Today's news headlines:​​​​​

• ‘US yield curve sends strongest recession warning since 2007'. Yesterday, the inversion of the US yield curve—which is used as an indicator of upcoming recession—sent its loudest signal that recession is looming as the spread on the three-month and 10-year yield reached its widest level since March 2007. Recent fears have stemmed from rising US-China trade tensions, poor German industrial production data, the growing likelihood of a no-deal Brexit and interest rate cuts from central banks around the world. (Financial Times)
• ‘The inside men who Johnson may tap for a more understated BoE'. Bank of England Chief Mark Carney is due to leave the UK central bank in January, and Boris Johnson's government is tasked with appointing Carney's successor. A likely option would be to appoint one of the three deputy governors who, according to economist Samuel Tombs, are all less outspoken than Carney and would be 'a safe pair of hands, and not get too much in the government's way'. (Bloomberg)

Panic over

Risk-off conditions have dominated markets since the US announced a series of new tariffs on Chinese exports. Investors worried about the global growth outlook have flocked to the safe-havens of gold, government bonds and the US Dollar or Yen, abandoning emerging markets in the process. The Chinese reaction to the new tariff threat, a devaluation of Renminbi through the key seven level spooked markets even more. Certainly, markets haven't forgotten that one-off devaluation in 2015, which triggered large-scale capital outflows and highlighted concerns over the People's Bank of China's capacity to manage the exchange rate?

The PBOC has learned since then; immediately following the breach, it communicated a very conservative path for the currency. This morning again, they have reemphasised the conservative approach to fixing the onshore variant of the currency, which was above seven but inside of market expectation. Fears surrounding Chinese weaponisation of the currency are starting to abate. Another point of tension in markets has been the decades-old antagonism between South Korea and Japan, which resulted in Japanese trade restrictions. This morning they announced some of those limitations had been lifted—a sign of amelioration in the dispute.

Bottom line: With an easing of some tensions and little noteworthy data released in the backend of the week, it's possible positive market sentiment might be sustained through the weekend. As you might expect, the risk-on shift has weighed on the Dollar, although the Greenback is still near multiyear highs. Hopefully, someone at the White House can disable Trump's Twitter for a few days, and we can gain some forward momentum before the next barb is loosed. Although in small steps, the tone is changing, for the better.

GBP/USD

The pair continues to be bound between the 1.21 – 1.22 region as Brexit news has died down. The Dollar Index remains above the 200 daily moving average following last week's dive towards the key level. Low volatility can be expected in the short-term as key economic data is light today.

GBP/EUR

The Pound has traded flat recently meaning the Euro largely dictates movement in the pair. The recent Euro rally has pushed the pair towards the 1.0745 two-year low. In yesterday's session, the pair tested 1.0811 for the second time in three days and looks more likely to continue to trade heavy in the short-term.

EUR/USD

EUR/USD has pushed through 1.12 following this month's rally and now finds support at the big figure. While the economic data provides little motivation for a continued Euro rally, recent rising US-China trade tensions continue to support the Euro in the short-term.