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Careful bot to be caught on the wrong side,as risk sentiment flips around

Forex Signals US Session Brief, Dec 4 – Risk Sentiment Flips On and Off on Trade Comments

Posted Wednesday, December 4, 2019 by
Skerdian Meta • 5 min read

Earlier this week, the sentiment was dented from the US ISM manufacturing report, which came softer than expected, sending GOLD and safe havens higher. Markets were expecting an improvement, but that report showed that the US manufacturing activity fell deeper in contraction, increasing fears of another wave of a global economic slowdown. But, Donald Trump’s comments for postponing the deal with China until next year’s elections in China, as well as regarding tariffs on French wine and other products, hurt the sentiment further, sending safe havens surging.

China responded back with retaliatory threats which made things worse for risk assets. Early today, China’s foreign ministry said that the US will ‘pay the price’ over Hong Kong and Xinjiang bills on human rights, which gave safe havens another push higher. But, later on, we saw a report on Bloomberg suggesting that the Phase One deal might become official by December 15. That was reinforced by Trump’s comment later in the day that China talks are going very well. That improved the sentiment in financial markets, but traders are left uncertain now which way to go.

The European Session

  • Eurozone Final Services PMI – The service sector fell in contraction back in September, having being dragged down by the manufacturing and industrial sectors. In October, it declined further to 51.5 points, where it was expected to remain today. But, German and Spanish services PMI beat expectations today, moving away from contraction, which had a positive effect on Eurozone services, bringing them up to 51.9 points. French and Italian service PMI missed expectations, but the effect from German and Spanish reports had a bigger impact.
  • UK Services PMI – Just like in the Eurozone, the service sector fell into contraction a few months ago in the UK as well. In September, this indicator fell to 49.5 points where it remained in October as well. It was expected to remain there for November too, but today’s report beat expectations, showing an increase to 49.3 points.
  • US-China Deal Closer According to Bloomberg – Bloomberg reported earlier, citing people familiar with talks that US and China are moving closer to agreeing on the amount of tariffs that would be rolled back in a “Phase One” deal despite tensions persisting over Hong Kong and Xinjiang as seen earlier today. Adding that Trump’s downplaying of a deal yesterday should not be understood to mean that talks are stalling as he was “speaking off the cuff”. Further noting that the tensions stirred up by the Hong Kong and Xinjiang bills are unlikely to impact the talks. In terms of a timeline, the sources cited said that the US expects a deal to be completed before the 15 December tariffs are to be enacted with outstanding issues at present being how to guarantee agricultural purchases by China and exactly which tariffs the US roll back.
  • A Considerable Drop in German Engineering Orders – Germany’s engineering body VDMA was out with more rough news for the manufacturing sector in the country. VDMA reported a 11% drop in engineering orders in October from the previous year. In the middle of this year, factory orders were down by about 3% y/y so this is continuing to show some extended worries for the German manufacturing sector in Q4. VDMA notes that domestic orders are down 13% while foreign orders are down by 10% relative to a year ago. On the worsening trend, they mention that many customers are holding back on investments due to global economic worries; adding that:

    “The latest signs of hope for an end to the German industry’s economic downturn are not yet having an effect on the order books of mechanical engineering companies.”

The US Session

  • US ADP Non-Farm Employment Change – US ADP non-farm employment change report was released. Expectations were for a 137k increase, but it missed expectations, posting a 67k increase for November. The prior month was also revised lower to 121K from 125K previously reported. Goods producing jobs at -18K, service producing jobs at +85K. Small businesses added +11K new jobs, medium businesses added +29K, while large businesses added +27K jobs.
  • Positive Comments From Trump Today – US president Trump was speaking at NATO summit before meeting with Merkel, saying that:
    • China talks going very well
    • cease-fire in Syria is holding
    • he will discuss Iran sanctions evasion with Germany
    • says a Germany is a little under its NATO contributions and he and Merkel will talk about it
    • NATO is stronger than it ever has been
    • Says Trudeau is to face when asked about video
    • Canada PM Trudeau is a nice guy but probably upset that Trump called him out for NATO contributions
    • every country have spoken to about Huawei is not going forward with the company
  • BOC Rate decision + Statement – The Bank of Canada left interest rates unchanged at 1.75% as widely anticipated. In the statement, the BOC sees nascent evidence that global economy is stabilizing and as appropriate to maintain interest rate the current level. The future Bank of Canada decisions to weigh trade against domestic resiliency. October projection for global growth appears to be intact, waning recession concerns are supporting markets. But ongoing trade conflicts remain biggest risk to the outlook. commodity prices and Canadian dollar remains relatively stable. Inflation around 2% is consistent with economy near capacity, third-quarter investment spending growth has unexpectedly strong. BOC expects inflation to stay close to 2% over next 2 years and continues to monitor evolution of household vulnerabilities. Fiscal policy will figure in Bank of Canada is January economic outlook.
  • US ISM Non-Manufacturing PMI – US ISM non-manufacturing report was released and it missed expectations, falling to 53.9 points against 54.5 expected. Employment came out higher though at 55.5 points versus 53.7 last month, new Orders also higher at 57.1 points from 55.6 last month, while production posted a massive decline to 51.6 points versus 57.0 in October. Export orders increased to 52.0 points versus 50.0 last month, imports fell to 45.0 versus 48.5 points last month.

Trades in Sight

Bullish NZD/USD

  • The trend has ben bearish for more than a month
  • The pullback lower is complete
  • The 50 SMA provided support
  • Fundamentals have turned bullish

The 5100 SMA ended the retrace down today

NZD/USD made a bullish reversal at the beginning of October, which looked just like another retrace higher before sellers pushed further below. But, sellers didn’t come back and we haven’t seen them since then. We have seen several pullbacks lower, but buyers have come back and have kept things in control.

The sentiment has improved for risk assets, as we approach the final stage of the Phase One deal between US and China. There have been events and comments which have taken this deal back and forth, such as Donald trump’s comments yesterday that he might postpone the deal until Chinese elections are over, responding to China targeting Trump’s electorate with retaliatory targets.

But, today we heard form Bloomberg that the deal might be signed off on December 15, despite the heated rhetoric, which calmed the nerves. Donald Trump also helped the sentiment when he said a while ago that talks with China are going very well.

NZD/USD had retraced lower during the Asian session, but  the 50 SMA (yellow) provided solid support on the H1 chart. The price bounced off that moving average as the sentiment improved after Trump’s comments at the NATO summit. So, this pair is pretty bullish now and we will look to open a buy signal on another pullback lower, to the 50 SMA.

In Conclusion

The sentiment has been pretty negative in the last two days, with stock markets retreating lower and safe havens surging higher. But, that has changed in the last few hours, especially after the report from Bloomberg and comments from Donald Trump. Forget the economic data, words hurt more than data these days.

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