The data published by Automatic Data Processing (ADP) showed on Wednesday that private sector employment in the US rose by 239,000 in October. This reading came in better than the market expectation of 193,000. September print of 208,000 got revised down to 192,000.
Developing story...
The US Dollar Index showed no immediate reaction to this data and was last seen losing 0.22% on the day at 111.30.
DXY’s multi-session strong advance has faltered around the 113.60 region on Wednesday.
If bulls push harder and the index surpasses 114.00, then the next target of note should turn up at the 2022 high at 114.78 (September 28) prior to the round level at 115.00.
The prospects for extra gains in the dollar should remain unchanged as long as the index trades above the 7-month support line near 107.80.
In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 103.10.
The GBP/USD pair extended last week's retracement slide from the 1.3300 mark, or the 200-period EMA on the 4-hour chart and witnessed some follow-through selling on Monday. This marked the fourth successive day of a negative move and dragged spot prices to over a one-week low, around the 1.3110 region during the mid-European session.
The US dollar continued drawing support from rising bets for a 50 bps Fed rate hike move at the May meeting. Conversely, the sterling was weighed down by dovish remarks from the Bank of England Governor Andrew Bailey, saying that we are starting to see evidence of a growth slowdown. This, in turn, exerted downward pressure on the GBP/USD pair.
Looking at the broader picture, the pair on Friday confirmed a break through an ascending trend channel, which constituted the formation of a bearish flag pattern. Sustained weakness below the 1.3100 round-figure mark will further validate the bearish bias and set the stage for a further near-term depreciating move for the GBP/USD pair.
The next relevant support is pegged near the 1.3070 region, below which the downward trajectory could further get extended towards the 1.3035 intermediate support. The GBP/USD pair could eventually drop back to challenge the key 1.3000 psychological mark, or the lowest level since November 2020 touched earlier this month.
On the flip side, attempted recovery moves might now confront stiff resistance near the 1.3150-1.3160 region. Any subsequent move up is more likely to attract fresh selling and remain capped near the 1.3180-1.3185 zone. This is closely followed by the 1.3200 mark, which if cleared decisively might prompt some short-covering around the GBP/USD pair.
Upwards, XAU/USD’s first resistance would be $1974. Once cleared, the next resistance would be $2000, and the YTD high at $2075.82.
On the flip side, and the most likely scenario, XAU/USD’s first support would be March 20 low at $1950.30. Breach of the latter would expose March 16 daily low at $1895.06, followed by November 16, 2021, low at $1877.14.
- Western capitals have started putting in place fresh restrictions on Russia's sovereign debt as they seek to ratchet up pressure on Moscow over the conflict with Ukraine.
The United States and its allies introduced an initial round of sanctions after Russian President Vladimir Putin recognised two breakaway regions in eastern Ukraine on Monday. A string of harsher measures is expected after he launched a full-scale invasion on Thursday.
Access to Russian bonds had become increasingly restricted. U.S. sanctions imposed following the 2014 annexation of Crimea made future Russian dollar-denominated debt ineligible for many investors and key indexes.
In April 2021, U.S. President Joe Biden barred U.S. investors from buying new Russian rouble bonds over accusations of Moscow meddling in the U.S. election.
Here is an overview of what measures have already been added and what impact they might have:
WHAT ARE THE NEW RESTRICTIONS ON SOVEREIGN DEBT?
Washington announced a ban on U.S. entities participating in secondary markets for both rouble and non-rouble debt issued by Russia's central bank, the national wealth fund and the finance ministry after March 1.
The European Union agreed new sanctions that will target the ability of Moscow to access the bloc's capital and financial markets as well as services, and ban EU investors from trading in Russian state bonds. Canada's government said it would bar its citizens from engaging in purchases of Russia's sovereign debt.
Britain said on Wednesday it would stop Russia selling sovereign debt in London - one of the world's major financial centres for such transactions. The measures would require additional legislation, according to Western officials, and clearing transactions would also be affected. However, there was no indication on whether Britain would stop trade in outstanding sovereign debt.
The coordinated measures are aiming to curb Russia's ability to raise new foreign financing and plug some loopholes. Despite the limitations in the United States, Russia had been able to issue bonds in European markets.
Analysts at JPMorgan (NYSE:JPM) calculate that Russia has issued a combined 3.5 billion in euro-denominated bonds since 2020.
IMPLICATIONS FOR INVESTORS
Analysts see limited implications for holders of existing hard-currency bonds.
They, however, predicted the new U.S. sanctions on local sovereign bonds, so-called OFZs, would lead to the creation of two different classes of OFZs.
In response to the U.S. curbs on local sovereign bonds, the finance ministry said it would offer only new series of OFZs starting from Feb. 22 and stop tapping issues registered before this date "to lower risks of forced selling of circulating state securities by particular categories of foreign investors."
JPMorgan said that bonds which had been sold since mid-June had a 10-25 bps premium over existing issues, though this divergence faded, likely due to bonds being added to the most widely used emerging fixed income benchmark.
"However, premia may be more persistent this time given that new OFZs will not be index eligible," said Nicolaie Alexandru-Chidesciuc at JPMorgan. "As long as local banks can freely transact with foreigners the basis between the two curves should remain relatively narrow (within 20-30bp)."
WHAT DOES THIS MEAN FOR CAPITAL FLOWS?
Latest data shows that Russia has just under $40 billion in dollar and euro-denominated bonds outstanding, with just over half held by foreign investors. Positioning in those bonds by foreign investors looked light and the most underweight in two decades, according to a JPMorgan emerging market client survey.
Meanwhile foreign investors held around 18% or 2.8 trillion roubles ($34.4 billion) of overall outstanding OFZs, according to ING.
The new U.S. sanctions are not expected to trigger forced selling in OFZs. However, capital flows have shown investors ditched the bonds as tensions over Ukraine have escalated since late last year.
"Russia is now experiencing the fifth consecutive month of foreign portfolio outflows from OFZ," said Chris Turner, global head of markets at ING. "In October-January it totalled $5.4 billion, and since the beginning of February, some $1.1 billion were withdrawn."
Russia currently has a weight of 6.8% in JPMorgan's local sovereign debt benchmark, though given the U.S. measures would see no new issues added while existing ones would mature, the weighting was expected to shrink to below 5% in just over three years, the bank projected.
JPMorgan, which runs some of the most widely-used hard and local currency fixed income indexes in emerging markets, said on Wednesday it was reviewing the impact the new U.S. curbs may have on its emerging market benchmarks.
($1 = 81.3255 roubles)
On Wednesday, Prime Minister Fumio Kishida said Japan is imposing sanctions on Russia over its actions in Ukraine, and considers Moscow's moves an unacceptable violation of with Ukraine's sovereignty and international law.
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Japan's sanctions include banning the issuance of Russian bonds in Japan and freezing the assets of certain Russian individuals as well as restricting travel to Japan, Kishida said.
Western nations on Tuesday imposed new sanctions on Russian banks and elites after Moscow sent troops into breakaway regions in eastern Ukraine
- In yesterday's trading session Gold only fell slightly to 1887 then bounced back to around 1905, closing the day session with a bullish candle around 1903. With the Russia-Ukraine crisis escalating. The high again makes the prospect of reconciliation between the parties dim at the moment, so in my opinion, Gold will continue to be pushed up in today's session.
- Switching to a smaller time frame of H4 we can see that Gold is unlikely to have a big correction and the 1905-1902 price zone is the closest support area to push this precious metal up with a safe target. will be 1916-1921, expect to be 193x in today's trading session.
