Summary: US Dollar is underbid significantly as risk appetite increased in equity and forex markets following headlines that indicated China & U.S. were able to come to an understanding during the sideline talks in G20 summit which resulted in both parties agreeing to temporary ceasefire for next 90 days while they begin negotiations anew and come to a deal. However investors continue to maintain caution as the ceasefire is a temporary measure that could easily be erased by US government given the President Trump’s tantrums in past. The reason for caution being no-progress regarding key issue that resulted in tariff war – such as forced technology transfer. As a result, Trade-exposed currencies led the early gains amid weak USD.
- The Dollar Index (USD/DXY) which measures the strength of US Greenback against six major global currencies is trading at 96.73 down by 0.37% on the day as of writing this article.
- While Crude oil price gained in broad market with US spot crude moving up over 5% during Asian market hours, crude oil investors continue to maintain caution ahead of OPEC meet scheduled to occur on Dec 6 when members involved are expected to cut production by over 1 million bpd.
- Precious Metals also gained positive momentum despite lack of demand for safe haven assets as both sides of dollar denominated precious metal pair saw low price making it attractive opportunity for investors to stock up small volumes on hopes of short term profit opportunities.
- European markets continue to exercise caution as today’s positive price action lacked fundamental support and moved on US dollar’s weakness amid unresolved Brexit & Italian Budget concerns.
On the Lookout:
- Sino-U.S. Trade Truce – There are already very different official takes on what was achieved at the meeting as deeply contentious thornier structural issues such as forced technology transfer remain unresolved.This US-China agreement is thus better characterised as a “mini-breakthrough” that puts a momentary pause on trade tensions rather than a comprehensive policy deal.
- Crude Oil – Investors continue to maintain cautious stance ahead of official OPEC meet which is expected to see participants involved agree on production cut. However Crude oil market opened positive for the week as Canada made an unprecedented move by announcing that Alberta province will force producers to cut output by 8.7 % or 325,000 barrels per day, to deal with a pipeline bottleneck that has led to crude building up in storage owing to majority of Alberta’s oil mainly being exported to United States.
- Political Woes – Key markets across the globe continue to experience bearish pull from unresolved issues such as Brexit deal in UK and Italian Budget woes in EU Region. Brexit deal is likely to see high resistance in parliamentary approval. If it fails, it will see PM May face a no-confidence vote while EU region waits for update on some sort of solid progress between EU & Italy during budget plan related negotiations. Investors also await further updates from US to see if they will impose any sort of sanction or tariff’s on European auto market.
- Economic Data Release & Events –European macro data was in line with expectations while UK’s manufacturing PMI saw better than expected outcome. During American market hours, US markets will see release of ISM Manufacturing PMI, ISM Manufacturing Employment Data & Speech by FOMC Members Kaplan & Brainard.
- AUD/USD – The Australian Dollar was strongly bid on Asian trading hours as market opened for the week. This up move was supported by positive investor sentiment influenced by headlines from weekend which saw Sino-U.S. Presidents agree to a 90-day trade truce. The Aussie which is widely viewed as a china-proxy was further supported by better-than-expected Caixin PMI from China resulting in pair hitting three month high’s.
- EUR/USD – The common currency which is viewed as leader of major global currencies is trading positive against its major counterpart US Greenback supported by broad based risk appetite and weak US Greenback but upside is limited due to lack of fundamental support for EUR bulls amid unresolved Italian budget woes.
- S&P 500 – S&P 500 futures were trading up by 1.9% on the day over positive investor sentiments as market opened for the week. Asian and European market hours are seeing major US futures and key Asian/European indices trade positive as temporary ceasefire eased worries of global economic slow down and has initiated a positive rally across key global markets which would pass on positive cues to American equity market.