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Market Wrap - November 2019

   

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The most dominant issues in November were the United States Federal Reserve (Fed) and their plan on interest rates, as well as the latest update in the Brexit and election saga.  In the U.S., the spotlights are always on the Fed and at a recent conference in Washington, New York Federal Reserve President John Williams said that the Fed has interest rates at the appropriate level for the U.S. economy.  "I think we have monetary policy in the right place. The economy is right where we would like it to be." Markets only see around a 25% probability of a rates move at the Fed’s next meeting on 10th – 11th December.  The Brexit critics continue to roll up to have their say.  Recently retired former speaker John Bercow says leaving the EU is the United Kingdom's 'biggest blunder since World War II'.  At a dinner in London, Mr Bercow was quoted as saying, “I don’t think it helps the UK. Brexit is the biggest mistake of this country after the war. I respect prime minister Johnson, but Brexit doesn’t help us. It’s better to be part of the [EU] power bloc.”

EURUSD

During the month of November, the EURUSD has declined from resistance around 1.12 and established a range between two other key levels in 1.10 and 1.11.  It made another strong rally off the 1.10 level back to 1.11 a week or so ago, after falling sharply from near several month highs close to 1.12. The 1.10 level has now provided strong support in the last two weeks propping the currency pair up after the fall to start the month.  It will be interesting to see if this support can continue to stand tall and maintain the current range. The 1.12 level continues to loom above ready to provide resistance again should the EURUSD move through 1.11.  

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After heading up the International Monetary Fund for eight years, Christine Lagarde has officially taken up her role of president of the European Central Bank (ECB), and has made her debut speech at the European Banking Conference in Frankfurt.  In it she called for the ECB to adopt a new policy mix. “Ongoing trade tensions and geopolitical uncertainties are contributing to a slowdown in world trade growth, which has more than halved since last year. This has in turn depressed global growth to its lowest level since the great financial crisis,” she said.  “We are starting to see a global shift — driven mainly by emerging markets — from external demand to domestic demand, from investment to consumption and from manufacturing to services.”

GBPUSD

Like the EURUSD, the GBPUSD has maintained a small range through the month of November.  For the last six weeks or so the GBPUSD has traded in a narrow range consolidating under resistance at 1.30, which has become a level of significance.  Earlier in the range, the GBPUSD eased ever so slightly from a five-month high just above 1.30 after smashing through the key 1.25 level which has resisted prices strongly for around a month.  It had also received some support from 1.28 during this period of consolidation. It will be interesting to see how long the selling pressure remains at 1.30 or whether the sterling eases away and returns to previous levels closer to 1.25.  It may also use this current consolidation period as a base for higher prices as it may look to test the resistance at 1.30.

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A few weeks ago, official data showed that the British economy had enjoyed third-quarter gross domestic product (GDP) at 0.3%, which allowed it to avoid a technical recession, having contracted by 0.2% in the 2nd quarter.  Disappointingly, on a year-on-year basis, third-quarter growth slowed to 1%, which was its slowest rate of expansion since 2010. Generally, the figures have been considered disappointing. Manufacturing data, industrial output and construction activity for September, all contracted with the only one bucking the trend was services output which was flat.  The Bank of England has said recently that trend growth in the U.K. was currently about half of that in 2018.

AUDUSD

The AUDUSD headed in one direction only in November – down.  Throughout the month, the AUDUSD has steadily but surely eased away from a three-month high above 0.69 and moved back down below the key 0.6850 level, into its popular range between 0.6750 and 0.6850.  The 0.6850 level has provided some stiff resistance over the last two months, so it is quite significant that it has now broken back through this level. The 0.6850 level was expected to provide some support however this level failed to deliver.  It wouldn’t have surprised many that it did fall back below 0.6850 and it will now be looking for support at 0.6750.

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At its Melbourne Cup Day meeting earlier in the month, the Reserve Bank of Australia (RBA) left the official cash rate at 0.75%, after cutting the rate another 25 basis points in October down to the historic low.  In his post meeting statement, the RBA Governor Philip Lowe said the risks remained towards the downside, even though the outlook for the global economy remains reasonable. “The US – China trade and technology disputes continue to affect international trade flows and investment as businesses scale back spending plans because of the uncertainty,” he said.  “Interest rates are very low around the world and a number of central banks have eased monetary policy in response to the persistent downside risks and subdued inflation. Expectations of further monetary easing have generally been scaled back over the past month and financial market sentiment has improved a little.”  

US30

The US30 index has enjoyed a strong November moving through to all-time highs.  After trading around the key 27000 level for several weeks, the last few weeks of the month saw the US30 index surge higher to new all-time highs above 28000, before easing a week or so ago and rallying again.  It is currently trading around the previous peak so it may just be experiencing some selling pressure at this level. Should the index retreat from its current highs, the 27000 level is now likely to provide support.

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Former Federal Reserve Chair Janet Yellen believes that the U.S. economy is in “excellent” shape, however she sees significant wealth inequality, which has built up over decades as a major threat to the economy.  As no surprise to anyone, she also believes the China – United States trade war is having a detrimental impact on both consumers and businesses alike. Even though she sees a growing number of risks to the U.S. economy, she doesn’t believe there will be a recession any time soon.  “I would bet that there would not be a recession in the coming year. But I would have to say that the odds of a recession are higher than normal and at a level that frankly I am not comfortable with,” Yellen said at the World Business Forum.

Gold

After trading around the $1500 level for an extended period, gold has spent most of November moving lower to multi-month lows.  In the last week or so it slowly edged higher back around $1470 after dropping sharply back through the key $1500 level to a three-month low below $1450.  It has reversed and headed back to around $1450 to finish the month. For the last two months gold settled around the current key $1500 level, moving back and forth around this level, seemingly content to not move anywhere else, so the recent move lower could be significant.  Now that gold has broken lower through $1500, it may start to meet resistance at this level.

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The Federal Reserve (Fed) several weeks ago voted 8-2 to cut interest rates by a quarter percentage point to a target range of between 1.50% and 1.75%, and the minutes from that meeting have now been released.  According to the minutes, Fed officials generally agreed that they won’t be moving rates any time soon, unless economic conditions change significantly. "Most participants judged that the stance of policy, after a 25 basis point reduction at this meeting, would be well calibrated to support the outlook of moderate growth, a strong labor market and inflation near the committee's symmetric 2% objective," the Fed said in the minutes.  Many agree that after three consecutive rate reductions, the mid-cycle adjustment is over.

UK Oil

After meeting resistance at the key $63 level for several weeks, UK Oil has just poked its head above this level in the last week or so to finish out the month.  In the last week of the month, it has met some support at the $63 level which bodes well for it to remain above there. Earlier in the month, UK Oil moved well up to resistance at $63 off support at $60.  It has traded between $58 and $63 for the most part of the last two months and selling has been steady at anything above $63 indicating how significant this level is. This makes its recent price action telling and an indication of possible higher prices.

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Oil has been buoyed a little by optimism that the first stage of a trade deal between China and the United States is not far away.  Robert O’Brien, the U.S. national security adviser said that an initial trade agreement with China was still possible by the end of the year.  On the other side, the Global Times from China has cited experts close to the Chinese government as saying that the two superpowers have generally reached an agreement.  Chinese leader Xi Jinping and U.S. President Donald Trump as recently as last week both expressed their wish to sign an initial trade deal. Meanwhile in the annual World Oil Outlook, the Organization of the Petroleum Exporting Countries (OPEC) has revised its forecast lower for global oil demand growth over both the medium-term and long-term.

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