GLOBAL MARKETS SOAR AS TRADE TENSIONS CALM

Global markets rose today as traders ignored the risks posed by the current trade conflict between the US and China. Earlier this week, the US imposed a 10% tariff on Chinese goods worth more than $200 billion. China retaliated with tariffs worth $60 billion. The optimism among traders was that the tariffs did not go far enough. They had initially anticipated tariffs of 25% on Chinese goods. The DAX rose by more than 115 points while Chinese stocks posted the biggest gain in more than 6 months.

The euro jumped against the US dollar yesterday when it reached an intraday high of 1.1800. Today, it remained near this level even as data from Europe disappointed. The Purchasers Manufacturers Index (PMI) for Germany missed analysts’ forecasts and dropped to the lowest level in two years. The data showed that the PMI in September was at 53.7, which was lower than the 55.7 traders were expecting. In August, the CPI was at 55.9. The reason for this was the slowing backlog among manufacturers. On the other hand, the purchasing managers in the services industry were optimistic. The services PMI rose to an eight-month high of 56.5 which was higher than the expected 55.

In France, there was a broad-based slowdown in activity. Data from IHSMarkit showed that the manufacturing PMI was at 52.5, which was the lowest level in four months. Traders were expecting the PMI to rise by 53.3. The purchasing activity in the services industry fell to 54.3, which was lower than the expected 55.2. The composite index fell to a 21-month low of 53.6. For the EU, the manufacturing PMI fell to 53.3 from last month’s 54.6 while the services PMI rose to 54.7 from last month’s 54.4. In addition, the exports from the region declined to a 2-year low. These numbers are an indication of the fragility of the EU economy at a time when the ECB has maintained interest rates at record lows.

The Japanese yen continued its decline against the US dollar even after positive inflation numbers. The numbers from the statistics office showed that the national CPI rose to 1.3%, which was higher than the CPI in July. The decline was possibly due to the low manufacturing PMI. The data showed that the PMI fell to 52.9, which was lower than the 53.1 that traders were expecting. Yesterday, Shinzo Abe got the support of his party, which will make him the longest serving prime minister.

The Canadian dollar rose against the US dollar after the inflation and retail sales numbers were released. The numbers showed that in August, the core retail sales rose by 0.9%, which was higher than the expected 0.6%. The core retail sales number avoids the volatile food and energy prices. The headline CPI for the month was 2.8%, which was in line with the expectations but lower than July’s 3.0%. The core CPI rose by 1.7%, which was higher than July’s 1.6%. Immediately after the data was released, the Loonie rose by about 10 basis points against the US dollar.

EUR/USD

On August 15, the EUR/USD pair ended its previous sharp decline when it landed at the 1.1300 level. Since then, the pair has been making higher highs and higher lows and yesterday, it reached an important level of 1.1800. Today, it traded slightly below yesterday’s high, even after negative data from the EU. After crossing the 1.1750 resistance level yesterday, the pair is likely to continue the upward momentum. The next level to watch in this climb is the 1.1850.

GBP/USD

After rising sharply yesterday, the GBP/USD pair slid today as fears about a no-Brexit deal emerged. Yesterday, the pair reached the important support of 1.3270 and today, it fell sharply to an intraday low of 1.3210. Because of the importance of the 1.3270 level, this resistance was expected. Even with the decline, the pair is likely to continue an upward trend until it reaches the 1.3350 level.

USD/JPY

The USD/JPY pair continued the upward momentum started early this month. Today, it reached an intraday high of 112.98, which is the highest level since July. With the pair’s upward momentum gaining, as evidenced by the momentum indicator, the pair will likely continue moving higher. The next resistance level will be the 113.70 level as shown below.