They suddenly look like old friends now

US Session Forex Brief, Dec 3 – Markets Feel Better After the G20 Summit, But Don’t Get Carried Away

Posted Monday, December 3, 2018 by
Skerdian Meta • 5 min read

The G20 summit is now over and it ended up much better than a lot of people were expecting. We didn’t get any of the usual surprises from Donald Trump to shock the markets like in the last few previous summits. That was a relief for risk assets and the risk currencies which opened with a bullish gap higher this morning. Although, the jump came mainly due to the truce between US and China. There were comments from both sides that they finally reached an agreement, although we don’t have the agreement yet. So, we don’t know if this an official deal or just a verbal agreement between Donald Trump and the Chinese President Xi.

Nonetheless, risk currencies opened with a bullish gap higher, especially the commodity Dollars since the AUD and the NZD are pretty vulnerable from news related to China. The surge in the CAD was even bigger but there was another reason for that.

Saudi Arabia and Russia are pushing for Oil production cuts and it seems like they will decide just that on the OPEC+ meeting this Thursday in Vienna. Oil is around 5% higher today as well, so that has helped the CAD. Although, China and the US came out with statements which were a bit contradictory, so the market is holding its breath now to see whether the trade war between US and China is really over and we will get a deal soon, or if this is just a temporary truce. However, the sentiment is positive today and the comments from the Italian Prime Minister Tria to reduce the deficit for next year’s budget are helping the sentiment further.

The European Session

  • CAD and Oil Higher on Production Cut Talks – Oil prices are nearly 5% higher today after Saudi Arabia officials commented that they will probably decide to cut Oil production. We have heard similar comments from Russia in recent days, so it seems like OPEC+ cartel will cut the output in their next meeting on Thursday. As a result, the CAD is feeling great and it has entered a bullish trend which I think will last if OPEC decides to cut production.
  • Italian Politicians on the Budget – This morning, we heard the Italian Prime Minister Giuseppe Conte comment that he is working towards reducing the deficit to 1.9-2.0% for next year’s budget. But the deputy PM Salvini who actually holds more power together with Di Maio followed up later saying that the European Commission cannot ask Italy for a 1.9% deficit. So, the Italians have accepted to lower the deficit to 2.2% but the EU wants it lowered to 1.9%, which I’m not sure they will get. Nonetheless, Conte’s comments this morning helped improve the sentiment further and European stocks are all higher.
  • EU’s Dombrovskis Aligns With Conte –The Vice President of the European Commission followed up after Conte saying that the tones have changed in Italy, and that they are in intense contact with Italy but Italy’s budget still needs quite substantial adjustments.
  • European Manufacturing PMI – The manufacturing PMI report from the European countries came up slightly better than expected today, which is positive nonetheless after a softening trend. But, the Italian manufacturing showed yet another contraction this month. Spanish manufacturing jumped the most among the Eurozone countries.
  • UK Manufacturing PMI – British manufacturing has also slowed down considerably this year. But today it jumped higher to 53.1 PMI points from 51.1 points previously, so that is a nice turnaround. Although, the GBP didn’t take much notice of those numbers.
  • UK PM May Confident to Remain in the Post in Two Weeks – The British PM Theresa May commented a while ago saying that she expects to still have her job in two weeks, after the Brexit deal vote in the Parliament. She added that she is currently very focused on getting the Brexit vote over the line, but she still has a lot more to do than just Brexit.

The US Session

  • FED’s Kaplan Not Very Convinced About the US Economy – Dallas FED Chairman Robert Kaplan said a while ago that the US economy might look very different by mid 2019 after the stimulus effect is gone. He added that stimulus effects might be masking some weakness of the economy but he refused to comment on the rate hike path.
  • FED’s Clarida Sounds More Optimistic FED’s vice Chair Richard Clarida said in an interview with Bloomberg that the US economy is in a very good shape and the FED could operate with inflation above 2%, He added that the dot plot is not going anywhere, suggesting that the FED members remain in the same position as currently regarding hiking interest rates. That’s positive news for the USD.
  • Donald Trump Tweets on China – US President Trump tweeted just now that he and China’s President Xi are the two people who could bring massive and positive change on trade and beyond for the two great nations. He also mentioned North Korea. US farmers will be big and fast beneficiaries of the trade deal with China which intends to buy agricultural products immediately. He added that the US makes the safest and cleanest agricultural products, but I’m not so sure about this one. America leads the world on GMO food, anyone recalls that?
  • Canadian Manufacturing PMI  The manufacturing sector has been slowing in Canada this year like in the rest of the globe. Although we saw a jump in manufacturing from all the major countries today apart from Italy, so probably we will see a positive number from Canada as well.
  • US Manufacturing PMI US manufacturing is in the best shape among developed nations standing at 57.7 PMI points currently. Although, it is expected to ease a bit today to 57.5 points which wouldn’t be a big decline, but we can still get a positive number.
  • US Construction Spending Construction spending has been pretty weak in the US averaging at around 0.0%-0.1%. Although today, the construction spending for October is expected to have jumped by 0.4%, although don’t hold your breath.

Trades in Sight

Bearish USD/CAD

  1. The trend has turned bearish
  2. The retrace higher was complete
  3. Fundamentals are bearish

We decided to sell as the retrace was complete on the 15 minute chart

We went short on USD/CAD a while ago. This forex pair turned bearish over the weekend, opening with a 50 pip bearish gap lower and pushing further down. Fundamentals finally turned bullish for the CAD as OPEC is deciding to cut the output, while US, Canada and Mexico signed the trade deal. I was expecting for the retrace to complete on the H1 chart and reach the 200 SMA on that time-frame, but in such strong moves we must trade the smaller time-frame charts. So, we decided to sell this pair because the retrace was complete on the 15 minute chart, as stochastic became overbought. That trade went pretty well and we booked our profit.

In Conclusion

The G20 summit is finally over and we got a breakthrough in quite a few issues. China and the US seem to get along now and the sentiment has improved considerably, putting risk currencies in a bullish trend today, apart from the GBP but that’s another matter. Although, don’t be too sure about this market sentiment reversal because we still don’t have an official deal, so the trade war is not over until we get it in writing.

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