Trade has been the theme of this week, and European equity markets finished higher yesterday as traders are hopeful about US-China trading relationship.
Xi Jinping, China’s premier, requested that countries use trade talks to promote better relations. A reference was made to the tensions between nations, and the Xi Jinping talked about easing the tensions through dialogue.
Given that Beijing have been locked in a trade spat with Washington DC for over one year, it was clear the message was aimed at the US. Actions speak lounder than words so when the US dollar traded below the 7 mark against the yuan, traders viewed it as further evidence the Chinese government are keen to edge towards making a deal with the US. When trade tensions between the two sides was were running high, Beijing allowed their currency to drift lower against the greenback as a way of getting back at the US, so a firmer yuan bodes well for the possibility of phase of the trade deal being reached.
US equity markets were mixed as the Dow Jones eked out another record high while the S&P 500 finished marginally in the red. The final reading of the ISM non-manufacturing for last month was 54.7, and it was a welcomed bounce back from the 52.6 reading in September – which was a three year low. The news chimed in with the ISM manufacturing report that was posted at the end of last week where it showed a small improvement from a multi-year low reading. When you factor in the recent US jobs report, it is fair to say that dealers are less worried about the state of the US economy.
The US dollar index pushed higher yesterday on the back of the feelgood factor in relation to trade, plus the non-manufacturing ISM report helped too. At the back end of last month, the Fed cut interest rates, and the impression they gave was that there will be no further rate reductions in the near-term. That is playing out in the dollar.
The UK services PMI reading was 50.0, which equates to zero growth in the sector. The update was hardly surprising given that UK was supposed to leave the EU at the end of the month. Retail industry reports in recent months have shown that consumers are curtailing their spending as a mixture of Brexit uncertainty as well as trade concerns are weighing on sentiment. Given that Brexit has been pushed back until early 2020, it is likely the sector will continue to trundle along.
Between 8.15am (UK time) and 8.55am (UK time) the major eurozone economies will be release the final reading of their services PMI reports for October. Spain, Italy, France and Germany will post their updates, and economists are expecting 52.8, 51, 52.9 and 51.2 respectively.
Eurozone retail sales are expected to increase by 0.1% on a monthly basis. The report will be posted at 10am (UK time).
At 3.30pm (UK time) the Energy Information Administration report will be released. Oil inventories are expected to increase by 2.72 million barrels, while gasoline inventories as expected to decline by 1.73 million barrels.
EUR/USD – has been driving higher since the start of the month, and a break above 1.1200 might put 1.1249 on the radar. A move lower might bring the 50-day moving average at 1.1039 into play.
GBP/USD – remains in the recent aggressive upward trend and a sizeable break above the 1.3000 area might bring 1.3178 into play. A move lower might put the 200-day moving average at 1.2708 on the radar.
EUR/GBP – is still in the bearish trend, and a break below 0.8575 could pave the way for 0.8471 to be targeted. If it manages to hold above the 0.8600 mark, it might retest 0.8786.
USD/JPY – while it holds above the 50-day moving average at 107.80 it could target 110.00. A move back below the 50-day moving average might bring 106.48 into play.