Market Drivers for August 16, 2018
Europe and Asia
AUD: Employment 5.3% vs. 5.4%
GBP: UK Retail Sales 0.7% vs. 0.2%
EUR: EZ Trade 22.5B vs. 18.0
North America
USD: Housing Starts/Building Permits 8:30
USD: Philly Fed 8:30
Risk FX revived today with most of the majors popping in early Asian session trade after it was announced that the US and China will hold trade talks in late August. A delegation led by China's vice commerce minister will meet with the US negotiating team led by David Malpass from Treasury.
The news spurred an instant spike across majors with EURUSD rising towards 1.1400, cable clearing the 1.2700 barrier and USDJPY back within striking distance of 111.00. But so far the rally had little follow-through in the European session as investors remain wary of President Trump who unilaterally dismissed prior attempts at negotiation and increased the tariff barriers.
Still, this is the first positive sign of possible reconciliation in the trade war between two of the world’s biggest economies and it suggests that both sides are becoming serious about some sort of pragmatic solution that would avoid further deterioration of global growth.
On the economic front, the Labor data out of Australia showed a surprising decline in the unemployment rate as it dipped to 5.3% versus 5.4%. The headline jobs numbers were worse – at – 3.9K vs. 15K projected but the full time jobs number was a healthy 19.3K indicating that labor demand Down Under remains steady. Overall, the news is unlikely to move the RBA off its resolutely neutral stance, but it does indicate that growth in Australia remains robust and that if current trends continue the RBA will have to upgrade its outlook as the year proceeds. The Aussie jumped through the .7250 level in reaction to the data and remained well bid in European session trade. Any positive risk flows rest of the day could see the long try to lift the pair towards .7300.
The news surprised to the upside in UK as well, where Retail Sales printed at 0.7% versus 0.2% eyed on strength in online retailing. World Cup and clothing discounts also helped put in a solid number, but the market shrugged off the news as pound continues to struggle with 1.2700 level. Still, this is the second day in a row that the pair has been able to hold above the 1.2650 support and if risk appetite improves some short covering rally towards the key resistance at 1.3000 is due.
In North America, the calendar is quiet with only second-tier housing and manufacturing data on the roster, but equity flows will once again drive trade. In pre-open market, US equity futures were bid high by more than 100 points and if that rally can extend as the day progresses, EURUSD could see 1.1400 USDJPY 111.00 and AUDUSD .7300 after several days of brutal selling.