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Market Wrap – September 2019

   

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Concerns over global growth, Brexit’s looming deadline and the ongoing trade wars continue to dominate markets in September.  The head of the International Monetary Fund (IMF) Christine Lagarde has said in a recent interview that the trade war between the United States and China is weighing on the global economy ‘like a big, dark cloud’.  Ms Lagarde asserted that the ongoing tariffs are forecast to remove 0.8% off global economic growth in 2020. “That’s a massive number.” Lagarde said in an interview. “It’s fewer jobs. It’s less business going on. It’s less investment. It’s more uncertainty. It weighs like a big, dark cloud on the global economy.”

EURUSD

During the month of September, the EURUSD showed some positive signs early pushing back towards the key 1.11 level only to reverse and return to two-year lows near 1.09.  Its decline this month is just another month which has seen the EURUSD move lower continuing a long-term trend which has seen it fall from above 1.25 at the beginning of last year to now below 1.09.  It now looks precarious with no more obvious support levels below it. For the previous two weeks it had been applying pressure and threatening to break through the key 1.11 level which has offered some resistance in this period, before falling away sharply.  You could reasonably expect the 1.10 level to offer resistance should the EURUSD rally from its two-year lows.  

EURUSDDaily

In September and as widely expected, the European Central Bank (ECB) cut its main deposit rate by 10 basis points to a record low -0.5%, as well as announcing a new large bond-buying program, in another attempt to revive the ailing economy.  The central bank’s quantitative easing (QE) program amounts to 20 billion euros per month of net asset purchases for as long as it deems necessary. However, the latest decision seems to have divided the central bank with Germany’s appointee to the board, Sabine Lautenschlaeger deciding to step down in what has been perceived as a protest against the latest stimulus measures.  Interestingly the ECB did not provide a reason for her departure, some two years before her appointment is due to end.

GBPUSD

Unlike the EURUSD, the GBPUSD has shown some positive signs throughout September before easing to finish off the month.  After threatening to break lower through the recent key support level at 1.20, most of the month saw the GBPUSD surging higher to a two-month high above 1.25, before easing.  The recent price action makes it seem like the sterling has now settled in the range between 1.20 and 1.25. The sterling did meet some resistance around 1.23 several weeks ago and this may provide some support.  Throughout August the GBPUSD was able to consolidate and receive solid support off the 1.20 level, and this level may play a role again should the GBPUSD continue to decline. 

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As the Brexit deadline approaches quickly, the European Union has warned the United Kingdom is heading towards a damaging position if it cannot sort out the Irish border issue.  European Commission President Jean-Claude Juncker confirmed that British PM Boris Johnson had told him that the UK still wanted a deal, but would leave with or without one on 31st October.  "There is very little time left ... The risk of a no-deal is very real," Juncker said to fellow EU lawmakers.  It is widely accepted that a no-deal Brexit would cause massive disruptions for the UK to include possible public disorder, disruptions to trade and supplies of fresh food, all of which were listed in the government's contingency plans.  Ending such a long membership of the EU and a break in economic ties, "might be the United Kingdom's choice, but never the choice of the EU," Juncker said.

AUDUSD

The AUDUSD experienced an up and down September as it rallied to back above 0.6850 before falling sharply back to another key level of 0.6750.  The 0.6750 level has provided strong support for the last two months and every time it has fallen through this level, it has been bought up quickly and returned above 0.6750.  It had been consolidating well above 0.6850 after it surged to its highest levels in one month back above this key level which had previously supported the currency pair through May and June.  This recent surge was quite unexpected as the AUDUSD had been lingering down near 2019 lows looking poised to continue lower below 0.67. Having provided solid support over the last three months, the 0.6850 level would have been expected to offer some resistance and it may still perform this role, if it rallies again.

AUDUSDDaily

In the first week of September the Reserve Bank of Australia (RBA) kept its official interest rate on hold at a historic low of 1%, after it made consecutive rate cuts in June and July.  One of the key issues for the central bank was to have the unemployment rate drop down to 4.5%, which is its theoretical idea of full employment that would drive wages growth up. Unfortunately, the unemployment rate has crept higher hitting 5.3% in August, which has significantly raised expectations that the RBA will cut rates again on Tuesday next week.  If you dig deeper into the numbers, you will see that in recent months, any employment growth has been driven more by part-time roles, as the quality of job creation is coming under scrutiny. The Big Four Australian banks are now expecting a rate cut on 1st October, however the NAB not only expects that rate cut, but another in December, which would take the cash rate to 0.5%.

US30

The US30 index has had a reasonably positive September as it initially surged higher back towards its all-time high before easing ever so slightly in the last two weeks.  It remains close by the key 27000 level after consolidating above this level for the last week or so. In the two weeks prior, the US30 index moved well moving through to a one month high above 27000 which saw it break out of its recent trading range.  Throughout August the US30 Index traded back and forth around the key 26000 level and this range may play a role again should the index continue to decline. Not far away is the all-time highs which it achieved in July and this level may provide some resistance if it reverses and rallies again.

US30vDaily-6

As widely expected, the US Federal Reserve (Fed) followed in the steps of the European Central Bank, by cutting interest rates this month.  This followed its two-day policy meeting, at which it announced the reduction of its benchmark overnight lending rate to a target range of 1.75% to 2%. The decision also comes two months after the Fed cut rates for the first time in 11 years.  Interestingly, the markets saw a divided committee with at least three Fed presidents voting ‘no’ for a cut. United States President Donald Trump was very critical of the decision saying Chairman Jay Powell and his colleagues have “no ‘guts.’”, while calling Fed policymakers “boneheads” for not cutting rates enough.  He is mainly concerned with US interests being higher than most of the rest of the developed world, and therefore placing U.S. competitiveness at risk. The central bank stated “the implications of global developments for the economic outlook as well as muted inflation pressures” as the primary reason for the latest cut.

Gold

Gold had a reasonably stable September trading right around the key $1500 level.  Several weeks ago, gold fell sharply from its multi-year highs above $1550 down back below the $1500 level however it has been well supported and it has kept its head about this key level since then.  It was support from $1500 that allowed it to make a run and push higher to achieve a six year high above $1550 before the recent drop down to $1500. Should gold break lower through $1500 and remain below there, it may start to meet resistance at this level.  At the start of August, gold surged higher off support at $1400 towards the recent six year high above $1530, before its more recent surge higher yet again.

Gold

A wide variety of risks have sent gold to its highest levels in more than six years, and is leading investors to take a ‘risk-off’ approach to their portfolios, as they are uncertain about near-term global economic trends and are likelier to gravitate toward low-risk assets.   Gold has been enjoying support from interest rate cuts from several key central bank, as well as ongoing concerns over the global economy, and the United States - China trade wars. The head of the International Monetary Fund (IMF) Christine Lagarde has said in a recent interview that the trade war between the United States and China is weighing on the global economy ‘like a big, dark cloud’.  Ms Lagarde asserted that the ongoing tariffs are forecast to remove 0.8% off global economic growth in 2020. “That’s a massive number.” Lagarde said in an interview. “It’s fewer jobs. It’s less business going on. It’s less investment. It’s more uncertainty. It weighs like a big, dark cloud on the global economy.”  

UK Oil

Oil has experienced a volatile September surging higher to near $70 and then falling back towards $60 again.  The $68 level has provided a lot of resistance in the last few months, so it was significant that it was able to break through this level so strongly.  The break higher didn’t last long as it quickly returned most of the gains moving back to support at $60. To start the month, it pushed higher off the $58 level which has supported it very well in the last month or so.  Just prior to the surge it has eased back towards the key $60 level. Throughout most of August UK Oil traded within a narrow range mainly between $58 and $60 with the former level providing some support. Should the $58 support level give way, there is no obvious support level until around $50 where it reversed at the end of last year.

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The most significant incident impacting oil supplies in some time happened in September when coordinated strikes on key Saudi Arabian oil facilities disabled approximately half of the country's total oil production, or 5% of global supply.  An oil processing facility at Abqaiq and the nearby Khurais oil field were impacted, knocking out 5.7 million barrels of daily crude production. The drone raids on Saturday morning "resulted in a temporary suspension of production at Abqaiq and Khurais plants" Saudi energy minister Prince Abdulaziz bin Salman said in a statement carried by the official Saudi Press Agency.  He said the raids led to the interruption of an estimated 5.7 million barrels of crude, or about half of the country's total production.  

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