Changing the third horse mid-stream
Today's news headlines:
‘Bolton wore out his welcome at Trump’s White House’. John Bolton, the President’s national security adviser, has been dismissed after Trump revealed that he disagreed with many of his positions. Bolton, who served for 18 months and is the third appointee during this administration, was a well-known foreign policy hawk and may indicate a shifting policy view in the oval office. (Financial Times)
‘China suspends import tariffs on some US goods’. Following last week’s announcement about the resumption of trade talks between the US and China, the Chinese government has signalled tariff exemptions on 16 types of US exports. (Financial Times)
‘Investors bet ECB’s next steps will strengthen Euro’. Market expectations for tomorrow’s European Central Bank policy announcement have climbed to such an extent, that anything short of a 0.15% cut in deposit rates and additional asset purchases could cause the Euro to appreciate. (Financial Times)
Last night, Donald Trump sacked National Security Advisor, John Bolton, who was a notable hardliner on various geopolitical issues such as the US tensions with North Korea and Iran. While his replacement is yet to be announced, this provides the administration with a valuable opportunity to soften its stance without losing face. Meanwhile, Chinese officials announced exemptions on US tariffs, including 16 categories of products, which will be effective from September 17th 2019 for one year, with more exemptions to come. This auspicious series of events could add to market sentiment which has subtly turned in recent weeks and could fuel further capital flows into riskier assets, such as equities and emerging markets. October’s meeting at the negotiation table is still weeks away and, as we have mentioned this year, hopes of a US-China trade solution remain fragile.
Bottom line: While headlines have spurred investor risk appetite, central bank announcements over the next two weeks are critical to the continuation of this theme. Markets have been positioning for significant monetary stimulus, and failure to deliver could unwind the risk-taking that has occurred recently. The trade hopes are not so bright that markets are pricing in an increased pace of global growth, which might otherwise make monetary policy action less urgent.
There has been very little movement in either Pound or Dollar indices over the past several sessions, meaning the pair has traded sideways. There’s potential for a large Dollar movement as a by-product of tomorrow’s ECB announcement.
Similar to Cable, there has been virtually no movement in this pair heading into the ECB event tomorrow. The Euro is currently sitting at the bottom of the trading range while the Sterling Index has gradually lifted off the 50-day moving average, heading towards the 100-day. The focus is entirely on headlines with little in the calendar to excite the punters.
Unsurprisingly, EUR/USD is yet another flat pair this morning. Despite the lack of movement, the building tension is palpable. The ECB meeting is upcoming, and the US-China trade narrative seems to be gaining momentum, so this seems like the quiet before the storm.
All content is written by the Global Reach Trading Desk. The opinions expressed are not the view of Global Reach Group and are not intended as investment advice.