Political factors continue to drive the markets today and will likely drive the markets tomorrow as well. Trade talks resume in the United States today, between the US and China. US-Sino trade talks have a positive tone.
China is ready for a partial deal and is ready to proceed with large purchases of US agriculture and today’s headlines tell us that the US is considering a currency pact, which is an agreement on exchange rates to stop devaluation, as part of the limited agreement. The currency pact was agreed upon back in February before negotiations broke down.
These factors are good for trade talks and may point to the cancellation of next week’s: October 15th, increased tariffs by the United States on China. The next set of tariffs is to take place on the 15th of December, while China has stated that a de-escalation in tariffs is a must to proceed with a deal.
From the United States, we received MoM Core CPI readings for the month of September. The report came in worse than expected at 0.1%, below the forecasted 0.2% and the previous result was 0.3%. Inflation is at a standstill and although it takes a backseat to the political front at the moment, the decline cannot be ignored, which increases the possibility of a rate cut by the Federal Reserve, currently approximately an 85% likelihood, the question remains – by how much?
Initial Jobless claims came in at a better than expected 210K, below the forecast of 215K and the previous fact of 220K, adjusted up from 219K. This is in tune with record-low unemployment rate of 3.5% released last Friday. Upbeat unemployment is great but we can not ignore the big slump in new job creations.
In Europe, PM Johnson is meeting with Irish counterpart Leo Varadkar. This morning Varadkar mentioned that a deal would be hard but not impossible. Later in the day, 10 Downing Street commented that PM Johnson and Varadkar “can see a pathway to a deal”. This also increased optimism that a deal may be reached. This morning, the UK released a declining GDP report MoM at -0.1%, below the forecasted 0% and previous reading of 0.3%. Industrial productions saw a decline to -0.6% and Manufacturing Production declined to -0.7% - both reports came in worse than expected, which may pave the way for BoE monetary easing.
EUR/USD on the Daily TF shows the upward movement of Euro Bulls breaking a key level of resistance acting as the trend line down since the end of June but stalled and failed to break above the resistance at 1.10335. Lower time frames are showing us that the bears are fighting and winning as we see the rejection of higher prices and the price is slowly moving back towards the 1.10 level.
With the current situation, we must keep our eyes and ears tuned to negotiation updates from both sides of the Atlantic. Technically, a move down looks to be more favorable at this time. Wait for the price to move below the 23.6% Fibo level. Targets down are going to be support that coincides with the trend line down in the area of 1.09875, 1.09639, and then 1.09397.