- Sino/US trade deal prevented tariff increases on Sunday, markets are risk-on.
- Market euphoria is supporting the commodity-complex and AUD.
- AUD/USD is supported at trendline support as bulls seek bullish confirmation price action.
Following the news that both US and Chinese officials had announced that they had finally agreed to the so-called ‘phase-one’ agreement after a contentious 18-month trade war, AUD/USD jumped into gear and extended the week’s rally to the highest levels since late July, piercing the 200-day moving average and a key Fibonacci resistance target.
The price action, however, was two-way on high market volatility and profit-taking sent he bulls back in a long squeeze back to around 50% of the recent move. In trade at the start of the week, bulls have reasserted themselves and the price is looking solid, drawing in expectations of an upside continuation and a constructive bullish trade set-up.
Key notes of trade-deal to date
- President Donald Trump vowed not to pursue a new round of tariffs set for Sunday.
- China agreed to billions of dollars in agricultural purchases from the US.
- The US and China had agreed on phase-one of a trade deal last week, although markets are of the mind it is a one-and-deal scenario – (not so bullish).
- Markets are in anticipation of the details of the phase one-deal between the US and China.
- The world’s two largest economies plan to sign the partial accord in the first week of January.
- China have only stated that they will proceed for legal review and translation without touching on a timeline.
- Details of the new trade deal only appear to be a slight improvement on the details that the earlier ‘phase one’ deal had already agreed.
- Key difference is that this deal is “fully-enforceable”.
- The US has agreed to halve the tariffs on US$120bn of Chinese goods (from 15% to 7.5%) but will retain a 25% on US$250bn of Chinese imports.
- China confirmed prior agreement to purchase an additional US$16bn in goods from the US over the next two years.
- US Trade Representative, Robert Lighthizer, said on Sunday to CBS that the phase-one China deal was “totally done.”
- Lighthizer said the deal goes beyond agriculture to address intellectual property issues, noting that it has strong enforcement provisions and addresses financial services and currency devaluation issues – the deal is expected to be signed in January.
- Wall Street rallies to record highs.
However, analysts at ABN Amro argued that while a ‘Phase-One’ deal reduces tail risks, but it won’t supercharge growth, and on imports, the analysts express that it would arguably be at the US’s discretion whether China will have done enough (importing of US goods) to fulfil its side of the bargain when the time comes.
AUD/USD positioning favours upside
Meanwhile, we will likely see net short positioning in AUD decreasing following the latest developments coupled with US dollar net longs in decline for the 11th consecutive week, which gives substance to the bullish outlook for AUD/USD for the weeks ahead as the USD index takes on lows not seen since early July.
AUD/USD levels
AUD/USD bulls will now look for a constructive buy entry so long as the market holds here and breaks beyond the 200-day moving average and close above prior resistance/support area of 0.6930/50. The July peak is at 0.7077. We have ssme minor support at 0.6862 December 3rd high ahead of 0.6777 and 0.6755 November low.
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