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US-China trade hopes continue as Chinese economy cools

European and US equity markets had a major rally on Friday thanks to raised expectations about US-China trade relations. 

It was reported that Steven Mnuchin, US Treasury Secretary, was open to idea of lifting some or all of the tariffs on Chinese goods. It was only a suggestion, but it was enough to boost investor confidence. On Friday afternoon, there were signs of China softening its stance in relation to US trade. It was reported that Beijing offered a six year import boost. The announcement added to the buying pressure. US and Chinese trade delegates are due to meet at the end of this month and optimism is running high.

At the back end of last week, we heard from John Williams, the New York Fed president. The central banker said that interest rates are close to normal, and that he is not seeing any signs of inflation. Earlier this month, we heard from Jerome Powell, the head of the Fed, and he reined in his previously hawkish comments. The neutral tone of Mr Williams left traders less worried about further monetary tightening from the US central bank.

Overnight, China revealed a raft of economic data. On an annual basis, fourth-quarter GDP was 6.4%, matching consensus estimates. Traders were expecting retail sales to be 8.2%, and they came in at 8.2%. Industrial output was 5.7%, while dealers were anticipating 5.3%. Fixed-asset investment was 5.9%, and economists were expecting 6%. China’s economy grew by 6.6% in 2018, its slowest pace since 1990. Stocks in Asia are slightly higher, as dealers are still optimistic about US-China trade relations.

At the back end of last week, we heard that Opec production fell in December, and the Saudis cut their output by more than expected. In December, Opec and its partners pledged to reduce output, and now it seems the major oil producers are keen to follow through on that promise.

Gold finished in the red on Friday. The metal was partially hurt by the rise in the US dollar, and the risk-on attitude of investors added to the metal's woes.

Brexit will remain in focus. Theresa May will outline her Brexit plan B today, and reports suggest that it won’t be too different form the draft agreement that was overwhelmingly voted against last week, so hopes aren’t particularly high. The pound is holding up well considering the UK is set to leave the EU in late March, and as its stands we are facing a no-deal scenario.

German industrial production will be released at 7am, with dealers are expecting a decline of 0.2%. The New York Stock Exchange will be closed today as the US celebrates Martin Luther King Jr Day.   

EUR/USD – despite the recent pullback, it has been broadly been pushing higher since mid-November. If it holds above the 50-day moving average at 1.3810, it might retest the 1.1570 area. Trend line support from the November lows might come into play at the 1.1330 region.

GBP/USD – has been pushing higher for over one month, and a break above 1.3000, might bring 1.3174 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 0.8700. The 200-day moving average at 0.8862 might act as resistance.

USD/JPY – if it manages to hold above the 109.20 area, it might target 110.00 or 111.17 – 200-day moving average. 108.00 might provide support.

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