Sanctions Day
US sanctions against Iran have gone into effect. Last week showed that Trump’s original vision of reducing Iran’s oil exports to zero was unfeasible, as the President ended up giving exemptions from the sanctions to India and South Korea. Today Iranian President Hassan Rouhani made it clear that Teheran will not comply with US sanctions and will continue to export oil. News of these sanctions did cause oil prices to rise in August, however, it has become increasingly clear that the aren’t severe enough to notably disrupt oil supply, prompting prices to drop back down again. Contracts on WTI were below 63 dollars today, meaning it declined by only an additional 0.5% on the day of the sanctions.
China’s Promises
President Xi of China spoke at the recently held China International Import Expo. His speech emphasized the openness of the world’s second largest economy and the country’s continued commitment to open trade. One would expect the positive tone of the speech to fill market participants with optimism, however, Asian indices continue to be sold off in large waves. The Hang Seng and Nikkei declined by 2.28% and 1.55% respectively. The Shanghai Composite also dropped by 0.41% by the end of the day.
US 10-Year Treasury Note
It’s the week of the November elections and question of whether Trump and the Republicans retain their majority in Congress will soon be decided. Preliminary polls estimate that Democrats could pick up 23 seats in the US House of Representatives, which would allow them to interfere with the Trump administration. Obviously this information is insufficient for us to estimate whether the Fed will continue its base interest rate hikes. Trump is not likely to tone down his criticism of the Fed, however, he would find it much more difficult to actually pressure them if his political power were to weaken.
The 10-Year US T-Note successfully rose in October, in the midst of Trump’s offensive on Fed rate hikes. This is evidence of market participants seeing a glimmer of hope that the Fed could slow down its policy of aggressive interest rate hikes. In spite of that, the macroeconomic data published last week once again has treasury note yields on a rising trend. The support line near 118 stopped the T-Note from further declining, although analysts still don’t expect a 2.5% base rate from the next Fed interest rate meeting just yet. Inflation is clearly the Fed’s primary concern, so the most recent 1.4% GRP deflator may have caused them to ease up. The upcoming Fed interest rate meeting this Thursday will no doubt be the most significant market event of the week.
GBPUSD
The latest overwhelmingly positive US employment figures prove that the fundamentals behind the dollar remain strong. Although there was a large surge of USD sales that swept the markets last week and caused a rebound in most currency pairs the dollar is a part of, the US economy’s exceedingly positive outlook still makes it likely that the dollar’s continued strengthening will remain the basic trend.
The GBPUSD’s rise last week stopped just short of the 61.8% Fibonacci retracement level of the previous plummet. The 1.3037 line stopped the price rally and formed the currently relevant resistance line. Price is now hovering around the 1.30 line in a 30 pip range. Considering the dollar’s relative strength, this could be a promising level to build short positions due to the proximity of the resistance line, which may act as a starting line for a possible movement of 300 pips all the way to the 1.27 support line. As such, it might be a suitable opportunity to enter the market with potentially high risk reward ratio.
Sincerely,
Laszlo | Market Analyst
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