Trade hopes lift the dollar

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Trade hopes lift dollar, crude; doubts slow stock rally

NEW YORK (Reuters) – The U.S. dollar and crude prices rose on Tuesday, spurred by optimism that a U.S.-China trade deal may be near, but a rally in global equity markets paused after China pressed U.S. President Donald Trump to remove recently imposed tariffs.

MSCI’s gauge of global stock markets set a 21-month intraday high but pared gains to close lower while the Nasdaq and Dow Jones industrial average eked out record closing highs.

U.S. and European government bond yields climbed on trade hopes and upbeat economic data. China’s push to remove more U.S. tariffs imposed in September as part of a “phase one” trade deal mostly boosted optimism.

“You’re seeing a continuation of optimism around a potential trade agreement to come with China as referenced by the potential removal of tariffs in December,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles. “It’s just another leg towards a potential agreement.”

A trade deal is far from certain, Fawad Razaqzada, technical analyst at FOREX.com, said in an investor note. “If the talks collapse, then so too could the markets,” he said.

Solid corporate earnings and upbeat data gave equities a lift. More than three-quarters of the S&P 500 companies that have reported so far have beaten profit expectations, Refinitiv data showed.

ISM’s services data showed a reading of 54.7 in October from 52.6 the prior month, exceeding expectations of economists polled by Reuters for 53.4. It was the latest data to ease concerns the U.S. economy.

MSCI’s gauge of stock indexes in 47 countries edged lower by 0.01%. The pan-European STOXX 600 index of small, mid-sized and large stocks and the FTSEurofirst 300 index .FTEU3 of leading regional shares both rose 0.2%.

On Wall Street, the Dow Jones Industrial Average .DJI rose 30.52 points, or 0.11%, to 27,492.63. The S&P 500 .SPX lost 3.65 points, or 0.12%, to 3,074.62 and the Nasdaq Composite .IXIC added 1.48 points, or 0.02%, to 8,434.68.

In Asia, optimism was fueled by the People’s Bank of China’s first cut in its medium-term lending rate since early 2020. It was only a token 5 basis points to 3.25%, but it underscored Beijing’s desire to support the economy.

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Oil prices rose more than 1% on trade hopes. Oil was also supported when OPEC Secretary-General Mohammad Barkindo said the market outlook for 2020 may be brighter than forecast, appearing to downplay any need for deeper production cuts.

Brent crude LCOc1 futures for January delivery settled 83 cents higher at $62.96 a barrel. U.S. West Texas Intermediate (WTI) crude CLc1 futures rose 69 cents to settle at $57.23 a barrel.

The safe-haven yen and Swiss franc slid. Gold fell almost 2%, en route to its biggest daily slide in over a month.

The dollar index .DXY rose 0.43%, with the euro EUR= down 0.48% to $1.1073. The Japanese yen JPY= weakened 0.52% versus the greenback at 109.16 per dollar.

U.S. gold futures GCcv1 settled down 1.8% at $1,483.70.

Benchmark 10-year U.S. Treasury notes US10YT=RR fell 19/32 in price to yield 1.8548%. That boosted financial stocks. The S&P financial sector .SPSY was the second-biggest gainer of the 11 sectors, edged out by the rising energy sector .SPNY.

A steady rise in bond yields has been a big tailwind for financial stocks and one of the biggest contributors to the continued strength in equities, James said.

“Outside some significant macroeconomic downside shock, the market continues to reluctantly trade higher,” he said.

The 10-year U.S. Treasury barely yielded 1.5% in early October.

Germany’s 10-year bond yield rose as high as -0.308% DE10YT=RR, while the French 10-year hit -0.006% FR10YT=RR to within striking distance of positive territory.

Reporting by Herbert Lash; Editing by Bernadette Baum and Sonya Hepinstall

FOREX-Trade hopes lift dollar, rate cut forecast hobbles Aussie

* Trump says U.S.-China deal close

* Dollar climbs on yen, euro, pound

* Aussie heads lower after rate-cut forecast

* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh

By Hideyuki Sano and Tom Westbrook

TOKYO/SINGAPORE, Nov 27 (Reuters) – The dollar posted modest gains on Wednesday, as traders looked ahead to a possible outcome to drawn out U.S.-China trade talks, while a forecast for monetary policy easing knocked the Aussie.

Against the yen, the dollar traded at 109.12 yen, off a two-week high of 109.205 hit on Tuesday. The greenback had found support on signs Washington and Beijing were moving closer to signing a deal to end their 16-month trade spat.

The U.S. currency rose slightly against the euro and British pound, last fetching $1.1012 per euro and $1.2853 per pound – both levels little changed this week.

The Australian dollar fell 0.2% to $0.6774. Trade is slowing ahead of the Thanksgiving holiday on Thursday in the U.S.

“The market is tired of playing headline ping pong with respect to trade,” said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.

“The equity market still seems to want to push on and believe optimistically that a trade deal is going to be done, but I think the FX market and the bond market have given up playing that game.”

U.S. President Donald Trump said overnight that Washington was in the “final throes” of work on a deal to defuse the trade war, after top negotiators from the two countries spoke by telephone on Tuesday.

But he also underscored Washington’s support for protesters in Hong Kong, a potential sore point with China.

“Judging from Trump’s comments, an agreement will have to wait at least until the weekend,” said Kyosuke Suzuki, director of forex at Societe Generale in Tokyo.

If both sides cannot reach an agreement soon, the next important date to watch is Dec. 15, when Washington is scheduled to impose even more tariffs on Chinese goods.

The tit-for-tat protectionism has already harmed the global economy and hit manufacturing hard.

Profits at China’s industrial firms shrank at their fastest pace in eight months in October, official data showed on Wednesday, underscoring slowing momentum in the world’s second-largest economy.

China’s yuan was steady, since the weakness also strengthens the case for deeper monetary easing. It last traded at 7.0291 per greenback.

In Australia, a forecast from Westpac Bank Chief Economist Bill Evans saying he expected two central bank interest rate cuts and quantitative easing (QE) to be introduced next year sent the Aussie 15 ticks lower.

The Reserve Bank of Australia’s governor, Philip Lowe, had said on Tuesday he did not expect to have to use QE, but that it would become an option if rates fell to 0.25% from the current 0.75%.

“That is a clear signal to us that the RBA will be prepared to cut the cash rate down to 0.25%,” said Evans. (Editing by Sam Holmes)

Trade Hope Lifts Dollar, How High Can It Go?

The US/China trade war may be coming to an end. Leaks from within the negotiation say the two sides are on the cusp of reaching an agreement to end the hostilities. The news is good on many fronts in that it will, or should, stimulate the global economy and that will have positive effects on equities, commodities, and foreign exchange. At this time it is the dollar in the spotlight as the U.S. economy is best positioned to see immediate improvement once a trade deal is struck.

The Dollar Index Is Moving On Up

The US Dollar is moving higher against the entire basket of global currencies. The DXY Index added a quarter point today and more than a full percentage point over the past week. The move is supported by technical signals as well as fundamental drivers so likely to continue moving higher in the near-term at least. The first target for resistance is near $97.50 were prices have been halted in the recent past. A move above this level would be bullish and probably result in a sustained move higher. Longer-term, if the trade deal helps boost economic activity as is expected, the DXY could easily top $100 this year. The risk is that the FOMC is not as hawkish as they could be, if the data weakens and they begin cutting rates the dollar may not move as high as forecast. Additionally, if data in the UK, EU, Japan and Australia begin to improve the DXY will likely remain range bound.

EUR/USD Forecast – Back To Support, Now What?

The EUR/USD has been trending sideways within a broad range for many months now. Most recently, the pair has moved lower within that range to test for support near the 1.1300 level. The pair is now sitting on that level and may move lower if the indicators have anything to do with it. Both MACD and stochastic are in support of a bearish move that may take the pair below this target. If so, the pair may move down to 1.12500 or even 1.1200 before next support kicks in. Longer-term I expect to see this pair bob along the bottom of this range before eventually moving higher.

GBP/USD Ratcheting Higher

The dollar is providing some resistance for the pound but hopes for a smooth Brexit are supporting the pair longer-term. Early action this week suggests a move to test support at the short-term moving average but so far, support is well above that EMA. The indicators supports a pull-back in prices within the three-month uptrend but nothing more than that. If prices fall further support is likely at the EMA, a fall below that would be bearish. If support holds and a bounce develops traders can expect to see prices move up to retest the recent high and maybe extend the rally to the 1.3400 level.

USD/CAD: Canadian Dollar Pares Gains, Trade Hopes Lift US Dollar

After initial strength in the Canadian dollar, the US dollar Canadian dollar exchange rate rallied to a high of 1.3178 on Tuesday. The pair eased back slightly into the close, ending the session at approximately the same level that it started. The dollar is advancing versus the Canadian dollar in early trade on Wednesday.

The Canadian dollar strengthened in the European session on Tuesday thanks to rising oil prices which offered support to the commodity related “loonie”. OPEC Secretary General Mohammad Barkindo confirmed on Tuesday that the oil producing nations group will be discussing deeper cuts to production when they meet in December. The prospect of oil supply being cut boosted its price.

The Canadian dollar is closely correlated to the price of oil; higher oil prices result in a stronger Canadian dollar.

Looking across today there is nothing of note on the Canadian economic calendar. Canadian dollar investors will keep a close eye on the price of oil, amid US — Sino trade deal hopes and the prospect of further oil production cuts.

King Dollar Rules

The dollar gained versus all its major peers in the previous session amid mounting optimism that the US and China would agree a trade deal sooner rather than later. A report in the Financial Times said that US officials are considering removing tariffs on some Chinese imports as a concession to get a trade deal done, possibly as soon as this month.

The US manufacturing sector has experienced a downturn amid the ongoing US — China trade dispute. Any signs that tensions are easing could help restore confidence and prevent the sector from contracting further. This would be beneficial for the US economy and therefore the US dollar.

Data published by the Institute for Supply Management (ISM) revealed that economic activity in non-manufacturing sectors increased at a faster pace in October than what analysts had been expecting. The non-manufacturing index rebounded to 54.7 in October up from the three-year low of 52.6 in September. The data shows that any weakness in the industrial economy, stemming from the US — China trade dispute, has not yet spread into the service sector. Good news for the US economy and the dollar.

Today the US economic calendar is sparse. Investors will focus on any trade deal headlines.

Gold Prices Up Despite Risk Revival, US China Trade Hopes Lift Crude

Gold and Crude Oil Talking Points:

  • Gold prices made some ground even as trade hopes boosted regional stocks in Asia
  • The Reserve Bank of Australia’s policy minutes struck a dovish note
  • Crude oil prices stayed up as investors hoped for increased energy demand
Change in Longs Shorts OI
Daily 2% 3% 2%
Weekly 15% 22% 17%

Gold prices edged higher in Tuesday’s Asia Pacific session despite the broad resilience of risk appetite which saw stock markets higher too.

Overall investors are still deriving some reassurance from last week’s news that a phase-one trade deal between China and the US is coming, even if details are scarce . The election of a strong, pro-Brexit majority in the United Kingdom has also reduced uncertainty over that country’s future path.

Still, with both stories liable to throw up market-moving headlines the underlying bid for gold remains. The metal is also on course for a strong 2020. If it holds around current levels the 15% gain seen since January will be the strongest for nine years.

The minutes of the last monetary policy meeting from the Reserve Bank of Australia kept the prospect of lower interest rates very much on the table for next year. This may have added to the conducive environment for gold and the market will be on watch for more of the same from the Bank of England and the European Central Bank. The former will set policy on Thursday while the new President of the later, Christine Lagarde, speaks on Wednesday.

Gold Technical Analysis

Spot gold prices remain well within the uptrend channel in place since mid-November.

The validity of that channel endures, with a clear upside test rejected as recently as December 12. However, within it, prices seem to have settled into a broad daily-closing range between $1462.40 and $1476.35. It might make sense to watch this band for directional cues within the channel.

Meanwhile, crude oil prices continue to benefit from the prognosis that the re-forging of trade links between China and the US will mean higher energy demand all round.

The market’s attention may be caught by more immediate concerns this week, however, with the release of US inventory data due on Wednesday from the Department of Energy.

Crude Oil Technical Analysis

Prices for the US WTI crude oil benchmark have slipped back very little from last week’s three-month peaks and the daily chart looks very constructive still. Its most obvious uptrend remains very much in place, too, with bulls perhaps girding themselves for another try at the top of mid-September. Their ability to hold above support at $59.56 may be key to this attempt. It represents the closing low of September 15.

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— Written by David Cottle, DailyFX Research

F ollow David on Twitter @DavidCottleFX or use the Comments section below to get in touch!

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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