The effect of Sterling flash crash lasted longer than a flash.  Sterling is trading towards the flash crash low.  Will it break the key level of 1.20?

The Brexit saga continues.  The latest episode is whether the court will rule that approval from Parliament is needed to invoke Article 50.  Parliamentary approval will delay the process beyond the first quarter of 2017.  If the court rule in favour of the approval, then we could see a rebound in the sterling.  Bank of England Governor Carney has expressed tolerance towards recent decline in the sterling; a weak sterling will go a long way to help the central bank to achieve their inflation target.  The GBP/USD current support of 1.21 is holding the fort, but for how long?  The flash crash has turned into a fresh crash for the sterling, creating a new low for the market to target.

Dollar traded higher last week on the back of FOMC minutes and comments from various FOMC members.  Most members are opened to a December rate hike.  Even the most dovish member, Chicago Fed President Evans said he is open to a rate hike in December.  We would expect the dollar to remain strong on December rate hike expectation, unless there are downside surprises to the employment data in early November and December.

Oil price has edged higher.  Russia President Vladimir Putin said last Monday, “Russia is ready to join in joint measures to limit output and calls on other oil exporters to do the same.”  WTI hit a high of $52 a barrel after the comment.   The momentum was lost towards midweek, because there were differences in opinion on the amount of output to be agreed upon.  This cast a shadow of doubt on the deal.  We could possibly see WTI heading to or beyond $52 if there is more concrete proof on the collective deal to limit production.  The rise in oil price has helped the loonie fend of the dollar bull.  This week is Bank of Canada (BOC) interest rate decision and rate statement.  With the recovery of oil price and positive data, with the exception of an underperformed CPI, we expect BOC to keep their interest rate unchanged and continue to maintain an optimistic outlook.

Recent speculations on ECB’s QE commitment has aroused the curiosity of the market to hear what Mario Draghi has to say this week after their interest rate announcement.  We expect ECB to maintain their interest rate, but Mario’s tone in the statement and press conference will have impact on the market.  If he expresses confidence in Europe’s outlook, Euro should continue to be supported at 1.10.  If he expresses concern and emphasises on readiness for further easing, then Euro may head towards the next support of 1.08.


Our Picks

EUR/USD – Sell on rally.  Optimistic ECB statement could push EUR/USD towards 1.11.  Consider to go Short on Fed rate hike expectation after the rally.

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OIL/USD (WTI) – Breakout.  WTI is consolidating in a triangle.  Further news or rumours on production limit deal could result in breakouts.  Consider to Long/Short on the breakout of Resistance/Support respectively.

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XAU/USD (Gold) – Slightly bullish.  We expect Gold to remain in the range between 1250 and 1263, unless there are major surprises from the US data this week.

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Top News This Week (GMT+8 time zone)

Canada: Overnight Rate.  Wednesday 19th October, 10pm.

We expect figures to remain unchanged at 0.5% (previous figure was 0.5%).

Europe: Minimum Bid Rate.  Thursday 20th October, 7.45pm.

We expect figures to remain unchanged at 0.0% (previous figure was 0.0%).

US: Philly Fed Manufacturing Index.  Thursday 20th October, 8.30pm.

We expect figures to come in at 5.6 (previous figure was 12.8).



Fullerton Markets Research Team

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