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Markets calm ahead of Christmas

In true Christmas tradition financial markets saw low trading volumes and volatility yesterday. 

The Chinese government took a small step towards bridging the gap between them and Washington DC as it was revealed that more than 850 US imports will see their tariffs reduced as of the New Year. Beijing plan to widen the list of products in July too, so some seasonal goodwill has been given by the Chinese government, and more is in the pipeline.

The ever evolving trade story has been great for President Trump’s 2020 re-election campaign. The achievement of securing phase one of the deal sent US stock markets to record highs, and collecting tariffs has been a nice boost to the governments’ coffers. Farmers in the US can look forward to see demand for their goods increase next year as China has committed to ramp up purchases.

The trade story is far from over so Mr Trump can continue the battle next year, and as long as it doesn’t impact US growth, it should play well with voters. The unemployment rate in the US recently fell to a fifty year low, average earnings are conformably above the CPI rate, and the growth achieved in the third-quarter exceeded the second-quarter so the Donald is going into 2020 with a strong score card.  

Stocks in Asia and Europe had a good run recently thanks to the US and China agreeing to the first part of the trade deal earlier this month. Yesterday, the European session was mixed as the FTSE 100 registered respectable gains, while mainland Europe underperformed. The Dow Jones posted a record close last night. The Chinese tariff story failed to spark any interest, possibly because many traders are already on holidays, and those whose are working, are content to sit on the fence.

The pound took a knock yesterday as traders continued to lock in profits in the wake of the election rally. The fall in sterling needs to be put in the context of the huge rally it enjoyed between early-September and when the exit poll was announced on election night. Prime Mister Johnson has made it clear that he doesn’t want the transition period to be extended. The EU have already said that there isn’t enough time to negotiate that size of a deal in that time frame, but that could be positioning from Brussels. The transition period is due to end in just over one year, and it is a possibility the UK might wind up in a no-deal situation. Even though the prospect is small, and it is a long-way off, some traders are already using it has an excuse to lock in their profits from the recent sterling surge.

EUR/USD – has been pushing higher since late November and while it holds above the 100-day moving average at 1.1064, it might retest 1.1179. A move to the downside might target the 1.1000 area. 

GBP/USD – has retreated sharply from the seven month high and if the bearish move continues it might target the 1.2900 zone. If the wider positive trend continues it could retest 1.3200. 

EUR/GBP – has rebounded from a three year low, and if that bounce back continues it might target 0.8676. Should the wider bearish trend continue it might retest 0.8400.   

USD/JPY – while it holds above the 50-day moving average at 108.89 it could target 110.00. A move back below the 50-day moving average might bring 107.82 into play.     

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