8 January, 2019
Financial markets kicked off the trading week on a positive note as optimism over US-China trade talks revived investor risk appetite.
Asian equity markets concluded on the positive note amid the Risk-on mood while European shares are trading in the green territory. Although the positive domino effect from Asia and Europe could elevate Wall Street this afternoon, gains are likely to be capped by geopolitical risks. With the underlying factors weighing heavily on global sentiment still present, global stocks remain vulnerable to downside shocks.
While a breakthrough deal between the United States and China seems highly unlikely, any signs of further talks or even light concessions from China will be a welcome development to markets. If nothing new is brought to the table and talks end up on a sour note, risk aversion will return with a vengeance.
Dovish comments from Jerome Powell last Friday effortlessly sent the Dollar tumbling against a basket of major currencies.
Although the Dollar was initially boosted by December’s blockbuster jobs report, this was dampened by Powell’s softer language towards tightening monetary policy. With Powell stating that the Fed “will be patient” and flexible towards raising rates, expectations jumped over the central bank taking a pause on monetary tightening this year. With the Greenback extremely sensitive to Fed hike speculation, this development is seen weakening the currency further. Investors will direct their attention towards the ISM Non-Manufacturing PMI which should offer fresh insight into the health of the US economy. The Dollar is a threat of weakening further if the economic data prints below market expectations.
In regards to the technical, the Dollar Index is under pressure on the daily charts. Sustained weakness below 96.00 is poised to open a path back towards 95.70 and 95.50, respectively.
Gold glittered in the background this morning despite trade optimism boosting risk sentiment. The driving factor behind the yellow metal upside remains Dollar weakness. If the Dollar continues to depreciate amid the risk-on environment and Fed rate pause speculations, zero-yielding Gold will greatly benefit. Technical traders will continue to closely observe how prices behave above the $1280 regions. If the upside momentum holds, the next key point of interest will be at the $1300 psychological level.
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