WTI crude oil’s break of 55.85 resistance last week confirmed resumption of whole rebound from 42.05. Further rise is now expected as long as 54.58 support holds. Nevertheless, for now, we’re viewing rebound from 42.05 as a corrective move. Hence, strong resistance will likely be seen around 61.8% projection of 42.05 to 55.85 from 51.49 at 60.01 to limit upside.
This level is actually close to 50% retracement of 77.06 to 42.05 at 59.55. 55 week EMA (now at 59.48) is also in proximity.
Optimism over US-China trade negotiation gave Chinese stocks a strong boost today. The Shanghai SSE composite gained 2.68% or 71.97 pts to close at 2754.35. Technically, SSE is now considered takeout 2703.51 resistance decisively. That also completes a double bottom reversal pattern (2449.19, 2440.90).
There are various ways to view the rise from 2440.90. For now, we’d treat it as a corrective rebound, correcting the down trend from 3587.03. Thus, strong resistance could be seen at 38.2% retracement of 3587.03 to 2440.90 at 2883.84 to limit upside. That’s also quite close to 55 week EMA (now at 2817.49).
Entering into US session, Yen and Dollar remain the weakest major currencies today, on optimism that US and China could deliver a draft trade memorandum of understanding this week. But it should be noted that while Asian stocks closed sharply higher, European stocks are just mixed. Investors are not overwhelmingly convinced. With US on President’s Day holiday, the markets could turn quiet for the result of the day.
Staying in the currency markets, Euro and Sterling are the strongest one so far. With a lack of economic data, Euro’s strength is merely seen a technical rebound, paring recent losses. Bundesbank suggested that German economy will remain subdued in H1. With the assumption of normalization in the car industry, there is prospect of a rebound. But then, there is risk of US auto tariffs. Any, Euro will first look into ECB meetings and PMIs this week first. Sterling also look into employment data tomorrow.
In Europe, currently:
Earlier in Asia:
In its monthly report, Bundesbank warned that German economy will continue to struggle in the first half of 2019. The economy is unlikely to regain momentum with Weak orders in manufacturing, gloomy sentiment indicators and sluggish investments. It said that “all these suggest that the underlying pace of the economy should remain subdued at least in the first half of the year.”
Though, it also noted that “there are no signs that the slowdown is becoming an outright downturn.” In particular, the drag from auto exports is starting to normalize. Meanwhile, labor market remains healthy with private consumption picking up.
European Commission launched an outreach campaign today on “no-deal” Brexit customs preparedness. The campaign aims to ” raise awareness amongst the EU’s business community, especially SME” to prepare for a “no-deal” scenario while continuing to trade with the UK after March 30. EU urged that businesses should “assess whether they have the necessary technical and human capacity to deal with customs procedures and rules”, “consider obtaining various customs authorisations and registrations in order to facilitate their trading activity” and, “Get in touch with their national customs authority to see what other steps can be taken to prepare.”
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “With the risk of a no-deal Brexit increasing as we get closer to March 29, the European Commission and national customs authorities are working hard to be ready to introduce checks and controls on goods flowing between the EU and the UK. This is key to protecting our consumers and our internal market. A lot depends on the ability of businesses trading with the UK to get up to speed with the customs rules that will apply on day one in case of no deal. There is no time to lose and we are here to help with the information campaign.”
UK Minister for the Cabinet Office David Lidington said today that the government is having useful discussion with Brussels. However, it’s still very difficult to reopen withdrawal agreement negotiation.
He told BBC radio that “My experience last week… was that they were a lot more than courtesy calls. It was a very useful discussion about the politics, both within the United Kingdom and within the EU27, and a scoping out of what was possible.” However, Lidington also noted that “Reopening the withdrawal agreement… will be very difficult.”
Brexit Minister Steve Barclay will meet EU’s chief Brexit negotiator today.
Michael Pillsbury, a leading adviser to Trump on China issues, told Fox that Trump is “essentially giving the Chinese one last chance next week, and then perhaps … a short extension”, referring to the next round of trade negotiation in Washington this week. He pointed out, “notice how the president always refers to the tariffs as bringing in revenue, billions of dollars of revenue to us,” and “so he is not somebody who’s anti-tariff.”
Pillsbury also said “this coming week’s going to be awfully important, when the Chinese come here at the working level.” And, “We’re going to try to find out, I think, what will be in this memorandum of understanding,” he said, “whether it will “have enforcement and time limits and … be tough” or just “be a cosmetic agreement.”
Trump on the weekend tweeted “Important meetings and calls on China Trade Deal, and more, today with my staff. Big progress being made on soooo many different fronts! Our Country has such fantastic potential for future growth and greatness on an even higher level!”
By loading the tweet, you agree to Twitter’s privacy policy.
Learn more
Chinese delegation with travel to the US this week to work towards a memorandum of understanding, which should form the framework of a trade agreement, to be finalized through a Trump-Xi summit.
The US Commerce Department met the Sunday deadline and submitted its investigation report on imported cars and auto parts to the White House. The Section 232 is about national security threats from those auto imports. A Commerce Department spokesperson said it would not disclose any details of the report. Trump has 90 days to make a decision on whether to act up the recommendations, which could include some tariffs on fully assembled vehicles or on technologies and components related to electric, automated, connected and shared vehicles.
German Chancellor Angela Merkel said in the Munich Security Conference that “we are proud of our cars and so we should be.” She added that “if that is viewed as a security threat to the United States, then we are shocked”. German car lobby VDA said the countries car industry has created more than 113k jobs in the US in recent years, with around 300 factories. German car companies were the largest car exporters from the US. And VDA said “all this strengthens the USA and is not a security problem.”
ECB Governing Council member Olli Rehn told German newspaper Handelsblatt that “the most recent data point to a weakening of the economy.” And, the reasons for the slowdown mainly lie abroad, including US-China trade conflicts. Though, there were also uncertainties over Brexit, yellow vest protest in France, fiscal issues in Italy and slower industrial production in Germany.
But Rehn also noted that ECB’s monetary policy orientation is clear and unchanged. He added, “we have said that rates will be at their current level until we have sustainably reached our monetary policy goal.” For now, wage growth had not had much impact on core inflation yet even though “at the end of last year it looked as if there would be stronger momentum in inflation.”. And, “we have to wait and see how long the period of weaker growth will last.”
ECB Governing Council member Francois Villeroy de Galhau said in a El Pais newspaper interview over the weekend that the central bank will scrutinize incoming data to decide whether to hike after this summer.
He said “the key question will be if the slowdown is temporary — with a bounce-back during this year — or more durable.” For now, there is resilient domestic demand in Germany, France and Spain. And that kept recession risk low even though outlook was clouded by protectionism and Brexit.
And de Galhau also noted that there was strong convergence of views within ECB about the sequencing of the next policy steps, as well as the flexibility about timing.
Canadian Foreign Minister Chrystia Freeland attended the Munich Security Conference over the weekend. There she also met US House Speaker Navy Pelosi and urged to remove the steel and aluminum tariffs. Freeland noted that Canada is now in the process of domestic ratification of the so called USMAC, US-Mexico-Canada agreement on trade. And Canada’s position remains strongly opposed to the section 232 steel tariffs. She also told reporters that “the Canada position is now that we have concluded (USMCA) that is all the more reason why the tariffs must be lifted.”
Separately at the conference, Freeland also urged to reinforce “rules-based international order”. And she proposed to bring together specific coalitions around specific issues.”
Here is the statement of the US.
Statement by the Press Secretary Regarding China Talks
This week, at the direction of President Donald J. Trump, officials from the United States traveled to Beijing to continue negotiations on the trade relationship between the United States and China. On the United States side, the talks were led by Ambassador Robert E. Lighthizer, the United States Trade Representative, and the Honorable Steven T. Mnuchin, the Secretary of the Treasury. On the Chinese side, the talks were led by Vice Premier Liu He. On Friday, both delegations had the opportunity to meet with President Xi Jinping regarding their discussions. The talks also featured extensive technical exchanges between the professional staffs of both countries.
These detailed and intensive discussions led to progress between the two parties. Much work remains, however. Both sides will continue working on all outstanding issues in advance of the March 1, 2019, deadline for an increase in the 10 percent tariff on certain imported Chinese goods. United States and Chinese officials have agreed that any commitments will be stated in a Memoranda of Understanding between the two countries.
During the talks, the United States delegation focused on structural issues, including forced technology transfer, intellectual property rights, cyber theft, agriculture, services, non-tariff barriers, and currency. The two sides also discussed China’s purchases of United States goods and services intended to reduce the United States’ large and persistent bilateral trade deficit with China.
Next week, discussions will continue in Washington at the ministerial and vice-ministerial levels. The United States looks forward to these further talks and hopes to see additional progress.
Here is the statement from China.
China, US conclude new round of high-level economic, trade consultations
China and the United States held the sixth round of high-level economic and trade consultations in Beijing from Thursday to Friday.
Present at the talks were Chinese Vice Premier Liu He, also a member of the Political Bureau of the Communist Party of China Central Committee and chief of the Chinese side of the China-US comprehensive economic dialogue, US Trade Representative Robert Lighthizer, and Treasury Secretary Steven Mnuchin.
The two sides earnestly implemented the consensus reached by the two heads of state during their Argentina meeting late last year, and had in-depth communication on topics of mutual concern including technological transfer, intellectual property rights protection, non-tariff barriers, the service industry, agriculture, trade balance and implementation mechanism; as well as on issues of China’s concern.
Both sides reached consensus in principle on major issues and had specific discussions about a memorandum of understanding on bilateral economic and trade issues.
The two sides said they will step up their work within the time limit for consultations set by both heads of state, and strive for consensus.
They agreed that consultations will be continued in Washington next week.
Entering into US session, Euro is trading as the lowest one for today, followed by Swiss Franc, in relatively mixed markets. New Zealand Dollar is the strongest one while Australian Dollar recovers much of yesterday’s losses. But for now, pre-weekend recovery in Sterling put it into second place. But movements in the currency markets are relatively limited. Thus, the picture could have a drastic change at close.
US-China trade negotiations were the main focus of the day. Words from both sides were positive, but without much substance. China’s Xinhua news agency said the delegations discussed topics including technology transfers, intellectual property protection, non-tariff barriers, services, agriculture and the trade balance. And both countries reached consensus is principle on a number of issues. They’re working towards a memorandum of understanding on trade and economic issues.
White House spokesperson Sarah Sanders confirmed that trade talks with China will continue in Washington next week. She said “The United States looks forward to these further talks and hopes to see additional progress.” And, “Both sides will continue working on all outstanding issues in advance of the March 1, 2019, deadline for an increase in the 10 percent tariff on certain imported Chinese goods.”
US Trade Representative Robert Lighthizer said “we feel we have made headway on very, very important and difficult issues. We have additional work to do but we are hopeful,” Treasury Secretary Steven Mnuchin tweeted “Productive meetings with China’s Vice Premier Liu He and @USTradeRep Amb. Lighthizer”, without any elaboration.
But the development so far seems to be enough to lift sentiments slightly. DOW futures in currently up 76 pts.
In Europe:
Earlier in Asia:
Chinese President Xi Jinping met US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin at the Great Hall of the People in Beijing today, as the week-long trade negotiations conclude.
According to a report by the official Xinhua, Xi said that the talks will continue in Washington next week. And he hoped that both sides would reach a mutually beneficial deal.
Xinhua also reported that Lighthizer and Mnuchin said in-depth discussions were held in the past two days. New progress has been made on difficult issues. But there is still a lot of work to be done.
The US Commerce Department is set to deliver its recommendation to the White House regarding auto tariffs, meeting a deadline on Sunday. Ahead of that German Ifo institute warned that if US imposes 25% additional, permanent tariffs on cars, that could reduce German car experts to the US by 50% in the long run.
For Germany, according to Gabriel Felbermayr, director of the ifo Center for International Economics, total car exports could drop by -7.7%, or EUR 18.4B. But, exports from other sectors and to other countries could “slightly cushion” the overall loss. But the net result could still be EUR 11.6B loss of exports.
Felbermayr adds: “The EU can, however, develop a clever counterstrategy that would bring the effects of US tariffs on the economic performance of both sides to roughly zero. That would be tariffs on US products whose manufacturers would have to react with price reductions. This, in turn, would harm third countries whose economic output could fall by about five billion euros.” All calculations assume adjustment reactions, 90 percent of which take place within five years.
UK January retail sales came in much stronger than expected.
However, year-on-year average store prices growth slowed to 0.4%, lowest price increase since November 2016.
UK government’s leader in the House of Commons Andrea Leadsom said the government does not want no-deal Brexit. But it’s there because that is the “legal default position”. And “essentially that is what will happen if we don’t vote for a deal.” She also noted that “What the government is seeking to do is to sort out the arrangements on the backstop so that parliament can vote for the deal. That is the government’s sole focus.”
Meanwhile, Leadsom also urged EU to compromise on the Irish border backstop. She said “If the EU were to bring on the one thing that they have said they are determined to avoid, that is the risk of the UK leaving the EU without a deal at the end of March and thereby having to have some kind of hard border between Northern Ireland and Ireland. So it simply would not make sense to precipitate such a conundrum when the option of a negotiated arrangement, where the UK could put in place alternative arrangements for the backstop, would be far preferable from everybody’s point of view including from the perspective of the issue of the border between Northern Ireland and Ireland.”
There is so far no known progress as US-China trade talks conclude in Beijing. US Treasury Secretary Steven Mnuchin just tweeted “Productive meetings with China’s Vice Premier Liu He and @USTradeRep Amb. Lighthizer”, without any elaboration.
By loading the tweet, you agree to Twitter’s privacy policy.
Learn more
On the Chinese side, Foreign Ministry spokesman Geng Shuang said in a regular press briefing that “just wait for a while and the answer will be revealed soon”.
Mnuchin and Lighthizer will meet Chinese President Xi Jinping later this afternoon.
RBA Assistance Governor Christopher Kent delivered a speech on “Financial Conditions and the Australian Dollar – Recent Developments” today. There he acknowledged that developments in Australian financial markets have been similar to those offshore, with falling equity prices, rising credit spreads and increased volatility. Such development is “a story of risk premia increasing from low levels and were associated with rising concerns about downside risks, both internationally and domestically.”
The outlook for domestic economy has “also shifted” with downward revision in both growth and inflation forecasts. And market expectations for the next move in cash rate have “switched signs too”. Kent noted that “markets have assessed that the next move is more likely to be down than up.”. And that’s reflected in lower bond yields.
Fall in Australian bond yields is “likely to have contributed somewhat to the modest depreciation of the Australian Dollar of late”. On the other hand, “higher commodity prices appear to have worked to limit the extent of Australian dollar depreciation”.
ActionForex.com was set up back in 2004 with the aim to provide insightful analysis to forex traders, serving the trading community for over a decade. Empowering the individual traders was, is, and will always be our motto going forward.
Contact us: contact@actionforex.com
© ActionForex.com © 2024 All rights reserved.
Gold resume upside, but should top below 1380 on bearish divergence
Gold’s recent up trend from 1160.17 (2018 low) resumed today by breaking 1326.25 and reaches as high as 1327.60 so far. Near term outlook will now remain bullish as long as 1302.32 support holds. And current rally would target next resistance at 1366.05 (2018 high).
The question now is, whether gold is strong enough to resume the rebound from 1046.37 long term bottom (2015 low). That would imply a solid break of key fibonacci level of 38.2% retracement of 192.070 to 1046.37 at 1380.36. It tried this resistance twice since 2016 but failed.
As daily MACD now displays bearish divergence condition, we’d expect another failure this time. And, even if gold is to break 1380 eventually, a near term fall back, possibly back to 55 week EMA (now at 1265.20) would likely be seen first.
That is, while current rise might extend further, we’d expect upside to be limited below 1380 handle to bring near term reversal.