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Market Update – June 20 – PBoC cuts, RBA doubtful, UK rates surge


Last night the People’s Bank of China cut its 1y and 5y loan prime by 10 bps each to 3.55% and 4.20% respectively, as broadly expected. The move triggered a classic ”sell the fact” reaction and APAC markets – with the exception of Australia – are all negative for the second day in a row; shares of mainland Chinese developers slid over 3% in HK. Meanwhile, in minutes released for the RBA’s June meeting, the central bank revealed that members were deliberating between raising rates or holding them to assess additional data and finally made the decision after seeing that inflation data had “shifted to the upside”. Uncertainty among bank members caused a sharp fall in the AUD, currently the weakest of the majors. Yesterday there was also news that Buffett raised his stake in five Japanese trading firms to average more than 8.5% and this morning almost all of them jumped close to 4% (Mitsubishi, Mitsui, Sumitomo, Itochu, Marubeni). But what is worthy of attention are the expectations for the BOE meeting on Thursday with the 2 year Gilt rate well above the highs of last autumn’s mini-budget crisis (5.078% now), when the 10 year Gilt close to the levels that had caused fears for the UK pension industry and prompted the resignation of the Truss government (due to a very disorderly move back then) and traders now expecting a terminal rate between 5.75% and 6% (4.5% now).

UK 2 year Gilt, Source Bloomberg
  • FX –The USDIndex is up for the 3rd day in a row at 102.18 (0.34%), EURUSD flat, Cable is consolidating just under 1.28 (1.2780 now) and EURGBP at 0.8544, just below last December’s low. USDJPY at 142! USDCNH is resuming its run towards 7.26 after the fall following the FED break, 7.1784 now
  • StocksChina -0.79%, HK -1.51%, Nikkei -0.49%. US Futures in red (US500 -0.40%, US100 -0.52%, US30 -0.43%). Yesterday in Europe CAC40 (-1.01%) fell back to underperform its peers, probably on weak China and the weight of LVMH (-1.75%)
  • Commodities – USOil – 0.85% at $70.82. Gold – slightly shy of $1950, Copper and Palladium are weak (-0.8% and 1.35% respectively)

    Today – German PPI, Switzerland Trade Balance, US Building permits and Housing Starts, FED’s Williams, ECB’s De Guindos speeches, BOJ Minutes.

    EURAUD, H1

Biggest FX Mover @ (06:30 GMT) EURAUD (+0.74%%) exploded to the upside after RBA’s minutes, above 50 / 200 MA H1, MACD positive, RSI at 74.66

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Marco Turatti

Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Marco Turatti – Market Analyst

After working for about 10 years in institutional trading rooms across Europe, Marco entered the FX sector as an analyst leveraging his knowledge of the financial markets. With a degree in Economics, from 2007 onwards he has constantly -and sometimes obsessively- studied and improved his trading and risk management techniques through active and direct investments.

He is a firm believer in the need to know completely the securities one is dealing with, to always have a plan B ready, to build a macro view from which to derive the micro plan of action and -above all- to be strict with the rules one has set oneself, without taking anything personally.

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