Headlines hinting at no solid progress on key issues in recent Sino-U.S. trade talks and possible US tariff on EU auto market inspired dovish investor sentiment across all major global markets.
Summary: Global markets are on bear’s playground today as headlines inspired momentum is wrecking havoc in major equities and forex pairs in Asian and European markets. Major assets suffered dovish price action as Chinese economic outlook continues to hurt investor sentiment at start of the day. However headlines from European markets continue to remain as main driving force behind risk averse trading activity in all markets across the globe so far this week. At start of the week investors focus was on Brexit vote in UK parliament which was then followed by dovish comments from European Central Bank President Mario Draghi who warned European law makers that economic growth is slowdown. But main worry among investors now is ongoing trade war waged by US on multiple fronts, while headlines indicate that no solid progress was made on key issues during recent Sino-U.S. trade talks, news hit market that US President Trump is planning to impose tariff on European auto market to force open access to European agricultural market during trade talks and this has brought in fresh wave of risk averse investor sentiment in major global markets.
XAU/USD: Gold continues to see sustained demand despite slight boost in USD demand in broad market as renewed trade war fears in Asian and European market is seeing fund flow change direction from risky assets to safe haven yellow metal which is viewed as safe guard against inflationary move in broad market. Further activity is boosted in emerging markets who have taken opportunity to stock up on gold when exchange rate is low on weak USD which also underpins gold bulls in broad market.
AUD/USD: Risk averse trading action in broad market combine with renewed trade war fears in Asian market pressured Australian dollar to move on bear’s path. Further a pick up in US dollar value in broad market owing to risk asset sell off also underpinned bearish influence. However weaker USD despite slight demand owing to dovish Fed stance and partial shutdown in US government helped the pair limit downside move and rebound from intra-day lows.
USD/JPY: Broad based safe haven demand is growing due to headlines hinting at possible renewal of trade war between US – China & Europe and this is boosting demand for safe haven currency Japanese yen pulling the pair down from recent high’s at $110 level. While USD rebound owing to risk asset sell-off helped limit sharp downside move, political and Fed cues from US market which continue to limit dollar’s demand in broad market added positive influence to Yen bulls resulting in steady bearish price action.
On The Lookout: Now that Brexit proceedings have hit the wall, investors are focusing on trade war related headlines. US is expected to impose tariff on European auto market to force EU to open access to better agriculture market but how soon will the event occur is the question posed by traders. Also investors are focused on political proceedings in US markets as Democrats passed a bill to end government shutdown by Feb. 8 with concessions worth $14 billion to address natural disaster hit areas and back pay for 800000 workers who are suffering from loss of Job but President Trump is expected to reject it as he stands firm on his stance for funds to be allocated to build border wall despite recognizing that his attempt is causing severe loss to US economy. Tariff related headlines and UK’s cross party talks for further proceedings regarding Brexit will remain main focus of traders for rest of the week.
Trading Perspective: Event driven momentum is expected to keep market in bear’s playground for rest of the week.
EUR/USD: EURO continues to trade in range bound action as bulls lack fundamental strength to make upside breakout and trade positive. Dovish comments from ECB Draghi and weak macro data add to bearish influence on the pair. However weak USD owing to political woes from USA and dovish Fed limits downside move despite USD’s slight rebound on risk asset sell off. As traders are worries about possible US tariff’s on EU auto market and products, the pair is expected to continue range bound action with bearish bias in immediate and near future trading sessions.
GBP/USD: British Pound edged back near weekly highs as both Brexit vote in House of commons and No-confidence vote against PM May saw outcome in line with market expectations and had already been priced in by investors. This resulted in pair continuing to move range bound near recent high’s. Moving forward headlines relating to cross party talks to be initiated by PM May will drive momentum and preparation for no-deal brexit scenario will pull down GBP back to 1.26 handle while no clues relating to further proceedings will see pair close range bound for the week well above 1.28 handle.
USDCAD: Broad based risk averse trading in forex markets boosted demand for USD which was further underpinned by declining crude oil price which helped the pair climb to 1-1/2 week highs. Unexpected build in US inventory data despite forecast hinting at draw in stockpile hurt oil price and this has in turn affected price action of commodity linked currency Canadian Loonie in broad market. The pair is expected to see further positive price action today as USD bulls have upper hand in near future.