European open – Trade deal, Brexit, gold, oil

Christmas Gift or Exquisitely Wrapped Lump of Coal?

European stocks are a little lower on the open, having ridden the wave of trade war optimism in recent days after a deal was struck between the US and China.

Source – Thomson Reuters Eikon

Of course, it’s never quite that simple and straightforward. The deal is subject to some scrubs in a transitional period and details are a little lacking but at least the planned December tariffs are indefinitely suspended, something I think everyone can agree is a good thing.

We just have to hope that those “scrubs” take less time to sort out than the last tweaks which took the best part of two months. Assuming of course that this is just a case of dotting the i’s and crossing the t’s and not details that could make those tariffs less indefinite than they currently appear.

As long as both sides continue to talk up the phase one agreement, then Santa may well deliver the end of December rally that every investor craves this time of year. We just have to hope that we’re not getting overly excited about an exquisitely wrapped lump of coal.

Boris doubling down after election victory

Boris Johnson is wasting no time in ramping up the pressure on the next phase of Brexit negotiations, the trade deal. Reports suggest he is looking the enshrine the end of December 2020 leave date into law, leaving negotiators only 11 months to reach a deal or the country will leave on WTO terms, in other words, no deal.

Anyone hoping that the election would draw a line under Brexit was sadly mistaken. The next 12 months is going to be another series of painful negotiations during which the risk of a WTO Brexit is regularly and fiercely debated, both in the Commons and the news. It’s not over yet and sterling traders are starting to fret a little, once again. Nothing in ever as straight forward as we hope. But perhaps urgency isn’t a bad thing, the last thing anyone wants is for this to drag on for years and years.

GBPUSD Daily Chart

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Gold undeterred by trade deal

The trade agreement has done little for gold, despite being positive for risk sentiment and not particularly bearish for the dollar. The greenback has steadied in the aftermath of the announcement which gold has been creeping higher. We’re still seeing strong resistance around the $1,480 mark but we’re not exactly rotating strongly off this level. It’s been a slog  for gold bears to this point and fatigue may be setting in. This consolidation is showing no signs of easing.

Gold Daily Chart

Oil not yet running on fumes

What a couple of week’s it’s been for oil. OPEC and its allies agree to deepen output cuts by 500,000 barrels, while Saudi commits to another 400,000 on top taking total cuts to above two million and then the US and China agree to de-escalate the trade war with a phase one agreement. Christmas has definitely arrived early for oil producers. With Brent in the mid-60’s and WTI back above $60, producers will be much more at ease and the trend isn’t yet softening. Brent could get closer to $70 before the rally starts to run on fumes.

Brent Daily Chart

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.