EURUSD and German 30 Index

After a breakthrough in trade talks between the US and China late last week, the market has held onto most gains this morning as it begin a new trading week. There has been mixed trading in Asia, with the Japanese 225 closing 0.29% lower, while the Hang Seng is trading down around 0.4%. The Shanghai Composite meanwhile is trading up 0.3%, after Chinese Industrial Production data came in at 6.2% against a forecast of 5.1% from 4.7% previously. Chinese Retail Sales also outperformed at 8.0% beating the forecast of 7.6% and the previous read of 7.2%. The US-China Phase One trade deal seems to be having little impact on the session so far, with the worry that the good news is fairly price in already. The reaction when the news broke was a move higher in risk assets as well as Gold. The USD moved lower as there was a sense of disappointment with the details, on the one hand there was not enough detail and on the other, the facts fell somewhat short of market expectations. Much of the rally following Christmas 2018 was based on the US and China creating a trade deal and removing tariffs, and there is a lot of the current scenario already priced into the current market structure. US stock futures are at fresh all time highs as of Friday and have remained close to those levels as we approach the European open. The positive sentiment may stay in the minds of traders for some time as they prepare for the end of year moves. US Trade Representative Lighthizer spoke over the weekend saying that the “hard-won trade deal” is “totally done”. The China Statistics Bureau has said that China and the US should continue talks towards removing tariffs. They added that the Phase One trade deal helps to improve market expectations. The positive mood has also been felt in the UK as the Conservatives gained seats in the House of Commons. The party can now form a majority government and push through its Brexit deal already agreed with the EU. The EU has made comments over the weekend that the upcoming trade talks won’t be easy and may become a drawn out affair. This is despite claims that the UK will not seek an extension to the transition period, allowing for the future trade agreement to be negotiated by July 2020. There is for now a sense of relief that the future is somewhat certain and that the UK will leave the EU in a set time period. This has brought certainty to markets, which has been somewhat lacking over the last three years. The GBP gained last week with the GBPUSD pair moving up from 1.3100 to 1.3514. This move retraced to find support around 1.3305 on Friday and is now trading higher around 1.3395, testing 1.3400.

This morning Flash Manufacturing PMI data will be released for France, Germany, the UK and the Eurozone. In the afternoon, Flash Manufacturing PMI data will be released for the US. The Bank of England will release its Bank Stress Test results and it’s Financial Stability Report.

EURUSD

The EURUSD pair bounced from the support level of 1.0981 at the end of last month and found resistance at 1.1200 on Friday. The price then sold off and is now trading at 1.1144. Price has now set a base at 1.0980 in the short term and for this to be retested the 1.1100 area may be broken followed by 1.1040 and the 1.1017 level. A loss of this base and the 1.1000 level may open the way to potential support at 1.0964 followed by 1.0928. Below this the 1.0900 area may also be used as support followed by the low from October at 1.0880.

The building of support allowed the pair to trade back higher to 1.1100 with a view to gaining ground on the chart and engaging the lower highs at 1.1178. The price action broke the double top at that level and a broke higher to retest the 1.1200 level. Beyond this the 1.1282 level may be used as resistance followed by 1.1300 and then the 1.1346 area. The highs around 1.1400/1.1450 have been used to prevent further test into higher levels.

German 30 Index

The German 30 Index has also been moving up with the general risk on theme but has found resistance around the 13300.00 level. Price action broke out higher last week and found resistance at 13458.00. Price has since moved back to the 13330.00 area. A break higher above this area may target the 13500.00 level but the previous all time high for the index was recorded as 13600.00 and this is now the level that market participants will be closely watching. A breakout of this area constitutes a new high and may push price into 13750.00 and potential set the index up for a test of the 14000.00 round number.

Price action has potentially created a level of support from the 13200.00 area which was used as resistance last week. A loss of the 13300.00 level may open the way for a test on this level followed by support at 13000.00/12990.00, which may be used as the price retraces some of the gains and in the event that risk on sentiment softens following the trade deal. A loss of support may test the higher low at 12792.00 followed by the 12600.00/12660.00 area. The 12500.00 area was used as resistance in September and a break back under this level opens the way to 12180.00 and 12000.00 followed by the October low at 11820.00.

Phillip Konchar

Core Spreads

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