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US-China tensions continue, May’s Brexit plan B in focus

market relief

market relief

European and US stock markets sold off yesterday as traders are still concerned about trade tensions between the US and China.

Delegates from the two governments will begin their two-day discussion on Wednesday, and investors are apprehensive about the meeting. Last week, Wilbur Ross, the US commerce secretary, said the two sides were ‘mile and miles’ from reaching an agreement, but he also said there is a fair chance an agreement will be reached.

It has been no secret the Chinese economy has been cooling. In 2018, the economy grew at its slowest pace since 1990. Yesterday, corporate updates from Caterpillar and Nvidia highlighted the impact of the slowdown in the Chinese economy. With the session lacking important economic announcements, traders took their cues from the day's earnings releases.

Asian stock markets were a little lower overnight after it was confirmed the US trade delegation will be headed by Richard Lighthizer and Perter Navarro – who is a critic of China. The US justice department plans to press ahead with the extradition of Huawei's CFO Meng Wanzhou. An official from China’s industry and information technology ministry described the move as ‘immoral’ and ‘unfair', and that could play into the trade talks.

The China story has hurt the oil market too. The energy sold-off aggressively over fears of weaker global demand. Traders were mindful of the Baker Hughes report at the back end of last week which showed the number of active rigs in the US increased by 10 to 862. Oil rebounded a little last night when the US confirmed it will sanction Venezuela’s state-owned oil company PDVSA. US companies can still import oil from the Latin American country, but the funds must be paid into accounts beyond the reach of president Nicolas Maduro. 

Gold hit a fresh seven-month high as the metal benefited from the slight dip in the greenback, and the risk-off stance from traders helped too. The metal has been in a solid upward trend since mid-November, and the less hawkish outlook from the Fed has assisted the rally.

Today MPs will debate Theresa May’s Brexit plan B proposal. It is tipped to be similar to the withdrawal agreement proposal that was comfortably defeated in parliament two weeks ago. Time is running out for a deal to be put in place, but the currency markets seem to be overlooking the possibility of a no-deal Brexit, even though that is what we are facing unless something is agreed.  

At 7.45am (UK time) French consumer confidence will be announced and traders are expecting a reading of 88, and that would be an improvement on the 87 reading in December.

The Spanish unemployment rate will be revealed at 8am (UK time) and economists are expecting it to dip to 14.5% from 14.6%.

EUR/USD has been broadly pushing higher since mid-November, and if the positive move continues it might retest the 1.1570 area. A break below the 1.1300 region might bring 1.1216 into play.

GBP/USD has been pushing higher for over one month, and if it holds above 1.3000, it might bring 1.3361 into play. Support might be found in the 1.2815 region.

EUR/GBP has been pushing lower since the start of the month, and support might come into play at 0.8620. The 200-day moving average at 0.8863 might act as resistance.

USD/JPY if it manages to hold above the 109.20 area, it might target 110.00 or 111.24 – 200-day moving average. 108.00 might provide support.

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