Trade Hopes Boost Markets Ahead of Busy Week

The US dollar is mixed against major pairs on Tuesday. The President’s day holiday in the United States kept trading volumes low but major stock indices recorded gains ahead of the first trading session for North America.

The American currency has retreated as trade war optimism has softened the greenback against other currencies. The Fed put downward pressure on the greenback with its decision to pause its rate hikes until economic indicators improve. This week the central bank will publish the notes from the January meeting with investors eager to review the full dovish rhetoric from Fed members.

GBP – Pound Higher on Temporary Backstop Comments

Brexit headlines guided the pound higher after French President Emmanuel Macron said that the Irish backstop is temporary. The backstop has prevented Brexit talks to move forward and with a fast-approaching deadline there needs to be concessions from both sides to avoid a no-deal Brexit.

The backstop concession could make the UK parliament vote on the agreement and move forward to a coordinated exit from the EU.

The news of the Honda plant closure in Swindon is a good example of how the phantom of a no-deal Brexit is having a negative effect on the UK economy. The EU and Japan have struck a trade deal leaving UK plants fighting for their jobs, as 90% of the Swindon’s manufacturing went to the EU.

OIL – OPEC Driving Oil Higher Despite US Production

Oil prices rose on Tuesday with the dollar failing to gain traction on the President’s day holiday. The market is optimistic that the US-China trade talks will end the tariff war between the two largest economies. OPEC and other major producers have done their part to stabilize prices by limiting output. Disruptions in crude supply have also taken prices higher despite the United States ramping up production levels and softer global demand.

West Texas Intermediate graph

US-China trade talks head to Washington after the Beijing meeting resulted in positive comments, but as the March 1 deadline approaches more details are needed if Presidents Trump and Xi are to deliver a breakthrough announcement in the short term.

A weak dollar, with a positive trade talk outcome will continue to push crude higher, especially if OPEC+ compliance remains on track.

GOLD – Gold Higher on Safe Haven Flows

Gold rose on Monday and continues its upward move as the metal is well positioned as a safe haven with rising global uncertainty. The US and China appear near a trade deal after a tariff war caused global growth forecasts to fall. The US dollar was sold off as there was no need for the currency to hedge, yet with Brexit and the political rift in Washington has propelled gold higher as part of investor’s portfolios.

The Fed will publish its minutes from the January FOMC meeting where more dovish comments from members are expected. The US central bank hit the brakes on its tightening of monetary policy after a market sell off in December.

Gold is trading at $1,326 and could hit $1,400 if macro risk events increase investor appetite for the yellow metal as a safe haven.

STOCKS – Market Confident US and China to Reach Deal

Chinese equities traded higher on trade talk optimism as negotiators head to Washington for a new round of talks ahead of the March 1 deadline. Although US president Donald Trump said that a meeting with President Xi might not happen before the deadline, there has been progress and an extension of the deadline as well as no tariff increase are options at the end of the month.

Investor sentiment has improved as global stocks rose as the two biggest economies appear close to an end of retaliatory tariffs.

The Fed’s minutes will be closely watched for insights into how dovish members of the FOMC really are after the central bank has decided to pause its pace of rate hikes for 2019 after hiking four times in 2018.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza