Forex Signals US Session Brief, Nov 6 – Quiet Market As We Await Trump’s Decision on Tariffs

Today, financial markets have been pretty quiet, which indicates that traders are being cautious. The reason for this is that traders are waiting to see if the US will remove China’s September tariffs. The US and China reached a partial trade deal last month which improved the sentiment, but if the US doesn’t pull September’s tariffs off, then China might pull back from the “Phase One” deal, which would turn the sentiment pretty negative in financial markets, sending risk assets diving lower and safe havens surging. So, most forex pairs have been trading in really tight ranges today.

From the Eurozone, we saw some decent numbers this morning. Factory orders which have been declining for most of this year in Germany posted a decent increase today. Services PMI reports from the Eurozone showed an improvement from last month, which is a positive sign after seeing most sectors of the Eurozone economy shrink for many months. We also saw some decent numbers from the Eurozone retail sales report. The only asset which has been making some respectable moves today is WTI Crude Oil which turned bullish again after comments from Saudi Arabia that they want OPEC members to cut Oil production as agreed, before the IPO listing of the state company Aramco.

The European Session

• Eurozone Services PMI – The manufacturing sector has been in deep recession for quite some time in the Eurozone and it has spilled into other sectors of the economy, most notably on the service sector which has also been weakening. This sector was approaching contraction, but today’s report from Europe showed that services improved in October and moved away from contraction which is a good sign.
• Eurozone Retail Sales – Retail sales have been pretty volatile this year, increasing and declining from month to month. Although, last month’s report showed that sales turned positive, increasing by 0.3% after a 0.6% decline in July. August was revised higher today to 0.6%, while September came as expected at -0.1%. Retail sales YoY jumped to 3.1% from 2.1 previously, beating expectations of 2.4%. These are some decent figures, especially August’s revision and the annualized number.
• German Factory Orders – Factory orders have been pretty soft in Germany, posting some big declines in recent months as German manufacturing remains in deep recession. But, today’s report posted a nice jump for September, increasing by 1.3%, beating expectations of 0.1%. August’s number was also revised higher to -0.4% from -0.6%.
• Saudi’s Want Higher Oil Prices before Aramco IPO – The state owned Oil company Aramco will go public soon and it is estimated to be probably the biggest company in the world right now. Saudi’s want the IPO to go smoothly, so they are pressuring OPEC for higher Oil prices. According to a WSJ piece, Saudis want cartel’s ‘laggards’ to comply with current curbs, rather than pushing for deeper trims in output. The effort is aimed at ‘bolstering oil prices’ and reminding potential Aramco investors of Saudi Arabia’s considerable sway with OPEC, according to people familiar with the plan.
• Johnson-Trump Meeting – The Prime Minister of the UK, Boris Johnson, and the US President Donald Trump are meeting today. They are surely discussing their relationship after UK’s Brexit divorce with the EU. According to rumours, UK PM Johnson asked President Trump to remove tariffs on UK goods including scotch whisky and urged him to refrain from imposing tariffs on autos. I think Trump might accept the requests, since he is sympathetic towards the UK right now.

The US Session

• US Prelim Labour Unit Costs – Labour costs have been pretty volatile as well in the US in recent months. But the last two readings have shown some really strong numbers. Last month’s report showed a big jump of 2.4% for August, which was revised even higher today to 2.6%. Today’s report for September was even stronger, showing a 3.2% increase that month.
• FED’s Evans Speaking – The Chicago Fed President Evans was speaking on Bloomberg TV earlier on. He thinks the neutral rate probably has moved down. The Fed has engineered accommodative policy with the 3rd cut but it’s hard to be sure just how accommodative Fed policy is now. Inflation has been on the light side and below the Fed’s 2% goal. It is important for Fed to be clear what it means by symmetry on its 2% inflation objective (so tell us?). He would be comfortable if inflation rises to 2.5%, but it is very difficult to generate inflation in the current environment. Evans does not think enough could be achieved with negative interest rates in the United States. The expansion in balance sheet is not QE, it is just providing liquidity. US monetary policy and economy are in a good place. He ended his speech saying that the US consumer is supporting the economy in an enormous way.
• FED’s Williams Speaking – The NY FED President Williams said a while ago that the labor market is really strong with low unemployment. The data dependence means reassessing full employment. FED officials have a lower view of what sustainable level of unemployment is based on low inflation (kinda wordy headline). Job growth is still solid despite slowdown in exports, business investment in the global economy. Slowing global growth and muted inflation pressures argue for a more accommodative policy. Monetary policy is moderately accommodative right now. 3 cuts we did were very effective at managing risks to the US economy. FED will be data dependent and preemptive going forward. FED’s change from raising rates to cutting rates was about assessing the risks to the outlook.

Trades in Sight

Bullish USD/JPY Again

• The trend has been bullish this week
• The sentiment has improved
• The pullback down is complete on H1 chart

The 50 SMA is approaching to provide support now

USD/JPY has turned bullish this week after making a strong bearish move last week, following the rate cut from the FED and the failure to pass the Brexit deal in the British Parliament once again. But the sentiment has improved this week and stock markets have turned bullish again, while safe havens such as Gold and the JPY have turned bearish. USD/JPY is climbing higher and the 20 SMA (grey) was providing support on the H1 chart. That moving average has been broken today but the 50 SMA (yellow) is approaching fast and it will likely turn into support for this pair. The retrace down is also complete, so the uptrend will likely resume soon.

In Conclusion

The slow price action continues as we don’t have any response from Trump on China tariffs yet. The economic data from Europe and the US was all positive today, which is rare nowadays. It should have improved the sentiment in financial markets but we are on standby now.