couple of weeks to make sure that we have a deal."

Varadkar added that a "political border" does exist between Ireland and Northern Ireland. And "what we want to avoid is any new barriers to the movement of goods, any new barriers to trade, any new barriers to the movement of people".

French President Emmanuel Macron said "we have very clear principles regarding the integrity of the single market and regarding precisely the Irish border. It was precise in March and it was endorsed by the 27 members. So, we have to find collectively and we need a UK proposal precisely preserving this backstop in the framework of a withdrawal agreement."

Belgian Prime Minister Charles Michel said "it is necessary to make all the steps because the proposals are not enough in order to have an agreement."

Luxembourg Prime Minister Xavier Bettel said "I fully believe that we will be able to find an agreement" and "It's a compromise from both sides, it's not on one side."

Austrian Chancellor Sebastian Kurz said "both sides are aware that they will only reach a solution if they move towards each other."

Yesterday, the US dollar weakened slightly against the basket of major currencies. The US dollar index (#DX) closed in the negative zone (-0.12%). Trade conflict between the US and China continues. As it became known, from September 24, Chinese duties on American goods $60 billion worth will come into effect in response to the US actions. Also, China intends to file a complaint to WTO against the US.

The British pound weakened against the US currency after it became known that Prime Minister of the United Kingdom Theresa May intended to reject the deal with the EU regarding the Irish border. The EU suggested conducting more checks on the border with Northern Ireland after Brexit. However, Theresa May insists that the laws should be the same for the entire territory of the UK.

Yesterday, a number of economic data was also published in the United Kingdom and the United States. Thus, the consumer price index in the UK rose to 2.7% in August and was better than the forecasted value of 2.4%. The number of building permits issued in the US dropped to 1.229M in August, while investors forecasted 1.310M. Today, a report on GDP of New Zealand has been published, which counted to 1.0% and was higher than the forecasted value of 0.8%. We expect important statistics from the UK and the US.

The 'black gold' prices show positive dynamics. At the moment, futures for the WTI crude oil are testing a mark of $71.25 per barrel.

Market Indicators

Yesterday, there was a variety of trends in the US stock market: #SPY (+0.11%), #DIA (+0.57%), #QQQ (-0.08%).

At the moment, the 10-year US government bonds yield is at the level of 3.06-3.07%.

The news feed on 20.09.2018:

The volume of retail sales in the UK at 11:30 (GMT+3:00);

Philadelphia Fed manufacturing index at 15:30 (GMT+3:00);

Existing home sales in the US at 17:00 (GMT+3:00)

Risk of reversal is growing after bulls repeatedly failed to close above cracked Fibo barrier at 112.37 (76.4% of 113.17/109.77 descend) with Wednesday’s trading ending in red and extended dips on Thursday penetrating rising thick hourly cloud which underpins near term action.

Overbought daily slow stochastic and south-turning momentum add to negative signals, along with twist of daily cloud early next week, which could also attract.

Further bearish signal could be expected on break below 111.95 (Fibo 23.6% of 110.38/112.44 upleg), with confirmation of reversal seen on extension and close below pivots at 111.76/67 (rising 10SMA / Fibo 38.2% of 110.38/112.44).

To neutralize bearish threats, strong rally and eventual close above 112.37 pivot is needed.

Res: 112.37, 112.44, 112.62, 112.92
Sup: 112.06, 111.95, 111.76, 111.67