What you need to know for the open: Risk on to support AUD/JPY's bullish grind

Trump has been tweeting over the weekend, repeating that phase-one of the trade deal with China would be signed “very shortly.” 

Markets have already priced this expectation in, but the sentiment was that the signing would be done 'some time' in January. Thursday, last week, Treasury Secretary Steven Mnuchin, told CNBC that he had no doubt that US and Chinese trade negotiators will sign their “phase one” trade deal in early January. “It’s just going through what I would consider being a technical, legal scrub, and we’ll be releasing the document and signing it in the beginning of January,” he said.

We will see a risk-on gap across the board?

That's hard to say. Normally, such a headline would entice the markets to do so, yet this is like the icing on the cake, not the cherry. However, in other news, last week's close was another record for US equities leading the S&P 500 to gain 2.6% for the month of December, (+28.5% for 2019) so far and set to continue its advance, along with US stock sin general, into 2020. The Dow Jones Industrial Average, or DJIA, and the Nasdaq Composite index have also had an impressive year, up 22.2% and 34.6%, respectively. 

• Xi has accused the United States of interfering in its internal affairs

Therefore, with both a strong close on Wall Street and including the positive traction that a Sino/US trade deal has been making of late, there is little for markets to be sold on in the open. On the other hand, additional news is that "China said Xi accused the United States of interfering in its internal affairs," according to a Reuters article, which could be a weight on risk in the open. Nonetheless, the currency picks to watch would be AUD/JPY. Gold can continue to bleed out as well below trendline resistance so long as good trade news keeps flowing. 

GBP/USD in focus

Elsewhere, there is a focus on the pound. GBP/USD has been in a five-day consecutive tumble, falling some 540 pips, reversing the UK election rally and extending lower with bulls completely capitulating on reignited fears on a hard Brexit. GBP/USD closed below both the 21-day moving average and 200-week moving average. Looking to the Commitments of Traders report, traders were squaring positions into the UK elections - thus there is likely more legs on the downside as fresh speculative shorts are pilled on. However, considering the holidays and the fickleness in sterling, liquidity will be thin and funds will want a clearer fundamental picture before placing positions in the New Year. It is highly unlikely that we will see much trading in GBP taking place until full markets, Borish Jonson and his Brexit team get back to business. 

The main calendar event to watch will be US Durable Goods. Prior surveys have generally been signalling stalling rather than dramatic weakening in underlying trends. Today, the data is expected to come on at 1.9% vs 0.5% prior. 

Merry Christmas

Apart from these notes, traders will be mostly sitting on their hands at desks if not attending their Christmas office parties, so markets should be mostly quiet. 

– Merry Christmas!