Dollar Rises on Trade Hope, Yen Back Under Pressure

Global equities strengthen mildly today on some trade optimism. China’s announcement to tighten up intellectual property protection rules might boost the chance of finally an agreement with the US. Also, even the hawkish tabloid Global Times said they’re close to a deal. In the currency markets, Yen trades broadly lower following improving sentiments. But there is no sustainable support to commodity currencies. Instead, Sterling is the strongest one, followed by Dollar.

Technically, EUR/USD is on track to 1.0989 support and break will resume the fall from 1.1175 to 1.0879. AUD/USD is also eyes 0.6769 support and break will extend the fall form 0.6929 to 0.6670 low. USD/CHF’s break of 0.9978 resistance suggests that consolidation from 1.0027 has completed. Further rise should be seen to retest this key resistance. EUR/GBP’s recovery appears to be rather short lived and could have completed at 0.8605. Focus is back on 0.8521 temporary low.

In Europe, currently, FTSE is up 0.96%. DAX is up 0.51%. CAC is up 0.44%. German 10-year yield is up 0.0072 at -0.351. Earlier in Asia, Nikkei rose 0.78%. Hong Kong HSI rose 1.50%. Shanghai SSE rose 0.72%. Singapore Strait Times dropped -0.16%. Japan 10-year JGB yield dropped -0.0076 to -0.087.

China said very close to phase 1 trade deal with US, committed to phase 2 and beyond

The Global Times, China’s hawkish tabloid run by the ruling Communist Party’s official People’s Daily, said in a tweet that US and China are “very close” to the phase one trade deal. China “remains committed to continuing talks for a phase two or even a phase three deal”with US “on equal footing”.

Foreign ministry spokesman Geng Shuang also reiterated that China hopes to work with US on a basis of equality and mutual respect on the ongoing bilateral trade negotiations.

The comments came after Reuters reported that some Chinese and US officials believed the ambitious “phase two” trade deal is looking less likely as the two countries struggle to strike a preliminary agreement.

German Ifo rose slightly to 95, manufacturing still in recession but trade improved

Germany Ifo Business Climate rose to 95.0 in November, up from 94.6, matched expectations. Current Assessment Index rose to 97.9, up from 97.8, missed expectation of 98.0. Expectations Index rose to 92.1, up from 91.5, missed expectation of 92.5. Ifo said the Germany economy is “showing resilience” and it expects 0.2% GDP growth in Q4.

However, manufacturing (down from -5.3 to -5.9) is “still stuck in recession” while companies still find their current order backlog very disappointing and they are planning further production cutbacks. Trade (up from -3.3 to 9), on the other hand, has “increased strongly”, with signs that “business will be very good this Christmas”.

IMF cut Japan growth forecast, urges monetary and fiscal policy coordination

IMF lowered Japan’s GDP growth forecasts in 2019 to 0.8%, down from 0.9%. It expects growth to slow further to 0.5% in 2020. IMF Managing Director Kristalina Georgieva urged that “strengthening the effectiveness of coordination between monetary and fiscal policy remains a high priority” for the country.

She added, “fiscal policy should be supportive to protect near-term growth and promote inflation momentum”. Also, “beyond the short-run, a clear commitment to long-term fiscal sustainability is essential.” On monetary policy, IMF called on BoJ to maintain support for the economy. It suggested BoJ to shift 0% yield target on 10-year JGB to a shorter maturity, and cut back its buying of long tern government bonds. Such action could steepen the yield curve and help financial institutions’ profitability.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0994; (P) 1.1040; (R1) 1.1066; More…

Intraday bias in EUR/USD remains on the downside for 1.0989 support. Break will reaffirm the case that corrective rise from 1.0879 has completed at 1.1175. Deeper fall should then be seen to retest 1.0879 low. On the upside, above 1.1032 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 1.1097 resistance holds, in case of recovery.

In the bigger picture, at this point, rebound from 1.0879 is seen as a corrective move first. in case of another rise, upside should be limited by 38.2% retracement of 1.2555 to 1.0879 at 1.1519. And, down trend from 1.2555 (2018 high) would resume at a later stage. However, sustained break of 1.1519 will dampen this bearish view and bring stronger rise to 61.8% retracement at 1.1915 next.

Economic Indicators Update