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Market fears continue to disappear after Trump asks to draft a possible trade deal with China

By OFX

Most of the FX market’s fears, such as trade wars, Chinese growth, and the Brexit, have seemed to disappear over the last two days resulting in a big rally of currencies associated with the "risk on" environment. The Aussie and Kiwi dollars are known as commodity currencies and were the best performers yesterday. Both currencies were behind the US dollar retracement, which at one point of yesterday’s session fell by over 1% compared with October's high of 97.20. Trade tensions are thawing with Trump asking the cabinet to draft a possible trade deal with China. The push for a potential deal with China was prompted by the president’s telephone call with Xi on Thursday, according to Bloomberg. Furthermore, Trump had already ignited this trendy news when he tweeted that he and President Xi had a long conversation with heavy emphasis on trade and discussions “moving along nicely.” President Xi followed up with some conciliatory remarks that he was willing to meet Trump at the G20 and that he and Trump wish to expand China-US trade cooperation.

On the release side, the change in non-farm payrolls in October was 250K above expectations of 200K. This has boosted the US dollar index from an intraday low today of 95.99 to 96.32 at this moment. The unemployment rate in October was in line with expectation at 3.7%.

The technical levels to consider for today in the US dollar index are 96.00 on the downside and 96.40 on the upside. Also, the technical levels to think in the USD/CAD are 1.3012 on the downside and 1.3140 on the upside.

The economic calendar in Canada was interesting early today. The Canadian net change in employment for October was reported at 11.2K vs. a forecast of 12.7K, much below the 63.3K in the prior reading period. The unemployment rate though was better than expected at 5.8%, below the 5.9% read, while the trade balance did not help the Loonie showing an actual number of -0.4 B vs. +0.2 B.

The USD/CAD, after a mild rally in yesterday session, bounced today in the morning influenced by better US economic data such as the change in non-farm payrolls in October, which was 250K above expectations of 200 K.

The technical levels to consider for today in the USD/CAD are 1.3012 on the downside and 1.3140 on the upside.

The euro has benefitted from the global dollar sell-off witnessed overnight as the shared currency recoups some of its recent losses. The Italian budget continues to weigh heavy on the Euro, but should some agreement be found in the next couple of weeks that markets approve, then further gains in the Euro might be likely as we approach Christmas. There is no data from the Euro Zone today, so ongoing news over trade will likely be the primary mover.

The technical levels to consider for today in the EUR/USD are 1.1335 on the downside and 1.1450 on the upside.

The Bank of England was more hawkish than expected; the BoE's nine rate-setters all voted to hold rates at 0.75%. All of them voted unanimously to maintain the Bank Rate at that level. BoE's inflation forecast was above target within two years (2.1% vs. 2.0%). Additionally, on Thursday, the BoE said that interest rates might need to rise a bit faster than investors had expected, with three hikes of the bank rate in three years. Finally, the BoE warned that all bets would be off if Britain leaves the European Union without a deal in less than five months. Bank of America Merryl Lynch says that the market has only been priced for two hikes. The same bank believes that BoE is misplacing its hawkishness regarding its bank rate, which was maintained at 0.75% in their Monetary Policy Committee.

Mark Carney also stated that a quick resolution of the Brexit deal would quicken the pace of interest rate hikes from the BofE.

The technical levels to consider for today in the GBP/USD are 1.2950 on the downside and 1.3040 on the upside.

AUD/USD has moved back to 0.7260, however, at this moment, it is retracing back to the 0.7200 handle. The Aussie dollar was helped by positive news of trade war between China and the United States, despite a slightly under-par monthly Retail Sales number seen yesterday at 0.2% when the expected was at 0.3%

Also, on the release side, the Australia Producer Price Index had a much higher number than expected, 0.8% vs. 0.2%, which was an excellent catalyst for a strong Aussie dollar.

The technical levels to consider for today in the AUDUSD are 0.7189 on the downside and 0.7235 on the upside.

NZD/USD was one the best performer versus the Greenback. It hit a peak of 0.6690 overnight, falling short of the 0.6700 handle last seen in mid-September. Tuesday night ANZ Commodity prices will be published, if actual numbers are higher than the forecast, it is good for the Kiwi. Tuesday afternoon will be a busy day for the Kiwi, we will have economic data about employment change, unemployment rate, and inflation expectation numbers.

For Wednesday afternoon, the Reserve Bank of New Zealand will announce the cash rate, expected at 1.75%, which is the same as the previous announcement.

The technical levels to consider for today in the NZDUSD are 0.6640 on the downside and 0.6690 on the upside.