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Fundamental Forex Analysis

Antipodeans cheer Yuan rally amid risk-on, Oil jumps on Libyan crisis

Amid increased government support from both China and Australia to boost the economy, investors ignored the latest Mid East flare-up concerning Libya, as the risk-on sentiment extended into Asia this Monday.

Oil prices rallied to more than a week’s high after Libya’s state-run National Oil Corporation (NOC) said on Sunday that two big oilfields in the southwest had begun shutting down after forces loyal to the Libyan National Army closed a pipeline. Gold prices, on the other hand, failed to benefit from geopolitical tensions and remained on the back foot below $1560.

In reaction to the weekend headlines, the market mood was somber starting out the week but improved gradually after China said the government will be able to “ensure the smooth operation of the industrial economy” by providing big tax cuts and policy efforts. Meanwhile, the Australian government announced a support package for small businesses affected by bushfires.

In lieu of these measures, the Chinese yuan above 6.8500 levels vs. the greenback while the Aussie bounced-off lows and held onto the recovery gains near 0.6885 region. The Kiwi tracked its OZ peer higher and traded firmer on the 0.6600 level.  Markets paid little attention to the PBOC’s status quo on the loan prime rate (LPR). The Canadian dollar ignored the rally in oil prices and traded almost unchanged against its American rival around 1.3060 region. Meanwhile, USD/JPY recovered to near 110.20 region but lacked follow-through despite positive Asian equities and Treasury yields.

Among the European currencies, EUR/USD remained below the 1.11 handle but found support from the rise in the yuan while GBP/USD posted small losses near 1.3000, pressured by broad US dollar strength amid UK/US macro divergence.

Main Topics in Asia

Oil exports slashed by half in Libya ahead of the summit in Germany

UK Finance Minister, Sajid Javid, has admitted businesses will be hit by Brexit – Reuters

Pompeo sees progress towards ceasefire in Libya at Berlin summit – Reuters

PBOC keeps one-year loan prime rate steady at 4.15%

China needs time to consider impact of tradedeal – Global Times

Europe can benefit from China-US phase one trade deal – Global Times

BOJ’s next move likely to be withdrawal of stimulus – Reuters poll

Australia’s Frydenberg: Full economic impact of bushfires remains uncertain

Key Focus Ahead       

Looking at the EUR macro calendar this Monday, there is nothing of relevance except for the second-tier German Producer Price Index (PPI) and Bundesbank’s (Buba) Monthly Economic Assessment Report. The UK docket is absolutely data-empty and therefore developments surrounding the EU-UK post-Brexit trade deal and UK politics will take the center stage.

The NA session is also a quiet one, as the US markets closed in observance of Martin L. King’s Birthday while there is no macro news from Canada. Markets will pay close attention to the Mid-East geopolitical tensions, especially pertaining to Libya and its impact on the market sentiment as well as on oil prices.

EUR/USD: On the defensive after Friday’s drop

EUR/USD is looking weak, having registered its biggest single-day decline in over two weeks on Friday. The pair, therefore, risks falling to the support at 1.1063 – the support of the trendline connecting lows seen on Oct, 1 and Nov. 29. 

GBP/USD: Brexit woes, calls for BOE’s rate cut depress traders around 1.3000

GBP/USD holds steady around the 1.30 handle while heading into the London open on Monday. The pair came under pressure on Friday amid increasing odds of the BOE’s rate cut and Brexit-negative headlines.

Forex Weekly Outlook – The BOJ will likely keep its powder dry for some time

While Mid-East tensions calmed down, trade and the US consumer rocked the dollar. What’s next? Rate decisions in the Eurozone, Japan and Canada stand out. Here the highlights for the upcoming week.

The conflict in Libya will be a focus for oil traders this week

Turkey, Russia and Libya will be a focus for the week ahead as tensions escalate with the closure of Eastern Libya ports.


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