Financial markets have started the week in “Risk On” mode after Saturday’s dinner meeting between Presidents Trump and Xi ended in a 90-day pause to the ongoing trade dispute between the two superpowers.
Reports from the G-20 summit in Argentina suggested that the meeting ended with loud applause from both sides as the US agreed to hold the current tariff rate of 10% , instead of raising the rate to 25% on January 1st, in return for the Chinese increasing the purchase of US goods; specifically in the agricultural area.
And while it’s clear that this pause gives both leaders some breathing room into the end of the year, neither side made any material progress on the fundamental disagreements and core trade issues separating the world’s two largest economies.
Since the administration first imposed tariffs back in July, negotiations have stalled over US demands for structural reforms which include state subsidies to steel producers, forced technology transfers from US firms and enforcing intellectual property rights.
So far there have been no reports suggesting that there was any substantive progress made on any of these issues at the G-20 meeting.
As such, we believe that the current relief rally in risk assets will fade as the week progresses and markets absorb the fact that the deep, fundamental divides have not been alleviated and it’s just a matter of time before trade tensions return to the general market narrative.
Aside from the tariff truce, Forex traders will have a full schedule of first tier events to follow during the week.
These events include the RBA meeting tomorrow, UK Brexit negotiations, several central bank speakers and the US Non-farm payroll data on Friday.
Our overall positions remain unchanged to start the week with the exception of additional short positions in the AUD/USD. Our suggestion to add to short AUD positions at .7330 was filled, which lifts our average short price to .7310. We suggest holding short from .7310 with an initial target of .6980 and a .7465 stop.
The technical picture in the EUR/USD continues to weaken, with the bounce in today’s Asian session failing to recover above the 30-day moving average at 1.1370. Both the daily Stochastics and the RSI are pointing lower and the next key support level comes in at 1.1275.
We are currently holding short from 1.1560 with an initial target of 1.1210 and a 1.1475 stop.
Sterling has pushed up into the 1.2780 area as the general risk on sentiment has weakened the USD. With the UK Parliament going toe-to-toe on Brexit this week, we don’t see much more upside for the pair. We are currently short from 1.2880. We suggest looking to add to short positions at 1.2835 with an initial target of 1.2615 and a 1.3065 stop.
Even though the USD/JPY has traded higher during 4 of the last 5 weeks, the trading range for the month of November was the smallest monthly range in over 2 years. This isn’t surprising since the pair is being driven by the countervailing forces of weak Japanese economic data and safe haven buying.
On balance, we prefer the short side. We are currently short from 113.25. We suggest short-term traders can look to add to short positions at 113.90 with an initial target of 110.40 and a 114.85 stop.
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