By Deepta Bolaky
The start of a new trading year was rough. Investors were probably hoping that the first week of the new year would be less dramatic than 2018, but they must have been so disappointed. Amid such thin markets, any good or bad news can bring more substantial volatility than usual, but this kind of flash crashes or overreaction in the FX markets was quite surprising.
The release of a series of Manufacturing surveys across different regions this week was seen as another sign of global weakness. Investors were already preoccupied about slowing global growth, and a plunge in manufacturing activities exacerbated existing fears.
Hence, we can see that the weakness is being felt across major economies, but the deceleration in China is significantly higher as it is also driven by the trade tensions.
It is important to note that it is a Global problem, not a China problem but given the ambiguity regarding the path of the trade resolution, China’s decline in the manufacturing activities was more pronounced.
Apple’s CEO, Tim Cook, made a rare revenue warning this week which spooked the markets. Apple has cut its revenue forecasts for the first time in over a decade. The step of downgrading projections took Wall Street on a roller coaster ride on the first trading day of the year. While major US benchmark still managed to finish the day in positive territory, the overall stock markets were flashing red. The bearish sentiment spilled over in the currency markets and caused a flash crash in the early hours of the Asian session on Thursday. The biggest movements were seen in the Japanese Yen pairs followed by the Antipodeans.
The negative sentiment persisted throughout the rest of the trading week. It is not solely the Apple Story that is causing the rout in the FX and stock markets, but it is acting as a bellwether for the weakness in China and is regarded as the compounding factor that is reiterating the slowing growth issue.
As a result, investors are panicking at the prospects of more revenue downgrades in the coming months.
Nancy Pelosi defeated the Republican nominee and sworn in as the new speaker of the House on Thursday. “Two months ago, the American people spoke and demanded a new dawn,” Nancy Pelosi’s said in her victory speech. The House of Representatives will now be Democratic-controlled, and as a House Speaker, Nancy will regularly face off President Donald Trump.
Despite the Democrats efforts to pass funding bill swiftly after the election in an attempt to reopen shuttered agencies, the Republicans in the Senate had vowed to only vote on measures that have the President’s support. The shutdown is on its second week and is among the longest closure since 1980. The consequences of the shutdown are being felt across a variety of areas.
While the repercussions of a partial shutdown are contained, a prolonged shutdown can worsen the bearish sentiment in the markets.
The production cuts by the OPEC members and non-member producers helped oil prices to bolster higher. While the momentum did falter on weaker risk sentiment, API reports pushed prices back up again.
WTI started the new year around the $45 mark and is currently trading in the region of $47. Any upside action seems to be capped below $48. As of writing, this week gains appear to be the strongest one since October 2018.
Brent oil’s price action was similar to WTI. After dropping to a low of $52 on the first trading day of the year, it is currently trading in the region of $56.32.
Traders will probably wait for the EIA reports scheduled in today’s US session for fresh trading impetus which may push prices higher above key immediate resistance levels.
USOUSD & UKOUSD (Hourly Chart)
Source: GO MT4
|Monday, 07 Jan 2019
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