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Market Wrap – February 2019

   

Market Wrap – February 2019

Several significant issues have continued into the New Year including Brexit which is quickly approaching the key date in March, as well as the lingering trade talks between the United States and China which are having a flow on effect into many markets around the world.  To add to the concerns, the International Monetary Fund (IMF) has recently warned governments to prepare for a possible economic storm as growth undershoots expectations.

“The bottom-line is we see an economy that is growing more slowly than we had anticipated,” IMF managing director Christine Lagarde told the World Government Summit in Dubai.  Lagarde cited what she called “four clouds” as the main factors undermining the global economy and warned that a “storm” might strike.

 

EURUSD

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During the month of February, the EURUSD has dropped below the key level of 1.13 to a three-month low, only to rally higher in the second half of the month to back above 1.13.  Earlier in the month the EURUSD was sold off after running into resistance at the other key level of 1.15, as it maintains it trading range between 1.13 and 1.15.  The EURUSD has previously enjoyed rock solid support from the key 1.13 level and subsequently surged higher back towards 1.15.  It did hit a three-month high near 1.1570 before being sold off.  For the last few months now the EURUSD has been content to trade within a narrow range enjoying support from 1.13 and meeting resistance at the 1.15 level, and these two levels continue to play a significant role. 

At their last meeting, policymakers at the European Central Bank (ECB) were concerned that slowdown in economic growth might be “deeper and more broad-based” than previously suspected.  The minutes from their January meeting showed that they had balance acknowledgement of worsening data with conveying confidence that the bank’s stimulus policies were working.  What remains a key concern for many central banks, including the ECB is the ongoing trade wars between the United States and China, which may still result in further tariffs, or import taxes, that might further slow global trade.  The minutes highlighted “concerns among members about an increasing impact of trade protections, and an escalation of trade conflicts, on the global outlook over time.” The environment “appeared to be exacting an increasing toll on the world economy,” they said.

 

GBPUSD

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Like the EURUSD, the GBPUSD has been down and up during the month of February.  The last two weeks has seen a resurgent sterling as it climbed back towards the key 1.32 level, after spending the previous three weeks falling away strongly from the same key resistance level at 1.32.  In doing so it was heading back towards the other key level at 1.27 which has supported the currency pair well in recent months.  These two key levels continue to play a role and are likely to continue to heavily influence price action. 

After a narrow majority of voters called for Brexit in a June 2016 referendum, Britain remains as divided as ever.  British Prime Minister Theresa May upset some when she suggested that parliament may not be able to vote on her Brexit deal until 12th March, only 17 days before Britain is scheduled to leave the European Union (EU).  This increases the probability that U.K. politicians will this week move to delay Brexit beyond 29th March, in order to avoid a 'no-deal' Brexit.  Just as the main opposition Labour Party said it could eventually support a second referendum, the EU has opened the door to Britain postponing its exit from the bloc beyond the 29th March deadline.  European Council President Donald Tusk said he had discussed the “legal and procedural context of a potential extension” when he met with PM May, at the recent EU-Arab summit in Egypt. 

 

AUDUSD

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The AUDUSD has experienced a relatively flat February finishing the month quite close to where it started – right around the 0.7150 level.  After starting the month falling sharply back down to support at 0.7050 after meeting stiff resistance at the key 0.73 level, it has been able to regain some of the lost ground.  It is currently relying heavily on support from 0.7050 which has supported the currency pair several times in the last few months.  In the lead up to hitting resistance at 0.73 the AUDUSD rallied well to move past the key 0.7150 level and reach a two-month high around 0.73 before easing lower. It is currently trading around another key level of 0.7150 and this with 0.7050 and 0.7300 are playing a major role in the price action of the AUDUSD presently. 

As widely expected, the Reserve Bank of Australia (RBA) held its record low cash rate at 1.5% at the beginning of the month, where it has remained since August 2016.  Except for Australia’s key commodity prices and the Australian labour market, there wasn’t a lot for the RBA to be too excited about.  Expectations are strongly shifting that the RBA's next move may have to be down as financial markets now believe there’s a greater than 50% chance that the cash rate will be lowered by 25 basis points by the end of this year.  Leading market economists have backed away from predicting higher interest rates in 2019 after RBA governor Philip Lowe retreated from his monetary policy guidance that the next move in interest rates would likely be up.

 

US30

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US equities have generally moved very well throughout February pushing to a three-month high above 26,200 in the last week of the month.  It has been a steady climb higher although a couple of weeks ago it seemed content to have consolidated in a narrow range right above the significant level of 25,000 before it resumed its slow climb higher.  At the end of February, this level offered some resistance to the index however this was quickly broken through, only for the level to prop up the index since, and this level remains key.  For the last few months, the two key levels of 24,000 and 25,000 have been playing a role and influencing price action, with the latter likely to support the index should it decline soon.

The U.S. central bank has released minutes of its January meeting, with the market watching closely for clues on a variety of matters.  Minutes from the January Federal Reserve (Fed) meeting reiterate the central bank's new "patient" policy stance.  “Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve’s asset holdings later this year,” according to the record of the Federal Open Market Committee’s (FOMC) meeting on 29th – 30th January.  Federal Reserve officials widely favoured ending the runoff of the central bank’s balance sheet this year while expressing uncertainty over whether they would raise interest rates again in 2019, minutes of their January meeting showed.  “Many participants observed that if uncertainty abated, the Committee would need to reassess the characterization of monetary policy as ‘patient’ and might then use different statement language,” the minutes noted.

 

Gold

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Gold has also steadily moved higher throughout February reaching a ten-month high above $1345 in the last week or so.  Throughout most of February, gold has enjoyed solid support from the key level of $1300, allowing it to push higher to the high.  At the end of last month gold enjoyed a solid push higher, breaking through resistance at $1300 and establishing a new trading range above this level.  The significance of $1300 is for several weeks, gold met stiff resistance at this level, after enjoying a healthy surge higher throughout December.  The $1300 level is likely to continue to play a role should gold decline a little and look to ease lower. 

Ongoing concerns over the United States - China trade dispute and its potential impact on global growth have continued to support gold.  The U.S. Federal Reserve kept interest rates steady and increasing concerns about global growth have also supported the safe-haven gold recently, while economic data continues to support the concerns over a broader slump in Europe.  The International Monetary Fund (IMF) has recently warned governments to prepare for a possible economic storm as growth undershoots expectations.  The risks include “trade tensions and tariff escalations, financial tightening, uncertainty related to (the) Brexit outcome and spill over impact and an accelerated slowdown of the Chinese economy”, IMF managing director Christine Lagarde said.  

 

UKOil

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Generally, oil has very slowly but steadily climbed higher throughout the month of February, before finishing out the month lower.  It was able to reach a three-month high just shy of $68 before the drop.  It has however had a very solid start to the year rallying from 16-month lows below $50 at the end of last year, back up to the key $58 level and beyond, after its doom and gloom to close out 2018.  The $58 level continues to play a role and provided some support several weeks ago as oil consolidated a little in that time and started to steadily move higher to reach the three-month high.  The $58 level supported oil very well for several weeks at the end of last year and is likely to continue to do so, should oil decline from its current levels.   

Oil prices have fallen after U.S. President Donald Trump publicly urged the Organization of the Petroleum Exporting Countries (OPEC) to lower the cost of crude, applying pressure on the Saudi Arabia led group to ease off on its price-boosting output cuts.  “Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike - fragile!” the president tweeted earlier this week.  President Trump was repeating his previous calls on OPEC to keep prices steady.  Some analysts believe that this recent warning carries more weight, with U.S. legislators resurrecting a bill that would make the organization subject to antitrust laws in the U.S.  Late last year, OPEC and some non-affiliated producers such as Russia agreed to cut output by 1.2 million barrels per day (bpd) to prevent a large supply overhang from growing.  The world’s largest oil exporter, Saudi Arabia, recently estimated its production will fall in March by more than anticipated under the supply-reduction agreement, to 9.8 million bpd.  Oil prices have also risen due to U.S. sanctions against oil exporters Iran and Venezuela.

 

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