Asian stocks are lower, as investors continue contemplating the ramifications from the “phase one” US-China trade deal. While the rollback of tariffs is set to brighten the market outlook, it remains to be seen whether the global economy can pick up enough momentum to take full advantage of the thaw in trade tensions. Should the economic data over the coming months back this up, market sentiment should be lifted which bodes well for risk assets.
Dollar set to end 2019 on resilient note
The impending impeachment vote against President Donald Trump has the potential to trigger knee-jerk reactions, but it is not expected to have a meaningful impact on the Dollar’s performance going into the New Year. The Dollar Index’s (DXY) presence above the psychological 97 level has been justified by yesterday’s resilient US economic data, as upbeat reports on manufacturing and the housing market stirred optimism over the domestic economy. The upcoming US Q3 GDP data should also keep DXY above 97.0, provided the official print is in line with market expectations of 2.1%, with a better-than-expected GDP revision pushing the Greenback towards the 97.50 mark.
Sterling could be in for more volatility in 2020
GBP was the main under-performer yesterday as the post-election honeymoon for GBP bulls looked to be over on news that PM Johnson will not allow the Brexit transition phase to extend beyond 2020. Despite the Pound’s recent drop, the immediate support level for GBPUSD has shifted higher to 1.30, now that UK election risk is behind us. Still, 2020 could be another volatile year for Sterling, as the UK seeks to shape its future relationship with the European Union by year-end, with the risk of a ‘cliff-edge’ Brexit apparently still on the table. Should a hard Brexit become likelier as the year progresses, that could prompt GBPUSD to trade closer towards the lower 1.20s.
Oil sustained by demand-side optimism
Brent’s rise above the $65/bbl psychological level demonstrates the risk-on sentiment in the market, with demand-side uncertainties dialed down following the limited trade deal between the US and China. Moving forward, supply-side risks could still serve as a drag on Oil prices, with non-compliance among OPEC+ members, rising US inventories and shale output being the key factors to watch, as well as any surprise spike in geopolitical tensions involving Oil producers.
Gold bulls need strong reason to break above $1500
Gold prices continue to remain supported, despite its bias to the downside, pending further details on the expected US-China trade deal. Still, potential gains for Bullion appear capped at the $1500 level, unless Gold bulls are shown signs that the global economy is not in a position to take full advantage of the expected rollback in trade tariffs in 2020.