The sentiment has been quite negative in financial markets in recent months and it kept deteriorating as the trade war escalated. As a result, safe havens such as the JPY and GOLD have been absolutely surging while risk assets such as stock markets and Commodity Dollars have been crashed. But, this week the sentiment has turned around and despite the trade war at full scale and the global economy edging ever closer to a recession, markets are finding reasons here and there to keep the positive mood.

Comments from Chinese officials have sounded optimistic. New tariffs on $175 billion of consumer goods are scheduled for December 15, but we heard comments from the Chinese today that the two sides will strive for “substantial progress” in the October meeting. If China decides to buy more agricultural products from the US, then this round of tariffs might not come into action. Besides that, the government has backtracked in Hong Kong after weeks of protests and there’s hope for a Brexit extension now, all of which have been helping improve the sentiment. The positive figures from the US ADP non-farm employment change, factory orders, and the ISM non-manufacturing also helped improve the sentiment further in the US session.

The European Session

• German Factory Orders – Factory orders have been quite volatile in Germany, but they have leaned mostly on the negative side. In June we saw a big decline of 2.2%, but they reversed in June, increasing by 2.5% as the report released last month showed. that was revised today to 2.7%. For July, today’s report was expected to show a 1.5% decline, but they fell even more, by 2.7% that month. The ECB should be taking notes of this.
• Positive Comments From China – The sentiment has been turning positive as we mentioned above and comments from Chinese officials are helping it. China’s commerce ministry said today that China will strive to achieve real progress during October trade talks and they firmly oppose escalation in the trade war. The trade call with US this morning went very well and they hope that US would stop putting pressure on Chinese companies. They mean Huawei.
• EU is Not Impressed by Political Developments in the UK – Reuters reported this morning, citing EU officials on the matter, that EU officials view recent negotiations with UK are not going to lead anywhere. Negotiations with David Frost are a waste of time. Barnier told EU 27 that Johnson is undermining Ireland’s position on backstop and that UK risks crashing out without a deal by accident or by default. UK’s idea for a Brexit deal is a “heroic” assumption and it’s hard to see any Brexit deal passing in UK parliament currently. UK’s idea that EU 27 will eventually cave in is wrong. Ireland has maintained stance that cannot replace backstop with vague, non-binding and unclear commitments from the UK.
• Brexit Talk in UK – The UK PM spokesman, James Slack insisted this morning that government had ‘constructive’ talks with EU yesterday. UK PM does not agree with Barnier’s assessment of Brexit talks. They are to continue talks again on Friday and said that Boris Johnson wants an election before EU Council meeting.

The US Session

• US ADP Non-Farm Employment Change – The ADP non-farm employment report was released a while ago. Jobs in this sector increased by 195k, beating expectations of 150k. This is the best reading since April. Service providing came in at 184K from 146K previously. Goods producing up 11K from 9K prior. This should calm some nerves after the soft ISM manufacturing report earlier in the week. The USD has reversed higher now and is climbing, particularly against the JPY. The revised unit labor costs grew by 2.6% QoQ against 2.5% expected, up from 2.45 in Q1.
• US Factory Orders – Factory orders have been quite volatile in the US as well. They declined by 0.5% in February, increased by 1.9% in March, then turned negative again in the next two months. In June, factory orders turned positive again increasing by 0.6% which was revised a tick lower today to 0.5%. Today’s report was expected to show a 1.0% increase in factory orders in July, but they beat expectations, increasing by 1.4%.
• US ISM Non-Manufacturing PMI – The ISM non-manufacturing PMI has been holding up pretty well compared to other indicators and sectors of the US economy. Although, it declined to 53.7 points last month from 55.1 points in the previous one. But, today it offered a positive surprise when this indicator jumped to 56.4 points against 54.0 points expected.

Trades in Sight

Bearish NZD/USD

• The main trend is still bearish
• The pullback higher is complete on the daily chart
• The 20 SMA is providing resistance today

NZD/USD has stopped climbing after reaching the 20 SMA

NZD/USD has been bearish for several weeks, since the middle of July as the sentiment in financial markets kept deteriorating. But, the sentiment turned positive this week and this pair has made a decent climb so far. Although, it seems like the climb might have come to an end now that the price has reached the 20 SMA (grey) on the daily chart. The stochastic indicator is also getting overbought, while the main trend is still bearish, so we decided to go short on this pair a while ago.

In Conclusion

Markets got a scare earlier this week when the US ISM manufacturing PMI indicator fell below 50 points, showing that this sector contracted in August. But today’s positive figures show higher employment in the industrial sector and the factory orders jumped higher, which will help this sector in the coming weeks. As a result, the sentiment turned even more positive after these figures.