Forex Signals US Session Brief, Oct 11 – GBP and CAD Surge, Supported by Fundamentals
Skerdian Meta • 4 min read
Until a few days ago, things looked so gloomy. Brexit was heading towards a dead end, the trade war was at its height and the global economy was heading for recession. Now, a few days later and everything seems to be changing. The global economy continues to weaken, but the employment report we saw coming out of Canada today was quite impressive. Full time jobs increased considerably in September, wages jumped and the unemployment rate declined unexpectedly by 0.2%, which sent the CAD surging higher.
That doesn’t turn the global economy around, but its a positive sign, at least for the Canadian economy. Another positive event for the global economy is the meeting between the US and China. China has been doing some work to get the deal done, at least partially and today they offered to completely remove the requirement for forced joint ventures by January. This is a considerable step, taking into account the fact that China has been forcing foreign companies to take a Chinese partner and share their technology with the partner, which has improved the sentiment further.
Brexit is also heading toward a solution, from what we have heard in the last two days. Yesterday, the Irish PM Varadkar and Boris Johnson released a joint statement, the first of its kind since the Brexit vote, which improved the sentiment. Today we heard more positive comments. The EU released an official statement, saying that the UK and the EU have agreed to intensify talks in the coming days, so I assume they will strike a deal soon and as a result, GBP/USD has been surging higher.
The European Session
- Mario Draghi Wants to Cut Rates Again It Seems – The ECB president Mario Draghi spoke early this morning saying that more active fiscal policy would make it possible to adjust our policies more quickly. Policymakers are operating in a time of substantial uncertainty. He’s right about that and wants tohave more flexibility to act when it’s needed, like now.
- Varadkar Expecting Detailed Proposals From the UK – The Irish prime minister, Leo Varadkar said earlier today that he anticipates the UK to make more detailed proposals. The less said, the better when asked on Brexit talks. It is possible that talks may now enter the tunnel.
- The EU Also Feels Positive For the Brexit Deal – The European Commission commented on Brexit as well today, saying that the meeting between Barnier and Barclay was constructive. Barnier and Barclay exchanged Brexit ideas, angles. The Guardian and Reuters both reported that Michel Barnier said to have got green light to go into “intense negotiations” with the UK.
- BOE’s Carney Confirms the Economic Weakness – BOE governor, Mark Carney, was speaking this morning at the launch of the £20 banknote. He said that today’s data is consistent with picture of soft underlying growth. The UK data is fairly volatile at the moment, BOE is ready for any Brexit contingency. There is plenty of time for the government to choose a new BOE governor. The GBP remains more volatile than usual because of wide range of Brexit outcomes.
The US Session
- Canadian Employment Report – The employment report from Canda was released a while ago and the unemployment rate posted a surprise decline of two points,from 5.7% in August to 5.5% in September. Employment change was expected to decline to just 11.2k, but it came in at 53.7k. Hourly wages for permanent employees jumped higher to 4.3% against 3.8% previously and expected. Full time jobs came in at +70.0K. Part time jobs at -16.3K. This is a great report. Full time jobs have increased considerably, the unemployment rate fell by 2 points and wages jumped 0.5% higher.
- FED’s Kashkari Wants Another Rate Cut This Month – FED member Kashkari was commenting on CNBC, saying that the FED should put yield curve control into our toolbox. Balance sheet growth should not be confused with QE, which was designed to move down long-term rates. We have to figure out what is the right growth rate of our balance sheet that isn’t about stimulating the economy. He would probably be in favor if Fed decided on October rate cut. Over the long term, we still have evidence that the economy will grow at around 2% and we’re drifting back to that level.
- US Prelim UoM Consumer Sentiment – The UoM Sentiment Index has come in above projections of 92.0 points to 96.0 points. This index has been on a declining trend for months, so this is a positive sign. Inflation expectations cooled off though, from 2.8% to 2.5%.
Trades in Sight
- The trend has shifted
- Fundamentals point to further declines
- The 20 SMA has turned into resistance
The 20 SMA is doing a good job as resistance right now
EUR/GBP has been bullish in the last several weeks, as odds of a Brexit deal diminished and Boris Johnson kept repeating that the UK would leave on October 31, deal or no deal. During the last few days, the 20 SMA (grey) was providing support, but the situation changed yesterday and now markets are anticipating a Brexit deal. EUR/GBP has turned bearish and has lost more than 300 pips. The 20 SMA turned into support today and this pair resumed the downtrend when the 20 caught up. So, we have turned bearish on this pair and will open a sell signal when the 20 SMA reaches the price again.
The sentiment has improved in financial markets considerably, now that the Brexit deal seems doable and a partial trade deal between the US and China is within sight. The reversal in the US UoM consumer sentiment also improved the sentiment further, so the situation has changed dramatically in the last two days.