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US dollar increasing after a likely delay in the US-China trade deal


The US dollar index fell 0.50 percent in yesterday’s trading session on a positive day for equity markets and risky assets. However, it is bouncing in a counter-trend rally this morning around 0.25 percent. The reason? Probably US-China trade updates.

Regarding the US-China trade deal, President Donald Trump and Xi Jinping won't meet to sign a trade agreement until the hoped-for summit takes place at the end of April. According to Gary Cohn, a former head of Donald Trump’s National Economic Council, Trump is desperate for a deal. The president needs a win on US-China trade negotiation talks. Cohn's comments contradict Trump’s comments, who said earlier: "I'm not in a rush whatsoever." On top of that, the US Trade Representative Robert Lighthizer gave testimony before the Senate Finance Committee yesterday. He said that America must keep the option of raising tariffs to be sure Beijing lives up to any trade deal. Moreover, Republican Senator Rob Portman said no deal would be closed without substantial changes to how China treats intellectual property rights.

The Loonie rallied against the US dollar furiously around 0.50 percent following crude oil WTI price action, which reached new highs (from November 13, 2018) around the mid USD 58s, representing an increase of over 2 percent. This happened after yesterday’s news of outages in Venezuela and Iran and the coordinated OPEC-led supply curbs. This morning though the crude oil price is trading flat in mixed price action for crude oil as market participants weighed declining US oil inventories against a report showing OPEC slowed down its rate of agreed-to production cuts.

On the release side, the new housing price index for January came in at -0.1 percent when the forecast was 0 percent. However, all the lights will be on Senior Deputy Governor Carolyn Wilkins tonight who will speak before the Vancouver School of Economics and CFA Society Vancouver at 7:05pm Est.

The USD/CAD is bouncing this morning (weaker Loonie), erasing almost all of yesterday’s gains and trading at 1.3345 after it started its rally from 1.3350 in yesterday’s trading session. Right now, nearly all of yesterday’s gains are gone. Therefore, based on the charts, the USD/CAD seems to have had a “capitulation” day yesterday, and it might be restarting its uptrend. For today, we expect a strong support level around 1.3322 and even a 1.3300 handle is likely if crude helps the Loonie this morning. However, a resistance around 1.3350 and then 1.3375 are good levels to see the USD/CAD in case the “risk on” mood in the fx capital markets fade away for whatever reason.

The Euro has managed to draw a breath against the USD and has recovered most of its losses seen last week due to the ECB where the EUR/USD dropped to below 1.12. If you were looking to take advantage of 21-month lows, you may have missed the opportunity.

Today sees the release of final inflation numbers for France and Germany, which aren’t expected to waver too far from the flash estimates. On Friday we have the figures for the whole of the Euro area, but the weak numbers still linger for the ECB with core inflation down below 1 percent.

The EUR/USD pair trades at 1.1302, a 0.21 percent fall this morning.

So as expected late last night, the House of Commons voted against a No deal Brexit under any circumstances although the margin of victory was much closer than this writer had thought. More importantly, as well it was confirmed that just over half of MPs (53 percent) had some common sense and realized how dire a No Deal Brexit would be. Off the back of the narrow victory (which confusingly was seen as a defeat for the government) the Pound breathed a sigh of relief and due to the late vote pushed through a number of key figures against the US dollar and hit one-year highs against the Euro. As Parliamentary procedure expect Jacob Rees-Mogg highlighted to the BBC, this changed very little, and the UK is still set to leave the EU on the 29th of March as this is written in statute and this takes precedence over last night’s motion. While probably correct, Theresa May also supported the idea by saying, “…the legal default in EU and UK law is that the UK will leave without a deal unless something else is agreed.”

So we move onto today’s vote which should be the most significant for the Pound. If MPs reject the idea of an extension as it risks the UK possibly never leaving the EU, then they may want to have another look at Theresa May’s Tuesday night option, and we may have another ‘meaningful vote’ as soon as next week. For a long time, the playing field was between May’s deal versus a No Deal, but now that this has been ruled out, it looks like it could be May’s deal vs. No Brexit. The paradigm has shifted.

The GBP/USD is trading at 1.3263 this morning after it reached 1.3381 in yesterday trading session – a new high from June 14, 2018.

Overnight industrial production figures out of China came in showing output growth sinking to a 17-year low as the slowdown in China rolled into the New Year. This follows the disappointing GDP figures seen recently when growth also sunk to 30-year lows. While the Aussie is on the back foot against the Pound due to Brexit updates, it is also down against the USD.

The AUD/USD pair trades at 0.7050, a 0.64 percent fall this morning.

The Kiwi followed its Aussie neighbour overnight, performing meekly as Chinese data continued to disappoint investors. Next week’s Q4 GDP figures couldn’t come soon enough for the New Zealand dollar especially in fallow weeks like this.

The NZD/USD pair is trading lower at 0.6811, a 0.68 percent fall this morning.