Yuan firms on trade talk hopes

12 December, 2018

A sense of stability returned to financial markets on Tuesday as investors swept aside geopolitical risk factors to focus on progress in trade talks between the two largest economies in the world.

The overall market mood received a boost following reports of top US and Chinese officials discussing over the phone the “promotion of the next economic and trade consultations”. However, global sentiment later took a hit after Donald Trump threatened to shut the Federal government over border security. Although easing trade tensions are seen injecting equity bulls with fresh inspiration, the upside is poised to face numerous headwinds down the road. With concerns over plateauing global growth, heightened political risk in France, Brexit turmoil and other geopolitical tensions weighing on markets, global stocks remain in the firing line.

In the currency markets, the Chinese Yuan appreciated against the Dollar amid renewed hopes of trade talks between the world’s two largest economies. With the Greenback likely to be pressured by expectations over the Fed taking a pause on rate hikes next year and soft domestic economic data, this is good news for the Yuan. If easing trade tensions end up boosting risk sentiment, the Dollar is poised to weaken further. In regards to the technical picture, the USDCNY has the potential to hit 6.8850 in the near term.

Appetite towards the battered Pound diminished further following news wires that Prime Minister Theresa May could be facing a vote of no confidence. With this development fuelling uncertainty and stimulating fears of a no-deal Brexit outcome, the outlook for the Pound remains heavily bearish. Focusing on the technical picture, the GBPUSD is bearish on the daily and weekly charts. The sharp breakdown below 1.2700 has placed bears in a firm position of control with 1.2500 acting as the next significant point of interest.

Gold prices are slightly shaky and wobbly due to stabilizing Dollar. However, prospects of the Federal Reserve taking a pause on interest rates next year limited downside losses on the yellow metal. The near-term outlook for Gold will be heavily influenced by the Dollar’s performance. With the pending inflation figures from the United States likely to impact the Greenback, there could be some action on Gold today. In regards to the technical picture, prices remain in an upward trend on the daily charts with support found at $1,240. Bulls have the ability to attack $1,250.70 and beyond as long as $1,240 proves to be a reliable support level.

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