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PMI Day and Quadruple Witching, What Does that Spell for the Market?

By OFX

The Greenback fell across the board on Thursday as a resurgence in global risk appetite after the United States and China announced new import tariffs this week that was less harsh than expected curbed safe-haven demand for the US dollar. Even with yesterdays the sound fundamentals, the greenback could not reverse its downside weekly trend. US initial jobless claims fell to 201K for the week ended September 14, the lowest since November 1969 and better than the 210K expected. The Philly Fed Manufacturing Index for September jumped to 22.9, almost doubling August 11.9 and well above the 17.0 expected. Existing Home Sales were flat in August vs. an expected increase of 0.3%.

Looking ahead today and we will see the release of Flash Manufacturing PMI, forecast 55.1, above 50.0 indicates industry expansion. Market participants are focusing in on the possibility of increased volatility in stock markets as quadruple witching is upon the market today. The term quadruple witching is used because we have the quarterly expiration of futures and options on indices and stocks. Adding to the market risk is the revision to the global industry classification standard since 1999. Analysts are concerned the market participants could use these significant events as a platform to sell stocks which are trading at record highs.

The Canadian Dollar continues to strengthen as the positive risk sentiment puts the pressure on the greenback. Opening this morning at 0.7738 against its US counterpart, the loonie finds itself well supported despite no new signs of a NAFTA deal.

In what was a quiet day on the economic calendar yesterday, the CAD rode the softening Greenback to further gains as global risk-appetite returned to the market. Commodity markets enjoyed a healthy recovery as well which helped the Canadian dollar find a footing. The Canadian Dollar was buoyed by news that the US had backed away from some contentious demands in on-going NAFTA discussions. Negotiations seem to be protracted, suggesting that there are signs of significant sticking points.

Market participants now turn their attention to month-on-month CPI reading which printed at 2.8% in line with expectations. Also, retail sales figures were posted and showed signs of life publishing a 0.3% above the previous reading of -0.2% but below estimates of 0.6%. Further loonie direction will come from the ongoing NAFTA negotiations.

The euro touched a 10-week high against the greenback in overnight trading, opening this morning just below 1.1758. The catalyst for the surge upwards appears to be a softening US dollar and upbeat headlines from the UK and EU on Brexit.

The weakening US Dollar was the primary driver of Euro strength with the Dollar significantly softening across the board. The impetus for the shift was returning global risk-appetite after a lengthy wait-and-see period with the US-China trade war. The Fibre also found support from a surprisingly upbeat retail sales reading in the UK and current Brexit headlines showing a deal may be more likely than first thought. ECB Chief Economic Peter Praet also added to the narrative of the day with his speech saying the Euro-zone economy was expanding at a rate above its potential. He also said that he was confident about the inflation rate converging with the bank’s target.

Moving into Friday, trader focus was on PMI readings in France and Germany which softened in both countries. Market participants will also keep a close eye on on-going Brexit negotiations for further direction on the euro.

The Great British Pound is stronger this morning when valued against the Greenback adding more than a cent to hit two-month highs on Thursday after forecast-beating UK retail sales data. British retail sales jumped 3.3 percent in August compared with the same month a year earlier, better than all forecasts. Sales rose by 0.3 percent in August from July, the Office for National Statistics said, defying a median estimate for a fall of 0.2 percent.

Looking ahead today and the macroeconomic calendar is empty with no scheduled release. Investors will continue to focus on Brexit Headlines amid growing optimism that Britain and the European Union are making progress.

From a technical perspective, the GBP/USD pair is currently trading at 1.3167. We continue to expect support to hold on moves approaching 1.3114 while now any upward push will likely meet resistance around 1.3201.

The Australian Dollar continued its momentum into Thursday, gradually increasing towards the 0.73 level. The catalyst for the shift was a broad-market sell-off of safe-haven currencies, including the JPY and USD, as risk-sentiment decidedly shifted post-US-China trade war announcement. Opening this morning at 0.7284, the Aussie looks poised to test the critical psychological level of 0.73.

The week was relatively lackluster on the Australian side of the pair with the RBA delivering the official neutral statement it has for over two years earlier in the week. The drivers of the recovery continue to come from off-shore forces. Besides the softening Greenback, the Aussie also found support from rallying commodity markets. The CRB Index, a basket of 19 commodities, rose significantly to challenge 193.65, a healthy gain from its June low of 164.54.

Chinese headlines also assisted the Australian Dollar in their recovery with President Xi stating that China would reduce tariffs on goods from most of its major trading partners. The average tariff rate could be significantly reduced as early as next month, potentially assisting Aussie exporters in accessing one of the world’s largest markets a little easier.

The New Zealand Dollar is stronger this morning when valued against the U.S. Dollar after upbeat 2Q GDP data. The Kiwi traded at a high of 0.6698 overnight. Second quarter year-over-year GDP came in at 2.8%, up from economists’ forecasts of 2.5% and the prior 2.7%. The quarterly growth measure similarly exceeded expectations, at 1.0%, compared to the estimate of 0.8% and the previous 0.5%.

Looking ahead today and the macroeconomic calendar is relatively light with the only two releases Visitor Arrivals m/m and Credit Card Spending y/y.

From a technical perspective, the NZD/USD pair is currently trading at 0.6676. We continue to expect support to hold on moves approaching 0.6650 while now any upward push will likely meet resistance around 0.6720.