EUR/USD has reversed last week’s post-ECB sell-off, whats next?
- EUR/USD’s found-day winning streak has erased losses seen yesterday
- The relief rally could be short-lived, as Treasury yields are again rising
- Brexit optimism and sustained risk-on, if any, could bode well for the USD in the longer-run
EUR/USD’s drop to 21-month lows below 1.12 has been reversed, but the relief could be short-lived, as the US 10-year treasury yield has bounced up from three-month lows seen earlier this week.
The European Central Bank (ECB) turned dovish last Thursday, pushing the shared currency lower across the board. The EUR/USD pair fell more than 140 pips to 1.1176, confirming a downside break of the three-month trading range of 1.12-1.15.
The follow-through to range breakdown, however, has been bullish. The currency pair put on a good show for the fourth straight day on Wednesday, closing well above 1.13, erasing the 140-pip drop to 1.1176 seen last Thursday.
While the bulls have survived for now. the relief could be short-lived, as the US 10-year treasury yield has recovered from a three-month low of 2.59 percent hit earlier this week to 2.63 percent.
Further, the two-year US-German (DE) government bond yield spread seems to have found a bottom around 300 basis points (January lows).
So, EUR/USD’s recovery rally may run out of steam ahead of the weekend. As of writing, the pair is reporting marginal losses at 1.1322 with hourly RSI rolling over from overbought territory.
A drop below 1.13 could be seen if the Eurozone’s final CPI reading for February, due for release at 07:00 GMT, prints below preliminary estimates released earlier this month, validating ECB’s recent decision to push rate hikes out to 2020.
Apart from the Eurozone inflation data, the pair will also take cues from the US weekly jobless claims, export and import price indices and housing data.
Any rise in Sterling due to Brexit optimism may also put a bid under EUR/USD. That said, in the longer-term, the risk-on is more likely to favor the high-yielding dollar.
GBP, CHF Eyeing Brexit Vote – USD Waiting for New Home Sales
- CHF, GBP traders anxiously waiting for Brexit vote
- USD eyeing UK event risk and local new home sales
- If an extension is granted, how much will it cost?
Sterling will be biting its proverbial nails today as the House of Commons gears up for a third major Brexit-related vote. After May’s plan was defeated on Tuesday, another vote was held on whether the UK would leave the EU without a deal. It was subsequently voted down. Now, UK lawmakers are gathering for a vote on extending the March 29 deadline. If it passes, will the EU agree, and much will it cost…for both sides?
EU officials stated that if an extension was granted, it could come with a 39 billion GBP price tag. Now, the cost for the EU is less pecuniary than it is political. If European officials are too lenient, it could incentivize Eurosceptic parties around Europe to follow the UK and vote to leave. Conversely, if they are too harsh and rigid, it could embolden parties around Europe that accuse Brussels of being a technocratic leviathan.
With the upcoming European Parliamentary elections in May, the EU has to do what it can to preserve what positive views there are of Brussels in order to ensure pro-European lawmakers are voted in and crowd out their Eurosceptic counterparts. The fear of geopolitically-based market disturbance in Europe has swelled with ECB President Mario Draghi citing it as a growing concern in the last policy meeting.
If the outcome of the Brexit vote results in a demand for haven assets, the US Dollar, Japanese Yen and Swiss Franc (CHF) may gain. The latter may outperform its other anti-risk colleagues due to its geographical proximity to the European-based event risk. This might explain why CHF was strengthening almost throughout the entire APAC trading hours.
The US Dollar will be focusing on local economic data. Month-on-month new home sales are expected to rise 0.30 percent after a previous rise of 3.70. If more people purchase homes, the subsequent spending in furniture and various other house-related expenditures multiplied across the population creates an aggregate spending effect that pushes up inflation. This in turn could influence Fed monetary policy and send the US Dollar higher.
Stock Market News
What General Electric investors want from CEO on Thursday
Portfolio manager Michael Kon began buying General Electric Co shares about a year ago and got more last fall after GE Chief Executive Larry Culp outlined plans to reboot the ailing power-plant unit.
“I wouldn’t say that they’ve got their arms around it,” Kon, who is also research director at investment firm value-oriented Golub Group LLC, said of the power trouble.
“But at least they’ve identified all the issues.”
Culp has a chance to attract more investors by providing greater clarity on GE’s strategy when he and other GE leaders lay out their 2019 financial forecast on Thursday.
Wall Street analysts expect GE to earn 70 cents a share this year and generate $1.9 billion in free cash flow, on average, according to data from Refinitiv.
GE optimists, spurred by Culp’s actions, have fueled a 53 percent rally from the stock’s low in December. As the first outsider to head the 127-year-old conglomerate, Culp has cracked open GE’s books to more scrutiny, shaken up its board and stationed new leaders in trouble spots like power and insurance.
But Culp still faces many skeptics who dumped the stock as GE racked up staggering losses of more than $30 billion over the last two years and cut its dividend to near zero.
The camps are unusually divided: Of 19 analysts who cover the company, nine rate its stock “hold” or “strong sell” while 10 rate it “buy” or “strong buy,” according to Refinitiv.
Those views did not change much even after GE reported a $22 billion loss in January or told investors last week its industrial businesses will lose cash in 2019.
GE shares are down 15 percent since Culp took over in October, and they are worth less than a third of their value in 2016.
Some analysts count Culp’s candor as positive and say the cash flow warning shows serious investment in restructuring.
But others say the changes have clouded GE’s outlook and want Culp to paint a credible picture of its future.
GE’s strategy of selling assets to pay off its outsized debt, for example, is ditching some of its most cash-generative businesses, such as rail and biopharma, said John Inch, analyst at Gordon Haskett Research Advisors. GE’s power unit has cut 12,000 jobs and 30 percent of facility space but plans to spend more on restructuring this year, he added.
“Just exactly what are you doing in power with all that restructuring money?” Inch asked.
GE’s forced asset sales also mean GE is not getting good prices, said Oliver Pursche, chief market strategist at Bruderman Asset Management LLC.
Investors who buy GE stock thinking it is cheap are ignoring cash outflows, strategy uncertainty and the fact that GE cannot afford to pay a dividend.
“The reality is, it’s at $9 for a very good reason,” said Pursche, who’s firm sold when GE cut its dividend in 2017 and won’t buy until the dividend returns and the outlook is clear.
“Until you get a cohesive growth strategy,” he said, “there’s no compelling reason to invest.”
U.S. stocks higher at close of trade; Dow Jones Industrial Average up 0.58%
U.S. stocks were higher after the close on Wednesday, as gains in the Healthcare, Oil & Gas and Industrials sectors led shares higher.
At the close in NYSE, the Dow Jones Industrial Average gained 0.58%, while the S&P 500 index added 0.69%, and the NASDAQ Composite index climbed 0.69%.
The best performers of the session on the Dow Jones Industrial Average were UnitedHealth Group Incorporated (NYSE:UNH), which rose 2.59% or 6.37 points to trade at 252.25 at the close. Meanwhile, United Technologies Corporation (NYSE:UTX) added 1.58% or 1.97 points to end at 126.64 and American Express Company (NYSE:AXP) was up 1.55% or 1.71 points to 112.14 in late trade.
The worst performers of the session were Home Depot Inc (NYSE:HD), which fell 0.82% or 1.50 points to trade at 181.14 at the close. Walt Disney Company (NYSE:DIS) declined 0.56% or 0.64 points to end at 114.09 and McDonald’s Corporation (NYSE:MCD) was up 0.13% or 0.23 points to 182.06.
The top performers on the S&P 500 were Chesapeake Energy Corporation (NYSE:CHK) which rose 4.86% to 3.020, DaVita HealthCare Partners Inc (NYSE:DVA) which was up 4.42% to settle at 53.60 and Range Resources Corp (NYSE:RRC) which gained 4.04% to close at 10.81.
The worst performers were Discovery Inc Class A (NASDAQ:DISCA) which was down 5.08% to 26.93 in late trade, Discovery Communications C Inc (NASDAQ:DISCK) which lost 4.86% to settle at 25.62 and Viacom B Inc (NASDAQ:VIAB) which was down 3.36% to 28.45 at the close.
The top performers on the NASDAQ Composite were Akari Therapeutics PLC (NASDAQ:AKTX) which rose 224.16% to 5.900, Presbia PLC (NASDAQ:LENS) which was up 57.69% to settle at 1.230 and Clean Energy Fuels Corp (NASDAQ:CLNE) which gained 28.63% to close at 2.920.
The worst performers were Sientra Inc (NASDAQ:SIEN) which was down 28.65% to 8.12 in late trade, VivoPower International PLC (NASDAQ:VVPR) which lost 26.79% to settle at 1.94 and Iconix Brand Group Inc (NASDAQ:ICON) which was down 25.29% to 0.28 at the close.
Rising stocks outnumbered declining ones on the New York Stock Exchange by 2022 to 964 and 114 ended unchanged; on the Nasdaq Stock Exchange, 1561 rose and 1071 declined, while 80 ended unchanged.
US SEC to Clarify Cryptocurrency Related Regulations in Meetings with Startups
The US Securities and Exchange Commission is going on a tour to meet startups and cryptocurrency projects that may otherwise not be aware of the legal restrictions and requirements. The FinHub branch of the Commission is organizing the meetings, with the idea of avoiding the sale of unregistered securities.
“FinHub is designed to make the SEC’s FinTech work more accessible to innovators, entrepreneurs, and their advisers, and serves as a platform to inform the SEC’s understanding of new financial technologies. FinHub is continuously interested in engagement,” the agency stated.
The advisory meetings will launch on March 26, starting from the San Francisco office of the SEC. Valerie Szczepanik, previously appointed to oversee the application of securities law to the digital asset sector, will discuss the nature of tokens and coins in the upcoming meetings.
The FinHub branch was created after months-long activity took USA to the leading position in token sales. But afterward, multiple projects were contacted with news that their digital asset was, in fact, considered an unregistered security.
The stance of the SEC has deeply affected the markets in the past, as decisions based on securities law are somewhat unpredictable. The recent fine against the decentralized exchange EtherDelta went on to show that tokens may at any moment be blocked for breaking securities law.
The coming meetings will show the attitude of the SEC to existing projects and startups. The launch of the meetings arrives just as SEC chairman Jay Clayton stated that Ethereum (ETH) is not a security in its current state. In the past, the Ethereum project has come under speculation of being a security, especially given that ETH was created after a process of public sales which may have temporarily turned the digital token into a security for legal purposes.
Currently, the discussion is still out on whether XRP can also be considered a security. Ripple, the issuer of the digital asset has been careful to dissociate the company from the coin, and so far exchanges in the USA have been cautious with XRP.
Risk Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63.18% of retail investor accounts lose money when trading CFDs with this provider. The information contained in this market review should not be construed in any way, as containing investment advice and/or a suggestion and/or solicitation for any trading activity and financial transaction. There is no guarantee and/or prediction of future performance. EuropeFX, its affiliates, agents, directors or employees do not guarantee the accuracy and validity of any information or data made available and assume no liability as to any loss arising from any investment based on the same. Trading Forex/CFD’s carries a high level of risk and can result in the loss of your whole investment. Forex/CFD’s are leveraged products and therefore Forex/CFD’s trading may not be appropriate for all investors. It is recommended that you do not invest more money than you can afford to lose to avoid significant financial problems in the case of losses. Please make sure you define the maximum risk acceptable for yourself.