Forex Signals US Session Brief, Dec 16 – Risk Sentiment Remains Slightly Positive
At the end of last week, two of the main issues which have been haunting us in the last two years received an answer. It wasn’t a definite answer, but at least it gave us a direction for the coming months. The Conservative Party won a clear majority in the British Parliament last Thursday, which gives them the green light to go ahead with Brexit, as the UK PM spokesperson confirmed earlier today. Although, the UK will have to reach a trade deal with the EU by the end of this year, which is the final real Brexit deadline. But, trade deals are not so easy – it took Canada 7 years to do so with the EU, which mans that trade teams will have to work full time.
The GBP rallied nearly 500 pips higher on Thursday evening, but has retraced lower now as the uncertainty for the future of the UK still remains quite blurry, especially on the trade side. The US and China finally reached the Phase One deal, which also improved the sentiment considerably. Risk assets surged higher, while safe havens retreated, but the optimism faded after seeing the details, which showed that this deal was mostly an agricultural one and the main issues like IP theft and forced technology transfer are still to be taken care of in the the next deal, which will likely come after US and Chinese elections next year. Today, markets remain slightly positive, as risk currencies crawl higher, but traders remain quite cautious.
The European Session
- Eurozone manufacturing PMI – Manufacturing has been weakening for nearly two years in Europe and this year it has been in recession most of the time. We saw a slight recovery in the last couple of months and this month this sector was expected to improve further, but remained in contraction. The actual numbers from Germany, France and the whole of the Eurozone missed expectations, falling deeper into recession. Eurozone’s Flash Manufacturing PMI slipped sharply from 47.3 to 45.9, driving selling pressure on EUR/USD.
- UK Services PMI – Services were holding up well in the UK, despite Brexit. But, they fell into contraction last month, although November improved slightly, from 48.6 points to 49.3 points. The activity in the service sector was expected to improve further this month to 49.6 points, but missed expectations and instead, it deteriorated further to 49.0 points. The UK’s December data points to lower volumes of service sector output and a sharper drop in manufacturing production, and this may now weigh on the BOE to cut rates or introduce a dovish policy.
- China Commenting – Chinese foreign ministry responded to the news over the weekend after the US expelled Chinese officials after they drove on to a sensitive military base. The US did so on the grounds that they were suspected spies and China is denying the allegation here. Chinese officials said this morning that US accusations against Chinese diplomats for spying are completely devoid of facts. They also commented on trade, saying that working levels officials from both sides are in contact. China will release more trade information in due course.
- Bundesbank Sees German Economy Stalling – The German central bank released its monthly report. German economic output could stagnate in Q4 2019. Domestic economy has been surprisingly robust recently, but decline in production of export-reliant industry is likely to continue. Companies in Germany are now more reluctant to invest
- BoJo’s Brexit Deal is Coming Back to the UK Parliament – UK PM spokesman, James Slack, said earlier today that they plan to bring back Brexit bill to parliament on Friday.
- We plan to start process for withdrawal agreement bill before Christmas
- Bill to be brought back to parliament on 20 December
- We are aiming for Canada-style free trade agreement with no political alignment
- No-deal planning has continued on a contingency basis
- ECB’s Lane Speaking on Risks of Monetary Policy – ECB’s Lane commented a while ago that the monetary policy contribution to changes in inequality is small compared to fiscal policy. ECB is working on establishing consumer expectations survey.
The US Session
- ECB Vice President Ignoring manufacturing Data Today – ECB vice president Luis de Guindos also commented a while ago. He said that latest indicators point to a stabilization of economic activity. Low rates create strains on bank profitability and also have implications for financial stability. I think he missed the manufacturing reports from Europe this morning.
- US Empire State Manufacturing Index – The Empire State Manufacturing index has remained at around 4 points in recent months,. but last month it fell to 2.9 points. This month, this index was expected to increase to 5.1 points today, but it missed expectations, increasing to 3.5 points only, with details as below:
- New orders +2.6 vs +5.5 prior
- Prices paid +15.2 vs +20.5 prior
- Employment +10.4 vs +10.4 prior
- Six-month business conditions +29.8 vs +19.4 prior
Trades in Sight
Bullish NZD/USD Again
- The trend has ben bullish for about 2 months
- The pullback lower is complete
- MAs are provided support
- Fundamentals have turned bullish
Buyers came in at the 20 SMA today
NZD/USD has been bullish for more than two months. The sentiment improved in financial markets in September, after US and China dialed down their tones, following a heated summer. In October the sentiment improved further after comments regarding the Phase One deal. Moving averages have been doing a great job in supporting this pair during pullbacks, thus pushing the trend higher on the larger time-frames, such as the daily and H4 charts. Although, they have helped buyers on the H1 chart as well, as you can see from the chart above.
We have seen NZD/USD reverse higher at the 50 SMA (yellow), the 100 SMA (green) and earlier this week at the 200 SMA (purple). Yesterday the situation improved further for risk assets after Donald Trump signed the Phase One deal, and the NZD surged higher. But, we heard some rumours earlier last week, which said that it meant that they were only postponing December tariffs. So the sentiment got dented a little and this pair retraced lower. But, we decided to buy the pullback, after Trump and China confirmed the deal, which should keep the sentiment positive. We saw a retrace lower again today, but the 20 SMA held as support on the H4 chart and buyers pushed higher from there, so we still remain long on this pair.
In Conclusion
The sentiment continues to remain slightly positive today after the Phase One deal and the clear Tory victory last week. But, the global political and economic situation still remains unclear, despite the recent improvement in the sentiment, so traders are being cautious.
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