Global stocks soar as US and China reach a trade deal
Global stocks soared today after it emerged that the US and China had reached a deal in principle. According to the Washington Post, Trump has accepted a preliminary trade deal that will see China commit to buying agricultural products worth more than $50 billion, commit to intellectual property protections, and improve access of American companies. The Post cited sources in the White House and Michael Pillsbury, who spoke to Trump early today. The news report came a day after Trump tweeted that a big trade deal would be announced. The new deal means that the $160 billion in tariffs that were supposed to take effect on Sunday will be delayed. Washington has also committed to lower some of the earlier tariffs.
The sterling soared today after the UK concluded its election. The election provided a landslide victory for Boris Johnson. The conservative party won 364 seats while the Labour party won just 203 seats. This was the biggest electoral victory for the conservatives since 1987. The market hopes that the majority party will now be free to pass a decisive Brexit vote. In addition, Boris Johnson has said that he will slash corporate taxes and negotiate a broad deal with the United States. The country has gone through a challenging period as it became increasingly impossible to pass laws in a hung parliament. The market will now be watching at how the BoE reacts when it meets next week.
The Japanese yen declined sharply against the USD as global risks appeared to ease. Trade and Brexit have been among the biggest global risks in 2019. Also, the risk of a US government shutdown ended after democrats and republicans made a deal. Meanwhile, the market reacted to relatively mixed economic data from Japan. Data from Tankan showed that all industry CAPEX rose by 6.8% in the fourth quarter. This was higher than the 6.6% gain in the third quarter. All small industry CAPEX declined by a small margin of -2.2%. Meanwhile, the large non-manufacturers index declined from 21 to 20. Data from the statistics office showed that industrial production declined by -4.5%, which was worse than the expected decline of -4.2%.
The EUR/USD pair rose today in reaction to the UK vote. The pair reached a high of 1.1200, which was the highest level since August 2019. The price is above the 28-day and 14-day moving averages on the four-hour chart. The RSI has moved up slightly and is along the overbought level of 70. The momentum indicator is above the 100 level. There is a possibility that the pair may see a slight pullback because it is in an important resistance level.
The USD/JPY pair rose today as global risks appeared to ease. The pair reached a high of 109.72, which is along the important resistance level. The pair had just formed a strong triple bottom pattern. The price is slightly above the 14-day and 28-day moving averages while the RSI remains above the overbought level. While the pair may continue to rise, such sharp moves are usually followed by a pullback.
The GBP/USD pair rose to a high of 1.3510 after Boris Johnson won the election by a huge majority. The pair has since declined slightly and is currently trading at 1.3385. The price is still above the short and medium-term moving averages. The RSI has fallen from the overbought level of 70 to the current 65. In the medium-term, there is a possibility that the pair will continue moving higher. However, in the near term, there is a likelihood that the price will move lower, to fill the gap that was formed earlier today.