Global stocks rise as US-China deal edges closer

Global stocks rose today after indications that a trade deal between China and the United States will soon be reached. In multiple reports during the weekend, unnamed sources said that China had agreed to increase the purchases of American goods while US had agreed to remove the tariffs it had placed on Chinese goods. China has also agreed to implement some structural reforms in its economy although the scale has not been revealed. It is expected that the deal will be signed within weeks. However, a close look at the information shows that not much will change because it will not address the key structural issues the US had demanded like the forced technology transfers. In China, the Shanghai and Hang Seng index rose by more than 1%. In Europe, the DAX and Stoxx rose by 0.25% and 0.40% respectively. In the US, futures pointed to a higher open, with the Dow and S&P gaining by 0.35% and 0.30% respectively.

The sterling declined today as the UK released weaker housing numbers than earlier expected. The construction PMI declined to 49.5. This was the lowest level since March last year and was below the consensus estimates of 50.6. A PMI reading of below 50 is usually an indication of contraction. The reason for the slowed growth in the sector is that managers are still worried about the uncertainties brought about by Brexit. This is because less than a month before the country is scheduled to exit the EU, no one knows whether there will be a deal or whether there will be an extension.

The Aussie was little moved ahead of tomorrow’s interest rates decision by the Reserve Bank of Australia. The RBA is expected to leave rates unchanged at the third meeting of the year. The current rates are at 1.50%. Investors will look at a number of things in the accompanying monetary policy statement. First, they will look at the outlook of the Australian economy. Second, they will look at the ongoing housing crisis in the country that has seen prices decline. Third, they will look at the impact of the slowing down of the Chinese economy on Australia. Finally, they will look at the impact of the ongoing drought on the economy.

AUD/USD

After rising sharply in the morning, the AUD/USD pair pared gains but remained higher than Friday’s close of 0.7070. The pair is now trading at 0.7088, which is slightly lower than the high of 0.7107. On the 30-minute chart, the pair is consolidating along the 21-day and 42-day EMA. The RSI has moved slightly higher at the current level of 50, while the signal line of the stochastics is trading close to the overbought level. There is a likelihood that the pair will be on a holding pattern before the RBA statement tomorrow.

EUR/USD

The EUR/USD pair declined sharply today to a low of 1.1327. This was the lowest level since February 22 and was also the 50% Fibonacci Retracement level. On the hourly chart, the price is below the 21-day and 42-day EMAs while the Average True Range (ATR) indicator has been showing increased volatility as shown below. The parabolic SAR shows that the pair could continue moving lower. If it does, traders should watch out for the 1.1300 level, which is also the 38.6% Fibonacci Retracement level.

GBP/JPY

The GBP/JPY pair declined slightly today as traders continued to wait for a clear direction on Brexit. The pair is now trading at 147.47 level, which is slightly below the YTD high of 148.65. On the daily chart, this price is below the major short and medium-term moving averages. The RSI has moved above the overbought level of 70 while the Average True Range (ATR) of the indicator has moved slightly lower. There is a likelihood that the pair will continue moving higher although this could change depending on the news of Brexit.



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