Reading Europe’s macro data these days often makes one wince. The southerly trend is unmistakable. When, many asked, will the bloc slip into a recession? It was this fear that drove European bond yields deep into negative territories during the summer. So much so that some yield curves were sub-zero across all maturities.
But markets are always forward-looking. This fear, it appears, is gradually being lifted as investors look forward to a new leadership in the European Central Bank and all three EU institutions. What will the new ECB president bring to the table to resuscitate the economy? A break from past policies?
Against the US Dollar, the Euro has broken its own definitive pattern of the downtrend. Prices rallied through the 50-day moving average and managed to stay north of this trend line for a good two weeks (see below). The rebound off this trendline recently affirmed this change of trend – and prepared the rate for an assault on the 1.120 level.
Another pair that has recorded a turning point is the EURJPY. The breakout at 120.0 remains firm, and traders are buying on setbacks near this level, thus turning that level into support. Another rebound from this level is to be expected (see Featured Chart).
Other pairs, like the EURCHF, also showing some promising trends. The Euro rally may prolong into the year end.
Meanwhile, the trade negotiation between China and US may reaching a truce, however temporary. How much of this is driven by political necessity is hard to say. But the Trump administration is facing re-election soon and China’s economy is wobbling. A compromise has to be made.
As such, the USDCNY has backed off from its multi-year lows. Remember the market shock when the rate breached 7.0? Well, the rate is gradually returning to its level. A fall below this crucial line is probable when an actual deal is inked. The possibility of a truce is one reason driving the S&P 500 to new all-time highs.
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Jackson has over 15 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.