US stocks rose sharply on Friday after the US and China agreed on the first phase of a trade deal. The Dow and Nasdaq rose by 320 and 106 points respectively. Asian and Australian stocks rose as well today in response to the trade concessions. In the deal, China agreed to buy vast amounts of US farm goods while the US pledged not to hike more tariffs.
The two countries also pledged to continue with negotiations ahead of a major deal that they expect to be signed later this year or early next year. While the trade deal is in the interest of the two countries, it is difficult to see how it will help narrow the US deficit with China. Earlier today, data from China showed that its imports declined by -8.9% in September after declining by another -5.6% in August. Exports declined by -3.2% after declining by -1.0% in August.
Today, traders will focus the busy earnings week ahead. Tomorrow, big banks like Goldman Sachs, JP Morgan, Citi, Wells Fargo, and Morgan Stanley will release their earnings. Trader focus will be on the impact of low interest rates regarding the earnings. They will also want to see the progress the banks have made in the fixed income, commodities, and currencies (FICC) segment. This is a segment that is highly profitable but one that has been going through weakness in the past few years.
Brexit will be in the spotlight today. Last week, Donald Tusk, President of the European Council, said that he was optimistic that a deal will be done. This was significant coming from a person who has been increasingly critical of Boris Johnson. Earlier today, Danske Bank said that it had increased the chances of a deal by 20%. This was a shift from a bank that was expecting the UK to leave without a deal. The challenge still remains with the UK Parliament. With so much divisions, it will almost be impossible to see the likes of Jeremy Corbyn support a deal that is negotiated by Boris Johnson.
EUR/USD
The EUR/USD pair declined slightly as the week started. The pair is now trading at 60, which is along the 50% Fibonacci Retracement level on the hourly chart. The price is slightly above the 14-day and 28-day moving averages. The RSI has moved down slightly and is currently at 57.60. While the momentum has eased, the pair might continue with the bullish trend that started early this month.
GBP/USD
The GBP/USD pair rose sharply to a high of 1.2705. This was the highest level it has been since July 5. Earlier today, the pair eased slightly as traders continued to watch the ongoing Brexit debate. The price is slightly below the 14-day EMA and much higher than the longer-dated 28-day EMA. The RSI has moved from a high of 91 to the current 60. The pair could move lower slightly before continuing the upward trend. The key price to watch will be the psychological level of 1.2500.
USD/JPY
The USD/JPY pair moved slightly lower in the Asian session. In the past few days, the pair has struggled to move past 108.63. It is now trading at 108.30. On the hourly chart, this price is along the middle line of the Bollinger Bands while the RSI has been moving lower. The accumulation and distribution indicator has continued to move higher. The pair will likely continue moving lower to test the important support of 108.00.
