• Stocks higher as US and China provide concessions

  • ECB to ease policy but may not meet dovish expectations

  • US inflation to determine the Fed's interest rate trajectory

Stocks monitors were flashing green lights with China's Renminbi strengthening on Thursday morning after US President Donald Trump announced a delay in tariffs on Chinese goods by two weeks. Trump's postponement of the 5% extra tariffs came after China exempted some US goods from the 25% tariffs it imposed last year.

These small concessions, while symbolic, have been welcomed by investors and seen as a positive sign ahead of next month's talks. However, it's still too early to go all-in as the end result remains unpredictable given the complexity of the trade war. The rally in risk assets may begin to fade in the coming days as investors require concrete solutions, which are unlikely to come anytime soon given the structural differences between the two sides.

Today's European Central Bank interest rate decision is the key risk event of the week. The anticipation of an interest rate cut and new stimulus package has been very high in recent weeks given the deterioration of economic data in the Eurozone. Almost all economic data have weakened since the central bank's last meeting on July 25, and the risk of a recession hitting Germany, the Eurozone's largest economy, has been on the rise after GDP contracted in the second quarter.

While the ECB has proved to have no limits by how much it can lower rates, it faces many technical challenges. Negative interest rates have been hurting the banking sector for many years, as flat and inverted yield curves hit the profits of these banks. However, the ongoing trade war has hurt manufacturers across the Eurozone and the only tool to offset it is by weakening the Euro. Of course, President Trump won't like to see the Dollar appreciating further from current levels, and he may push the Treasury Department to intervene in the currency. There's also strong opposition from hawks in Germany and other Eurozone countries about restarting a new QE program. Given all these factors there's a high chance for the ECB to disappoint today and send the Euro higher.

On the data front, investors will be watching the US CPI closely. Core inflation is anticipated to accelerate to 2.3% y-o-y in August from 2.2% in the previous month. Any upside surprise in prices may make the Fed's job more complicated. While a 25-basis point rate cut looks like a done deal at next week's FOMC, the trajectory of further cuts will be impacted if inflation continues to top forecasts.

Disclaimer:This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 90% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD hits fresh weekly highs, nears 1.0900

The greenback is in trouble as government bond yields keep falling to record lows spurring gears of recession. Risk-off exacerbated by coronavirus spreading worldwide.

EUR/USD News

USD/JPY pierces 110.00 as fear rules

Wall Street is sharply down for a second consecutive day while US Treasury yields stand at record lows, reflecting investors concerns and backing yen gains.

USD/JPY News

Dollar domination set to continue, with or without coronavirus fears

The coronavirus-related fall in US bond yields has been weighing on the US dollar. Nevertheless – and despite worries coming from Markit's PMIs – the greenback is set to gain more ground.

Read more

Gold: Pares early losses, still in the red below $1650 level

Gold extended previous day's intraday retracement slide from multi-year tops and witnessed some follow-through long-unwinding trade on Tuesday.

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