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Global stocks are lifted by news that China-US trade talks in Beijing are extending into an unscheduled third day, with signs of good progress. It's confirmed by a US Trade Representative spokesperson who said "a statement will likely follow then." Nevertheless, the extension itself is affirmative as both sides need time and efforts to full exchange their views before getting close to an agreement by 90-day deadline on March 2.

Trump tweeted yesterday that "Talks with China are going very well!" Reuters also reported quoting unnamed source saying "Overall the talks have been constructive. Our sense is that there's good progress on the purchase piece." However, it's unknown how China is going to address a key issue of intellectual property theft.

But at least, this week, China issued long-awaited approvals for import of five genetically modified crops which would boost import of US grains. There was also another larger purchase of US soybeans. These are widely seen as gestures of good will.

Separetely, the China Daily said in an editorial China "will not seek a solution to the trade frictions by making unreasonable concessions, and any agreement has to involve give and take from both sides,"

EUR/USD jumped above the 1.1450 resistance and recovered losses. USD/CHF is under pressure and it remains at a risk of a downside break below 0.9800.

Important Takeaways for EUR/USD and USD/CHF

• The Euro bounced back and broke the 1.1360 and 1.1440 resistance levels against the US Dollar.
• There is a major bullish trend line formed with support at 1.1432 on the hourly chart of EUR/USD.
• USD/CHF declined recently and settled below the 0.9840 support level.
• The pair may continue to move down if there is no break above 0.9840 and 0.9850.

EUR/USD Technical Analysis

The Euro found a strong buying interest near the 1.1300 support against the US Dollar. The EUR/USD pair started a solid recovery and jumped above the 1.1360, 1.1400 and 1.1440 resistance levels.

The pair even rallied above the 1.1450 resistance area and the 50 hourly simple moving average. Buyers pushed the price above the 1.1480 level and a high was formed at 1.1484 on FXOpen.

Later, the pair started a downside correction and traded below the 1.1450 level. There was a break below the 38.2% Fib retracement level of the last wave from the 1.1345 low to 1.1484 high. However, there are many supports on the downside near the 1.1420 level.

There is also a major bullish trend line formed with support at 1.1432 on the hourly chart of EUR/USD. Below the trend line, the next key support is at 1.1415. It represents the 50% Fib retracement level of the last wave from the 1.1345 low to 1.1484 high.

Therefore, the pair remains well supported above the 1.1415 level and the 1.1420 pivot level. On the upside, a break above the 1.1480 and 1.1485 resistance levels is needed for more gains above 1.1500 in the near term.

USD/CHF Technical Analysis

The US Dollar failed to hold gains above the 0.9860 and 0.9840 support levels against the Swiss franc. The USD/CHF pair declined heavily and traded towards the 0.9790-0.9800 support area.

There was even a close below the 0.9840 level and the 50 hourly simple moving average. The pair traded as low as 0.9787 and later started an upside correction. It recovered above 0.9810 and the 23.6% Fib retracement level of the recent decline from the 0.9907 high to 0.9787 low.

However, there are many hurdles for buyers near the 0.9815 and the 50 hourly SMA. Moreover, there is a connecting bearish trend line in place with resistance at 0.9817 on the hourly chart.

Above the trend line, the pair may face sellers near the 0.9840 level and the 50% Fib retracement level of the recent decline from the 0.9907 high to 0.9787 low. If there is a proper close above the 0.9840 and 0.9850 resistance levels, there could be more gains in USD/CHF.

On the other hand, if there is a bearish reaction, the pair may break the 0.9800 and 0.9790 support levels. The next major support is at 0.9750, which may protect further losses.

Overall, USD/CHF may continue to struggle as long as it is below 0.9850 and a downside break below 0.9790 may accelerate losses.

Key Highlights

• Gold price formed a short term top near $1,298 and later declined against the US Dollar.
• There was a break below a major bullish trend line with support at $1,288 on the 4-hours chart of XAU/USD.
• The Euro Area Business Climate Index in Dec 2018 declined from the last revised reading of 1.04 to 0.82.
• Today's high risk event is the Federal Open Market Committee meeting minutes in the US.

Gold Price Technical Analysis

After a massive uptrend from the $1,240 support, gold price faced selling interest above $1,295 against the US Dollar. The price formed a short term top near $1,298 and later declined below $1,285.

The 4-hour chart of XAU/USD indicates that the price was rejected near the $1,298 level, resulting a sharp drop below key supports. The decline was such that the price settled below the $1,290 support area.

More importantly, there was a break below a major bullish trend line with support at $1,288. The price traded towards the $1,276 level and later recovered. However, the broken trend line and the $1,295 level acted as a solid resistance.

A fresh decline initiated and the price moved below the 76.4% Fib retracement level of the upward move from the $1,276 low to $1,295 high. The current price action is bearish and it seems like the price may continue to decline towards $1,270.

An intermediate support is $1,272 and the 1.236 Fib extension level of the upward move from the $1,276 low to $1,295 high. On the upside, an initial resistance is at $1,288 and $1,290. However, a proper break above $1,295 and $1,298 is needed for more gains above $1,300.

Today's FOMC meeting minutes in the US could impact gold price in the short term for a drop to $1,270 or a rise to $1,295. Similarly, major pairs like EUR/USD, GBP/USD and USD/JPY might be volatile in the coming sessions.

Economic Releases to Watch Today

• Euro Zone Unemployment Rate for Nov 2018 – Forecast 8.1%, versus 8.1% previous.
• BoC Interest Rate Decision – Forecast 1.75%, versus 1.75% previous.
• FOMC Meeting Minutes.

November –9.1%mth, –32.8%yr.

Dwelling approvals moved sharply lower in November, with the pace of decline a downside surprise.

Approvals slumped by 9.1% in the month, following a fall of 1.4% in October.

Approvals are now 32.8% below the level of this time last year. However, this figure overstates current weakness due to a stepping off issue (last November approvals jumped 18% only to then fall back 23% the next month - yes this is a volatile series).

In trend terms in November, approvals fell by 2.3% in the month to be 18.3% below a year ago.

Private apartments not surprisingly led the way lower, down 17.9% in November.

Private house approvals fell also, down 2.6%, reversing a 2.4% rise in October.

By state, it was notable that declines in the month were led by the once strong Victoria, -14.6%, as well as NSW, -9.3%. Falls were evident in the other mainland states, WA, -7.3%; SA, -4.6%; and Qld, -4.3%.

STOCKS

All Equity indices are in the green, having moved up well in line with expectation. However, Resistances coming up in the near term could lead to some profit-taking, with the exception (perhaps) of the Shanghai.

The Dow (23787, +1.09%) is heading up towards the stated Resistance (21-MA on 3-day chart). As mentioned yesterday, gains beyond that might not be easy in the near term. Instead, the market might dip back towards 23500-250 before gathering steam to rise towards 24500 in the longer term.

Dax (10803.98, +56.17, +0.52%) rose, as expected, to test the mentioned resistance at 10900. Some more upside to 11000 is possible in the near term, but we may see some profit-taking from there.

Nikkei (20455, +252,+1.25%) has risen well and is testing the 21-MA at 20400 on the daily line chart in the next session. If it manages to sustain the rally, then a rise past 20500 could lead to a test of the strong resistance at 21500 in the medium-term.

Shanghai (2568, +42, 1.65%) has risen well since yesterday and is trading in our target region of 2550-75 already. This is a crucial level now. A break above 2575 could be very bullish in the long term.

As suggested, the Sensex (35980.93, +130.77, +0.36%) and Nifty (10802.15, +30.35, +0.28%) are heading towards the immediate resistance 36100 and 10900. The 21-MA on the 3-day charts at 35500 and 10600 might provide strong Support for both and could lend them enough strengthen to eventually break the near-term resistance at 36100 and 10900.

COMMODITIES

Although OPEC-led supply cuts in crude is supporting the oil prices just now, there is news of a possible US crude output above 12mb/day already. This could be a concern for the oil prices. The US-China talks are to continue today also and the markets expect easing of trade relations post the current meet with possibility of reaching a settlement. The API reported a crude inventory draw of 6.127 mb for the week ending 4th Jan’19.

Crude prices have moved higher. Brent (59.43) and Nymex WTI (50.53) are fairly trading near our expected target levels of 60 and 50. While the rise continues, we could possibly see a test of 62.50-64.00 and 55 respectively. Near term looks bullish for the Crude prices just now.

Gold (1285.80) and Silver (15.72) are almost stable below 1300 and 16 respectively. Gold could spend a few sessions within 1280-1300, before attempting a rise towards 1320 in the near term while Silver is likely to come off towards 15.50-15.00 in the medium term. Some ranged sideways movement could be expected just now.

Copper (2.6675) is testing immediate channel resistance at 2.67 and needs to break on the upside to turn bullish towards 2.70/75 levels. Although daily candle chart suggests a possible fall from here back towards 2.55, longer term charts are indicating bullishness towards 2.75/80. Any dip from current levels could be short lived.

FOREX

US Dollar looks strong and could lead to weakness in the Pound, Yen, Yuan, Euro and Rupee in the near term. On the contrary, Aussie and Euro-Yen look bullish.

Dollar Index (95.83) looks bullish while above 95.25/50 and could be soon headed towards 97.25.

Euro (1.1452) has been trapped within the 1.15-1.13 region for almost 3-months now and a break on either side is due soon bringing in sharp and volatile moves. For now, we expect 1.15 to hold, pushing Euro back towards 1.13.

Dollar Yen (108.86) continues to trade above immediate support at 108. While above 108, it could rise towards 110 in the near term. View is bullish above 108.

Euro-Yen (124.70) is trading in a narrow range over the last 2-sessions. It could be in a pause mode below immediate resistance at 125.00/20. While below 125.20, there is scope of falling to levels near 123/122 again in the near term. View is bearish for the near term while below 125.20. On seeing the longer picture, there is long term support at 122 coming from Jul’12 on the 3-day line chart which suggests bullishness towards 128 in the longer run.

Pound (1.2734) has trend resistance at 1.28 as we have been mentioning in the last couple of editions. While 1.28 holds, a fall back to 1.26/25 could be a possibility. On the contrary, if Pound manages to break above 1.28, it could be set for a sharp rise towards 1.31.

Aussie (0.7158) has risen slightly and could be headed towards 0.73 in the near term. Rising Aussie could possibly indicate some bullishness in Copper also in the near term, as Aussie has strong directional correlation with Copper and is likely to continue.

USD-CNY (6.8391) seems to have broken below the immediate support on the 3-day and weekly candles. While below 6.8430, the Yuan could strengthen towards 6.80.

Dollar Rupee (70.21) could trade within 69.80-70.30 today. We may expect a dip from 70.30 back towards 70.10/00. Only on a break above 70.30, we would consider continuation of the current upmove towards 70.50/60 for the coming sessions.

INTEREST RATES

As expected, the US 10Yr has moved up to 2.72%. The 2Yr (2.58%, up from 2.54%), 5Yr (2.57%, up from 2.53%) and 30Yr (3.01%, up from 2.99%) have all moved up yesterday. As mentioned day before, "While the market expectations (about Fed rate hikes) will see flip-flops over time, it might be prudent on our part to budget for one hike after June."

That said, the 5Yr may have Resistance near current levels and the 10Yr may have Resistance near 2.75%. Both could dip back a little over the coming days.

Importantly, the rise in US yields has pulled down the German-US 2Yr Spread (-3.17%) and German-US 10-yr (-2.5%) over the last couple of days. We had expected the German-US 2Yr to rise towards -3.00%. we are not very sure now whether that will happen. Need to watch that.

In India, the 10Yr GOI (7.45%) dipped back after having risen to 7.51% on Monday. Need to watch whether our expectation of an eventual fall towards 7.10% will materialise or not.

A sense of calm continues emanating in from the Foggy Bottom, all of which is helping risk sentiment along quite nicely, as there was little drama for markets from the 20 combined minute speeches from US President Donald Trump, House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer. Trump did not declare a national emergency, nor did he hint towards one, which might have been a fear before the speech. Instead, he arranged a meeting with the Congressional leaders to talk about the funding, which scheduled for tomorrow.

Australia November building approvals MoM is -9.1% versus -0.3% expected. The YoY number is -32.8% versus -24.8% expected. Which would typically be hugely negative as traders closely track that critical economic data, especially on the heels of yesterday, miss on trade balance?

However, commodity currencies are holding firm riding the wave sentiment from the positive buzz in US-China trade talks.

In a similar light, the CNH is hearing that Buzz loud and clear as the market moves all on this morning on the bullish CNH break of 6.85 which is also having a significant influence on the rest of EM Asia FX which is predictably rallying across the board.

Outside of the high beta currencies, it's been another relative sea of calm in for G-10 in Asia but with risk sentiment bubbling over it seems only a matter of time before USDJPY breaks through 109.00. Positive risk sentiment coupled with the market pricing out the delusional end of 2019 25 % probability of US rate cut, we could see the USDJPY push to 110 on follow through. Significant support comes in at 108.50

The Euro continues to trade in no man's land, and for the record, I'm a buyer at 1.1400 and seller at 1.1500 if anyone needs a view !!

Trade talk optimism lifts Wall Street

News that US-China trade negotiations in Beijing were being extended another day raised hopes that a positive announcement may be forthcoming. US President Trump tweeted that the talks were going “very well”, which helped lift US indices for a third day. UK shares benefited from rumours of a Brexit delay.

US30USD Daily Chart

The US30 index has opened higher again this morning as trade talk optimism raises risk appetite

The index is testing the 50% retracement level of the December drop, which is at 23,760

There are three Fedspeakers today, Bostic, Evans and Rosengren with markets hoping for more of the dovish-leaning comments the Fed chairman made last week.

DE30EUR Daily Chart

The Germany30 index’s looks poised for the second daily advance in a row, buoyed by trade negotiation optimism

The index is eyeing the 55-day moving average at 11,132, which has capped prices on a closing basis since August 29

Germany’s trade surplus is seen widening to EUR18.0b in November from EUR17.3b the previous month, seemingly unaffected by Brexit concerns and the tariff war.

UK100GBP Daily Chart

The UK100 index touched the highest in nearly four weeks yesterday as rumours circulated in the UK press that the actual Brexit could be delayed. It was quickly denied by UK negotiators, but the EU has since suggested it may be open to such an idea, but extremely wary of it

The 55-day moving average at 6,930 acts as the first resistance point. Prices have not closed above this average since August 10

NIESR releases its rolling three-month estimate of UK GDP for December. BOE’s Carney is also scheduled to speak.

Markets

As the dust gradually settles and traders remove holiday blinkers only to find there are no recessionary monsters hiding in the closet nor a Federal Reserve Board boogeyman lurking in the nearby shadows. A sense of normality returns to global markets as for the most part trading remains in calm spirit as risk continues to reflate on the back of Fed Chair Powell messaging amid constructive US sentiment data.

Indeed it was a positive sign for risk when the markets shrugged off damaging profit warnings for Samsung

Overall, It looks like the market is finally getting the gist of the Feds shift to a more “evidence-based” approach to monetary policy, as nothing could be farther from the truth that the Fed wanted to hike interest rates until the economy rolled over and died. The objective has always been a soft landing while guiding interest rates a sufficiently high enough so that when the Fed reverses policy course, the cuts will be impactful in a stimulatory sense. In reality, it’s nothing new for the Fed to tweak policy making “mid-cycle adjustments one it becomes obvious inflation isn’t that much of a problem

Also, reports were circulating on the US-China trade talks as the mid-level US, and Chinese officials in Beijing have extended negotiations to the third day which is fuelling investor optimism suggesting there might be a light at the end of the trade war tumultuous tunnel. Markets already hope the base case scenario to be favourable and talks to continue into Davos later this month as some trade concessions are already in motion regarding Soybeans and China approved five genetically modified crops for import, which had been an early Trump administration demand in trade talks dating back to 2017.

Not overly surprising, especially for a President who judges his popularity by the US stock markets levels, reports are circulating again that President Trump is more and more eager to seal a deal with China to prop up the global financial markets. While traders are just as eagerly awaiting the elusive resolution roadmap before Trumps self-imposed March 1 deadline for raising tariffs.

Also, the political news from the hill was cheery for a change as The Washington Post claims Trump will not declare a national emergency in his address late Tuesday night, quelling concerns that a prolonged political infight will reach high courts. But Trump is holding a lunch meeting with US Senators on the shutdown Wednesday, meaning there is potential for some headline fireworks

Oil markets

Crude continues to extend gains as early reports from Beijing regarding trade negotiations are fueling optimism around successful trade talks between the US and China. This optimism amidst arguably oversold market conditions due to a dreary December for risk is counterbalancing reports and more that indicates more Iranian barrels are making their way to the international market ahead of current US waivers that are expected set to expire in April.

But in summary, after a dreadful December for risk markets, Crude oil continues to catch a positive vibe on the back its strengthening correlation with the S&P which has been faring well as trade thaw optimism continues to permeate. Still, the slowing economic growth must be a concern, particularly in Europe where business sentiment gauges have slipped to the lowest level since 2017s

However, the Large Crude draw in the API survey failed to inspire as gasoline and distillates stock continues s to skyrocket, so the report sees us stuck in no man’s land bullish WTI but bearish products

Gold markets

It was a quiet session for the Gold market as FX markets traded for the most part in a sea of calm. While demand remains frim ahead of critical $1280 support level, higher US yields and firming equity markets continue to weigh negatively. But chirpy risk appetite getting fueled by optimism around US-China trade talks would suggest $1300 could be an impenetrable ceiling over the near term.

Currency markets

Greenback has perked a bit overnight, with DXY coming off the lows, helped along by soft AUD trade data in Asia and terrible industrial production data out of Germany.

But the positive trade war vibe is predictably filtering through to the commodity currencies which are trending positively out of the gates in Asia as both the AUD and CAD are faring well on two fronts. One, risk is expected to remain on the front foot as Powell did provide a credible narrative and Two if we get a roadmap to trade resolution I would expect equity markest and commodity currencies to flourish along with EM Asia FX

But keeping in mind this isn’t the first time the President has spoken favourably about trade, however, given the current state of affairs in the equity markets, investors are taking his comments a bit more to heart

Yesterday we alluded to the difficulty trading the USD is trying to factor in just how much of a driver the balance sheet will be going forward. It’s not only the dots traders are contending with as the Fed is now juggling two tightening paths. I think that was evident by overnight price movements on the EUR after two sets of data suggested the same old negative story for EU zone growth, yet the USD was unable to capitalise.

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GBP/USD has lost ground in the Tuesday session, erasing the gains seen on Monday. In North American trade, the pair is trading at 1.2717, down 0.45% on the day. On the release front, British Halifax HPI rebounded with a strong gain of 2.2%, crushing the estimate of 0.5%. In the U.S., JOLTS Job Openings was unexpectedly soft, dropping to 6.83 million. This marked a four-month low. On Wednesday, Bank of England Governor Mark Carney will participate at a BoE event. The Federal Reserve releases the minutes of its December meeting, when it raised rates.

The equity markets continue to show swings, but investor optimism has improved, after dovish comments from Fed Chair Jerome Powell on Friday. Powell made a determined effort to ease the volatility which has rocked the markets in recent weeks. The markets had dropped sharply after the Fed’s December rate statement, which was less dovish than expected, as the Fed said it would continue raising interest rates in 2019. Powell tempered this stance with a more cautious outlook over rate policy, saying any rate decisions would be done prudently and with patience.

The Fed seems to be lowering expectations for additional rate hikes. Recent Fed forecasts have indicated two rate increases next year, but on Monday, Atlanta Fed President Raphael Bostic said that the economy would need only one rate hike. Some analysts have gone further, projecting a rate cut in 2019, which has put a chill on sentiment towards the U.S. dollar.

With Britain due to leave the European Union in less than 90 days, it’s still unclear if the sides will split with a withdrawal agreement in place. On Sunday, Prime Minister May reaffirmed that she would bring the withdrawal agreement to a vote in parliament next week. However, the deal will have a tough time passing in parliament, and the government has given no indication that it has a plan B if lawmakers reject the deal. The Europeans have insisted that they will not renegotiate a new agreement, so if the deal fails, a no-deal Brexit becomes a strong possibility. Such a scenario would have a negative effect on the British economy and send the pound lower.