Chinese data disappoints, trade deal delayed albeit progress in trade talks, EU comments caused Brexit optimism to fade and WTO granted USA official authorisation to go ahead with EU tariffs.
Summary: Global equity market is off to a mixed start for the week on mixed signals. Asian market opened positive and saw major benchmark indices and key equities trade and close on a positive note on Trade talk optimism. While previous tariffs still stay in place, China and US representatives agreed to delay tariffs set to come into effect today as they are set to sign a partial trade deal dubbed “Phase 1”. However, both parties have decided further talks are necessary before signing a trade deal resulting in a delay in signing a trade deal. Also, lack of exact time frame on when the deal will be signed and lack of details discussed during recent talks served as a source of cautious for investors capping gains in the Asian market today.
Chinese and Singapore macro data released today saw a disappointing outcome, but a holiday in Japan and the resulting reduction in lack of trade volume served as key factors which helped price action from taking a dovish turn. While Brexit optimism rose high following UK-Irish PM talks last Friday, comments from EU earlier today stating that Brexit deal is not possible this week as they expect more concession from UK PM Boris Johnson hurt investor risk appetite.
This combined with dovish cues from Chinese data and cautious tone surrounding trade talk proceedings resulted in European market seeing dovish price action in all major markets across all key indices and major stocks. In the forex market, caution influenced by trade talk proceedings and lack of clarity on trade talk terms helped push safe haven currencies high. Further, risk-averse trading sentiment from traders in late Asian and early European market hours influenced a risk asset sell-off trading activity, and this pushed USD higher against major global currencies.
Precious Metals: Rare metals are seeing positive price action as investor sentiment turned risk-averse in the global market. Geo-political events influenced cues helped safe-haven assets see a considerable level of bidding activity. But firm USD in the global market kept precious metal gains in check, albeit metals retaining positive bias in price action across Asian and European market hours.
Crude Oil: Crude oil price is seeing sharp declines in the global market today. Lack of details on terms agreed upon during recent trade talks and delay in signing of a trade deal with no mention of the exact time frame for concluding “Phase 1” of trade deal resulted in crude oil outlook declining. This resulted in both international benchmarks seeing more than 2% decline in value by mid-European market hours.
USD/JPY: The pair opened positive on news of progress in trade talks. But this soon took consolidative tone around the 108 handle as growing caution in the global market over lack of details on trade talk and delay in signing of Phase 1 of trade deal underpinned demand for safe-haven currencies. However, risk currency sell-off boosted USD resulting in pair maintaining positive bias, albeit declining from 2½ month tops.
On The Lookout: While the week ahead may see some level of heated trading activity, the first trading session of the week will see muted trading activity in North American and Pacific Asian market hours. Earlier in the day, Japanese markets were closed on account of Health-Sports day celebrations. Later in the day, Canadian markets will be closed on account of Thanksgiving Day while the US market will see partially closed activity. While stock markets will remain open, bond markets will remain closed as most federal offices and banks will be closed on account of Columbus Day celebrations in the USA. Moving forward, traders will be focused on further updates pertaining to trade talks between China and the USA.
Brexit proceedings also remain in focus as earlier optimism faded away following latest comments from EU officials despite recent progress in talks between Irish and UK PM which brings the proceedings back to where it was earlier last week – a high level of Brexit uncertainties and increased odds of a no-deal exit. Aside from general caution on trade deal-related proceedings and Brexit woes, a green signal from the World Trade Organization for the USA for moving forward with the tariff on European goods worth US$7.5 Billion which came earlier today also weighed down investor sentiment. The impact of same will likely be visible later this week once tariffs go live and how traders and investors react to same. Later in the day, traders await US Federal Budget Balance data in North American market hours and RBA Meeting Minutes update in Pacific-Asian market hours for short term trading opportunities.
Trading Perspective: Given partial holiday in US market and holiday in Canadian markets, liquidity and trading volume are likely to be limited in American market hours. Traders now await macro data updates for short term profit opportunity when it comes to the forex market. The FX market will see USD continue to dominate major currency pairs across US market hours on cautious investor sentiment. US stock and index futures trading in the international market saw decline ahead of Wall Street opening on cautious and risk-averse investor sentiment which along with expected lack of trading volume and volatility suggests that WALL STREET is likely to see a subdued opening and muted trading activity across the day today.
EUR/USD: The pair is trading mostly flat in the international market but the price action displays a clear prevalent bearish bias as cautious investor sentiment, and risk aversion in global market boosted USD. But the pair is holding steady above 1.10 handle on limited trading activity on account of holiday in most major global markets. Traders now await US data for short term profit opportunities.
GBP/USD: The pair is seeing sharp decline today and is trading with bearish bias across the day as latest headlines caused all optimism on Brexit deal to fade away. With Brexit uncertainties back to where it was last week following EU’s comments hinting at lack of deal for the need for more compromise from UK PM Johnson, GBP is under considerable pressure while firm USD in the global market also weighed down the pair. Traders now await US data for short term profit opportunities.
USD/CAD: The pair saw a sharp decline in the global market as commodity-linked currency Canadian Loonie suffered due to firmer USD and a decline in crude oil price in the global market. But lack of trading volume and volatility on account of holiday in US and Canadian markets helped CAD keep the decline in check. Traders now await US data for short term profit opportunities.
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