This morning, Emmanuel Macron and Donald Trump both confirmed that they have agreed to refrain from punitive tariffs in response to the growing trade dispute. While Boeing and Airbus government subsidies have been a point of argument between the US and EU for some time, the recent taxation of digital firms (Amazon, Google, Apple, etc) have only increased the tension. Under this new agreement, the OECD will come up with a taxation standard for digital firms, which is likely to be more palatable to a US audience than a unilateral EU response. The tone of the communication is also important. The message from the French President was far more enthusiastic than Donald Trump’s tweet on the matter, who confirmed the agreement in very muted terms. This suggests it is not the end of the story, but in the meantime, it is good to see another sign of easing tensions.
Bottom Line: Another positive sign also came out last night when the Bank of Japan revised their 2019 and 2020 growth forecasts. Though no one really expects their policy to change as a consequence, it is one of several subtle signs that global growth has bottomed. A few minutes ago, the UK also released upbeat Average Earning Index and Claimant Count Change, quieting worries of a wholesale consumer downturn.
With little data to move the market, Sterling traded in a tight range against the Greenback throughout yesterday’s session, ebbing below 1.30 in the morning before posting a recovery in the afternoon. Today’s UK jobs data is likely to give the Bank of England food for thought before their upcoming meeting next week. Any break above the 50-day moving average, currently around the 1.3040 level, would be a significant bullish indicator for further Pound gains.
The current low volatility environment and a lack of data releases meant that the Euro’s trade weighted index was pretty much flat throughout yesterday’s session. For the currency pair, there was some support around 1.17, after a failure to break meaningfully below this mark.
Yesterday was a relatively directionless day for the EUR/USD pair, with the Euro finding resistance at the 50-day moving average. Looking ahead, markets will hope that today’s German ZEW economic sentiment survey for January will provide some meaningful price action.