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Asia Roundup: Antipodeans at multi-week peaks, gold surges above $1,450 as Fed props up rate cut expectations, Asian shares rally - Friday, July 19th, 2019

Market Roundup

  • Euro eases on report on ECB inflation goal
  • Gold surges above $1,450 on Fed rate cut hopes
  • Oil jumps after U.S. Navy downs Iranian drone

Economic Data Ahead

  • (0400 ET/0800 GMT) Eurozone Current Account n.s.a. May
  • (0400 ET/0800 GMT) Eurozone Current Account s.a. May
  • (0400 ET/0800 GMT) United Kingdom public sector net borrowing June

Key Events Ahead

  • No significant event scheduled

FX Beat

DXY: The dollar index rebounded from a 2-week low as early Friday statements from the New York Fed nullified effects of the President John Williams comments favoring 50 basis points Fed rate cut. The greenback against a basket of currencies traded 0.2 percent up at 96.86, having touched a low of 96.67 on Thursday, its lowest since June 4.

EUR/USD: The euro eased, reversing some of its previous session gains, following a Bloomberg report that the European Central Bank staff is studying a potential change to the bank's inflation target of near 2 percent, which would potentially leave the door open for more ECB stimulus to continue for a longer period. The European currency traded 0.2 percent down at 1.1261, having touched a low of 1.1199 on Wednesday, its lowest since July 9. Investors’ attention will remain on the EZ current account data, ahead of the U.S. Michigan prelim consumer sentiment index and Fed officials' speech. Immediate resistance is located at 1.1304 (50.0% retracement of 1.1412 and 1.1193), a break above targets 1.1329 (61.8% retracement). On the downside, support is seen at 1.1225 (June 20 Low), a break below could drag it below .1193 (July 9 Low).

USD/JPY: The dollar rebounded after falling to a 3-week low in the previous session on New York Federal Reserve President John Williams' comments. On Thursday, Williams argued for pre-emptive measures to avoid having to deal with low inflation and interest rates, cementing the case of a big rate cut at the end of this month. The pair was trading 0.3 percent up at 107.61, having hit a low of 107.21 earlier, its lowest since June 26. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. Michigan prelim consumer sentiment index and Fed officials' speeches. Immediate resistance is located at 108.11 (July 15 High), a break above targets 108.53 (July 1 High). On the downside, support is seen at 107.10 (June 26 Low), a break below could take it lower at 106.78 (June 25 Low).

GBP/USD: Sterling eased, halting a 2-day rally after Boris Johnson, the favourite to succeed Prime Minister Theresa May, said Britain must leave the European Union by Oct. 31 with or without a deal. On Thursday, the British pound gained as British lawmakers supported proposals to make it harder for the next prime minister to force through a no-deal Brexit by suspending Parliament. The major traded 0.1 percent down at 1.2529, having hit a low of 1.2382 on Wednesday, it’s lowest since Jan. 3. Investors’ attention will remain on the development surrounding Brexit and UK public sector net borrowing, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.2591 (July 4 High), a break above could take it near 1.2648 (July 2 High). On the downside, support is seen at 1.2494 (5-DMA), a break below targets 1.2439 (July 9 Low). Against the euro, the pound was trading flat at 89.85 pence, having hit a low of 90.51 on Wednesday, it’s lowest since Jan. 11.

AUD/USD: The Australian dollar slightly eased from a near 3-month low as the greenback rebounded after New York Fed’s statements poured cold water on the President Williams dovish comments. The Aussie trades 0.1 percent down at 0.7068, having hit a high of 0.7082 earlier, it’s highest since Apr. 24. Investors will continue to track overall market sentiment, ahead of U.S. economic releases. Immediate support is seen at 0.7030 (5-DMA), a break below targets 0.6985 (July 3 Low). On the upside, resistance is located at 0.7091 (Mar 12 High), a break above could take it near 0.7147 (Mar 26 High).

NZD/USD: The New Zealand dollar rallied to a 3-1/2 month high as the Federal Reserve's anticipated monetary easing supported the kiwi. The major trades 0.1 percent up at 0.6780, having touched a high of 0.6790 earlier, its highest level Apr. 4. Investors’ will continue to track broad-based market sentiment, ahead of U.S. economic data. Immediate resistance is located at 0.6823 (Mar. 29 High), a break above could take it near 0.6858 (Mar. 15 High). On the downside, support is seen at 0.6724 (5-DMA), a break below could drag it below 0.6664 (July 1 Low).

Equities Recap

Asian shares surged after a top Federal Reserve official cemented expectations of a U.S. interest rate cut later this month.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 1.0 percent.

Tokyo's Nikkei rallied 2.0 percent to 21,466.99 points, Australia's S&P/ASX 200 index surged 0.8 percent to 6,700.30 points and South Korea's KOSPI advanced 1.3 percent to 2,094.1202 points.

Shanghai composite index rose 0.8 percent to 2,925.04 points, while CSI 300 index traded 1.1 percent up at 3,807.81 points.

Hong Kong’s Hang Seng traded 1.1 percent higher at 28,758.13 points. Taiwan shares added 0.7 percent to 10,873.19 points.

Commodities Recap

Crude oil prices surged by more than 1 percent after the U.S. Navy destroyed an Iranian drone in the Strait of Hormuz, a major chokepoint for global crude flows, raising tensions in the Middle East. International benchmark Brent crude was trading 1.05 percent higher at $63.07 per barrel by 0505 GMT, having hit a low of $61.26 on Thursday, its lowest since June 18. U.S. West Texas Intermediate was trading 0.9 percent up at $56.11 a barrel, after falling as low as $54.71 on Thursday, its lowest since the June 20.

Gold prices rallied above the key $1,450 level for the first time since May 2013, after comments from a Federal Reserve official bolstered expectations of an interest rate cut, while fresh tensions in the Middle East further supported the safe-haven demand. Spot gold eased 0.1 percent to $1,443.71 by 0510 GMT, having touched a high of $1,452.80 earlier, its highest since May 10, 2013, and has gained nearly 2 percent so far this week, on track for a second consecutive weekly gain. U.S. gold futures jumped 1.1 percent to $1,444.10 an ounce.

Treasuries Recap

The Japanese government bond prices surged, with the 10-year JGB futures rising 0.04 point to 153.59, extending their recovery from a 1-1/2-month low of 153.32 set on Tuesday. The 10-year JGB yield was flat at minus 0.14 percent, while the 20-year JGB yield was flat at 0.225 percent. The two-year JGB yield fell 0.5 basis point to minus 0.205 percent and the five-year JGB yield also fell 0.5 basis point, to minus 0.235 percent.

The Australian government bonds traded range bound during Asian session amid a muted trading session that witnessed data of little economic significance ahead of the Reserve Bank of Australia’s Phillip Lowe and Christopher Kent speeches scheduled next week. The yield on Australia’s benchmark 10-year note, which moves inversely to its price, traded flat at 1.347 percent, the yield on the long-term 30-year bond also remained steady at 1.995 percent and the yield on short-term 2-year rose over 2 basis points to 0.952 percent.

By Lactus Fernandes
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