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Optimism continues over China, Turkey still in focus

Stock markets had a strong finish yesterday over renewed hopes of a resolution to the trade spat between the US and China. 

The announcement that negotiations between the two countries will reconvene later this month prompted dealers to snap up relatively cheap equities and metals. The positive sentiment carried on in Asia overnight. It is worth remembering that this was only the confirmation of talks restarting, and there is no guarantee that any trade deal will be reached. Trade discussions have a history of being protracted, and just because traders want a trade deal doesn’t mean they will get one.      

The euro rallied yesterday on account of the bounceback in the Turkish lira. The single currency is tied in with the lira as eurozone banks have exposure to the country. The restrictions on shorting the Turkish lira and Qatar’s promise of a loan helped the beleaguered currency claw back some lost ground. Steven Mnuchin, the US Treasury Secretary, warned that Turkey could be hit with more sanctions if US pastor Andrew Brunson isn’t released. Learning from the eurozone debt crisis and the credit crisis, these kinds of situations are rarely solved quickly, and it is likely that dealers will remain wary of the euro.

At 10am (UK time) the eurozone will release the latest CPI report, and on a yearly basis the cost of living is expected to come in at 2.1%, and the consensus estimate for the core CPI report is 1 3%.

During the week, the German and French inflation remained unchanged on an annual basis, and that could be an indication of what to expect. Traders will be closely watching these reports as it will give us an indication of how strong demand is in the currency bloc. The European Central Bank (ECB) are expected to wind down their bond-buying scheme this year, and according to Mario Draghi, the head of the ECB, we might not see a rate hike until the back end of 2019, and there might not even be one then.

At 3pm (UK time) the US will release the University of Michigan consumer sentiment report for August, and traders are expecting the reading to be 98, which would be an improvement on July’s 97.9, which was the weakest reading since January. The US revealed mixed retail sales figures during the week; the July report was strong, but the June report was revised lower. The consumer sentiment report is a good barometer, but ultimately the sales reports and the quarterly results from retail companies give a better view of the sector. Yesterday, Walmart registered strong same-store sales, while struggling JCPenney continues to struggle.

EUR/USD – now that it has broken below the 1.1500 region, we could see further losses. Support might be found at 1.1287 or 1.1156. A bounce back might run into resistance at 1.1500 or 1.1663.

GBP/USD – has been in a downtrend since April, and if the bearish move continues it could target 1.2590. Pullbacks might run into resistance in the 1.2957 to 1.3000 region.       

EUR/GBP – has been pushing higher since April and if the bullish run continues it could target 0.9050. A move lower might find support at 0.8900 or 0.8844. 

USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 112.15. Support might be found at 109.91 – the 200-day moving average.

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