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Optimism continues post US-Mexico trade deal

US stocks enjoyed a positive session yesterday as traders remained elated by the US-Mexico trade deal, and talk of Canada following suit only added to the bullish sentiment.

There is speculation that a Canadian deal could be achieved in the next few days. There is a growing sense that trading relationships in North America are on the way up, and this helped the NASDAQ 100 and S&P 500 reach new record-highs yesterday. 

The trading relationship with China is still a work in progress. Steve Mnuchin, the US treasury secretary, claims it goes far beyond tariffs. Mr Mnuchin would like to see business in China be opened up to foreigners, and have tighter protection for intellectual property. Given that China likes to keep it a bit of a closed shop when it comes to business, it is likely that the US-China trade spat will drag on.

China’s economy is cooling and should the tit-for-tat tariff war continue, it is likely to have a greater negative impact on them that the US. Asian stocks were largely higher overnight, but investors are less optimistic in that part of the world. The US has no plans to suspend military training in South Korea, as the relationship with North Korea has taken a step backwards since President Trump met with Kim Jong-un in June.

The US dollar remained weak yesterday, and that assisted US stocks to push higher and they were attractive to foreign investors. The announcement from Jerome Powell at the Jackson Hole Symposium that the US economy isn’t a risk of overheating, sent the US dollar lower, although we are seeing signs of it bottoming out.

Broadly speaking, sterling remains weak on account of the uncertainty surrounding the UK’s impending exit from the EU. Prime Minister May declared that a ‘no-deal Brexit’ wouldn’t be the ‘end of the world’. This may turn out to be a negotiation tactic, but the possibility of the UK leaving the EU would a deal in place is likely to hurt sterling.

French second-quarter GDP will be announced at 7.45am (UK time), and on a quarterly basis, economists are expecting growth of 0.2%, and that would be unchanged on for the first three months of the year.

At 1.30pm (UK time), the US will release the preliminary second-quarter GDP reading, and the consensus estimate is 4% ,and keep in mind the advanced reading was 4.1%. In the first-quarter the economy grew by 2.2%. There is a growing belief that President Trump’s tax cuts are kicking in, and we could see higher levels of growth at the back end of the year in comparison with the beginning. Yesterday, the US Conference Board consumer sentiment report hit is highest level since late 2000.  

The American Petroleum Institute released their latest oil inventory report last night, and there was a build of 38,000 barrels, and the consensus was for a draw of 522,000 barrels.  At 3 30pm (UK time) the Energy information Agency will release the latest stockpile report, and the consensus estimate is for a decline of 400,000 barrels, and that compares with a 5.83 million barrel decline last week. 

EUR/USD – has been bouncing back for nearly two weeks and it has pierced the trend line resistance from the June high – 1.1670 region, and if it can hold above that level, it might target 1.1850. Moves lower might find support at 1.1500.

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 0.9100. A move lower might find support at 0.9030 or 0.9000. 

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 109.81 – the 200-day moving average.

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