Markets were clearly tired of pessimism and enthusiastically took positive data from the US as an occasion for optimism and the reason was the published economic statistics on new home sales.
According to the data presented, new home sales in August grew by 7.1% against the forecast of an increase of 3.5%, while the previous value in July was revised up to -8.6%. In quantitative terms, sales increased by 713,000 against the expected growth of 660,000 and the July value of 666,000.
In the wake of these data, the US stock market crawled up, and defense assets have begun to sell out in financial markets. The pressure came from gold, the Japanese yen, the Swiss franc, and US government bonds. But despite this wave of positive emotions, should yesterday's dynamics be viewed as a local reversal of sentiment toward improvement?
In our opinion, there are no good reasons for deep optimism, therefore we see yesterday's dynamics as a temporary, local pullback, accompanied by a correction of positions. Today, the Asian trading session marks the resumption of purchases of American treasuries, gold, and other protective assets.
The main reasons that continue to negatively affect the financial markets are still uncertainty in the prospects for concluding a new trade agreement between Washington and Beijing in the near future,as well as the risk of a recession in the United States and the escalation of the crisis in Britain on the topic of the country's exit from the EU. In addition, the high likelihood of military conflict in the Middle East is also not conducive to improve investor sentiment.
Assessing the big picture, we believe that before the US election, the topic of trade negotiations between the Americans and the Chinese will not be closed. We believe that this issue will be quickly resolved by D. Trump during the election campaign next year to add weight to his election campaign. We are sure that the American president has specially reserved this topic for the future as a strong trump card. And if so, then the chaotic state in the financial markets will continue. In this case, we expect from time to time both a local weakening and an increase in the dollar against major currencies. Most likely, we will observe the same picture with regard to the dynamics of crude oil prices, which are also fully influenced by the Middle East tension.
Assessing the big picture, we believe that before the US election, the topic of trade negotiations between the Americans and the Chinese will not be closed. We believe that this issue will be quickly resolved by Donald Trump during the election campaign next year to add weight to his election campaign.
Regarding the dynamics of the EUR/USD and GBP/USD pair, we note that the euro will most likely remain under significant pressure against the background of the implementation of new incentives. However, the dynamics of sterling will depend on the negotiation process between Britain and the EU. If no agreement is reached, then the pair is likely to continue to fall.
Forecast of the day:
The GBP/USD pair remains under pressure above 1.2345. Falling below this mark will lead to a decrease in price to 1.2270, which will be a 50% Fibonacci retracement from a local maximum of 1.2580.
The USD/JPY pair is testing the level of 107.65 and the resumption of demand for defensive assets will lead to the resumption of price reduction to 107.00.