The confidence that returned to the financial markets last week that the US-China trade crisis is coming to an end continues to support positive investor sentiment.
It seems that indeed the pendulum of sentiment in the markets has swung towards optimism and so far is not going to return to the opposite side. We have repeatedly pointed out that the uncertainty factor in trade negotiations between the United States and China is decisive in world markets, as it has a tremendous impact on the growth prospects of the world economy in general and the economies of America and China in particular. The news from the negotiation process, in particular the message that the parties may not increase the previously promised customs tariffs in December this year, had a noticeable strong influence on the mood of investors. An important signal for these changes was the sale of protective assets.
This primarily affected government bonds of the US Treasury and gold. The benchmark yield of 10-year-old traders has risen sharply since the beginning of this month from 1.691% to 1.945% and has every chance of continuing to grow if negotiations are not broken. But apparently, large market players who are dumping government securities are confident in the success of the negotiations, which is a key signal for investors.
On the other hand, the situation with gold is another confirming factor in the change of sentiment. Last week, the quotes of the "yellow metal" confidently crossed the lower border of the price range in which they had been since the beginning of September. They are now trading at the local low of October 1. Overcoming this level will be a signal for a further fall in prices.
Along with an increase in the yield on treasuries and a drop in demand for defensive assets, the American dollar has also gone uphill, which, in our opinion, will receive bilateral support, on the one hand, against the backdrop of the expectation of an end to the US-Chinese trade war, which will have a favorable effect on the state of the American economy, and on the other hand, this scenario will lead to the fact that the Federal Reserve will not further reduce rates, which will strengthen the position of the dollar, as other world Central Banks, especially European and British, will be forced to drive soft monetary policies amid weak local economies burdened by the Brexit factor.
Given the probability of events, we believe that the dollar will continue to receive local support in pairs with the euro and sterling. Moreover, it also has every chance to continue to grow in gold, as well as in the Japanese yen.
Forecast of the day:
EUR/USD pair implements a double top reversal pattern. We expect the pair to continue to decline to 1.1000 after a possible correction to the level of 1.1035.
Gold quotes are at the local minimum of October 1 of this year. They can be adjusted upwards to 1469.45. We consider it possible to sell from this level or after the price crosses the level of 1458.25 with the local target of 1444.20.
