FX.co ★ Markets fell, but it is not a collapse (EUR/USD and USD/JPY are at a crossroads)

On Monday, the wave of sales in the stock markets intensified as it was supported by rising tensions between the US and China due to the political crisis in Hong Kong, which the States use as a kind of "baton" to put pressure on Beijing, primarily in trade negotiations.

In our opinion, the fall in demand for stocks of companies is due primarily to increased risk, if not the failure of trade negotiations between Washington and Beijing, then its delay for an indefinite period. At the same time, it should be recognized that there is no unambiguous reaction in the markets yet.

At the moment, noticeable pressure is exerted only on the stock markets, and, as it seems to us, this is used by the players in the market as an excuse for fixing previously received profits. In turn, the oil market does not respond to the "fuss" around a new point of conflict between the United States and China, instead, investors are responding to the high probability of prolonging the OPEC + agreement, aimed at stimulating price increases against the backdrop of limiting crude oil production. In the last two trading sessions, oil quotes managed to resist a serious collapse, despite a decline in demand for risky assets.

Now, what is interesting is the formation of the picture on the public debt market in America. Treasury, which is used by investors as an asset-refuge, only intensified its decline in recent days, contributing to an increase in profitability. This is unusual in situations where US Treasury bonds are acquired in the wake of a fall in demand for risk. Thus, the profitability of the benchmark of 10 traders in the last two trading days only increased, adding from 1.796% to 1.845% at the time of writing.

On the other hand, indicative is the dynamics of gold prices, which also changes the tradition of movement in the face of growing tension in the markets. Gold quotes remain in the sideways range.

According to the results of Monday, the US dollar weakened significantly against a basket of major currencies. The ICE dollar index crashed from a level of 98.30 points to 97.89 points, although it is trying to recover weakly today. This behavior of the American currency can be explained by a decline in risk demand in the wake of tensions between Beijing and Washington. Also, the dollar has been reacting sensitively recently to the situation around the negotiation process.

As for the economic statistics from America which were published on Monday, it turned out to be ambiguous. The index of business activity in the manufacturing sector (PMI) in November rose to 52.6 points against the October value of 52.2 points. However, the index of business activity in the manufacturing sector (PMI) from the Institute for Supply Management (ISM), on the contrary, fell to 48.1 points from 48.3 points.

As we can notice, multidirectional data could not only keep the markets from new fears associated with the possible failure of the US-Chinese negotiations, but also did not allow stock markets to collapse seriously.

Now, assessing the sentiment of the market and the emerging background, we believe that only positive news on the topic of trade negotiations between the US and China will be able to support the demand for risky assets and provide significant support to the dollar.

Forecast of the day:

The EUR/USD pair is consolidating in the range at the local maximum of 1.1090, which it could not break through. If negative market sentiment persists, the pair may continue to grow to 1.1175, breaking the level of 1.1090. But if a rollback begins in the direction of positive, we should expect a local price reversal and the resumption of the pair's decline to 1.0990.

The USD/JPY is in a short-term upward trend. It, like the euro/dollar, balances between the desire to continue to decline or turn up. The persistence of negative markets will lead to a resumption of price decline to 108.30 while the reversal picture and price retention above 109.00 will lead to the growth of the pair to 109.70.