The long awaited G-20 Summit in Argentina has started and market participants will be looking for tradeable headlines as the discussions and negotiations take form.
The original agenda of the two-day summit was to focus on infrastructure, climate change and food security for developing nations.
Those original topics will likely be sidelined as US/Chinese trade friction, crude oil production and heightened Middle East tensions will overshadow the gathering of world leaders.
Global equity markets, and the G-7 currency pairs, have firmed this week on the hopes that the US and China will find some common ground to begin diffusing their increasingly hostile trade dispute.
At this point we know that Presidents Xi and Trump will have dinner together on Saturday night. As a preface to that meeting, China’s VP Liu expressed his pledge that China has taken steps to open up their domestic markets.
Most market commentators and some US officials agree that this is the right direction, but just not progressing at a fast enough pace to reach an agreement this weekend.
As the trade dispute between the world’s two biggest economies extends in time, it has also seems to have become broader in scope.
In the lead up to this weekend’s summit, the US administration’s criticism of China has extended beyond commerce and trade practices and now has added focus on political and strategic initiatives; which include the One Belt One Road and the Made In China 2025 initiatives.
It’s worth noting that this tangent away from pure trade negotiations by the US administration has received bi-partisan support and approval from several US-based technology firms and corporations.
Since Mr Trump’s policies usually get nothing but criticism from both the Democrats and Silicon Valley, this rare support has emboldened the White House to press harder.
As such, we expect the likely outcome of this weekend will be a resumption of trade talks for early in the new year.
From a market perspective, Forex traders will be focused on tariff talk; will the US proceed in raising the current 10% to 25% in January, and will the process start to add a new tariff on an additional $250 billion worth of imports?
On balance, we consider the rolling back of current tariffs as a high bar to clear and the resumption of talks as the likely outcome. Our Forex positioning will look past the G-20 meeting and remain USD positive.
We are currently short the EUR/USD from 1.1560. We suggest holding short from 1.1560 with an initial target of 1.1215 and a 1.1495 stop.
The Sterling has drifted lower this week as UK risk assessments are seeing a hard Brexit as more likely. We suggest holding short from 1.2880 with an initial target of 1.2615 and a 1.3015 stop.
The AUD/USD has been the biggest beneficiary of the hopes of a trade agreement this weekend. The pair reached a 3-month high of .7330 during the London session last night.
We are currently holding short from an average price of .7255. We suggest adding to short positions at .7310, or better, with an initial target of .6980 and a .7425 stop.
The USD/JPY is still trading in a relatively narrow range and is now sitting just above the 30-day moving average of 113.10. We suggest holding short from 113.25 with an initial target of 110.30 and a 11480 stop.
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