Forex
Renewed Hope of China Trade Deal to Boost USD Forex Market
- Positive Trump comments on potential trade deal.
- Forex markets could react positively at opening on Monday.
- Phased deal looks the most likely. Phase one to be signed soon.
US President Donald Trump has delivered the most positive news in quite some time to the forex market. This comes in the form of his Tweet regarding a productive talk with Chinese leader Xi Jinping. “Had a very good talk with President Xi of China concerning our giant trade deal” came the news from the President’s Twitter account on Friday.
This development would be substantial and very positive in terms of how the USD forex market and economy, in general, could react. The two sides have been deadlocked on a potential deal for some time. Both superpowers have instead engaged in tit-for-tat sanctions in what is seen as generally negative for both sides.
How will Monday’s forex market react?
Views from around the sector are all pretty much unanimously of the view that the USD forex market will react positively to the news. There has been little in the way of good news lately for the market. The GBP/USD pair saw it’s biggest losses in many years before markets closed for the weekend. This is despite the positive signs shown when Boris Johnson’s conservative party romped to victory in the previous week.
All things considered, most traders and analysts alike will be expecting a risk-on rally to take shape when the markets open for business Monday. This type of rally is often seen when investors anticipate a high risk/reward payoff and the market sentiment is showing positive signs.
China more cautious but still hopeful
It is fair to say that the reaction coming from Beijing and Xi has been much more muted. Although phase one of a deal has been all but agreed, the Chinese leadership still had some causes for concern during the call. President Xi noted the continued US interference in issues surrounding Hong Kong, and Taiwan in particular. These are issues which Beijing considers to be Chinese domestic affairs, something which was made clear.
“US behaviors have interfered in China’s internal affairs and harmed China’s interests, which is detrimental to mutual trust and bilateral cooperation.” This was the word quoted from Xinhua Chinese state news agency. That aside, this is the first step of cautionary progress.
Chances of the deal holding up
This is phase one of the deal which looks set to hold off at least $160 billion of tariffs on Chinese made consumer goods which has already been implemented. Both sides are said to have agreed on further phases of the deal. This will no doubt be positive news for the forex market and general economies of both. Many are skeptical though of any true deal actually emerging. The general thought is this announcement serves the political interests of both at the moment. Trump, of course, has his reelection campaign on the horizon. China, on the other hand, has the Beijing Winter Olympics in 2022. The next chapter is poised to play out.
- EUR/USD Price Continues to Improve on Market Open
- Traders Cashing in on Gold Gains
- Coronavirus Still Impacting Market Sentiment
The EUR/USD forex market has continued to improve slowly but surely over the last few trading sessions. As the European session opened today it still managed to cling onto the gains of the previous few days. This comes despite the worsening situation in Italy where the coronavirus outbreak is playing havoc with one of the largest economies in the EU. This latest news threatens to plunge the country back into a recession from which they only recently emerged.
US Dollar to Continue as Beneficiary
As markets in Europe await the release of German GDP data and consumer confidence data from the US later in the day, the Dollar stands in a unique position. With Europe and most of Asia consumed with health concern, the currency looks set to continue in its safe haven role. This has come to look even more certain with the rollercoaster that European traders endured through Monday trading.
Even though the American stock market has been in a turbulent mood, particularly yesterday, it is the currency that will continue to hold up as a safe option for traders looking to weather out the storm. The CB consumer confidence data to come today to come today will also go a long way to steadying the ship on Wall Street if it comes out more positive than expected.
Gold Prices Start to Consolidate
The USD was not the only market to see a boost from the ongoing situation. Gold has always been perhaps the number one safe-haven in times of market uncertainty. This was proven again in recent days with the price taking off to new highs. This has begun to consolidate today as traders have decided on taking some profits. This has seen the price retreat marginally from the seven year high reached on Monday.
The commodity still remains around the $1650 mark, though barring any catastrophic news from Europe in particular today, many analysts feel this is likely to see another slight decline to the nearby resistance levels. This too will depend a lot on the morning data from the US market as well as the final German GDP numbers to come.
Looking Ahead
In the current market and general economic climate, it seems that the only certain thing, is more uncertainty. Much will rely again on geopolitical factors more than economic data in what is a relative sparse week on the economic calendar. This could be a positive in the sense the forex market will have some space to contend with whatever news comes without much additional worry from economic data.
Besides data releases from German, Australia, and Canada to come throughout the week, a particular focal point given the current Eurozone issues may be Wednesdays address from the President of the ECB, Christine Lagarde.
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- Japanese Yen in critical struggle
- South Korean exports also slump
- USD safe haven the preference for most
As the week began, many had thought and hoped that the ongoing battled waged in China against the Coronavirus was beginning to settle down. Markets continued to operate with no major downturn as Beijing appeared to be controlling the situation well. The economic situation in China sees no major change, but that of its neighbors in the Asia Pacific region has been turned upside down as we near the weekend. Two deaths in Japan and a surge in cases from neighboring Korea have suddenly thrown the region into a very difficult economic position.
Japanese Yen and Economy Fighting a Battle
Typically a renowned safe haven in times of trouble, the Japanese Yen has endured its worst 4-day run in more than 2 years. The currency which is usually notoriously stable, has shed more than 2% in this short period. Prior to a slight rebound in today’s market trading, a sense of panic could be felt among traders. This fall is of course related to the current situation and compounded by how the virus has hit both trade and tourism.
Fears of a recession are high, with even David Bloom the head of FX at HSBC commenting that “New Coronavirus cases in Korea and Japan have given people cold feet regarding Japan and the Yen as a safe haven”. This certainly appears at least for the moment, to be true.
South Korea another Victim
The most notable spike in virus cases within recent days has come from South Korea. Cases there have almost doubled in just a 24 hour period. This, alongside comments from the director general of the WHO about how cases could see a further sharp increase have seen Korean markets down almost 1.5% overnight.
Traders and the wider public will certainly hope that the director generals words do not ring true, although the country have already noted a severe drop off in exports to China for February thanks to the disruption of supply chains. South Korea can play a key linking role in the region and so, it is no surprise to see the market react in such a way with the surge.
USD the Choice for Many in an Uncertain Market
With confidence low in the JPY ability to act as a safe haven at the moment, the USD has gained some strength in this regard. The currency has continued to trade steadily in a positive manner throughout the crisis as traders put their faith in the greenback.
This trend is expected to continue at least until the virus fears begin to subside. Quite when that will be though, and what damage will have been done to the world’s economy by that time, few can estimate.
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- Market jumps back above important 1.30 figure after shaky start
- Pound buoyed by positive CPI
- No Deal Brexit and China fears still holding traders
The GBP/USD has begun to climb again after a protracted period of uncertainty which has seen it hover around a key benchmark area. 1.30 has been a sticking point for the market over recent days and weeks. This is no surprise given the level of uncertainty that has plagued the geopolitical scene of late. A turbulent Brexit was finally brought to pass, this though is far from done with many of the key negotiations still to come before the end of 2020.
USD Silence Helps the Climb Back
The currency pair is in fact reversing the previous day’s session that saw it close below this key point. It is doing so with the help of a very quiet USD currency and market. This could be related to the news earlier in the week of a revenue warning from Apple. With the DOW Jones, and NASDAQ also down, it is possible that traders are giving the market a slightly wide berth for now and waiting for some more positive news on the global stage.
Consumer Price Index Boost for GBP
The strength of the Pound in this pair can be somewhat attributed to the recent release of economic figures more than the current and ongoing post-Brexit negotiations. Both the CPI (Consumer Price Index), and PPI (Producer Price Index) which measure how price rises and inflation impact both parties, came in stronger than expected.
While this may not spell great news for British consumers at the checkout with inflation reaching a high point, it has given the currency a boost. This number may show that UK production and consumer spending have been very healthy in real terms.
The British CPI managed to jump 1.8% in its year-on-year number for January. This is steadily more than the 1.3% rise of the previous year and again more than the 1.6% expected. All in all, a potential rise in consumer confidence may be garnered from these figures.
Still Worries on the Horizon
Despite the positive movements of the day, there are still challenging points for the pair, and the wider economy to deal with. On a somewhat domestic level, the ongoing negotiations about the future UK relationship with the EU are set to drag on. Latest headlines today show that the UK remain committed to a points-based entry system that will severely limit opportunities to unskilled worked from outside the country.
Finally, in China, there is still the ongoing issue of the Coronavirus. Catching few headlines but the virus is still serving to restrict operations of companies within China and overseas. This widespread supply chain disruption is seen to be behind the Apple revenue warning and the fall of both the DOW and the NASDAQ which is heavily reliant on the Chinese market.
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