It's been a rollercoaster ride in FX this week with currencies reacting to every positive and negative headline. Overnight, investors were worried that the Chinese delegation would leave after only one day of talks and even in early morning every one was unclear as to how the primary talks would go. The uncertainty is so high that market watchers resorted to dissecting the body language of every one arriving. By the end of the NY session, the US dollar came roaring back after President Trump tweeted that he will meet "with the Vice Premier tomorrow at the White House." However in the same tweet, he left the market guessing by saying "They want to make a deal, but do I?"

With the outcome of the trade talks still unknown, there could be more fireworks in the next 24 hours. If President Trump agrees to a partial deal with China, USDJPY will make a run for its 1-month highs near 108.50. Other major currencies should benefit from risk on flows as well with EUR/USD testing 1.1050 and AUD/USD heading towards .6850. If negotiations fail and China leaves with no agreement, we'll see today's gains reverse quickly with USD/JPY and AUD/USD feeling the brunt of the pain. While it may not be wise to bet on a deal, President Trump's willingness to meet with Vice Premier Liu He is a sign that a positive outcome is likely. It would also effectively distract news agencies from the impeachment inquiry.

A trade deal would also reduce the chance of further easing from the Federal Reserve this month. Price pressures are subdued according to the latest consumer price index that showed inflationary pressures stagnating in September. CPI growth was unchanged month over month although ex food and energy prices ticked up slightly. Softer economic reports have little effect on the dollar this week as the prospect of global growth hinges on the trade talks.

Meanwhile, sterling rose more than 2% against the US dollar after Prime Minister Johnson and Ireland's Varadkar said they "see pathway" to Brexit deal. No details were provided but Sky News reported that Britain is proposing a limited free trade agreement. The talks now move to Brussels were Brexit secretary Barclay will meet with the EU's chief Brexit negotiator Barnier. We're skeptical that the EU will find any agreement palatable but investors are latching onto any piece of good news as the price action reflects a great degree of optimism. Of course, sentiment could shift quickly if Germany or the EU casts doubt on a deal so its unadvisable to rush into any major positions before a firm outcome is known.

EUR/USD traded above 1.10 for the first time in 2 weeks. Although Germany's current account and trade balance numbers missed expectations, the European Central Bank said a number of members opposed Quantitative Easing and felt that it should be the last resort. However with the region's largest economy headed for recession we are skeptical of the durability of EUR/USD's rally. Investors and the ECB were hoping that the German government would support the economy with fiscal stimulus but based on today's comments from German finance minister Scholz who said the country already has an expansive policy stimulus may not come easily.

All three of the commodity currencies traded higher today on trade talk optimism but the Canadian dollar will be the one to watch tomorrow. Labor market numbers are scheduled for release and economists predict a significant slowdown in job growth. According to IVEY PMI, Canadian companies shed jobs at the fastest pace in since 2016. USD/CAD should rally on tomorrow's report but the forecasts are low, so the Canadian dollar's reaction will depend on the extent of the surprise.

Past performance is not indicative of future results. Trading forex carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent financial advisor if you have any doubts.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD rebounds after dismal US PMIs

EUR/USD is trading closer to 1.0850, rising in response to weak US PMIs, with the services one pointing to contraction. Earlier, German Manufacturing PMI beat estimates. 

EUR/USD News

GBP/USD advances to 1.2950 after US data

GBP/USD is trading around 1.2950, taking advantage of US weakness stemming from a downfall in Markit's Services PMI in the US. In Britain, the Manufacturing PMI exceeded estimates. 

GBP/USD News

Top 3 Price Prediction Bitcoin, Ethereum, Ripple: Consolidation process underway

The Crypto board continues to be immersed in an emotional leg-breaking, consistently punishing the emotional state of the traders with its continuous changes of direction.

Read more

XAU/USD unstoppable, breaks to fresh 2020 highs, approaching $1650/oz

XAU/USD is trading in an uptrend above its main daily simple moving averages (SMAs) while breaking above a bull channel. Gold is printing fresh 2020 highs hitting $1646.64 per ounce on an intraday basis.  

Gold News

FXStreet launches Real-Time Trading Signals

FXStreet Signals offers access to explanatory live webinars, real-time notifications when signals are triggered and exclusive membership to the company’s Telegram group, where users get direct guidance by our analysts and get room to discuss and interact.

More info

Forex Majors

Cryptocurrencies

Signatures