The United States financial markets will be closed on Monday in observance the President’s Day (Washington’s Birthday) holiday.
The name of this day-off seems appropriate for investors since much of the market’s intra-day price volatility has been sourced from headlines and tweets from the current US President.
The central theme to this week’s trading has been the outcome of the trade talks between the US and China in Beijing.
With less than two weeks before the March 1st expiration of the 90-day trade-war ceasefire, both sides are negotiating hard to find a framework which the markets will interpret as progress toward a final agreement and removing of the US tariff protocol.
Based on reports from the negotiating table this week, it’s clear that the Chinese are playing for time and will look for at least an extension to the March 1st deadline. Keep in mind that March 1st is the day which the 10% tariff on $200 billion of goods is meant to be lifted to 25%, and another $50 billion worth of good could be added to the tariff list.
Many Forex traders consider an extension to be a good outcome which could support a “risk on” move in the market, lifting G-7 equities, as well as pushing the USD lower into the long weekend. Considering that an extension is literally an admission that the two sides have not reached an agreement, we are not as sanguine as most about that “risk on” outcome.
Since the initial US trade tariffs were imposed in January of last year, there have been several cycles in the trade war negotiations. The pattern follows like so:
1) The US talks tough about raising tariffs and expanding the list of goods covered from China; the market goes “risk off”, the USD firms and global equity markets fall. 2) After a few days, the US Administration starts suggesting that a resolution is possible and further tariffs can be avoided. 3) The market reverts to “risk on” and rally sharply … until. 4) The news is released that no actual progress has been made, and the process starts over again.
It’s our base case that the market is currently between points 3 and 4. As such, we will look for long opportunities in the US Dollar against the G-7 pairs, except the USD/JPY.
This has been the first week of the year where the EUR/USD has not traded above the 1.1400 handle. The Euro-zone economic data is very light today, so the pair will likely be driven by the US manufacturing data later today. We are currently holding short from 1.1475. We suggest looking to add to short positions at 1.1360, with an initial target of 1.1170 and a 1.1475 stop.
Despite a firm reading on Japanese GDP and a tapering of BoJ JGB purchases this week, the USD/JPY traded to a two-month of 111.20 before slipping lower during today’s Asian session. Our short position from 110.20 was stopped out at 110.90 for a 70 point loss. We still prefer the short side of the pair and suggest selling at 110.40, with an initial target of 107.60 and a 111.60 stop.
The AUD/USD has been contained in an 80 point range between .7050 and .7130 for most of the week. However, we don’t expect the narrow ranges to last with the RBA minutes, Wage Price Index and Jobs report all scheduled for next week.
Our suggestion to add to short positions at .7160 was not filled, which leaves us short from .7175. We suggest holding short from .7175 with an initial target of .6920 and a .7210 stop.
The GBP/USD has traded below the 30-day moving average of 1.2930 everyday this week and now looks technically vulnerable to a downside break below 1.2800. That said, we see good support in the 1.2660 area and the pair looks to be forming a rounding bottom pattern dating back to early December.
Our trade suggestion to sell at 1.3070 was not filled, which leaves us flat. We suggest short-term traders can look to sell GBP/USD at 1.2845 with an initial target of 1.1660 and a 1.2955 stop
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