Weekly Preview: U.S.-China Trade Optimism Boost Risky Asset, with Eyes on Brexit

  • USD: Back on the rising trend after trade optimism grows, retail sales on watch
  • GBP: Brexit’s progress, labour, CPI, Retail Sales and PPI numbers in focus
  • JPY: Retraced from recent high as trade tensions thaw, but still closely watch on headlines
  • EUR: Trade balance and Eurozone’s CPI data in focus
  • AUD & NZD: Bullish sentiment for AUD on “soon to be ready” US-China trade deal. Mixed sentiment on NZD in anticipation of economic data release
  • CAD: Bullish sentiment given positive news coming out of trade talks and oil supply cut

 

CURRENCY: USD

USD has been on a downward trend after a slew of data failure in previous weeks, including the weak CPI, manufacturing, and services PMI readings. The trade talk tensions and Trump impeachment made USD less attractive than the other safe havens, including JPY and CHF. Friday’s preliminary estimate of the Michigan Consumer Sentiment Index for October came in at 96.0, better than expected 92.0. The market is still celebrating a mini deal done between the U.S. and China after two days of talks in Washington. This comes with the Oct 15 tariffs hike to be delayed as well. Following the positive news, the U.S. stocks move higher, and the Dow Jones Industrial Average climbed over 500 points. With the market optimism grows, the concerns on global growth can be relieved. In the coming days, we will see more USD data, including core retail sales and the Philly Fed manufacturing index. A miss in the U.S. retail sales will firm prospects of a rate cut by the end of this month.

 

CURRENCY: GBP

Last week, Pound jumped the most in 7 months as optimism rose after a meeting between Boris Johnson and Irish Premier Leo Varadkar went well, with the possibility of a “pathway” to a potential deal. This week, we could be seeing the Sterling under renewed pressure after Johnson said that a lot of work was still needed to reach any deal and that the UK must be prepared to leave the bloc at the end of the month, causing fears of a no-deal Brexit to resurface. Meanwhile, on the data front, investors will be keeping a close watch on the Labour data as well as the CPI, Retail Sales and PPI numbers though any optimism as a result of positive surprises in the data is likely to be short-lived as the Brexit saga takes centre stage.

 

CURRENCY: EUR

Last week, EUR rose against the greenback on Brexit optimism as well as a weaker dollar. This week, we could be seeing the EUR trade sideways on improved risk sentiment as China and US talks are finally showing some progress. Last Friday, China agreed to more than double their agricultural purchases from the US while Trump announces a tariff delay. Looking ahead, on the data front, investors will be keeping a close watch on the Trade balance and Eurozone’s CPI data which could limit the currency’s upside should they miss estimates.

 

CURRENCY: JPY

Safe havens, including JPY and CHF, dropped from their recent highs, as a mini deal is done between U.S. and China. After a two-day meeting in Washington, on Friday, Trump announced a delay on plans to raise tariffs on $250bn worth of goods to 30% on 15 October. A further 15% tariff on almost all remaining Chinese imports, including laptops, smartphones, footwear, and clothing, is still set to be imposed on 15 December unless a deal can be reached with Beijing. Trump said progress had been made on allegations of currency manipulation, intellectual property theft, and other issues. China also agreed to increase its purchases of U.S. agricultural goods and further open up its market to foreign financial services companies. The deal has not been written yet and may take weeks to finalize. JPY is likely to drift south from its recent high as trade tensions thaw. But with no further details to be released, investors still cautiously watch on the headlines. On the data front, JPY will watch on Kuroda speak this Tuesday for more signals on the easing cycle.

 

CURRENCY: AUD

As expected, the Aussie further strengthened over the course of last week as US-China trade talks resume. However, during the start of the talks, it seemed that no deal would be reached as China’s officials threatened to walk out. But US President Trump said that he expects a deal with China to be reached soon. Also, the “to-be-signed” trade deal would most likely trigger a relief rally on the AUD.

This week, some high impact news for AUD would be the upcoming RBA meeting minutes early in the week and employment change data later in the week. Investors are likely to maintain their outperforming view on the AUD given the positive news coming out of the US-China trade talks.

 

CURRENCY: NZD

Over the course of last week, the Kiwi strengthened against the USD. However, its rise was limited as it spent the last few days of last week in a sideways range. Further, Today, the Kiwi weakened considerably at the start of the Asian trading session as Funds cut back on their longs on the NZD. Later this week, we have important domestic data such as the NZ CPI data. Markets expect mixed sentiments on the NZD for now as Funds cut their holdings of the NZD and markets wait in anticipation of the CPI data release.

 

CURRENCY: CAD

Last week, the CAD drifted sideways. However, mid-week, the CAD jumped in line with Oil prices on news that there would be a trade deal coming out of the US-China talks and also due to an attack on an Iranian oil tanker. With OPEC and her allies considering deeper oil output cuts ahead of December 2019 meeting, this could further cause the CAD to strengthen. Domestically, later this week, we have Canada’s Core CPI data being released. But given the global tensions on Oil and the trade talks, we believe that the Core CPI data would have very brief and no real effects. It is likely that the market will see the CAD outperforming.

 

Read more market views from Team AxiTrader: https://www.axitrader.com/au/market-news-blog/.

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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