Complex Made Simple

Global markets shaken by mounting trade concerns

Lukman Otunuga, Senior Research Analyst at FXTM, discusses mounting trade concerns in the international trade economy.

Risk aversion returns on possible delay in trade deal Dollar hit by disappointing economic data Pound to remain choppy ahead of general election

A new day but the same old story with trade developments, as conflicting signals on the progress of negotiations foster confusion and uncertainty. 

In the latest twists and turns of the trade saga, President Donald Trump has said an agreement with China could be put off until after the 2020 US presidential elections, essentially dashing hopes of a phase one deal before mid-December. Given how a delay will most likely result in prolonged uncertainty and tension between the world’s two largest economies, this certainly does not bode well for global equity markets. Stocks in Asia are flashing red on Wednesday morning amid the negative sentiment and European markets are struggling to find a bid.

It is now less than two weeks to go until the next tariff deadline on December 15, when 15% levies on an additional $160 billion worth of Chinese goods will come into effect.  Risk aversion is set to engulf financial markets if Washington moves ahead with the tariff hikes, as trade tensions intensify and global growth concerns send investors rushing towards safe-haven assets like Gold.

Read: Fresh Trump tariff threats blunt risk appetite

King Dollar bruised by disappointing data

It has not been the best trading week for the Dollar Index which continues to nurse deep wounds inflicted by disappointing economic data.

Official reports released earlier in the week showing that the US manufacturing sector contracted for the fourth consecutive month in November sparked jitters over the health of the world’s largest economy. This dragged the Dollar Index to levels not seen in three weeks.

Although the Greenback has entered December on a negative note, the currency could be offered some support if today’s ADP Non-Farm Employment Change and ISM Non-Manufacturing PMI data exceed market expectations.

Pound blasts above psychological 1.30 level

The British Pound has appreciated against almost every G10 currency this week excluding the Swiss Franc.

With the general election just over one week away, the currency will most likely remain volatile and heavily influenced by the polls. Although GBPUSD blasted above 1.30 on Wednesday, it will take a major new catalyst or significant event for bulls to truly conquer this stubborn resistance level before the election result on December 12.

Commodity spotlight – Gold

Gold staged an incredible rebound yesterday, punching above $1480 thanks to renewed uncertainty on the US-China trade front.

Appetite towards the precious metal is likely to receive a boost if Washington moves ahead with the tariff hikes on December 15.  Brexit and global growth concerns are also seen as other risks which may push the precious metal higher in December.

Focusing on the technical picture, Gold is bullish on the 4-hour timeframe with prices trading around $1480 as of writing. Upside momentum could push prices towards the $1492 level in the short to medium term.

Read: FXTM: Events to keep an eye on for the week ahead