The risk-on sentiment extended into Asia this Tuesday after the US Treasury retracted its decision in August to designate China as a currency manipulator. Further, an imminent US-China phase one trade deal signing on Wednesday amid signs of goodwill gestures for both sides buoyed the market mood.
The Asian equity markets reached seven-month highs amid risk-on trades at the expense of the safe-havens such as gold and the Japanese yen. The anti-risk yen fell to eight-month lows of 110.21 vs. its American rival in early trades. USD/JPY eased-off highs but traded above the 110 handle towards Asia closing.
The Antipodeans traded weaker despite the surge in the Chinese yuan and solid Trade data from China, as broad-based US dollar rebound combined with the negative impact of the Australian bushfire crisis weighed on the prices. The Aussie bounced-off 0.6885 lows and battled the 0.69 handle while the Kiwi posted small losses on the 0.6600 level. Gold-price weakness and depressed oil prices also could be also behind the negative tone seen in the commodity-currencies. The Chinese yuan was the top gainer, with USD/CNY downed to five-month lows of 6.8669.
Among the European currencies, both EUR/USD and the cable consolidated the recovery gains heading into the key US data release due later on Tuesday.
Main Topics in Asia
Key Focus Ahead
With the US-China trade deal optimism-led risk-on trading likely to continue into Europe, markets await the speech by the European Central Bank (ECB) Governing Council member Merch’s speech, due at 0830 GMT, for some fresh incentives.
The EUR calendar today remains absolutely data-dry and therefore, the attention turns towards the US Consumer Price Index (CPI) report due to be published at 1330 GMT for fresh dollar trades. The US CPI for Dec is seen rising 2.3% YoY vs. +2.1% last while the core figures are seen steady at +2.3% YoY.
Today’s EUR macro calendar sees the release of the second-liner Wholesale Price Index (WPI) data for December, due at 0700 GMT. Next of note remains the UK data dump dropping in at 0930 GMT. The UK data includes the monthly GDP growth figures, trade balance, industrial and manufacturing production data. The data will be closely watched after several Bank of England (BOE) policymakers recently noted that the central bank is open to rate cuts as the next policy move.
Apart from the US data, Fed official Williams speech, the US Monthly Budget Statement and American Petroleum Institute US Weekly Crude Oil Stock data will garner some attention.
EUR/USD is struggling to post sustainable gains above 1.1140. An above-forecast China data failed to put a bid under the EUR in Asia. The US dollar may run into offers on weak US CPI.
GBP/USD consolidates in a tight range just below the 1.30 handle, having failed several attempts to extend the recovery above the last so far this Tuesday. Technical set up remains bearish ahead of US CPI data.
Monthly CPI core and headline rates expected to be stable. Annual inflation predicted to rise, core to be unchanged. Fed policy is not, rhetoric aside, dependent on inflation.
On Wednesday, the US and China will sign a compromise deal that will calm but not end a two-year trade war.