27th September 2019 - Increasing demand for safe haven by the end of the week

Walid Salah Eldin

Active member
The demand for safe haven could be bolstered by the end of the week containing the market sentiment by rumors about US limiting of American portfolio inflows into China, before conducting new talks round next month may reach "limited" trade deal with China.

Trump has actually worked for that purpose to support the US labor market since the beginning days of his period which looked to some recently could be trimmed by impeachment hard to take place, as it requires the approval of more than 20 republican senators in the senate.

From another side, The worries about the consuming spending in US rose again, after data showed today that The consumer spending rose in August by only 0.1%, while the consensus was referring to increasing by 0.3% after surging in July by 0.4%.

In the same time, We have seen today Aug US durable goods orders core figure coming has 0.2% monthly rising, while the consensus was referring to decreasing by 1% with downward revision of July increasing by 2.1% to 2%.
The core figure excluding the demand for transportation has shown also rising by 0.5%, while the median forecast was referring to increasing by only 0.2% after falling by 0.4% in July has been revised down today to be by 0.5%.

While Aug US PCE deflator has shown yearly increasing by 1.4% as the same as July and the foreseen was rising by only 1.3%. The core PCE figure excluding food and energy which is the Fed’s preferred gauge of inflation has shown yearly rising by 1.8% as expected, following increasing by 1.6% in July has been revised up to 1.7% today.

We should mention here that this indicator has not reached the Fed's goal since October 2018 and the inflation tame inflation pressure was one of the important reasons why the Fed lowered its fund rate by 0.25% again last week, scoring its first back to back cut since 2008 following cutting by the same rate by the end of last July.

The FOMC assured on it acknowledge of the current clearly muted inflation rate which is expected to rise later to The Fed's 2% yearly target. The committee was worried also about investment spending and exports, but it has shown confidence in the strong labor market and the consumption spending.

So, The Fed was not worried about the recession specially in the near term, despite global economic slowdown and the downside risks of the Trade disputes between US and China which are still with no clear end.

While Q2 US GDP final reading came yesterday to show annualized expansion by 2% as the same as the previous reading, after growth by 3.1% in the first quarter.

Following these series of data, S&P 500 future rate retreated for trading currently close to 2960, after repeated failure this week to regain 3000 psychological level.

The gold could spike up again above $1500, after falling extension to $1486.91 in the beginning of the US session.

USDJPY could not also hold above 108 on usual unwinding of carry trades in the benefit of the low cost currencies such as JPY, As the demand for safer haven could gather momentum by the end of the week, weighing down on US UST 10yr yield to stand just below 1.70% and making USD less attractive.

EURUSD is now close to 1.0940, after earlier slippage to 1.0905 on more signs of having closer widening of the ECB's QE plan which is to take effect next November for buying initially €20 billion of APP per month to stimulate the economy and elevate the inflation levels.

After Sep preliminary readings of EU PMIs could weigh down on the single currency and also the European equities market this week, showing mounting fear of recession can be in need to lower EUR exchange rate.

GBPUSD was under increasing pressure this week to be traded by the end of it below 1.23, as the British Pound is still hanging on between the odds of having Brexit anyway at the end of next month as UK PM is working for and the odds of having longer uncertainty period by extending the working of article 50 as MPs demand. While both probabilities are looking shocking and can weigh down on UK economy and GBP specially over the short term.

EU's Chief Negotiator Michel Barnier has figured out earlier that there is no reason yet to optimism about a possible solution to the Irish backstop issue, while it looks to most of the markets participants that Johnson can be the last one to have Brexit impasse breaking on the Irish backstop.

EURUSD Daily Chart:

EURUSD-Daily-27-09-2019 06-24-49 م.jpg

After forming another lower high at 1.1109 and EURUSD extended its slide to 1.0905 breaking 3rd of this September formed low at 1.0926, before rebounding for trading currently near 1.0940.

EURUSD is now in its third consecutive day of being below its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading today 1.1098.

The pair is still well below its daily SMA50 and its daily SMA100, after short lived period above them ended to forming a previous lower high at 1.1249, while the pair is still undermined over longer range by continued trading below its daily SMA200.

Having a lower low at 1.0905 could drive the pair to continue its series of lower highs by giving it longer space to form another lower high below its recent lower high at 1.1109.

The daily chart shows that EURUSD RSI-14 is referring now to existence inside the neutral region reading 38.789.

While EURUSD daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is having now its main line inside the oversold territory below 20 at 12.292 leading to the downside its signal line which is higher inside the same area at 17.789, after negative crossover just below the overbought area on forming a lower high at 1.1109.

Important levels: Daily SMA50 @ 1.1081, Daily SMA100 @ 1.1163 and Daily SMA200 @ 1.1240

Experienced S&R:

S1: 1.0905

S2: 1.0838

S3: 1.0569

R1: 1.1109

R2: 1.1163

R3: 1.1249

Have a good trading day

Kind Regards

Global Market Strategist of FX-Recommends

Walid Salah El Din
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