Summary: US Greenback which was soft when trading session began for the week saw some positive price action overnight on news of PM May pulling out of Brexit Draft’s Tuesday vote owing to situation remaining unfavorable for draft approval. However the positive momentum surrounding US greenback subdued ahead of European market hours despite safe haven demand as analysts continue to believe that U.S. Federal Reserve could pause its rate hike cycle sooner than expected which has caused a lack of fundamental support for Us Greenback in broad market.
While Dollar continues to be bid on risk averse market sentiment, the outlook for dollar in short term is bearish as news in circulation indicate that President Donald Trump fears impeachment after Democrats take over the House. The talk of impeachment has gathered pace in recent days following a filing from prosecutors which alleged that Trump committed an impeachable offense by directing Cohen to break the law during the 2016 presidential campaign. While global equities continue bearish rout on geo-political woes, US equities managed to close positive yesterday night despite bearish opening for the week supported by recovery in Apply shares and news of Sino-U.S. representatives working push forward with trade negotiations.
- The US Dollar index (USD/DXY) which measures the strength of dollar against six major global currencies is currently trading at 97.01 down by 0.19% on the day as investors turn their focus towards U.S. Federal Reserve’s Dec. 18-19 policy meeting for clues on future rate hikes.
- Asian equity markets saw mixed outcome as investor sentiment took a dent on concerns of economic slowdown. However European equities took cues from China and US equities and are trading positive in early London market hours owing to increased risk appetite in London market hours.
- Despite recovering significantly on Friday, Crude oil lost over 2% in spot market on concerns that production cut from OPEC may not be enough to negate global glut scenario but news of disruption in Libyan crude exports and NOC’s El Sharara oilfield being seized by local militia group helped see some positive price action in Tuesday’s Asian market hours.
- Precious metals such as gold and silver continue to trade positive as Dollar’s demand in broad market is low in recent past and current markets owing to multiple factors ranging from weak macro data to possibility of Fed rate hike taking a pause post this December FOMC meeting.
- Brexit – Rumor mill and headlines turned out to be true in Brexit situation as UK Prime Minister Theresa May decided to pull out of parliamentary vote for Brexit draft approval since the situation was highly unfavorable. This situation inspired a risk averse market sentiment boosting demand for USD and other safe haven instruments during Monday’s late London and US market hours. Traders are now on look out for PM May’s meet with EU representatives later this week.
- France Protests – During his televised address to the nation yesterday, President Emmanuel Macron condemned use of violence but acknowledged that public anger was deep and legitimate. In a bid to ease the public tension, Macron announced that minimum wage would increase by €100 per month from 2019 and the cost of this increase will be met by the government rather than employers. He also added that planned tax increase for low-income pensioners would be cancelled, overtime pay would no longer be taxed, and employers would be encouraged to pay a tax-free end of year bonus to employees. But he also refused to reinstate a tax on wealthy stating that this would weaken us, we need to create jobs”.
- Sino-U.S. Trade Talks – While many investors and analysts feared that arrest of Huawei executive would put a dent in trade negotiations between China & U.S.A the outcome was completely unexpected as proceedings of Huawei was pushed to back while China and the United States discuss the future of their trade talks. Headlines mentioned that key members from both sides Chinese vice Premier Liu He, U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer discussed over next step of their trade negotiations in a phone call.
- Economic Data Release and Events – UK market sees the release of Average Earnings Index + Bonus data, Claimant Count Change data and Employment data while US market will see release of PPI data and US agriculture department’s World Agricultural Supply and Demand Estimates Report.
Trading Perspective:
- EUR/USD – The pair stabilized alongside stock markets, which temporarily dropped sharply on Monday owing to Brexit and France Yellow Vest Protest headlines. The pair is currently trading in upper half of 1.13 handle currently at 1.1380 up by 0.23% on the day. Investors are now looking out for German ZEW survey data. A positive reading will see EURO test 1.14 handle while worse than expected data will see pair aim for support at 1.13 handle.
- USD/JPY – The USD/JPY pair traded with a mild negative bias through the Asian session on Tuesday and eroded a part of the previous session’s strong upsurge to near one-week tops. However the pair erased gains made in Asian session as Early European market saw demand for USD slow down in broad market owing to investor’s woes surrounding Fed rate hike and increase in risk appetite.
- AUD/USD – AUD/USD gains in broad market on optimism surrounding Sino-U.S trade negotiations as headlines mentioned that representatives from both countries discussed about future of trade negotiations over a phone call. This was further supported by weak USD demand in broad market in late European market hours but upside was limited as Australian domestic economic data continues to disappoint across the board and the Reserve Bank of Australia’s (RBA) rising concerns with the wobbly Aussie housing market.
