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U.S – China trade optimism improves the market sentiment and makes the US dollar retract from 18-month high

By OFX

The US dollar index declines by -0.34% this morning after touching an 18-month high yesterday at 97.69. A weaker US dollar this morning was driven by a positive market sentiment lifted by hopes that lingering trade tensions between the US and China would ease following reports that China’s top trade negotiator was preparing to visit the US ahead of a meeting between the two countries’ leaders later this month in Argentina. The US stock futures are rising this morning after a rebound from yesterday’s sell-off. It was a different story in yesterday' trading session, when negative risk market sentiment brought North American indexes lower (S&P 500 -1.97%, Dow Jones -2.32%, and Nasdaq -2.78%) and pushed the greenback to new highs as a safe haven. Yesterday’s equity sell-off was also guided by concerns around Italy, the Brexit, and China, but, this is old news today.

The technical levels to consider for today for the US dollar index are 96.98 on the downside and 97.47 on the upside. The technical levels to consider today in the USD/CAD are 1.3205 on the downside and 1.3250 on the upside.

The Loonie rallied overnight, at this moment the USD/CAD is falling –0.16% along with the US dollar index dipping this morning. Again, oil is still the primary driver of the USD/CAD’s performance, and there are no economic data scheduled for today after the Canadian and US banks were closed for a holiday yesterday.

The Canadian economy continues to perform well according to recent economic data, but substantial numbers have not been enough to boost a struggling Canadian dollar.

The technical levels to consider today in the USD/CAD are 1.3205 on the downside and 1.3250 on the upside.

The EUR/USD is in a rally mode this morning after testing an 18-month low. Probably one of the reasons was the latest German ZEW Economic Sentiment survey, which was released overnight, and it was better than expected at -24.1 vs. a -24.2 read. Despite the improvement of this leading indicator of economic health in Germany, this index is in the seventh negative print in a row, as the booming economic situation Germany enjoyed around a year ago fades.

The slowdown in the German economy has been so dramatic that analysts are expecting growth to dip into negative territory for the first time since Q2 2014. The Q3 GDP figure is due to be published first thing tomorrow. Overall, Eurozone growth data is released three hours after the German number with the EZ expected to show anemic expansion of 0.2% for the third quarter. The Italian budget situation continues to rumble on in the background.

The technical levels to consider for today for the EUR/USD are 1.1255 on the downside and 1.1311 on the upside.

The Pound is experiencing a strong rally this morning. GBP/USD has shown a gain of 152 pips from yesterday’s lows and today's high so far, trading at 1.2950 this morning, mainly for two reasons: comments about the Brexit from May and Lidington, and mixed UK jobs data. After yesterday’s disastrous performance of the GBP, which lost over 1 percent at one point, there were renewed hopes that Theresa May will make a Brexit deal with the European Union by tomorrow. Also, the cabinet office spokesman, David Lidington, spoke on BBC Radio 4 and revealed that a Brexit deal was “almost within touching distance.”

The second reason, the UK economy wage growth has shown a good jump of 3% compared to previous 2.8% in the average weekly earnings, and 3.2% vs. a 3.1% read in the weekly earnings ex-bonus (both measures are referred to 3 months, year to year, up to September). However, the unemployment rate came at 4.1% compared to a forecast of 4%.

Regarding GBP/USD, the technical levels to consider for today are very wide because of possible Brexit events coming in the news. The level on the downside is 1.2695, and the level on the upside is 1.3215

Overnight saw a dip in the monthly NAB Business Confidence survey, which fell from 6 to 4. Alan Oster, NAB Group Chief Economist, commented “Although conditions have eased since earlier in 2018, and have been a little volatile over recent months, business conditions remain well above average. This likely reflected a healthy business sector alongside the strength in economic growth through 2018. The decline in the month was driven by weakness in the employment component – though, at these levels, the survey still suggests ongoing employment growth at around 20k per month. At this rate, we should see the recent labor market gains maintained”.

Market expectations for a rate hike from the Reserve Bank of Australia are for late 2019. AUD/USD is trading above the 0.7200 handle this morning, testing an intraday high of 0.7218 and increasing by 0.48%. This is also helped by a US equity rebound and by hopes that lingering trade tensions between the US and China would ease following reports that China’s top trade negotiator was preparing to visit the US ahead of a meeting between the two countries.

The technical levels to consider for today in the AUD/USD are 0.7190 on the downside and 0.7237 on the upside.

The NZD/USD is trading at 0.6751 and it has managed to keep above the 0.6700 handle in the last week, showing better relative strength compared with other currencies such as the Loonie, Pound, Euro or Aussie dollar. Similar to Canada, there is little on the macro front this week from New Zealand apart from Thursday night’s Business NZ Manufacturing Index print. Therefore, global risk sentiment will be the primary driver for the Kiwi. NZD/USD sits at 0.6754 this morning.

The technical levels to consider for today for the NZD/USD are 0.6707 on the downside and 0.6860 on the upside.