The end of a very volatile week for FX, equities and commodities. Continued stalemate between the US and China on the trade negotiations has caused much angst in the financial markets. 

The rate cut in the US has traders confused as to whether it will be ‘one and done’ or if there are more on the way. Then there is the question of Federal Reserve independence – are they being unfairly influenced by President Trump and are they sending mixed signals about future intentions. 

And of course the Fed is not the only central bank cutting interest rates. New Zealand cut by a surprise 50bp earlier in the week and made it clear that more cuts can be expected. China themselves chose to allow the CNY to depreciate under the 7.0000 level in a veiled response to an increase in US trade tariffs provoking further stern words from the US administration. 

Gold has benefitted from not only the general uncertainty but also the drop in global bond yields, hitting a 6-year high of $1510. And of course, global stock markets have become the poster-child for rollercoaster volatility with the DJ on Wednesday reversing a 600-point drop to close flat on the day. 

For once crypto has been a vision of stability, showing some gradual gains as other asset markets melted down. But technical resistance has seen the major coins stall, although no major reversal yet. 

Friday would see a pullback for equity markets from the gains made Thursday. The Dax and Nasdaq would both close over 1% lower with the DJ lower by 0.34%. 

In the FX markets, all eyes turned to GBP with a plethora of UK data being released. Industrial Production, GDP, Manufacturing Production and Construction Output all came in worse than expected. 

The only bright spot was a better than expected trade deficit. GBP dropped from 1.2120 to 1.2085 but in the end the weight of poor data and the continuing Brexit impasse was too much to bear, and GBP dropped to a low of 1.2024. 

Canadian Employment data was also released showing a decrease in jobs and a surprise rise in the unemployment rate. USDCAD initially rallied from 1.3210 to 1.3270 but rather surprisingly fell back to close nearer 1.3215. EURUSD continued its love affair with 1.1200 trading either side by 20 points. The sell off in stocks weighed on USDJPY taking us back below 106 to close at 105.65. 

AUDUSD also suffered from the ‘risk-off’ sentiment, slipping back below 0.6800 to 0.6785. Crypto saw one of its quieter weekends in quite a while, although BTC did dip to $11,400 while ETH bounced up to $215. BTC has been so dominate recently, maybe some light profit taking on that particular trade.

As I mentioned earlier last week, highly volatile markets can be tough for short-term technicals. The 0.6832 level in AUDUSD, which I highlighted previously, continues to be pivotal. 

$1,488 in XAU should also be a good support for now. But it’s GBPUSD I turn my attention to as head towards the post–Brexit lows from 2017. As mentioned before, there’s a lot of debate as to the real low as there was a ‘flash-crash’ during Asian hours but I will work off 1.1985 as per this monthly chart.

Below there…..not much to go on. But weakening data and the looming threat of a ‘no-deal Brexit’ is not going to help GBP’s cause.

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David Hannigan
Author

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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