EURUSD and German 30 Index

Storm clouds are gathering as the markets once again open the week at all time highs in US equities. Both the US East coast and West coast are being affected by storms today as holiday makers return from the Thanksgiving festivities. Snow storms are forecast for New York today with up to three inches of snow potentially causing disruption to the Big Apple. Trading on the US Stock markets may be effected later today as markets are expected to reopen after the long weekend. Storm clouds of a different kind are gathering in the US over the China trade deal. The fallout from the Hong Kong Bill is still reverberating around Washington and Beijing. The signing of the Bill has knocked back trade deal negotiations and hardened the Chinese stance, insisting that the existing tariffs to be rolled back as part of the Phase One trade deal. The US plan to scrap the scheduled 15 December tariffs will not be enough for the Chinese, who are demanding the rollback of earlier tariffs as a show of good faith and to relive pressure on the economy. While tariffs are hurting the Chinese economy, the strategy of playing a long game with the US is working as the US failed to enforce a timely and positive end to the trade war. Instead the US is now under pressure, as it fails to meet its demands for China to address the original issues the dispute began with, including IP protection and regulations. The US has now become boxed into a ‘lose-lose situation’ where removing tariffs without substantial gain will be seen as backing down and a surrender, while a failure to close Phase One of the deal will mean that the prolonged trade war will affect the US economy and jobs, creating difficult conditions for the 2020 Presidential Election and stoking anti-Chinese sentiment. Both outcomes will be used by the opposition to highlight the failure by the US Administration to resolve the dispute, and may result in a drift await form support for President Trump, especially among farmers. China has not yet given guarantees on the quantity of agricultural purchases they will make as part of the deal and this is prolonging the uncertainty faced by farmers who are living on subsidies from the US Government. The negative news is being tempered by the short term belief that the 15 December tariffs have been held off. But a failure to secure Phase One has much more far reaching and longer term implications, which may see the trade war, drag out for years. Chinese Caixin Manufacturing PMI rose to 51.8, against a forecast of 51.5, from 51.7 previously. Australian Building Approval fell to -8.1%, against a forecast of -1.0%, from a previous 7.2% which was revised down from 7.6%. Gold has moved down from resistance at 1466.00 to 1459.00 while markets are generally in a risk on mood to start the week, with the Japanese 225 finishing Monday at 23530.00 to close 1% higher.

Manufacturing PMI data releases are set to dominate the calendar today. This will constitute the majority of the morning schedule in Europe. In the afternoon, New ECB President Lagarde is set to testify in the European Parliament. US and Canadian PMI releases will follow in the afternoon.

EURUSD

The EURUSD pair is now trading at the support level of 1.1020 ahead of the 1.1000 level. This area is being tested by traders as part of a consolidation around the round number. Price bounced sharply in the middle of last month from the area but set a high for November at 1.1100 and has now returned to 1.1000 and set a base at 1.0980. 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.

Support at 1.1000/1.0980 may hold to allow the pair to trade back higher to 1.1100 with a view to gaining ground on the chart and engage the lower highs at 1.1178. The price action formed what is an essentially a double top at that level and a break higher to retest this area may open the way for a move up to 1.1200. Beyond this the 1.1282 level might push price up to 1.1300 and produce a test on 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 with general risk on theme but has found resistance at 13300.00 and has consolidated around this level over the last week. The spike higher hit the 13375.00 level. A break 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 created a level of support at 13150.00/13140.00, followed by a spike lower to 13040.00. Support at 13000.00/12990.00 may be used as the price retraces some of the gains and in the event that risk on sentiment softens further. 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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