The apparent progress that is coming in the US/China trade talks is helping to drive more elevated levels of risk, but also is now beginning to weigh on the US dollar. Donald Trump’s speech on Friday confirmed that there is a good chance that the deadline of the 1st March for the trade negotiations could now be extended. This would at least delay the imposition of tariff hikes, but markets are taking it that the deadline extension would be due to a high likelihood of an agreement being reached. Signals from both side suggested that talks went well in Beijing last week and will continue over in Washington in the coming days. This progress is being reflected through financial markets and across asset classes, with Treasury yields edging higher, strong gains on equity markets (at least on Friday), whilst there is a decisive move out of the safer havens in the forex space with yen weakness especially but also out of the dollar. Commodities, priced in dollars, are also benefitting, with oil continuing its breakout to multi-month highs and the medium term gold rally also looking to gain traction once again. There are also a range of interesting crossroads that several of the major forex pairs have reached and this could be a pivotal moment for the dollar.
On Wall Street there was a strong move into the close on Friday with the S&P 500 +1.1% at 2775, whilst US futures are ticking a shade higher this morning. Asian markets have certainly felt the benefit, with the Nikkei +1.8% and the Shanghai Composite +2.6%. However, this enthusiasm has been tempered on the changeover to the European session, with FTSE futures (flat) and DAX futures (+0.1%) showing little desire to drive forward. In forex, the moves against the dollar from Friday have continued into today with the better risk appetite, with the yen and dollar broadly weaker again. For commodities, the dollar weakness is helping gold and silver to edge higher, whilst oil continues a solid climb higher.
There are no key economic releases on the calendar today.
Chart of the Day – French CAC 40 Index
The DAX may get a lot of the headlines for Eurozone equities but the French CAC should not be ignored as the recovery is progressing very well. In the past six weeks there has been a very well-defined uptrend channel formation that has pulled the CAC higher by 13% from the low of 4555. The recovery is far more technically developed for the bulls than the German market. The key development is the decisive move above 5050 which had previously been the key basis of a floor throughout 2017/2018 and therefore key overhead supply (the equivalent on the DAX is the 11,725/11,865 band). With the huge bull candle on Friday the market is now testing the key November high at 5168. The move comes with impressively strong RSI in the high 60s, MACD lines tracking higher and the Stochastics in bullish configuration. Corrections are a chance to buy on the CAC and there is an increasingly strong band of support 5050/5083 to use as a chance to buy. A close above 5168 would continue the channel (the channel resistance is at 5202 today) with the next resistance at 5226 also open. A close below the six week uptrend channel at 5015 would break the run higher.