Investors are hopeful that the US-China trade talks will bring some positive developments in the coming days, which is driving global shares higher on Tuesday. Risk sentiment has improved after the reports that Trump sill wants to meet China’s Xi Jinping in an effort to end the trade war. Lighthizer has already arrived at Beijing ahead of his meeting with China vice premier Liu He on Thursday. It is highly likely that the representatives will reach some progress this week but it’s better not to expect any major breakthrough towards a trade deal. It is possible however that the 1 March deadline be pushed back, which will bring relief to global markets. Meanwhile, Britain’s FTSE 100 adds 0.30 per cent to 7,150, France’s CAC 40 is up 1.15% to 5,072, while German DAX 30 rises by 1.22 per cent to 11,149. US stock index futures point to strong open amid news that US lawmakers had secured a tentative deal on border security funding. Dow Jones futures rallied by more than 200 points in the pre-market trading.
The dollar rally seems to be stalling today after eight consecutive sessions of gains. The greenback remains the most attractive currency among its G10 peers due to the highest yields and further reduction in the Fed’s balance sheet, while other major central banks will likely further refrain from normalizing policy amid the rising economic and geopolitical risks. Ebbing political concerns over the potential US government shutdown adds to the appeal of the reserve currency.
The euro weakness plays an important role in the current dollar strength as well. The selling pressure for the common currency intensified after the European Commission cut its forecasts for euro zone economic growth, with further dismal fundamental data continue to point to a weaker growth in the region. EURUSD registered three-month low of 1.1267 today and turned slightly bullish on the day but still lacks momentum to regain the 1.13 threshold which now stands as the immediate support area. The recovery potential is limited and the downside risks persist as long as dollar bulls remain in control across the board. Fed’s Powell speech later today could limit the buck’s upside impetus and ease the pressure on the euro somehow.
USDJPY has settled above the 110.00 figure, with late December high was registered at 110.64 during the morning trading. A combination of risk-on tone in the markets and a stronger greenback sent the pair above the psychological barrier that capped the bullish attempts lately. But further dynamics will depend on the general investor sentiment which could deteriorate in the absence of positive signals from the trade talks front. So far, a break above suggests the technical picture has improved, at least in the short term.
Oil prices trend higher today, along with global stocks and risk sentiment. Hopes of progress in trade talks and lower political risks in Washington pushed Brent back above $62, to the levels close to the $63 handle which prevents a major upside breakthrough for a month already. In a wider picture, the market is supported by the ongoing OPEC+ efforts and US sanctions against Iran and Venezuela. But to feel more confident and make a substantial and sustainable jump higher, Brent needs to see a steady decline in the US shale companies’ activity. Besides, the lingering concerns over global growth and thus global oil demand continue to cap the bullish potential in the energy markets. And considering the market sensitivity to the incoming economic data, any potential rally will hardly be sustainable as the economy will likely continue to slow down during the course of the year.
Nathan Lambert, Head of Global FX Analytical Department