Brexit & Trade Negotiations Driving Risk Sentiment

Global benchmark indices have commenced the week’s trading with a mostly positive tone as attention shifts to the upcoming US – Sino trade negotiations. High-level officials from two leading global economies are due to meet in Washington on the 10th for the next round of negotiations. Over recent weeks, the market has responded well to a seeming improvement in the language of communications between the two sides, with risk sentiment supported by hopes of a deal being done. However, traders remain cautious given the unpredictable nature of the negotiations which have broken down before. The US has reiterated its position that it will only accept full co-operation from China while China remains adamant that it will only do a deal if all tariffs are removed.

There have been some positive developments on the trade front though as Trump announced that he has signed two new trade deals with Japan on Monday. Trump said the deals were “phenomenal victory” for US farmers.

Data weakness in the US recently is keeping expectations of further easing from the Fed in view. The market is currently projecting one further rate cut by December though the odds of an October cut have grown following worse-than-expected data last week. The NFP reflected job growth of just 136,000 positions last month which alongside decade lows in the manufacturing sector has raised concerns for the US economy.

Brexit negotiations are reaching a critical point now with only a few weeks until the October 31st deadline. The UK PM is waiting for a response from Brussels are offering an amended Brexit deal to EU leaders. Under the Benn Bill, passed last month, the PM must require an extension to Article 50 if he cannot agree a deal by October 19th.

European asset markets are stabilising this week following heavy losses last week. Continued weakness in key Eurozone data sets keeps the risk of further ECB easing alive which should keep equities supported in the medium term. The minutes of the September ECB meeting will be closely watched this week with traders eager to learn if the ECB s considering acting further.

Technical & Trade Views

DAX (Bearish, below 12250)

From a technical and trading perspective. Last week’s heavy sell-off has changed the picture in the DAX. Longer-term VWAP has flipped bearish now and with price down through the monthly pivot, further losses could be seen. I will be watching a retest of the monthly pivot at 12250 for short opportunities targeting the yearly pivot at 11472

The IndeX Files 08-10-2019

S&P500 (Bullish, targeting 3031)

S&P500 From a technical and trade perspective. The retracement lower ran a little than anticipated but price action has since reverted and market is heading higher again. Expect some initial resistance between the weekly R1 and year to date highs, but ultimately, view remains bullish looking for a renewed push higher towards the monthly R1 at 3031

The IndeX Files 08-10-2019

FTSE (Neutral, Bullish above 7063, bearish below)

FTSE From a technical and trading perspective. The sell-off last week saw price trading back down into the yearly pivot which is holding for now. In line with bullish divergence in momentum studies, there is scope for a continued move higher here. However, with longer-term VWAP having flipped bearish, there is the risk of further losses. If we break back below the yearly pivot at 7063 I will be monitoring a retest for short opportunities.

The IndeX Files 08-10-2019

Nikkei (Neutral, Bullish above 21167)

From a technical and trade perspective. Last week’s sell-off took the Nikkei back down to test the yearly pivot which is holding as support for now. With longer-term VWAP still bullish, I am anticipating further upside targeting the monthly R1 at 22691 initially. If we see any drift lower from here I will monitor price action for long setups at deeper levels.

The IndeX Files 08-10-2019

Please note that this material is provided for informational purposes only and should not be considered as investment advice. The views discussed in the above article are those of our analysts and are not shared by Tickmill. Trading in the financial markets is very risky.

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