Investors are cautious but also show risk appetite as headlines induce investor optimism on positive progress for trade talks but also hints at gloomy outlook for major events to come in month ahead.
Summary: European markets are experiencing mixed price action today following dovish cues from Asian counterparts. While market opened positive for the day, disappointing macro data from China added to bearish sentiment in market resulting in mixed performance. Investor sentiment was divided as headlines from the U.S. hinted at positive progress on talks between China & U.S. with key issues being addressed but trade deal was postponed until late February as U.S. President Donald Trump wants to meet with Chinese Premier Xi Jinping to make sure all issues are resolved or move forward with imposing tariffs on Chinese goods. Further market opinion of progress regarding talks between U.S. & E.U. is also worsening with each passing day as EU is unlikely to provide any concessions to U.S. and they are likely to respond with tariff on European auto market. Meanwhile Brexit is also heading in direction of no-deal exit scenario. As dovish influence from multiple influence converge from all direction and paint a bearish market picture for short to medium term for month ahead trading activity is subdued today despite prevalent risk appetite in market.
Precious Metals: Increased risk appetite in broad market and recent gains in precious metals market lead to profit booking activity early in the day. Both gold and silver saw slight decline in value owing to profit booking but managed to hold their position well near multi-month highs hit recently as market outlook is highly dovish for month ahead and precious metals are likely to see sustained demand owing to investors’ preference for inflation proof assets.
USD/JPY: The pair gained positive price action today as US Dollar bulls managed to ease grip of dovish Fed comments and stage significant rebound in broad market. The pair is now in consolidative price action near $109 handle as Dollar bulls await directional cues from US macro data updates scheduled to release later today. However prevalent risk appetite in market supports dollar bulls hold their position above $108.80 handle for majority of European market hours.
AUD/USD: Australian dollar lost some ground early in the day owing to disappointing Chinese macro data updates. However optimism surrounding Sino-U.S. trade talk progress and risk appetite in market helped Australian dollar gain upper hand later in the day. However gains are limited as U.S. Dollar has rebound from multi-week lows and gained some strength ahead of US NFP update scheduled to release later today resulting in range bound action near intra-day highs.
On the Lookout: As all major events for the week are done with ahead of week’s close, investors have now gained a directional bias for most major risk assets out there. The monthly outlook is dovish as all major geo-political events are moving in unfavorable direction. Risk appetite is starting to return to market as no major political or economic event is scheduled in the week ahead and the upcoming week is filled with plenty of high impact macro data updates. This is expected to keep price action highly volatile and risk assets are also expected to see high volume of activity. As trading session comes to close for the week, investors await US NFP data, Unemployment rate & ISM Manufacturing PMI update for short term profit opportunities. Both Equity and Forex markets are expected to close with mixed price action for the week later today.
Trading Perspective: Given healthy risk appetite in broad market and forecast for upcoming US macro data showing dovish results, price action is expected to remain in favor of risk assets for rest of the day. However better than expected outcome in US macro data will help US Dollar recover ground ahead of next week’s highly volatile market price action.
EUR/USD: EURO has regained upper hand once again despite losing ground earlier in the day owing to rebound of U.S. dollar from multi-week lows. Steady risk appetite in broad market, better than expected Euro area CPI data are some of the factors that helped EURO gain positive price action. The pair is expected to close on positive note for the day as US macro data updates schedules to release today are forecast to see bearish outcome which will further support EURO bulls in market.
GBP/USD: The pair is still trading range bound but British Pound seems to have lost ground in market. GBP was already pressured by Brexit proceedings heading towards no-deal exit scenario. This was further intensified today owing to disappointing macro data from UK. However dollar’s weakness in broad market is expected to keep the pair range bound above 1.30 handle as trading session comes to close for the week.
USD/CAD: The USD builds on the overnight goodish bounce from multi-week lows. The price action in pair was further supported by weaker crude oil price in market. Canadian Loonie being a commodity linked currency declines whenever crude oil price goes down. However if U.S. macro data has disappointing outcome Loonie is likely to recover some ground as trading session comes to close for the week.