Positive sign relating to Sino-US trade deal and broad based USD weakness adds bullish influence to market amid thin holiday season volume on last trading session of the month.
Summary: Asian stocks crept higher today as hints of progress on the Sino-U.S. trade standoff provided a rare glimmer of optimism in what has been a rough year-end for equities globally. Survey data out of China, however, proved unhelpfully mixed with manufacturing activity contracting for the first time in two years even as the service sector improved. Market sentiment had brightened just a touch when U.S. President Donald Trump said he held a “very good call” with China’s President Xi Jinping on Saturday to discuss trade and claimed “big progress” was being made. The boost in Asian market carried forward to European markets and indices traded positive ahead of early close on New Year Eve. The volatility in market is however expected to remain relatively low owing to holiday season ahead which greatly limited upside move.
EM Asian Currencies: Asian emerging markets saw mixed outcome in forex market space despite boost in equity market amid limited trading volume ahead of New Year. Indian Rupee & Indonesian Rupiah saw losses while Korean won and Thai Bhat gained upper hand in Asian and early European market hours.
USD/JPY: The USD/JPY pair trades close to 110.00, as market players continue to dump the greenback. Political tensions in the US, with the government still on a partial shutdown, alongside Trump’s criticism on Fed’s head policies, are the main reasons behind dollar’s weakness, although fears of slowing economic growth add to the sour picture. Japanese markets were closed, with Asian activity reduced to some action in Australia and China. Safe haven demand amid holiday season volatility helped JPY gain significantly despite holiday in Japan’s market.
AUD/USD: AUD/USD caught a mild bid heading through the year’s end trading window, rising to an intraday high of 0.7067 as investors begin to allow themselves a bit of hope for successful trade talks between the US and China. Amid holiday season consolidation and lack of solid evidence for investor hopes on positive resolution in Sino-U.S trade talks, the Antipodean has managed to build significant support hinting at positive price action in later half of the week.
On the Lookout: With majority of the markets closed for the week, investors focus has shifted toward much awaited proceedings in Brexit front and Sino-U.S talks while OPEC’s planned production cut and proceedings of other geo-political events which receded for holiday season while also come back into center stage this month which will help build increased volume and volatility as trading resumes post new year. Meanwhile major markets are expected to retain range bound price action with signs of bullish consolidation on last trading session of the week.
Trading Perspective: Broad based USD weakness helped major fx pairs and equities gain upper hand on last trading session of the week.
EUR/USD: The EUR/USD pair built on its steady intraday climb and is currently placed at the top end of its daily trading range, around mid-1.1400s. The pair quickly reversed an Asian session dip to the 1.1420 region and turned positive for the third consecutive session amid some renewed US Dollar selling pressure. Expectations of a dovish Fed next year, along with a partial US government shutdown kept the USD bulls on the defensive and turned out to be one of the key factors driving the pair higher. Apart from broad-based USD weakness, the uptick lacked any obvious fundamental catalyst and hence, runs the risk of running out of steam ahead of Friday’s swing high, nearing 100-day SMA important barrier.
Moreover, traders might also refrain from placing any aggressive bids amid relatively thin liquidity conditions on the New Year’s Eve and might further collaborate towards capping gains. Hence, it would be prudent to wait for a sustained breakthrough the mentioned hurdle before traders start positioning for any further near-term positive momentum.
GBP/USD: The GBP/USD is trading up 0.3% at around 1.2740, the highest level since December 10 at the last trading day of 2018 as the US government shutdown is weighing on the US Dollar amid low liquidity market. On the last trading day of 2018, there is no economic data to factor in on the currency market with sentiment driven by the US government shutdown and general political statements on Brexit from the European Union officials.Meanwhile EU’s Juncker commented that he wants to start discussing future ties the moment the UK parliament approves Brexit despite initiating process to deal with no-deal scenario earlier this month as political scenario in UK suggests that they arent ready to accept deal approved by EU.No-Confidence vote on PM May & Parliamentary vote on brexit deal have negative forecast for now suggesting that GBP could decline once trading session resumes post new year.
USD/CAD: The USD/CAD pair traded with a mild negative bias through the early European trading session and retreated farther from 19-month tops, set on Friday. A combination of negative factors – ranging from the prevalent US Dollar selling bias and a modest rebound in crude oil prices, seemed to have prompted some long-unwinding trade at the start of a new trading week. The USD struggled to build on/preserve early modest recovery gains and remained on the defensive amid expectations of a dovish Fed next year and the partial US government shutdown. Meanwhile, oil prices recovered after hitting the lowest level in 18-month lows last week and remained supported by Friday’s Baker Hughes report, showing that Canada slashed 43 oil rigs as of Dec. 28. Market sentiment was also lifted up by some positive news in the ongoing US-China trade negotiations, which underpinned demand for the commodity-linked Loonie and exerted some additional downward pressure on last trading session of the week.