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US-Sino 'Phase 1 Deal', UK Queens Speech and what else is driving the market

Oct 14 2019, 10:17 PM (+06) |


The Japanese market is closed for a holiday today, albeit it is not a day of celebration, as the nation attempts to recovers after Typhoon Hagibis, meaning “speed” in the Philippine language Tagalog, which struck on Saturday. This is the deadliest storm to hit the country in six decades and more than 110,000 people are taking part in search and rescue operations. 

In the United States, there is also a holiday, Columbus Day, but the stock exchanges will operate as normal. 

Celebrations of the US-Sino Trade war deal have cooled. There has been progress made during the end of last week and this weekend, but the progress must be put in writing which can take up to 5 weeks. There have been positive negotiations between the two sides before, which didn’t have a lasting effect and therefore investors and traders have stalled their optimism. 

The latest headways, that President Donald Trump has called “Phase 1 Deal”, entails the United States cancellation of increased tariff hike from 25% to 30% on $250 billion in Chinese goods, that was to take place on October 15th. At this time there has been no mentions of the next tariff hike in December. China has agreed to buy $40-50 Billion worth of agriculture from the United States. And, the US and China have a currency pact on Foreign Exchange transparency. 

The market is, overall, subdued today, but US Stock futures open slightly lower this Monday with no substantial breakthrough in the trade deal negotiations. Weaker than expected trade numbers highlighted this morning’s economic calendar with Chinese exports falling by 3.2% YoY and imports falling by 8.5% YoY – pointing to the continuation of a global slowdown in trade. 


China wants to continue negotiating in October to finalize the details before President of the People's Republic of China, Xi Jinping, signs the deal. The signing could possibly take place at the Asia-Pacific Economic Cooperation summit next month in Chile. 

The Euro made substantial gains against the greenback last week, breaking above resistance and rising to September highs, in the vicinity of 1.10600. Monday’s doji points to indecision as markets wait for more data. 

In the United Kingdom, Queen Elizabeth II opened the new session for British Parliament with a speech outlining the government's plans, as mentioned by Johnson after the Queen's speech to "get this amazing country of ours moving again". 

Some of the things, mentioned by the Queen, that the government is going to work on are: National Health Serviced, Mental Health programs, Retirement programs and protection against retirement schemes, violent crimes with imposed new, harder sentencing, prison and rehabilitation improvement, education, internet safety, aviation and space programs and legally binding environment policies to help climate control. It was also mentioned that the UK will spend 2% of their budget on Her Majesty's Armed Forces. 

The United Kingdom and Euro Zone are the closest they’ve ever been to a Brexit deal, although there are still major points to be tackled. The Northern Ireland border remains an important issue. 

Parliament will now sit for 5 days to discuss the Queen's speech. The European Summit kicks off on Thursday, where PM Johnson will try to seal a deal before he returns home for an emergency MP meeting to take place on Saturday the 19th of October. With only a fortnight remaining before the Brexit deadline, will this be the only emergency meeting for members of parliament? The market remains to see. 

The British Pound showed massive gains of over 4% against the Japanese Yen in just 2 days, Thursday and Friday, with Monday opening slightly lower, trading below the 50% Fibo level at 136.353.  

The UK economic calendar will shine a light on British employment on Tuesday, CPI and PPI on Wednesday and retail sales on Thursday. This data will take a backseat to Brexit headlines and developments. 

Commodity currencies also traded higher on negotiation optimism, but the Canadian Dollar celebrated more than others. The Bank of Canada is one of the only major Central Banks not to have eased its monetary policy in 2019. Canada’s key interest rate remains at a stable 1.75%. The economic calendar last week also didn’t fail with better than expected Housing Starts (221.2K), upbeat employment (53.7K) and a drop in unemployment to 5.5%. Positive figures point to a healthy economy with no signs of monetary easing in the near term. 

On a 4HTF CADJPY shows us a double rejection to pass below the 61.8% Fibo level at 80.004. The conversion line is pointing up, Base Line is sideways, and we just had a retracement to our local trend line up. Bias is Bullish. 

We recommend waiting for the price to resume movement up, a break above 82.433 would be ideal, with further targets up at resistance 82.923, followed by 83.221. 

If risk aversion returns to the market, the price may return below the global trend line down (since 2018), which is also the 23.6% Fibo, targets down would be at 38.2% Fibo 80.931, followed by 50% Fibo at 80.468.

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