The optimism over the US-China trade talks re-emerged following the cues by the US Treasury Secretary Mnuchin, which fuelled a fresh risk-on wave across Asia, sending the regional stocks to five-week highs while the Chinese Yuan rallied to the highest levels in six months versus its American peer.
The USD/CNY drop fuelled a broad-based selling in the US dollar, benefiting most majors. The Antipodeans cheered the risk-on trades and a firmer Yuan, with the Kiwi emerging the top performer across the fx board. The NZD/USD pair hit three-week tops near 0.6830 levels while the Aussie jumped to 0.7220, having found additional support from better Australian retail sales data. The Yen retained the bid tone vs. the greenback, leaving USD/JPY tied in a range around 108.30/35 almost throughout the session.
Among other related markets, gold prices gained upside momentum and headed back towards the 1300 levels. Both crude benchmarks reversed losses and turned neutral heading into the US drilling activity report due later on Friday.
Main Topics in Asia
US Fed’s Clarida: Fed can afford to wait and see how the year plays out
US Treasury Sec. Mnuchin: Chinese Vice Premier likely to visit US for trade talks
Australian Retail Sales surprise to the upside at 0.4%
Foreign holdings of US Treasuries rebounds – Reuters
Gold: inverse correlation with US 10-yr yield is strongest since January 2018
Goldman Sachs upped 12-month price forecast for Gold to $1425
UK CBI head: No-deal Brexit would cause GDP to shrink by 8 percent
US President Trump: Most likely will declare an emergency if no border deal
Asian stocks hit one-month high on Mnuchin cue
USD/CNH risk reversals hit record low, point to more pain in the USD
Key Focus Ahead
Markets prep up for a busy Friday, with a host of significant economic releases due out of the UK, including the manufacturing production, monthly GDP and trade balance for the month of November. The UK manufacturing output is seen rebounding 0.3% in Nov while the GDP growth is likely to steady at 0.1% in the reported month. The GBP reaction to the data could be short-lived, as the pound is likely to remain supported by the talks of Article 50 delay. Meanwhile, the Euroland has no relevant macro news to report today.
The US calendar also remains a busy and eventful one, as the US December CPI report will be published at 1330 GMT, with markets expecting a solid headline print could keep the Fed rate hikes in play this year. Later on, in the American afternoon, the Baker Hughes US oil rigs count data will drop in at 1800 GMT, followed by the monthly budget statement for December at 1900 GMT.
EUR/USD: trade optimism and yuan rally favor upside in EUR
The EUR/USD pair could climb 1.16 if the equities remain bid and the Chinese Yuan extends the ongoing rally. The common currency picked up a bid at 1.1496 in Asia and rose to a high of 1.1528.
GBP/USD cycling 1.2750, Friday brings UK GDP, US CPI
It’s been a struggling week for GBP/USD, rotating around the 1.2750 level as Brexit anxiety in the run-up to January 15th’s parliamentary vote ruins any opportunity for Cable bidders to capitalize on broad-market USD weakness …
US CPI Preview: Headline and core inflation stable
The annual consumer price index is forecast to remain at 2.2% in December and the monthly rate is expected to have fallen 0.1% from flat in November.
Brexit: Growing chance of Article 50 delay, Long opportunity on GBP/USD?
The UK government lost two procedural votes related to the all-important Brexit vote on January 15th. It is hard to see how OM Theresa May can muster support for the deal.