Trade Deal Hopes Keeps Equities Afloat, Caution Lingers

Caution Lingers
Trump and Xi

Chinese headlines on talks between Trump & Xi keeps risk appetite afloat, earnings to dictate wall street activity. 

Summary: The global equity market is off to a positive start for the week on trade deal cues. Headlines since Friday hints at an active communication between Chinese & US Presidents to ensure a smooth and early resolution to phase 1 of the trade deal. While the exact time frame and venue details on when the deal may be signed is yet to be concluded, active communication between both nations is seen as a welcoming move helping improve investor risk appetite in the global market. While Japanese markets were closed on account of Culture day, it had little impact during Asian market hours.

The European market saw major indices and key stocks open positive for the week with several key stocks scaling the highest levels in nearly two years over cues influenced by optimism surrounding trade deal proceedings. Further positive economic data from the EU area, better than expected earnings from Ryan air and gains in Auto and mining sector shares added considerable strength to overall positive price action in the market resulting in bullish price action across European market hours.

In the forex market, USD gained momentum owing to profit booking activity post short term profit booking on gains made from Sino-U.S. trade deal optimism influenced speculative trading bets. However lingering caution kept major currencies from gaining strong momentum resulting in range-bound price action within familiar price levels. 

Precious Metals: Rare metals are seeing muted activity. As optimism surrounding Sino-U.S. trade deal spiked, demand for safe-haven assets went down resulting in scalpers taking to profit booking activity bleeding gold of its recent gains. However, positive but steady USD kept declines in check for gold while silver continued to trade positive in the global market. 

Crude Oil: Crude oil price gained momentum in both major international benchmarks WTI & Brent as optimism surrounding Sino-U.S. trade deal shot up on headlines influenced cues. As China mentioned earlier today that both US & Chinese presidents have been in touch through various means working on meeting to sign a trade deal, demand/supply ratio skewed in favor of a hike in crude oil price. 

AUD/USD: The pair lost gains made last Friday as Australian macro data released earlier today saw a mixed outcome. However, optimism surrounding the Sino-U.S. trade deal helped keep the decline in check resulting in pair turning range-bound near the 0.6900 handle. Firmer USD resulted in AUD bulls losing momentum and strength required for rebound activity in immediate and near future trading sessions. 

On The Lookout: Aside from positive developments in talks surrounding the trade deal between China and the USA, there hasn’t been any major change in factors influencing market price action. Unless there is firm evidence that the trade deal is likely to be signed in the near future along with the date and venue details, today’s optimistic tone is highly likely to fade away shortly. On the Brexit front, there are no new major developments as all parties gear up for upcoming elections.

Caution Lingers
Under Armour

On the economic calendar schedule, the day ahead has no major release of significance. Later this week, traders await a speech by ECB’s new president Lagarde and Bank of England’s interest rate decision. Aside from these events, it’s mostly macro data updates that are set to provide short term directional impetus. Later in the day, the US calendar will see the release of factory orders data. On the earnings calendar, traders are on the lookout for earnings reports from sports garment maker Under Armour, Prudential Financial, Mosaic, Marriott International, and Jack Henry & Associates. 

Trading Perspective: Forex market is likely to continue range-bound price action as neither bulls nor bears have the strength to create a market-wide breakout in price momentum. US futures trading in the international market saw positive action on cues surrounding trade deal talks which combined with positive cues in global markets suggest Wall Street is likely to see positive opening and price action today. 

EUR/USD: The pair is trading above 1.1150, amid hopes that the US and China may strike a deal later this month. Positive macro data also supports EURO bulls. But gains are capped on account of firm USD and cautious ahead of tomorrow’s speech by new ECB President Lagarde. Traders await US data for short term profit opportunities.

GBP/USD: The pair is trading range-bound within familiar price levels and is showing signs of consolidation above 1.29 handle. Caution in the market ahead of upcoming BOE interest rate decision, election proceeding and firm USD keeps GBP bulls in check. Traders await US data for short term profit opportunities.

USD/CAD: The pair is trading positive but the price has declined from intra-day highs. The price action is revolving around mid-1.315 handle as USD remains steady over broad-based cautious investor sentiment but the gains in crude oil price is adding strength to Canadian Loonie’s bulls giving the pair a strong bout of bearish pressure. Traders await US data for short term profit opportunities.

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