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Traders cautious on account of US-China trade, Fed in focus

Traders cautious on account of US-China trade, Fed in focus

It was another quiet day on European equity markets yesterday as there was some back and forth in relation to the US-China trade situation. 

Stocks sold-off in the late morning on a report that the US were going to wait for China to make the first move. But in classic trade talk’s form, there was subsequent reports the US were seeking the Chinese government to commit to purchasing agricultural goods. The counter response from China was that any guarantee to buy agricultural goods must tie in with a roll back in tariffs. The major US indices finished slightly lower.

The fact the two sides are negotiating is a positive sign, as it’s when both sides are locked in a stand-off without communication, then traders get nervous. As it stands, the US are due to announce on Sunday that there will be tariffs applied to more than $150 billion worth of Chinese imports, but there is chatter of that being deferred.

Gold was helped yesterday by the uncertainty surrounding the trade situation. The slide in the US dollar gave a lift to the metal too. After hitting a six year high in September, the commodity has been largely pushing lower, but it gets the occasional lift from worries about the US-China trade spat.

Equity markets in Asia are mixed as traders are worried about the trade dispute.  

It was estimated the UK economy saw zero growth in the three months until October. The UK was supposed to leave the EU at the end of October, so it’s hardly surprising that economic activity tapered off. The UK general election on Thursday is still very much in focus, and Brexit will be at the heart of the vote. The pro-business Conservative party remains in the lead in the opinion polls, which is why sterling has continued to be in demand. As election day draws near is it likely that volatility will drop-off as traders hunker down.   

At 1.30pm (UK time) the US will reveal the latest inflation figures. CPI is tipped to jump to 2% from 1.8%, it is worth noting the Federal Reserve’s target is 2%, so the report could be interesting seeing as the US central bank is due to release its interest decision later on. The core CPI reading is expected to hold steady at 2.3%. The update is deemed to be a better indicator of underlying demand.

At 3.30pm (UK time) the Energy Information Administration will announce the latest US inventory report. Oil stockpiles are expected to fall by just over 3 million barrels, while gasoline stockpiles are expected to jump by 2.65 million barrels.

The Fed will announce their interest rate decision at 7pm (UK time). It is widely expected the central bank will keep rates on hold. The Fed cut rates three time between June and October, and it is fair to say we haven’t seen the impact of the cuts so far, and we are unlikely to do so for a number of months. Last week’s jobs report was stellar as over 260,000 jobs were added in November. The unemployment rate dropped back to a fifty year low. If the jobs market is this strong now, one wonders what it will be like when the recent rate cuts kick in.  

EUR/USD – has largely been moving lower since mid-October and a break below 1.1000, might put the 1.0900-1.0879 area on the radar. A move to the upside might run into the resistance at 1.1179.

GBP/USD – has been in a bullish trend since early September and if the positive run continues it might target 1.3361. A pullback might find support at 1.3000.

EUR/GBP – recently fell to a level last seen in May 2017. A break below 0.8400 should pave the way for 0.8313 to be retested. A rebound in the currency pair might target the 0.8600 area.

USD/JPY – while it holds above the 50-day moving average at 108.54 it could target 110.00. A move back below the 50-day moving average might bring 107.88 into play.     



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