Asia Pacific Market Open Talking Points
- US Dollar depreciated as global trade tension woes fueled 2020 Fed rate cut expectations
- US-China trade deal by mid-December in question as Trump eyes Europe, South America
- Anti-risk Japanese Yen may rise as Asia stocks fall, AUD/USD may fall on AU GDP data
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Haven-Linked US Dollar Declined Despite Risk Aversion
The US Dollar failed to capitalize on haven demand as global markets slowly woke up to the reality that trade tensions remain unresolved between the world’s largest economies despite constant touting from Washington. Over the past 24 hours, President Donald Trump backpedaled on rising hopes of a US-China trade deal by mid-December, opening the door to a possible delay until after the 2020 Presidential Election.
This crossed the wires during the European trading session, sending the Euro Stoxx 50 and FTSE 100 tumbling 0.43 and 1.75 percent respectively. Their declines may have also been amplified by threats from France that the EU would retaliate if the US proceeds with $2.4b in tariffs against French goods over digital taxes. Trump is also weighing targeting Brazil and Argentina with steel and aluminum tariff threats.
Investor unease spread into the Wall Street trading session with gaps to the downside in the S&P 500 and Dow Jones Industrial Average. This depressed local bond yields and fueled 2020 Fed easing speculation. For the time being, it seems the depreciation in the Greenback could be tied to fading return prospects. But this could change if a global selloff in equities picks up pace, pushing a higher focus on preserving capital.
Wednesday’s Asia Pacific Trading Session
Ahead, Asia Pacific benchmark stock indexes could follow the S&P 500 lower as risk aversion spreads into regional bourses. That could offer more lift to the anti-risk Japanese Yen as it outperforms against the sentiment-linked Australian and New Zealand Dollars. A decline in bond yields may add further upside momentum to anti-fiat gold prices, which have been on the rise this week on bullish technical cues.
Speaking of the Australian Dollar, heightened volatility could be due ahead as the currency awaits local GDP data. This follows yesterday’s RBA rate decision, where the currency received a boost as the central bank envisioned a turning point in the economy. Yet, local economic newsflow has been tending to underperform relative to expectations, opening the door to a downside surprise and weakness in AUD/USD.
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US Dollar Technical Analysis
Against an average of its major counterparts, the US Dollar appears to be heading for another attempt to breach key support (1.2831 – 1.2854) on the chart below. This followed a break under the near-term rising support line from November. Yet, the dominant uptrend could be kept intact by a key rising support channel going back to September 2018.
Join me later today at 1:00 GMT as I uncover what else trader positioning is having to say about the outlook for financial markets!
Chart of the Day – Majors-Based US Dollar Index
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— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter