· A telephone call between top U.S. and Chinese trade negotiators lifted the dollar to a two-week high against the yen while China’s yuan edged up on Tuesday, due to optimism that the two sides will soon agree an interim deal to halt their trade war.
The dollar rose as high as 109.205 yen, its strongest in two weeks, before settling back at 109.01 yen to show a gain of 0.1% from the previous close.
The yuan also rose to 7.240 to the dollar, about 0.15% higher than the previous close.
“It wasn’t like they agreed to the phase one deal. They just agreed to continue their talk. So some people appeared to have been caught in long position a bit too much,” said Shingo Sato, director of forex at MUFG Bank.
“China appears positive to the deal. The dollar could rise further to around 109.50 if U.S. officials will visit China,” said Yukio Ishizuki, senior strategist at Daiwa Securities.
“Trading in the next couple of weeks will be all about the U.S.-China deal,” said Daiwa’s Ishizuki.
The euro softened to $1.1008, near the one-week low of $1.10035 touched on Monday.
Sterling traded at $1.2894, supported by hopes that the ruling Conservatives could win a majority in the Dec. 12 election to end a hung parliament.
· The greenback, in terms of the US Dollar Index (DXY), is managing well to keep business in the area of 2-week highs around 98.30 on Tuesday.
The index is navigating the upper end of the recent range around 98.30, although a move further north of the key resistance area in the mid-98.00s seems to need a stronger catalyst.
In this regard, there are no fresh developments from the US-China trade dispute or any progress on the ‘Phase One’ deal other than the usual rhetoric from both countries that a deal is ‘close’.
On another scenario, the greenback is expected to take centre stage later in the day in light of the release of the always-relevant Consumer Confidence gauge by the Conference Board, New Home Sales, the S&P/Case-Shiller index, advanced Trade Balance and Wolesale Inventories.
At the moment, the pair is retreating 0.01% at 98.28 and faces the next support at 98.06 (100-day SMA) seconded by 97.68 (low Nov.18) and finally 97.58 (200-day SMA). On the flip side, a breakout of 98.45 (monthly high Nov.13) would open the door to 99.25 (high Oct.8) and then 99.67 (2019 high Oct.1).
· The world’s most popular cryptocurrency sank to $6,558.14 on Monday, its lowest level since May, according to industry site CoinDesk. It lost $3,000 in value in just a month as China accelerated a crackdown on businesses involved in cryptocurrency operations, a reversal from President Xi Jinping’s previous signal to be more open to the blockchain technology. The coin last traded at $7,150.79.
Bitcoin jumped to above $10,000 briefly last month after Xi sang the praises of blockchain in a speech and called on his country to advance development in the field. However, on Friday, China’s central bank, the People’s Bank of China, pledged to continue to target exchanges and asked investors to be wary of digital currencies.
· The leaders of the U.S.-China trade negotiations held another phone call on Tuesday morning, China’s Ministry of Commerce said in an online statement.
“Both sides discussed resolving core issues of common concern, reached consensus on how to resolve related problems (and) agreed to stay in contact over remaining issues for a phase one agreement,” the Chinese-language statement said, according to a CNBC translation.
· Fed's Powell signaled that rates will likely hold steady. Markets may offer US dollar, helping EUR/USD end the four-day losing streak. Weak Eurozone data and trade issues may cap upside in EUR/USD.
· China’s foreign ministry summoned U.S. Ambassador Terry Branstad on Monday to protest against the passing in the U.S. Congress of the Hong Kong Human Rights and Democracy Act, saying it amounted to interference in an internal Chinese matter.
The ministry said in a notice posted on its website Vice Foreign Minister Zheng Zeguang pressed the United States “to correct its errors and stop meddling in Hong Kong affairs and interfering in China’s internal matters”.
· Wall Street stocks have leap-frogged over a host of concerns, including a stall in corporate earnings and political controversy in Washington, on their way to record highs this month.
Some market observers have attributed investors’ glass-half-full outlook to periodic inklings of progress toward a trade agreement between the United States and China. The S&P 500, the Dow Jones Industrial Average and the Nasdaq all closed at records on Monday as China’s Global Times newspaper reported that Beijing and Washington were “moving closer to agreeing” on a “phase one” trade deal.
But other factors have helped U.S. equity investors look past risks such as the possibility of the first year-over-year decline in quarterly earnings since 2016 and disruptions from the impeachment inquiry on President Donald Trump’s dealings with Ukraine and the 2020 presidential election.
The prospect of renewed economic growth and favorable monetary policy have arguably played greater roles than trade optimism in fueling the rally in U.S. shares, some say.
· U.S. companies aren’t likely to pack up their manufacturing operations in China and move them back home amid the trade war between Washington and Beijing, according to a prominent economist.
That’s because supply chains are “very difficult to put together, and equally difficult to disentangle,” said Stephen Roach, a senior fellow at Yale University.
Still, several American firms have made plans to diversify their production beyond China since the trade war started last year. But few have said they intend to completely leave China – or move all of their manufacturing back to the U.S. as President Donald Trump often says will happen.
· Oil prices slipped on Tuesday on concerns about economic growth and fuel demand as uncertainty remains about the ability of the United States and China, the world’s biggest oil users, to agree a preliminary deal to end their trade war.
Brent crude futures LCOc1 were down 5 cents at $63.60 at 0725 GMT, after rising 0.4% in the previous session.
West Texas Intermediate crude futures CLc1 fell 9 cents to $57.92, having risen 0.4% on Monday.
Top trade negotiators from China and the United States held a phone call on Tuesday morning, China’s Commerce Ministry said, as the two sides try to hammer out a preliminary “phase one” deal in a trade war that has dragged on for 16 months.
Reference: Reuters, CNBC, FX Street
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