Trade Talk Cues

Equities Gain on Trade Talk Cues, Brexit Woes Cap Gains

The UK parliament vote on Brexit deal eyed amid lack of high impact macro data. Optimism surrounding the trade deal keeps market bulls underpinned. 

Summary: The global equity market started off on a positive note following headlines-driven momentum. Comments from US President Trump last Friday stating that phase 1 of the trade deal is likely to be signed by Mid-November and comments from Chinese vice Premier Liu He ensuring efforts to sign a trade deal boosted investor risk appetite. The headlines are leading speculative traders into the hamster wheel as the situation surrounding the trade deal has been repetitive over the last couple of months with historic data hinting at recurring price patterns in risk assets and investor reaction to headlines.

While the European market followed cues from Asian markets and opened on a positive note, developments surrounding Brexit hit a snag, capping gains of risk assets. Hopes and expectations of positive quarterly earnings reports from major firms kept market bulls underpinned in the European session resulting in European equities seeing positive price action across today’s session.

In the forex market, prevalent risk appetite helped major currency pairs trade positive while USD remained steady against major global currencies, mostly unchanged from where it was last Friday. 

Precious Metals: Rare metals continue to trade flat today, but the bias was mostly in favor of rare metals as cheaper USD helped bring in fund flow from EM markets. Developments in geopolitical events with both trade deal and Brexit seeing extension continued to influence caution in global investors, which in turn boosted demand for safe-haven assets given lack of progress over a prolonged timeframe. 

Crude Oil: Crude Oil price fell today as concerns of global economic growth weighed down crude oil bulls despite prevalent trade deal optimism. As headlines hinted at an extension of the deadline for both Brexit and Phase-1 trade deal, the impact of the same on global economic growth weighed influenced caution in the global market, causing demand to supply ratio to skew in favor of crude oil bear. 

AUD/USD: The pair today saw a sharp spike in price action with price scaling fresh monthly highs as the positive tone in comments from RBA governor Philip Lowe, strong jobs data and optimism surrounding Sino-U.S. trade talk cues helped improve risk appetite. While the pair scaled above mid-0.68 handle further gains was capped as pick up in US bond yields underpinned USD adding pressure to AUD bulls. 

On The Lookout: With earnings season entering full swing, investors focus is now on quarterly data reports causing geopolitical events to take a backseat. While geopolitical events continue to see fresh developments, the focus of traders has shifted to quarterly data for directional bias as all major geopolitical events have been stuck in a loop with clear lack of solid progress, be it in favourable or unfavourable direction. Comments from US & China representatives continued to boost optimism surrounding trade deal, but the deadline has been pushed back by a month, which suggests that key issues remain unresolved between two parties.

Trade Talk Cues

On Brexit front, UK lawmakers forced PM Boris Johnson to submit their demand and send a request for Brexit deadline extension to the EU by delaying a key parliamentary vote on the Brexit deal. The parliamentary vote is expected to occur later today, but headlines continue to influence speculation and doubt on outcome possibilities with bias in favor of rejection of EU approved Brexit draft. On the earnings calendar, the US market is set to see quarterly data from Cadence Design, Celanese, Halliburton, and Zions. 

Trading Perspective: The forex market is set to see positive price action as trade talk cues keep risk appetite and market bulls underpinned by USD, and it is likely to cap gains as USD bulls gained strength owing to a pick-up in US bond yields. US stock and index futures trading in the international market saw positive activity on account of optimistic comments from US President Trump & Chinese vice Premier Liu He on trade deal proceedings. Prevalent risk appetite suggests positive opening of Wall Street, but range bound and muted activity is expected across the session amid lack of further high impact macro data updates and headlines. 

EUR/USD: The pair held steady above the 1.1157 handle for the most part of the day, but Brexit woes continue to weigh down the pair. A decline below intra-day lows of 1.1148 could push the pair towards a critical support zone of 1.1140/37 handle in case USD continues to gain momentum on pick up in US bond yields. But if USD holds steady, the pair is likely to remain steady above mid-1.11 handle during North American market hours.

GBP/USD: The pair opened on a positive note and hit an intra-day high of 1.3013 as traders expect less messy Brexit following the UK lawmakers move to force PM Johnson to request Brexit extension. Hopes for less messy Brexit keeps pair steady above mid-1.29 handle for most of the day, which combined with firm USD on pick up in US bond yields capped gains. Traders now lookout for UK parliament vote on EU approved Brexit draft later today for short term directional cues. 

USD/CAD: The pair declined to fresh 2½ months lows on trade deal optimism and prevalent risk-on investor sentiment in the forex market. But a decline in crude oil price, pressure ahead of Canadian elections, and a slowdown in USD selling activity owing to pick up in US bond yields helped prevent further declines. Traders now wait for local headlines from Canada and the US in North American market hours for fresh short term directional cues and profit opportunities.