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Global Markets Signal Support of Juncker and Trump's Desire to Curb Trade Tensions

By OFX

The United States Dollar is weaker across the board over the past 24 hours with the US Dollar Index falling 0.4% against a basket of currencies. The big headline came out of Europe this time with conciliatory comments from President Trump after his press conference with EU President Juncker. In China, the media continues to report on further, targeted measures by the PBOC on capital requirements for banks. Ultimately, the improved global conditions saw capital return to risky assets and the Greenbacks counterparties marginally rise against the Dollar.

Equity markets are mixed this morning in North America with the S&P 500 and Nasdaq pointing to negative territory on futures and the TSX and Dow Jones signaling to a positive open. The European market is trading on the positive side as the Trump-Juncker talks showed trade tensions easing as both sides making concessions. Trump backed off on European auto tariffs and Juncker said the EU would expand imports of soybeans and LNG from the United States.

US economic data saw Durable Goods Orders miss expectations of 3% printing an actual of 1%, the Goods Trade Balance saw a slightly better reading than the previous -64.77B to -63.33B. US weekly initial jobless claims rose from 208K to 217K reaction to the data was muted as ECB announced its plan to stay the course on ending its bond purchasing program this year the euro fell against the greenback after the announcement. EURUSD support now sits at 1.1688 while resistance is firmly imprinted at 1.1755.

The Canadian dollar again trades on broader market sentiment. As Trump and Juncker voice the desire to easy trade tension by curbing tariffs, steel and aluminum are still in question on tariff easing. The USDCAD currency pair tested new support levels at 1.3029 while resistance now sits at 1.3114.

USD/CAD trades below resistance of 1.3114 as the dollar sell-off yesterday benefitted loonie which also was bolstered by rising crude oil prices. WTI pushing back towards $70 a barrel for the first time in seven days providing the loonie a tailwind. CAD is at a six-week high was close to breaking below 1.30 in what would be a bullish signal for the Canadian dollar. These gains may be short-lived however should US growth numbers beat forecast tomorrow.

The main event from the markets today is the ECB interest rate decision due at 7:45 am. No change of policy is almost guaranteed, so the market's focus will be on ECB chief, Mario Draghi’s press conference 45 mins later.

With the phasing out of its QE programme confirmed at last month’s get-together, it seems unlikely we see any big clues dropped by the bank re the timing of rate hikes with the “mid-2019” mantra likely to be repeated. EUR/USD has pushed back through 1.17 on the positive news from Washington with GBP/EUR continuing to be range bound sitting around 1.1250 currently.

GBP/USD has reclaimed the 1.32 handle overnight as trade tensions were cooled by a meeting between US President, Donald Trump and EU Commissioner, Jean-Claude Juncker in Washington. Stock markets rose on the news that there will be no further trade tariffs imposed by Trump on EU goods whilst talks on trade are ongoing, halting fears that the European car industry was the next target of Trump's tariff blitz.

Sterling is now trading around a ten-day high against the dollar having briefly traded below 1.30 at the end of last week, the reduction in trade tensions and a gradual pricing in of a rate hike next week by the Bank of England are helping push the pound higher.

The Australian Dollar has found some upside when valued against its US counterpart over the past 24 hours, trading as high as 0.7464 just at the end of the New York session. However, it wasn’t all good news intraday with the release of Australian CPI figures, headline inflation remained flat at 0.4% q/q which was below expectations and headline inflation moved just into the RBA’s target range of 2-3% at 2.1% y/y. The trimmed mean which is the RBA’s preferred measure edged down 0.5% q/q while was on a y/y basis at 1.9% y/y – still just under the target band hence why we initially saw a high of 0.7448 just after 11.30 AEST and then a quick pullback thereafter. Traders continued to sell the Aussie and as we closed the Asian session and we were back under 74c again. Market pricing is implying that the cash rate will remain unchanged for a considerable period of time, with a less than 50% chance of a hike in the next 12 months.

The local unit buoyed by risk appetite in the markets after Trump and EU Junker struck a deal to increase trade, reduce tariffs and costs, and increase U.S. farm and natural gas exports to Europe in order to avert an all-out trade war between the two.

Looking ahead, we have the release of Import Prices by the Australian Bureau of Statistics which measures the change in the price of goods purchased by importers. The data contributes to inflation for both businesses and consumers. We are expecting to see an increase on 1.9% on the previous 2.1% while the Export Price Index is expected at 3.9% (previous 4.9%). The data is unlikely to drive much action, support sitting at 0.7400 and resistance up at 0.7490.

The New Zealand dollar rallied overnight jumping back through 0.68 to touch highs at 0.6842 as the US dollar fell against G-10 counterparts. The Kiwi shook off a softer than anticipated trade balance print and found support through Wednesday as the embattled Chinese Yuan edged marginally higher while trade talks between the US and Europe appear to have eased tensions and fears for an all-out trade war. President Trump and EU President Juncker met in Washington with both sides allowing concessions in an agreement that is hoped will ease trade barriers.

With risk appetite bolstered the Kiwi drove toward three-week highs punching through resistance at 0.6820 and testing firmer technical opposition at 0.6850. Attentions now turn to US GDP data Friday for broader macroeconomic direction while ongoing currency and trade hostilities drive short-term demand for risk. With the majority of investors posting net shorts against the NZD we expect upside gains will remain hard won with moves toward and above 0.6850 likely to meet profit-taking, however, a break above this handle opening the door for a run back toward 0.6950 and 0.70.