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USD swings on data, China deal talk. Mild optimism in equities.

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The US dollar fell on Tuesday after the Richmond manufacturing index turned negative unexpectedly, then rebounded as Donald Trump said that a trade deal with China is in final throes.

Trumps update gave a soft push to the stock markets. The US equities closed marginally positive, while Asian stock indices traded mixed on news.

Stocks in Sydney (+0.93%) led gains, Nikkei (+0.28%) and Topix (+0.31%) were bid on softer Japanese yen. Hang Seng index remained flat, while Shanghais Composite edged lower.

The USDJPY advanced to 109.18. The divergence between the Fed and the Bank of Japan policy expectations are favorable for an advance toward the 110 mark. Concrete news on US China front and encouraging US data could give a much-needed final push to reach this level.

Due today, a deluge of data should give a further shake to the US dollar. The US GDP read should confirm a 1.9% growth in the third quarter. The durable goods orders on the other hand may have contracted by 0.9% m-o-m in October, versus -1.2% printed a month earlier. Personal income is expected to post a steady 0.3% growth in October, while spending may have improved to 0.3% from 0.2% printed a month earlier. Weekly initial jobless claims and Chicago PMI are among other important data to watch today.

Some data may be better than the others. But an overall positive view will likely help investors seeing the glass more than half full as does Jay Powell, while disappointment would revive the Fed doves before the December meeting. But the pricing in the US sovereign bonds market suggests no rate action before the end of the year. The probability of a cut is priced at zero for the December FOMC meeting.

The EURUSD trades a touch above the 1.10 mark. There is a solid support at this level. Decent stops are eyed below meaning that if the 1.10 support is broken, the decline in euro could gain some momentum and send the single currency below the November low of 1.0990 against the US dollar.

Across the Channel, the pound is under the pressure of narrowing poll results for Conservatives. If Boris Johnson doesnt get the 325-seat majority, Parliament may end up divided again. Hung Parliament on the other hand would compromise Johnsons Brexit deal and revive worries of a no-deal Brexit. Mounting Brexit uncertainties and stronger US dollar should continue weighing on the pound. But a Conservative victory being the base case scenario, dip-buyers are expected to come to the pounds rescue below the 1.28 mark against the US dollar.

Opening calls

FTSE to open 20 points higher at 7423

DAX to open 38 points higher at 13274

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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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