European Open: Sterling spikes, German GDP up next

Volatility from GBP pairs woke traders up in Asia. Meanwhile, Powell’s ‘Turnaround Tuesday’ comments for Wall Street failed to spill over to Asian equities.

Charts (1)

Asian futures:

  • Australia’s ASX 200 index fell by -61.4 points (-0.90%) to close at 6,777.8
  • Japan’s Nikkei 225 index fell by -484 points (-1.61%) to close at 29,671.70
  • Hong Kong’s Heng Seng index has fallen by -812 points (-2.70%) currently trades at 29,782.75

FTSE 100 to open lower

  • FTSE 100 futures are trading -33.5 points lower (-0.51%) , the cash market is expected to open at 6592.44

European futures:

  • The Euro STOXX Index futures are trading -7 points lower (-0.19%), the cash market is expected to open at 3682.1
  • CAC 40 futures are trading -19 points lower (-0.14%), the cash market is expected to open at 13845.81
  • DAX futures are trading 0 points lower (0%), the cash market is expected to open at 5779.84

US futures

  • The Dow Jones index rose by +15.66 points (+0.05%) to close at 31,537.35
  • The S&P 500 index rose by 4.87 points (0.13%) to close at 3,881.37
  • The Nasdaq 100 index fell by -29.3 points (-022%) to close at 13,194.71

Despite Powell’s ability to drag Wall Street from its lows yesterday, the ‘asset price friendly’ message he delivered to congress did not support Asian shares. Equities across Japan, China, South Korea Australia were in the red overall, although not at the rate Wall Street initially fell yesterday afternoon.  

The ASX 200 retreated to its weekly low and the Hang Seng index is back below 30k. Technology stocks and basic materials were the weakest sectors within the ASX 200, whilst Appen Ltd (APX) and Nanosonics Ltd (NAN) were the bottom of the table, falling -11.2% and -7.5% respectively. The weakest performers in Asia at an index level were China’s CSI300 (-1.8%) and Japan’s Topix (-1.4%) and Nikkei 225 (-1.00%)

Forex: British pound spikes during low liquidity session

An exciting burst of volatility during the Asian session caught many by surprise, and even more so as it came from the British pound. Not content with hitting 1.4100 for the first time in three years yesterday, GBP/USD bulls accelerated their buying early on, only to see it pop exponentially higher over a 20-minute window.

Seeing GBP/USD rally around +120 pips in 20 minutes (+0.84%) is not something you see every day in Asia. Or any day for that matter. Yet the ferocity of the move strongly suggests large stops were triggered along the way. The pound’s strength was broad which saw GBP/CHF hit our 1.2900 target (0.6%), drive EUR/GBP to a 52-week low and generally dominate the session.

Reports surfaced that the UK’s Chancellor of the Exchequer, Rishi Sunak, is planning to extend the UK’s stamp duty holiday for a further three months. Yet it’s debatable as to whether that alone would cause such a move. It could simply come down to the mechanisms of an overcrowded trade during a low liquidity session.

EUR/GBP falls to 52-week low

The ‘chunnel’ (more commonly known as EUR/GBP) didn’t escape the pound’s spike and swiftly broke to a 52-week low. It’s no coincidence the sell-off stalled around 0.8540 before snapping back, because this is where the daily S3 pivot resides. Moreover, its subsequent retracement has since found support at the daily S2 pivot around 0.8574.

With prices now consolidating ahead of the UK open, we are intrigued to see which way this breaks initially. Keep in mind we have German GDP and the UK open to deal with, so we are open for an initial drive in either direction. But, as UK traders are yet to react to the extended stamp-duty-holiday, the bias is for an eventual move lower (even if it doesn’t quite reach the S3 low again today).

  • A break beneath 0.8573 takes prices back below the recent consolidation and assumes bearish continuation.
  • A rebound higher could be an opportunity for bears to fade (sell into) should price action show signs of weakness around resistance levels (such as the daily S1 pivot, 10 or 20-dar eMA).

Succinct as ever, RBNZ promise ‘prolonged stimulus’

One of the great things about RBNZ (Reserve Bank of New Zealand) is that they never mince their words. And today’s statement was no different as they got straight to the point with the statement’s title: “Prolonged Monetary Stimulus Necessary”. Those that read on would quickly find that rates remained at the record low of 0.25% and their $100 billion QE program is to continue until June, in a move which surprised, literally, nobody. Still, there as an interesting bearish spike across NZD around the release before losses were recouped in a flash.

AUD/NZD has since broken yesterday’s lows and produced a third ‘selling spike’ and moving lower, in line with the bias outlined in the Asian Open report.

Australian wage growth: Nowhere to be seen

Wage growth in Australia remained flat and near historic lows. Given that the RBA (Reserve Bank of Australia) estimate wages need to expand around 3.5% - 4.0% per year to CPI lift within their 2-3% target band, there are no domestic inflationary forces at present to see RBA hike any time soon.

Up Next (Times in GMT)

German GDP is the main economic report scheduled today, although there are a host of talks from central bankers which warrant a look.

At 14:30 GMT, BOE (Bank of England) Governor Andrew Bailey speaks to lawmakers about the chances of economic recovery.

At 15:00, Federal Reserve Chair Jerome Powell continues his second day of testimony to US congress. Whilst we have likely already seen the baulk of what he has to say regarding their stance of policy (which is to maintain stimulus until the job is done) his comments may still warrant a look to see if he goes off script. Particularly if he is pressed about bond market stress and tapering. Fed members Brainerd and Clarida also speak at 15:30 and 18:00 at separate events, respectively.

RBNZ Governor Adrian Orr speaks at the Financial and Expenditure Committee at 19:00.

You can view all the scheduled events for today using our economic calendar, and keep up to date with the latest market news and analysis here.

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