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Euro tests $1.10, as Powell sees glass more than half full

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The optimism on US-China trade deal, together with the M&A news have been driving the equity markets higher since Monday.

While Donald Trumps unilateral comments are to be taken with a pinch of salt, China raising sanctions on intellectual property violations is certainly a concrete message that the EM giant is also willing to ink a deal to release the downside pressure on its economy.
But the US Hong Kong bill is a headache. Although Donald Trump hasnt said explicitly whether we would sign the bill, he may not have a choice but to do so.
On the other hand, the threat of more tariffs on Chinese goods is hanging somewhere if an agreement is not found before mid-December. And the clock is ticking louder.

On the M&A side, Schwab bought TD Ameritrade and French luxury group LVMH purchased the US jewelry maker Tiffany Co, financing its acquisition by issuing bonds just at a time the European Central Bank plans to resume its corporate bond purchases. LVMH closed 2.14% higher, while Tiffany Co jumped 6.17%. Tiffany Co is certainly a nice asset in LVMHs portfolio of brands, and its clearly Bernard Arnaults biggest bet.

On the currency side, the US dollar index stagnates near the 98.30 level as the Fed head Jay Powell says that he sees the glass more than half full. According to him, the Feds policy is not on a preset course and the Fed could again intervene if needed. Looking at the stock market levels, there seems to be little need for a push from the Fed in the coming meetings.
The US indices traded higher on Monday, futures were bid along with most Asian indices except Hong Kong.

The EURUSD held support near the 1.10 level on a better-than-expected Ifo survey. But the clear divergence between a more hawkish Fed and a dovish European Central Bank would only support a fall below this level.

Gold continued sitting on the $1450 support with growing conviction that the price of an ounce would slip below this level with the help of improved appetite and stronger sovereign yields.

The USDJPY fell from 109.20 on surprise rise in services PPI to 2.1% y-o-y in October versus 1.8% expected by analysts and 0.5% printed a month earlier. Jump in services PPI weighed on the expectation of further policy easing from the Bank of Japan and pulled the USDJPY near the 109 mark, along with a solid risk appetite across the marketplace.

Cable advanced to 1.29 on softer US dollar. The pound trades up and down within a well-defined 1.28-1.30 range as election talks keep the appetite limited prior to the 1.30 handle, while the expectation of an orderly Brexit next year gives support near the 1.28 level. But the risks exist that Johnson, who is well ahead in the opinion polls, wouldnt clinch a smooth Brexit deal within Parliament despite progress we have seen in October. Though that speculation remains contained near the 1.28 range bottom before the election. First things first.

The FTSE is set to open above the 7400p mark.

Opening calls

FTSE to open 11 points higher at 7407

DAX to open 16 points higher at 13262

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About the author

Ipek Ozkardeskaya is a senior analyst at MBAex with a solid experience in the financial industry. She has strong technical background in economics and quantitative finance. Previously, she worked as a senior market analyst in London Capital Group, FX strategist in Swissquote Bank and as a client sales executive at HSBC Private Bank in Geneva. She also developed quantitative models in automatic trading as part of BCV’s Structured Products team. Ipek has a Master’s degree in Financial Engineering & Risk Management and a Bachelor degree in Economics from University of Lausanne.
Contributing  author since 11/09/2017

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