Daily Market UpdateOctober 14, 2019
EUR/USD ranged from the low to mid 1.10’s overnight. The EUR/USD pair gapped lower at the weekly opening, although it held above the 1.10 figure. Weekend news have affected the market’s sentiment negatively, with the greenback and safe-haven assets making the most out of it.
The US and China have set an agreement in principle by the end of last week, with US President Trump calling it “phase 1” of a trade deal. The announcement initially triggered the market’s optimism, which later faded on the back of the lack of details and uncertainty on which tariffs are still on the table and when those will be applied. Also, Brexit-related news weighed on the market’s mood, after UK PM Boris Johnson said during the weekend that there’s still a long way to go toward a deal.
The EU released August Industrial Production, which was up by 0.4% when compared to the previous month, although down by 2.8% when compared to a year earlier. The US celebrates Columbus Day, and no macroeconomic data will be released.
There may be light at the end of the tunnel – but that tunnel is long. Intense EU-UK Brexit negotiations over the weekend – dubbed by some as “tunnel negotiations” have failed to yield the big breakthrough that seemed imminent last week. GBP/USD has fallen below 1.26 after extending its massive rally and topping 1.27 on Friday. It remains considerably above the 1.22 handle that characterized its trading before Prime Minister Boris Johnson made concessions.
While the UK has agreed to refrain from a customs border on Ireland, Johnson’s plan includes keeping Northern Ireland (NI) within both the EU’s customs union and the UK’s one, depending on the destination of goods and using a rebate system to regulate flows. However, Chief EU Negotiator Michel Barnier cast doubt about a system he called “untried” and that included too many “ifs and buts”.
USD/JPY pair gained nearly 150 pips last week despite the broad-based selling pressure surrounding the USD as the upbeat market sentiment weighed heavily on the safe-haven JPY. After closing at 108.42, the pair struggled to preserve its momentum and retreated toward the 108 area before finding support there. As of writing, the pair was down 0.12% on the day at 108.27.
Last week, expectations of the United States (US) and China reaching a partial trade agreement and heightened hopes of a Brexit deal between the European Union (EU) and the United Kingdom (UK) allowed risk-on flows to take control of the market action and hurt the demand for the JPY. Meanwhile, the US Dollar Index also seems to be taking advantage of the shift in the risk perception, adding 0.17% on the day at 98.50 and keeping the pair’s losses limited.
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