The sentiment in financial markets has been positive in the last couple of weeks, hence the decline in safe havens. But yesterday we saw a reversal in the sentiment after the comments from China that they feel pessimistic about the trade deal, since Trump is not rolling back tariffs, despite China increasing dairy and poultry purchases from the US. That shows that Trump’s administration is not too eager to strike a deal with China. As a result, safe havens turned bullish, with GOLD climbing around $20.

That sort of price action continued in early Asian trading and risk assets were bearish for some time. The Aussie got another kick from the RBA minutes this morning, which suggested that the RBA might cut interest rates again by 25 bps, which would bring them down to 0.50%. But the sentiment improved during the Asian session today for no particular reason. Risk assets are climbing again, with S$P at record highs, while the USD has turned bearish once again.

The European Session

• Eurozone Construction Output – The construction sector has shown signs of weakness in the Eurozone, so it seems that the weakness in manufacturing and industrial production is spilling over to the other sectors. Last month’s report showed a 0.5% decline in August, which was revised lower to -0.8% today. Today’s report for September was expected to come at -0.5% again, but it beat expectations, showing a 0.7% increase in September. The construction output YoY ticked lower to 0.7% from 0.8% previously.
• More Easing From the PBOC – The People’s Bank of China made some comments earlier today. They are to step up counter-cyclical adjustment. Downward pressure on the economy keeps increasing. They will also boost banks’ ability to supply credit and continue to push real lending rates lower.
• HSBC Sees the USD Running Higher – HSBC global head of FX strategy, David Bloom, continues to back the dollar. he said earlier today that a full blown US-China trade deal will be “game changer” but for now the dollar is the currency to own. The Yuan will stay pretty stable and risk assets will rally . Then you’ve got alternatives to the dollar. But don’t hold your breath on a deal. In the meantime, the dollar will “power ahead.

The US Session

• Canadian Manufacturing Sales – Manufacturing sales have been pretty volatile recently in Canada. We have seen them decline three times in the last five months. Today’s report was expected to show yet another decline for September of 0.5%. They did turn negative again after a small increase in August, declining by 0.2%, but beat expectations of -0.5%.
• US Building permits and Housing Starts – Building permits have been in the range of 1.30 million in the last several months and they were expected to be at 1.39 million today, just like last month. But they beat expectations, showing a 1.43 million increase in permits in October. Housing starts for September were revised higher to 1.27 million form 1.26 million, while for October they increased to 1.32 million.
• FED’s Williams Feels Optimistic About the Economy – Williams was speaking at a SIFMA conference. He said that the economy’s in a very good place. We are very close to achieving our inflation goal, inflation is low and stable, unemployment is low. FED’s aim is to keep economy in this good place. the FED will stick to data dependent approach. Monetary policy is now well-positioned.

Trades in Sight

Bullish USD/JPY

• The trend has turned bearish
• Highs keep getting lower
• The 100 SMA turned into resistance today

The 100 SMA provided resistance for USD/JPY

Last Friday we decided to go short on USD/JPY during the pullback higher. The price was at the 50 SMA (yellow) where we decided to short this pair. USD/JPY continued higher still, but after forming an upside-down hammer candlestick on the chart above, the bearish trend resumed. Today we saw another pullback higher, but the 100 SMA (red) turned into resistance and the reversal came after that.

In Conclusion

The economic data has been light in the last two days, so it’s the sentiment which has been driving markets around and trade comments, mainly from China. Although, tomorrow we will get to see the inflation report from Canada and the minutes from FED’s last meeting, which should induce some action in forex.