Risk-Off Trade Over Trade Deal Fears

December 10, 2019

By Orbex

Dollar Down Ahead of FOMC Tomorrow

The US dollar has been a little weaker over the European morning so far on Tuesday. Price action is likely to stay muted until tomorrow which sees US CPI data followed by the FOMC later in the day.

While the Fed is not expected to adjust policy further, traders will be keen to hear the latest assessment of the economy given the ongoing weakness in key indicators such as ISM Manufacturing & Non-Manufacturing. USD index trades 97.54 last.

EUR Rallies on USD Weakness

EURUSD has been a clear beneficiary of the weaker USD so far today. However, ultimately, price continues to range between the 1.1024 and 1.1166 levels.

Later this week, the December ECB meeting might provide some volatility. This will be the first meeting with Lagarde as president and traders will be keen to hear her views on the economy and gauge how she is likely to act in the early part of next year.


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GBP High Ahead of Elections

GBPUSD is trading 1.3160 last, sitting just off recent highs. With just two days to go until the UK elections, pollsters continue to peg Johnson’s Conservative party winning a majority in parliament.

Should this transpire, GBP is likely to continue higher in the short term, putting focus on a break of 1.3306 next.

Risk Sentiment Retreats on Trade Deal Fears

Risk assets have retraced lower again today with the SPX500 trading back down through support at 3122.56 to trade 3124.13 last. Conflicting reports around the health of US-China trade talks are starting to eat away at risk sentiment here as traders fear the US will go ahead with a fresh set of tariffs this coming Sunday.

The fear then, is that China will retaliate and talks will break down again as the did earlier in the year, which would weigh heavily on risk sentiment.

JPY & Gold Rally

Safe Havens have been firmer today in light of the pull-back in risk assets. Both JPY and gold have been higher against USD as concerns over the health of US-China trade talks weigh on risk sentiment.

USDJPY trades 108.60 last, still below the 108.84 level for now. XAUUSD trades 1464.22 last, recovering further off last week’s lows.

Crude Holds onto Gains

Oil prices are still sitting in the upper part of the 55–60 level range which has framed price action over recent months. News that OPEC+ will deepen its supply cuts has helped keep crude underpinned here.

While uncertainty lingers over the prospect of a US-China trade deal, for now, a further push higher seems likely with a break of the 60 level as the main focus for bulls. Later today, the market will receive its first look at inventory levels over the last week via the API report. If another drawdown is seen this could help lift crude higher into tomorrow’s EIA report.

Loonie Trading lightly Today

USDCAD has seen quiet trading over the early European session on Tuesday. Weakness in the US dollar has seen price lower over the last 24 hours though flows have dried up a little ahead of tomorrow’s key risk events. With crude still near highs, any dovishness from the Fed tomorrow (or weakness in CPI) should see CAD trading higher again. USDCAD trades 1.3235 last, sitting just up off the 1.3207 level support.

AUD Lower Amidst Risk-Off Trading

AUDUSD has been a little lower today. Despite the weakness in the USD, the general risk-off tone to today’s trading has weighed on the Aussie. The outlook for a US-China trade deal remains the key driver here and with traders fearful over fresh tariffs, we could see further unwinding in the AUD over the week. AUDUSD trades .6815 last, having backed away from the .6850 level again.

By Orbex