The US-China trade talks induced optimism and Brexit extension hopes were the two key drivers in Asia this Monday that lifted the risk sentiment heading into an eventful new week. Following the US President Trump’s pushing out of the March 1 tariff hike deadline, the Chinese Yuan rallied to the highest in seven months versus its US counterpart while the Chinese stocks surged nearly 4%. The Antipodeans also tracked the Yuan higher, with the Kiwi also benefiting from upbeat New Zealand’s retail sales report. The Aussie tested into the 0.7150 barrier and now looks to test the 0.72 handle again. The USD/JPY pair faded the early spike to 110.86 highs and consolidated near the lower bound of today’s trading range so far near 110.60 levels amid a broadly softer US dollar.
Meanwhile, the Cable jumped back towards the 1.31 handle after the recent Brexit-related reports suggested increased odds of a Brexit delay. The Telegraph reported that the Brexit will be delayed for up to two months under plans being considered by Theresa May to extend Article 50.
Amongst the commodities, both crude benchmarks traded modestly flat, with the bias leaning towards the downside while gold prices on Comex traded better bid near 1334 levels, despite the risk-on market environment.
Main Topics in Asia
New Zealand retail sales surged 1.7% during Q4 2018
China/ U.S. trade talks update: Trump says he will be delaying the U.S. increase in tariffs
USD/CNH at lowest levels since July 2018 on trade talk progress (6.6847 traded)
BOJ can shelve its inflation goal – Economic adviser to PM Abe
Japan PM Abe’s Economic adviser Hamada: BOJ can wait in changing its policy stance
China delegation: “Substantial progress” made on specific issues in latest round of trade talks
US-China trade talks disagreements narrowing, but may have new uncertainty – Xinhua
Brent Oil Technical Analysis: Bear RSI divergence on the 4H chart
US oil production hits record high of 12 million barrels per day
Gold posts gains even as Trump delays China tariff increase
USD/INR Technical Analysis: Stuck in a contracting triangle
Key Focus Ahead
We have a quiet start to a busy week ahead, in term of the economic releases, with the Bank of England (BOE) Governor Carney’s speech to headline the data-empty docket from the Euroland and hence, the Brexit-related headlines will continue to remain the focal point amid increased hopes of Brexit extension.
Meanwhile, the NA session is also a thin showing and in absence of first tier macro news, the traders will look forward to the second-liner US regional business activity/ manufacturing reports and wholesale sales data. The speech by the Fed Vice Chair Clarida is likely to hog the limelight for fresh market impulse.
EUR/USD: 5-week MA capping gain, implied volatility hits lowest since November 2017
A low volatility period often ends up paving the way for a big move. As a result, EUR/USD could soon see a convincing break of the 1.12-1.15 trading range. The upper edge could be breached if the US and China sign a trade deal ending the year-long period of uncertainty.
GBP/USD bearish near term within developing uptrend – 1.3300 eyed
GBP/USD is shaping up for an extension of the recent upside since carving out a double bottom low. The GBP bulls are spurred on by talks of an extension of Article 50 and soft Brexit hopes.
Dollar at the mercy of trade talks, Fed speak and US GDP
The US dollar could extend declines to high-beta currencies if we see continued progress with China and US reaching a broad trade deal that prevents the US from raising tariffs on Chinese goods next week.
Markets: Week ahead – Rabobank
Analysts at Rabobank are expecting markets to be drunk on Soviet champagne today, but don’t overlook that there are still a huge number of moving parts before we even get to a scenario of can-kicking.
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