US/China trade talks move in the right direction (for now)

All right, very good morning, Tuesday 12th of February. I hope everyone is doing well. A quick look across the overall charts and then I'll go into some headlines, a bit of an update on some of the key themes from Brexit, threat of a government shutdown in the US-China trade talks, and then I'll hand you over to Sam and he'll look at the charts from a technical setup. But as you can see, we've had some moderate downside in both major currency pairs in the top left EURUSD just having a brief threat beneath that 113 handle. You can see here, which was a retest of the, the session low that we had, uh, kind of yesterday evening in terms of European time in the futures space. Cable though also softening a little bit after rejection around the pivot and the 129 handle. So the one kind of common denominator here from the currency move is dollar appreciation. And with that being said, just wanted to show you this graphic here. This is the US dollar now, has had its longest rally since January of 2016. So I think it's the 8th day of gains now. Thinking about this, really it's, it's a twofold thing from a fundamental perspective. One is, now this chart quite interestingly encapsulates the beginning of the year. Now if you remember at this point when the dollar was at its peak, this was when the stock market was tanking. This was coming on the back of that uncertainty around the Christmas period because at that point the Fed had been staying the course, we're going to hike 2 times and that's final. What happened at the beginning of the year, I think it was the 3rd or the 4th of January, that of course is when Jerome Powell, the Fed chair, came out and made quite a spectacular U-turn to start sounding dovish to the point of which intonating towards a Fed pause rather than the 2 rate hikes which their official projections would indicate. We then saw a dramatic decline of the dollar over that period as that was repriced in over those few days, and if anything, we hit the lower bound of that right at the end of January. However, since that point, I think you've had a degree of— now people are kind of used to the idea now of the the Fed's new direction, part one. But part two, you've had further deterioration in some of the European economic data, kind of encapsulated by the fact that at the heart of this, of course, Germany being so critical to the economic prosperity of the euro area— German factory orders, quite a big miss. You've had the European Commission downgrading their growth forecast. And then on the other side of this, obviously you've got big tail risks for Europe. Because Brexit remains unresolved. And we've seen that as well translate into weaker, uh, not just weaker present UK economic data points, but also forward-looking expectations given the uncertainty surrounding the outcome of Brexit. So if anything, weaker euro, weaker pound, and it's helping the dollar recover at that point. So when we're looking at it this morning, I know a few people were just saying caught a little bit surprised by the, the weight of which that euro came down this morning. But I do think it's just a continuation of what we have been seeing, which is a more a dollar strength story against the fundamental deterioration of what's happening in the European area and in the UK as well. The biggest thing being the issue Brexit. One thing that you can look at if you're trying to gauge it from a, I guess, momentum perspective. If there was a news headline that was driving some of that euro weakness this morning, then basically what you would more likely see is quite a definitive candlestick print where the price has moved to A to B in quite a dramatic and fast fashion. That really wasn't the case. It was a graduated move. We hit those— that 113 handle, which is to the tick the low from yesterday, and you can see a little bit of an extension on that wick as some light stops just being run. On the longer time frame, I mean, I'll let Sam really delve into this in a bit more detail, but there's, there's obviously a prevailing trend line that's been in play for the euro. You can see here on a 90-minute, if I switch back, for some time, and that's still holding at the moment. Obviously we could just draw that out a bit further to here. Which has been working quite well over the, the recent month, or last 2 weeks I should say. So yep, not really too much I'd read into that, and, uh, to be too spooked by the move. It certainly wasn't a news headline that drove it, just a continuation of a trend is the best way I can put it. Otherwise, we have got European and US equity index futures slightly higher. The DAX up about 100 points. You got the NASDAQ and the, the mini S&P futures on in the center and center right. So as a consequence, fixed income futures lower. T-notes down about 3 ticks and the Bund's down about 22 at the moment. Uh, and oil also catching a bit of a relief. So if anything, apart from, from a risk profile, uh, the one thing I'd say is gold is kind of bucking the trend because that's actually up about $3. But I guess if there's any positive signs on a trade development, well then that, you know, could lead to— I guess not from a risk perspective, maybe a physical demand side, but it's a bit of a stretch. I'd say gold just breaking the kind of correlation mix of what otherwise is a relatively risk-on environment. Higher equity prices, we've got a bit of a bounce in oil demand for commodities. If China's economy can remove the tail risk of an economic hard landing, then that's a positive for those kind of base metals and energy products from the demand side. So on that front, what is exactly happening? And, and this is what some people are looking at, and it's comments yesterday from Trump that he does now want to meet with Xi Jinping, the Chinese president, very soon over trade war. The two could get together in March This obviously comes after he had actually said he's not willing to meet this month ahead of those March 1st deadlines. But he did have a political party rally yesterday, and actually he was fairly soft with his messaging on China. In fact, he said he doesn't want China to have a, quote, hard time, and actually he wants to meet the president because he wants to get a deal done. So maybe this is a little bit of that relief that's reflected on asset prices this morning. Obviously, this is the critical macro theme, and an aversion of the tariffs kicking in and the whole situation between the two countries escalating would be a massive crisis averted and would move back distinctly into a risk-on environment if that were the case. So, we've definitely not got to that endpoint yet, nowhere near that, but obviously this is a positive step in the right direction for now, and it comes as the Trade Secretary Lighthizer and the Treasury Secretary Steven Mnuchin meet with their Chinese counterpart Liu He, who's the Vice Premier of China. And that's happening, those talks, on Thursday and Friday. So yeah, latest on that, it's been quite interesting. I did see this graphic, Tommaso was looking at this this morning, and I thought this could just add a layer of context as to where we are with the trade tariffs and and what the looming kind of stick that Trump has been waggling, if you like, to threaten the Chinese. And you can see here why the Chinese themselves would want to get a deal done, or at least some kind of compromise to make Trump go away, because of the net consequence that these actions can have on Chinese GDP. Now let me explain briefly what we've got with this graphic. The white boxes are the ones of which have already been implemented. So remember, the tariff levels have, uh, got increasingly larger, at least as a threat. Now, he's done 50 billion twice. The part that's been put on ice at the moment through the trade truce is the 200 billion, of which then those import tariffs would go from 10 to 25%. Now, if that was to go through, that would have a a calculated effect of 0.5 percentage points on Chinese GDP. Now, if then that was to go through, that takes the cumulative value then from what has been put on ice at $250 billion in total. Beyond that point, Trump has already threatened an equal-sized additional $250 billion, of which then, if China were to respond in kind, He's then said he would do another $267 billion on top of that, which would be over half a trillion dollars of tariffs, which would have a 1.5 percentage point GDP impact on a country like China, who tracking at the moment in the mid to low 6 percentage digits, a knockdown to 5% would be incredibly worrying for them, uh, given historical growth rates. Couple of things, I think, overview, I think, of this. I think Trump, with lack of a better phrase, I think Trump has fired all of his bullets a little bit too soon because he actually came out with this multi-step threatening behavior. I think he just got a little bit ahead of himself, got a little bit excited, and what you, you know, you don't want to do is give away and show your hand too quickly. And I think he slightly did that. This was probably about 8-10 months ago now. So, but it does put out there on the table the kind of, you know, whilst you're negotiating with China, if you think about it the other way, if you follow through Trump's thinking, you've got an almighty big axe on the table saying, look, you need to do something here, otherwise, you know, the storm is coming. You know, you know how Trump rolls. But the threats here are such a magnitude that there would be a meaningful impact onto the Chinese economy. So is now that point of which a deal needs to be done? That's the point of which we're looking at. So continue to look out for any movement on this regard, but I would say it's probably likely to be the latter part of the week when we'll get more clarity on this situation. All right, the other thing, um, that's drawing a bit of attention this morning, uh, you might have read about that there's been a tentative deal on border security reached in order to avoid what we were talking about in the briefing yesterday, which was the threat of another potential government shutdown at the end of the week. Now, the Democrats have made a bit of a compromise on their side, which has been kind of twofold about this idea on— I think it's about the detention process of which happens in immigration. But they've also said to Trump, well, this can include $1.375 billion worth of funding for your border wall. Which is obviously well short of the $5 billion that he originally went after. But is this just then a classic kind of Trump situation where he's gone in big and he gets a compromise which is $1.375 billion more than he would have had in the first place? So in net effect, he actually gets quite a bit out of this. So the initial feelings here is that Trump, when he spoke at the rally last night, didn't aggressively refute this situation or offer from the Democrats. So it's looking fairly positive that this might be accepted, at least again in the short term, in order to facilitate the government functioning and not shutting down. Moving on to Brexit, and I can see now, just before we get on to Brexit, cable's just had another little push on the downside. So we're just having a, a test here of the print that we had last night. So you can see on the top left, the euro's already gone through that level now at 13, uh, probably targeting down at the S1 level, which is 112.84 in the future. This cable, just keep an eye on that as I'm delivering this briefing. Uh, an extension of that break, well, let's have a look if we go beyond there. Where does that lead us? I guess we've got to go a little bit further back in time here. It's broadening the chart horizon out. Yeah, fairly influential level here for different reasons. You can see here here, here. So a break of this level could well lead to an extension of some selling pressure in the pound just while I'm speaking. So I'll keep that chart there visible for a moment. The other thing we're looking at is Theresa May. She is going to be speaking in Parliament later today to debate the deal of which she's been trying to negotiate with Europe. We know the stance of this, the stance being that she's made no progress Europe are not budging at this point. This is all the precursor to then the lead-up to Thursday, which then she goes back to the MPs in Parliament, and they're likely to give her an extension of a further 2 weeks to negotiate still on the same point of the legally binding issue of the backstop, Northern Ireland. And so nothing really has changed too much. There was a meeting though of the Brexit secretaries, so Barclay met Michel Barnier last night But Barnier has stuck to the European message of basically, um, it's up to London to provide further clarity on the next steps. It's not Europe's job to do that, and Britain obviously not forthcoming with any credible solution as yet. So that's how things remain at the moment. Um, just because the market is seeing some movement, I'm not going to talk about— I was going to talk about this in YouGov, but what I'm going to do is I'm going to pop the link into the chat room but let you guys have a read in your own time. Now, I read this this morning, a few people were talking about it. This is a YouGov poll of 40,000 people, so that's a large sample size, and it was using the same basically mathematical and technical models that were used to— that YouGov correctly foresaw the 2017 hung Parliament. And basically their net results have the Conservative 5 points clear of Labour but only gaining 4 seats, which essentially renders a general election absolutely worthless for the Conservatives to pull the trigger on. Hence, when you've got the multiple outcomes that you could have for this current Brexit situation, whether it's an orderly Brexit, second referendum, general election, renegotiation under a Norwegian-style format, whatever it might be, the point being here is that a general election, I think, is a very unlikely probability at this point in time specifically for these reasons. I think absolutely there's just too much risk on what the outcome could be that would certainly, uh, likely backfire on the Conservatives who have at this point at least, albeit a shaky one, a working majority. Now this quickly, just to summarize, and again as I said I'll let you read it in your own time, what's quite interesting is we're seeing a continuation of this kind of, uh, dissatisfaction with the establishment, which is the two major parties obviously in the UK that being Conservatives and Labour. And actually what you're seeing is quite an outflow of support from the two traditional parties, and actually you're getting a pickup elsewhere— Liberal Democrats, even UKIP, and the Green Party picking up some of those dissatisfied voters. So this is the kind of 2017 vote to a predicted vote if we were to have it today from that data sample, and you can see there's a bit of an outflux from the traditional parties into those where Basically, people are just tired of, um, the situation and want an alternative view. Not that those parties would have any serious clout, but just quite an interesting development. All right, let me hand you over to Sam because things are moving and I want you guys to be appropriately armed with the relevant technical levels and so on. So that's it from me. I know, pretty brief, but any questions, just let me know in the chat room, and I wish you a good day. Thanks very much.

Hi guys, good morning. Yeah, things are picking up a bit. The dollar, strongest level for quite some time. We'll start with the pound as it's coming to a very interesting point, and you know, we've got to be watching where we close the day today. But we're having a little go at trying to break this area, and you can see Ant's got it marked up here. A big push down the pivot, obviously acting as good resistance to day. But with this dollar strength and the uncertainty again around the Brexit situation, a good opportunity to, you know, got short the last few days and we're, we're pushing through here. You've also got that Fibonacci we talked about yesterday from that 2019 low to the high— that 2018 low, no, 2019 low to the high— and around that 50%, we're sort of breaking through that as well. So the dollar coming up to strongest levels we've seen for quite some time, and the pound would come in lower. If we were to close below these— this, this sort of horizontal line we got on around 2866, then, uh, it could really be a continuation for quite some time. And the euro you're seeing here, if we have to put this on a daily chart, and we're the lowest levels we've been for quite some time— I know this is just merging those contracts together But really we're looking at the next sort of target, I would say, is the sort of 28th of November low on that futures, which isn't too far away, not far from today's, or just below today's S2. So I'd be looking to target, or S1 I should say, anyone that's still short, that's an obvious good target to have in mind. Also, you're seeing a continuation to the upside in the, the dollar-yen highest levels we've seen for, for quite some time. And, you know, the, the people that I know are on a lot of a longer medium-term trade here, you know, got a real sort of nice target up at the sort of end of December highs, which were not too far away. And that's just continuing to push on and on. And really, as long as that stays above this, I guess you could have potential trend. You've only got the two touches, but As long as it stays above that, you'd feel quite confident in having that position on. And maybe a sort of a shorter-term trade could be if we were to retest this resistance of the 4th of February, around there. Aussie dollar, same sort of thing in that we have continued to push lower over the last few days. That trendline break was obviously quite significant. Couple of half-decent opportunities opportunities yesterday to, to have got short in the Aussie, the pivot, uh, a good one into the back end of the day. Also early on, you'd have to be, you know, at your desk this sort of time in that retracement from the, the low of the day, came back, good opportunity to get short. So would be one that I'd be looking out for again, is it's just maybe a continuation of any dollar strength. Obviously we had to push higher in the, in the morning, so with any market that has been in a downtrend but there's a sort of recovery. I always like to get on a trend line like that, and this is great, isn't it? You've got your one, you've got your two tests, the third on the pivot. Ideally, I'd like to see this go a bit higher, uh, and then get the breakthrough retest back to then come back down like that. So if we get that third test here and a good area of support, good opportunity in my eyes to get short. And then you've got the obvious targets of those lows that make up that trend line. Elsewhere, oil— I posted this in, in the chat— we're at a quite an interesting level where— or almost, I should say, at quite interesting level where the bulls will be getting quite excited. You've got the high of the year trend line that has broken this morning, came back to retest that as well as a bit of the high from last night, and But to the upside, key resistance really could be a zone, can't it? That with the $33 that we talked about yesterday, got the R1, got the low from the 7th before the breakdown, the high of the 8th, and really the top of today's, uh, trading as well. So key level, just going to shade that in, that I would be aware of for oil. And if that does break, yes, we've had the big trend line break, and that was really the reason equities came down last week as well. I really do believe that then well, equities can start to push on. And we had a good day for the DAX yesterday and a good recovery into sort of early trading this morning for the S&P. And we're almost looking back at the, the high of the year, unbelievably. Um, you know, we had a day on the 7th— so what would that have been, the 7th, Thursday last week— where Twitter was starting to get excited again. But this market just wants to keep grinding higher and higher. And, um, oil pushing above that trend line or confirming a break above that trend line and above 53 will obviously be hugely beneficial for that. Targets to the upside remain that trend line, but before that, if we just get it on the 200-day moving average, which, uh, I'm sure people will be familiar with trading this market, we're not really too far away from that. If we have a you know, another sort of couple of days like this, we'll, we'll be there testing it. And a bit of a holdup, uh, that we saw on the, on the 5th last week, so last Tuesday, where we started to come back down, and it was in the media, everyone was talking about it on the, on the wires. And really, the sort of a self-fulfilling prophecy is an area of resistance at the moment until we perhaps get a break of that, that line in the sand. I still say is the, the 12th of December high. That is obviously now the support level. We couldn't close above there on the 2 days we tested it. So a bit of a mini range, um, to be aware of. 50 points from that low to sort of the high of the year so far that you definitely want to keep an eye on. Just having a quick look at the outlook of markets this morning. As I mentioned, we were moving in terms of the dollar quite significantly. However, as you see, gold was continuing to push higher. Uh, which has been, uh, you know, market heavily correlated with that dollar. You are starting to see it come down a bit from that R1, so that correlation is starting to come back into play a bit. Um, but yeah, keep an eye on, on gold. And if you are looking for that $1,300 handle to get tested, not a bad little trend line to have on there. We've got 1, 2, 3 tests and the potentially the pivot. And by the time it comes back pretty previous high of the day. If that was to go, that could be the, the opportunity to sort of get short on that. And you can see the, the level we tested yesterday, really strong area of support around there, holding up 1308. Around that area we had a further push through on the 28th of Jan as well. So definitely a key area for gold to keep an eye on in this sort of new range that's developing as well. So a couple interesting levels. Obviously pound, keep an eye where we closed the EUR lowest levels for quite some time, but not too far away from some interesting support. Oil $53. Aussie dollar, I would prefer to see that pivot go. Uh, dollar-yen's got a bit of a perhaps room to go, or yen-dollar, whichever way you're looking at it, before you come into some big resistance or support depending which way you look at it. Again, the DAX continuing to push on here, obviously helped as well by the weaker euro. To that correlation coming into play at the moment. And the Bund kind of on the high of the day as well. Any questions, as usual, please let me know. We'll be running through some of the trades the guys have done around sort of midday and into the back end of the sessions. But if I don't speak to you, hope you have a great day and catch you later.