On the last day of the past week, the US dollar weakened sharply against a basket of major currencies amid a negative reaction from the Chinese authorities, not Trump's decision to sign the bill regarding the situation in Hong Kong and is in fact an interference in China's internal affairs. In the financial markets, this caused a wave of fears that rising tensions between countries could freeze the trade negotiations process and cause another serious blow to the global economy.
In the wake of these events, the US dollar came under pressure from a basket of major currencies, while gold increase sharply, exceeding the previous local maximum of November 26. However, today on Monday, the situation is changing during the Asian trading. Gold is under pressure, the ICE dollar index is receiving support, and the benchmark yield of 10-year US Treasuries is growing at the moment of about 2.00%.
Such market dynamics can be explained by the lack of continuation of pickings, at least on the weekend, between Beijing and Washington. Thus, it can also be assumed that this is still due to the fact that D. Trump may simply limit himself to the "democracy" bill in Hong Kong, and no more, since for the American businessman president, it is not vague mantras about democracy in China that are closer, but alignment trade balance between countries and strengthening the economy of America.
Assessing this, we believe that the subsidence of the Hong Kong issue, in relations between Washington and Beijing, will lead again to increased demand for risky assets and weakening investor interest in defensive assets.
Today, Caixin China Manufacturing Sector Data was released. The indicator rose in November to 51.8 points against the October value of 51.7 points and a forecast of decline to 51.4 points. At the same time, these data, in our opinion, are also the reason for today's optimism in the markets in the morning.
Today, the values of the index of business activity in the manufacturing sector (PMI) from the Institute of Supply Management (ISM) will also be announced. It is expected to increase to 49.2 points from 48.3 points. If the data does not disappoint, they will stimulate growth in demand for US stocks, and will also support the dollar.
In addition to the publication of these important economic statistics, the attention of investors will be drawn to a speech by ECB President C. Lagarde today. Any of her words expressing the meaning of the need for further pursuing a soft monetary policy will lead to a weakening of the euro.
Forecast of the day:
EUR/USD is consolidating in the range of 1.0990-1.1025. We expect that the pair will resume decline to 1.0950 if the statistics from the USA turn out to be strong and Lagarde does not begin to reassure the markets with a change in the ECB monetary rate
The price of gold continues to consolidate in the range of 1451.70-1465.00. The growth in demand for risky assets, in the wake of strong data on the economies of China and the United States, may lead to a decrease in the price to the lower boundary of this range, and to its fall to 1445.30 in the future.
