DOLLAR SLIDES AS MARKET REDUCES RATE HIKE EXPECTATIONS
Chinese stocks ended the day trading higher after a surprise tweet by President Trump. In the tweet, he said that he was in direct negotiations with his Chinese counterpart, Xi Jinping, with the goal of helping Chinese company, ZTE avoid US sanctions. The commerce department had sanctioned the company for doing business in Iran, against US sanctions. In a report last week, the company announced that the new sanctions threatened its existence. The intervention of the US president, was a positive sign for Chinese companies. Investors interpreted this as a new opening for diplomacy between the two countries on how to resolve trade dispute issues. This week, the senior Chinese trade diplomat will be in Washington to continue the discussions developed when the US team visited Beijing. US futures are pointing to a higher open, a continuation of the bull run started a week ago.
The US dollar fell by more than 30 basis points, continuing a trend started last week with the release of the inflation data. It was lower against the euro, pound, Australian dollar, and Canadian dollar by 40, 35, 25, and 24 basis points respectively. The decline is a reversion of the gains that happened in the past two months when it was certain that the Fed would have three more hikes this year. The Fed Futures estimates have lowered the number of rates to expect this year from three to two.
In the UK, ongoing Brexit negotiations continued. David Miliband, former foreign secretary said that the country was being held hostage by the supporters of a hard Brexit. A hard Brexit would create a situation where the country exits the customs union and the single market. In his return to active politics, Miliband will join other Labor leaders such as Nick Clegg and Nicky Morgan to campaign for the country to remain as part of the union. This move is opposed by several people, including the current Foreign Secretary, Boris Johnson.
After weeks of decline, the EUR/USD pair reached a bottom of 1.1820 on Wednesday. Since then, the pair has continued to move up, reaching a high of 1.1992 earlier today. The new upward trend came as investors reduced the number of rate hikes they expect this year from three to two. The 28-day moving average and the 14-day MA are showing that the bullish trend can continue. This is confirmed by the RSI, which is currently at 65 and the MACD. The next level which traders should focus on is 1.2000. If it breaches this price, the pair could sustain the upward momentum.
The cable has been trading in a narrow range due to Brexit problems and US inflation struggles to reach targets. In addition, the BOE has indicated that it might hold further rate hikes because of the inflation. A few weeks ago, data showed that the inflation had dropped to the lowest level since March last year. The pair is now trading at 1.3580. This week, we could see increased volatility as we wait for the inflation hearings and employment numbers scheduled for tomorrow.
Nasdaq 100 is the biggest index focused on technology companies in the world. In the past two weeks, the index has managed to move from $6427, to the current $6990. At the current price, the index is slightly below its all-time price of $7198. It is also at the same level with the 28-day moving average. The recent gain is attributed to the just-concluded earnings season. The index could continue moving higher if a deal between Washington and Beijing is worked out.