Even though Wall Street is once more moving on with an outlook through rose tinted glasses, traders on major forex markets continue to hug a cautious line. Treasury Secretary Steve Mnuchin suggested yesterday that they were “very confident” that phase one of a trade agreement with China would be signed in January. However, outside the bubble of Wall Street, markets seem to be far more cautious and seem to need more assurance. US Treasury yields are showing a marginal steepening of the curve but in essence, moves are still very muted. This is being reflected across recent moves in forex majors, where perhaps even a risk retreat is being seen as the Japanese yen claws back some recent losses and the Swiss franc is also performing better. Perhaps new that the United States, Mexico, Canada Agreement (USMCA) being signed helped to boost sentiment on equity markets, with Wall Street pulling further all-time highs again, but this enthusiasm is not being reflected everywhere (with Asian markets and European futures cautiously lower). Although oil is still drifting higher, gold continues to remain supported and bump up against $1480. The suggestion that UK Prime Minister Johnson will play hardball over the Brexit transition period is weighing on sterling (on course for its worst week in years) and dragging the euro back too. There are a few economic data announcements today to tie up which may distract from the macro picture, but as we move towards the end of the year, there is still limited decisive direction on forex majors.
Wall Street closed in all-time highs again with the S&P 500 +0.4% at 3205. With US futures all but flat Asian markets were marginally lower with the Nikkei -0.2% and Shanghai Composite -0.4%. In Europe, markets are following similar moves, with FTSE futures -0.2% and DAX futures -0.1%. In forex, there is little real direction although there is the slightest safe haven bias with JPY marginal gains and a shade of USD strength too. In commodities, the theme is also one of consolidation where gold is trading around the flat line, whilst oil is also flat.
There are a few important data points to end the last full week on the economic calendar for 2019. The UK Current Account for Q3 at 0930GMT is expected to show an improvement I the deficit to -£16.0bn (from -£25.2bn in Q2). The UK final Q3 GDP is t 0930GMT and is expected to show no change on the second reading at +0.3% for the quarter (after -0.2% in Q2). The US final Q3 GDP is at 1330GMT and is expected to be confirmed at an annualised +2.1% (after +2.0% in Q2). US Core Personal Consumption Expenditure at 1500GMT is expected to remain at +1.6% in November (+1.6% in October). The revised Michigan Sentiment for December is expected to show confirmation of 99.2 (which would be up from the final 96.8 in November), with the Michigan Current Conditions to be confirmed at 115.6 and the Expectations component at confirmed at 89.7.
Chart of the Day – USD/CHF
We previously looked at the US dollar under pressure within a multi-month range against the Canadian dollar. However, the US dollar is also under pressure within a multi-month range against the Swiss franc. Since June the market has been in a c. 350 pip range between 0.9660 and 1.0015, but the loss of the key mid-range pivot support at 0.9840 has been a key move in the past week. The formation of a three week downtrend with a series of negative candles where intraday rallies are consistently being sold into is leading the market lower. Momentum indicators confirm the breakdown, with the RSI falling to a four month low, MACD lines falling below neutral at a four month low and an outlook that suggests that rallies will continue to fade. A move back to test initial support at