Cautiously optimistic amid US-Iran de-escalation; Carney in focus
Fundamental Forex Analysis

Cautiously optimistic amid US-Iran de-escalation; Carney in focus

A quiet Asian affair this Thursday that saw risk-on action in the regional equities following the overnight de-escalation address by the US President Trump. Trump declared that Iran appeared to be standing down from military conflict with the US, the remarks that sent stock indexes surging higher.

Despite a better market moot, investors seemed a bit cautious amid the Baghdad Green Zone bombing while some believe that the US-Iran conflict is far from over. Two rockets reportedly hit Baghdad Green Zone a day after Iran missile attacks on US targets in Iraq.

Therefore, USD/JPY’s upside remained capped near Wednesday’s high of 109.25 while the US Treasury yields fell back in the red zone. Gold prices lacked any recovery momentum and ranged around $1560 levels.

Meanwhile, the Antipodeans saw some fresh signs of life and advanced despite downbeat Australian Trade data and Chinese inflation report. The Aussie held onto the recovery gains below 0.6880 region while the Kiwi battled 0.6650. Despite the bounce in oil prices, the Canadian dollar failed to benefit, with USD/CAD sidelined below 1.3050.

Amongst the European currencies, EUR/USD attempted a tepid bounce from two-week lows of 1.1104 while the cable posted small gains on the 1.31 handle.  

Main Topics in Asia

US Defense Secretary (referring to Wednesday’s attack): Nothing major damaged

US FBI, Homeland Security warned of Iranian terror and cyber threat – CNN

World Bank trims 2020 growth forecast, cites slow recovery in trade/investment

Aussie trade balance (Nov): 5800 M vs expected 5915 M

Odds of RBA rate cut on the rise as Aussie bushfires regenerate

Fed economist: Moderate US recession may push long-term rates near zero – Bloomberg

Chinese Consumer Price Index (YoY): +4.5% (vs +4.7 % exp)

US General Milley: Iran intended to kill US personnel in missile attack – Reuters

Iran’s response to the US attack underlines its capacity for careful calculation – FT

Moody’s: Outlook for Asia-Pacific (APAC) sovereigns in 2020 is negative

US in a letter to UN says it stands ready to engage in serious negotiations with Iran

USD/INR Technical Analysis: Probes three-week winning streak, heavy below 72.57

Key Focus Ahead       

With tensions having eased over the US-Iran geopolitical crisis, the attention has shifted back on the fundamentals. The immediate attention remains on a slew of relevant macro news from Germany, including the Industrial Production, Current Account and Trade data, all of which will drop in at 0700 GMT. Soon after, the Swiss Real Retail Sales report will be published at 0730 GMT.  Meanwhile, at 1000 GMT, the Eurozone Unemployment Rate will be reported for November.

We have nothing of significance, in terms of macro news, from the UK calendar. However, the Bank of England (BOE) Governor Carney’s speech due at 0930 GMT will be closely heard. Carney is due to deliver opening remarks at The Future of Inflation Targeting Conference, in London.

In the NA session, the US Weekly Jobless Claims and Canadian Housing data will headline at 1330 GMT while the speeches from the European Central Bank (ECB) as well as from the US Federal Reserve (Fed) policymakers will also grab some market attention. Bank of Canada (BOC) Governor Poloz is also due to speak at 1900 GMT.

The focus will also remain on any updates on the US-Middle East front for fresh impulse on the market sentiment.  

When is the German Industrial Production and how could it affect EUR/USD?

EUR/USD consolidates the tepid bounce from two-week lows of 1.1104 reached in early Asia ahead of the German data. Germany’s Industrial Production is unlikely to see any positive surprise in November, as suggested by the lead indicators. 

GBP/USD benefits from Brexit optimism ahead of Carney’s speech

GBP/USD stays mildly positive within a choppy range around 1.3100 while heading into the London open on Thursday. Traders will now focus on the BOE Governor’s remarks for fresh direction.

Do manufacturing and service PMIs depict the same US economy?

Sentiment in the manufacturing and service sectors diverge in December. Employment indexes in both sectors declined, manufacturing to a decade low.


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