Forex Signals US Session Brief, Nov 5 – Services Move Away From Contraction in the UK
The global economy has weakened considerably this year and many sectors of British economy have fallen into contraction. Manufacturing and the industrial production have been hurt the most by the trade war and these sectors were the first to fall into contraction, whether in the Eurozone, China, US or Japan. But, the contraction in manufacturing activity has spilled into other sectors of the economy in all these major countries and in the UK, the services sector which accounts for 4/5ths of the economy fell into contraction as well in September, as last month’s report showed.
That was pretty bad and increased fears of a further economic slowdown in Britain. But, today’s report showed that this sector improved in October and moved away from contraction, despite expectations. This is a good sign, although it is still too early to tell if this will lead to a reversal in the UK economy. Looking at the broader market, the USD seems to be back in demand right now. EUR/USD has turned bearish in the last two days while USD/JPY keeps pushing higher. Commodity currencies have also been bullish during the Asian session and for most of the European morning. GOLD, on the other hand is declining, so the sentiment looks pretty positive in financial markets.
The European Session
- UK Services PMI – Services fell into contraction in the UK in September, as last month’s report showed. The decline in manufacturing and industrial activity affected the rest of the economy, including services which is the biggest sector by far in Britain. Today’s expectations were for a slight improvement from 49.5 points to 49.7 points, but the actual figures beat expectations, coming at 50.0 points.
- Eurozone PPI Inflation – Oil prices have been declining for more than a year as the global economy weakens, which has affected the PPI (producer price index) inflation globally. PPI turned negative in April and it has been declining since then, apart from July, when we saw an increase, but the PPI turned negative again in August, declining by 0.5%. Today’s report was expected to show a 0.1% increase for August and so it did.
- China Trying to Look Tough on Hong Kong – China’s Communist Party commented on Hong Kong via Reuters this morning that they will not tolerate any separatist behaviour in Hong Kong. Will resolutely fend off external forces interfering in Hong Kong. Will support Hong Kong and Macau’s economic development with focus on developing ‘deep rooted’ problems that affect social stability.
- OPEC Doesn’t Sound Like They Want Production Cuts Again Today – Recently we have heard OPEC officials that they might decide to cut Oil production in the December meeting. But, OPEC’s secretary general Barkindo said earlier today that the idea of deeper production cuts is in question now. Countries are ramping up compliance with the deal. Numbers we are seeing now suggest that 2020 may have upside potential. He is optimistic that oil market is going to gain stability.
The US Session
- Everything is Good For FED’s Barking if US Consumers Keep Consuming – The Richmond FED’s Thomas Barkin was speaking on the economy a while ago, saying that as long as US consumers keep spending, the US economy in a good place. The US economy is giving conflicting signals. Risks to the US economy still tilted to the downside. He does not discount idea that US could talk itself into a recession. He is closely watching whether this year’s rate cuts have the intended effect on the US economy. The biggest boost for the US economy would be from lessening uncertainty. Economic headwinds mostly driven by uncertainty on trade and politics. Risk slowing global growth will affect the United States.
- China Officials Commenting on US-China Trade Issues – Hu Xijin of the China Global Times, often thought as a sounding board for the China government, is tweeting: “To reach a deal, China and US must simultaneously remove the existing additional tariffs at the same ratio, which means that tariffs to be removed should be in proportion to how much agreement has been reached”.
- Conservatives Increase the Lead in Polls in Britain – As we know, general elections are approaching in the UK and it is important, because the winner will decide whether to go on with Brexit or call another referendum. Liberal Democrats want to abolish it altogether. As of today, polls stand as follows:
- Conservatives – 38%
- Labour Party – 25%
- Liberal Democrats – 16%
Brexit Party – 11%
Trades in Sight
Bullish USD/JPY
- The trend has been bullish this week
- The sentiment has improved
- The 20 SMA has turned into support on the H1 chart
The 20 SMA is providing solid support for this pair on the H1 chart today
USD/JPY has turned bullish this week after making a strong bearish move last week, following the rate cut from the FED and the failure to pass the Brexit deal in the British Parliament once again. The sentiment has improved this week and stock markets have turned bullish again, while safe havens such as Gold and the JPY have turned bearish. USD/JPY is climbing higher and the 20 SMA (grey) is providing support on the H4 chart. So, buyers are in charge in this pair right now.
In Conclusion
The services sector came out of contraction again in the UK which is a positive sign, but Brexit will keep driving the GBP around. General elections are approaching and Boris Johnson’s Tory Party is in charge and increasing the lead to 13 points now. This is another positive thing since it would mean that the Brexit deal will finally pass the Parliament.
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