• NZD/USD is moving into positive territories again and has pierced the 21-day moving average.
  • Risk-on markets were supportive of the commodity complex overnight as US/Sino trade talks gain positive momentum again.

The NZD was picking up a bid overnight, reversing the risk-off sell-off that ensued following a series of negative trade headlines earlier in the week which was topped off by the South China Morning Post story in Asia yesterday. The story suggested that there will be no deals, that the Chinese would leave Washington a day early and were bemused by the US State Departments recent blacklisting of 28 Chinese companies, government offices and security bureaus over their alleged role in facilitating human rights abuses in China's Xinjiang region.

However, NZD/USD rallied overnight from a low of 0.6227 to a high of 0.6335 following the Bloomberg and NY Times stories that indicated a partial deal would be in the making this week while suggesting an easing of restrictions on Huawei and possible delays to additional tariffs. Trump was also vocal about meeting with top-level negotiators in Washington tomorrow – It was announced that Trump will meet Chinese Vice Premier Liu today. Liu met with top US trade negotiators, Steven Mnuchin and Robert Lighthizer, overnight which was the first time the two sides have met since July.

Looking ahead

Looking forward, there will be a focus on New Zealand's Consumer Price Index. "We expect the Consumer Price Index, released next Wednesday, to show a modest 0.6% rise for the quarter," the analysts at Westpac said.

  • "The details for the September quarter are largely unremarkable in themselves, but they will be significant to the Reserve Bank.
  • Our quarterly forecast of 0.6% is a little higher than the RBNZ’s forecast of 0.5%, and more importantly, the difference is largely on the non-tradables side, where we expect a 0.9% rise against the RBNZ’s forecast of 0.7%.
  • A stronger than expected result for the RBNZ would give some reassurance that easy monetary policy is having its intended effects, though the pace of improvement has been glacial."

Westpac explained that the markets are pricing for Reserve bank of New Zealand 28basis points of easing on 13 November, with a terminal rate of 0.48%.

NZD/USD levels

The bird flew through the 21-DMA overnight and is based on the 0.63 handle again, with bulls eyeing an advance to the 50-DMA ahead of the Sep tops of 0.6450, a touch above a 38.2% Fibonacci retracement of the July highs to recent swing lows.

  • AUD/USD has run into the 21-DMA following a risk-on session overnight.
  • Trae talk sentiment flipped positive and supported the commodity currency.

AUD/USD is consolidated in early Asia following volatility overnight on a series of trade talks headlines that drove the Aussie both ways. AUD/USD is currently trading at 0.6757 having travelled between 0.6710 and 0.6774 overnight.

Casting minds back to yesterday's early Asia session, the pair was falling on the back of the pessimistic South China Morning Post news that said Chinese negotiators would end the talks earlier than scheduled, bemused by the US State Department's blacklisting of Chinese companies. However, the Aussie was back in favour when Bloomberg and NY Times stories, quite to the contrary, argued that a partial deal was being drawn up between the two sides and that meetings will go ahead as planned. There were easing of restrictions on Huawei being reported as well. Trump tweeted that China “want to make a deal” and that he intends to meet the Vice Premier on Friday.

Central Bank focus and next key data

Elsewhere, one eye is being kept on central banks beyond the blur of trade talk noise. "Markets are pricing 12bp of easing at the 5 Nov RBA meeting, and a terminal rate of 0.36% (RBA cash rate currently at 0.75%)," analysts at Westpac noted.

With respect to the Federal Reserve, data overnight will have ben monitored that arrived in the form of US Sep headline Consumer Price Index was flat mom, with ex-food and energy +0.1%mom, missing estimates of +0.1%mom and +0.2%mom respectively. The annual pace of CPI remained at 1.7% (expected 1.8%), ex-food and energy remaining at +2.4% (as expected). US 2-year Treasury yields climbed from 1.44% to 1.54%, the 10-year yield from 1.56% to 1.67%. "Markets are pricing 18bp of easing at the 31 October meeting and a terminal rate of 1.04% (vs 1.88% currently)," analysts at Westpac explained.

Looking ahead, the calendar is quiet today to the week, but traders will now await the next round of key data releases from Australia and next week will bring the Reserve Bank of Australia's October minutes Tuesday and September labour force survey on Thursday.

AUD/USD levels

Bulls have run up to the key 21-Day moving average (DMA) and have eyes set on an advance to the 0.68 handle and confluence with the 50-DMA.

Federal Reserve's Mester has said that the US is likely to avoid a serious downturn.

More from Mester:

  • Economy 'continues to perform well'.
  • Disagreed with september rate cut.
  • Content to keep 'shallow' policy path for now in hopes of firmer inflation.
  • Easy to envision outcome where weak business investment leads to weaker hiring and household spending.
  • 'On balance' feels trend growth will continue.

Comments from earlier the week and September

  • Monetary policy has been more accommodative than compared with the past.
  • Running an economy ‘that’s too hot’ sometimes has unintended policy consequences.
  • Stability of inflation expectations is key to monetary policy.
  • Band on inflation target makes sense for communication.
  • Policy to be recalibrated if necessary.
  • Fed will not overreact if inflation goes ‘a little’ above target.
  • ‘Reasonably close’ to 2% inflation target.
  • US economy is doing pretty well overall.
  • Trade tariffs are a headwind that must be taken seriously.
  • Knew there would be a slowdown in 2019, question is if the slowdown is more than expected.
  • Important to look at incoming information before meeting.

FX implications:

Speculators are pricing in a rate cut from the Fed for later this month. However, the concentration has been elsewhere this week with the seesaw trade talk headlines, conflicting from start to finish ahda of tomorrow's key meting between Trump and high-level negotiators at the White House.

  • The Dow Jones Industrial Average added 150.66 points, or 0.6%, to 26,496.67.
  • The Nasdaq Composite Index added 47.04 points, or 0.6%, to finish at 7,950.78.
  • The S&P 500 index put on 0.6%, or 18.73 points, to 2,938.13.

On a risk-on session, following positive momentum in trade talks between the US and China as well as signs of a Brexit breakthrough, US benchmarks were on the front foot. The news that trade talks had started off well, and in earnest, while Trump was also due to meet with Chinese Vice Premier Lui He on Friday. “Big day of negotiations with China. They want to make a deal, but do I? I will meet with the Vice Premier tomorrow at The White House,” said Trump, stocks rallied.

The Dow Jones Industrial Average added 150.66 points, or 0.6%, to 26,496.67 while the S&P 500 index put on 0.6%, or 18.73 points, to 2,938.13. The Nasdaq Composite Index added 47.04 points, or 0.6%, to finish at 7,950.78.

US data taking a breather

On the US economic calendar, the headline inflation surprised to the downside in September at 0.0% m/m, keeping the annual rate unchanged at 1.7% y/y. "Core inflation was a key drag to the downside at 0.1%, finally losing some steam in September following three consecutive 0.3% increases in Jun-Aug," analysts at TD Securities explained.

Brexit risks dimmed

As for Brexit headlines, Irish PM Leo Varadkar says a Brexit deal is possible following a three hour meeting with UK PM Boris Johnson. "This is a stark change in tone from earlier comments from the EU. A press statement released says their discussions concentrated on the challenges of customs and consent but gave little away as to exactly what concessions had been made regarding Northern Ireland in order to get to this position. Varadkar says the talks were at a ‘very sensitive stage’ but were ‘very positive and promising’. Negotiations between the EU and the UK will continue tomorrow between the UK Brexit Secretary Stephen Barclay and the top EU Brexit negotiator Michele Barnier," analysts at ANZ explained.

DJIA levels

The DJIA rallied to the 21 and 50-DMAs converging in the mid 26000s on a risk-on session. Bears will otherwise be en-route for a test of the psychological 26000 level again. A break to the upside and through the mentioned DMAs accumulating around the mid-point of the 26000s in line with the Sep lows-resistance line in the mid-26000's will open prospects back to the Sep highs through 27200. On the downside, the 200-DMA is located at 25940.

  • EUR/USD broke to three-week highs this Thursday as the European Central Bank’s (ECB) minutes showed opposition to QE (Quantitative Easing).
  • In the United States, the Core Consumer Price Index (CPI) matched analysts’ expectations at 2.4% YoY and EUR/USD eased from daily highs.

EUR/USD daily chart

On the daily chart, the shared currency is trading in a bear trend below its main daily simple moving averages (DSMAs). This Thursday in Europe, the European Central Bank’s (ECB) minutes showed opposition to QE sending EUR/USD above the 1.1000 figure. However, in the New York session, the US Core Consumer Price Index (CPI) came out at 2.4% YoY matching forecasts and EUR/USD eased about 25 pips from daily highs.

EUR/USD four-hour chart

EUR/USD is consolidating the recent move up to the 1.1025 resistance. The spot is trading above its main SMAs, suggesting bullish momentum in the medium term. If the market holds above the 1.1000/1.1025 support zone, EUR/USD can attempt to run towards the 1.1080 level on the way up, according to the Technical Confluences Indicator.

EUR/USD 30-minute chart

The Fiber is trading above its main SMAs, suggesting bullish momentum in the near term. Support can be seen at the 1.1000 and 1.0976 support level. A daily close below those levels could mitigate the short term bullish bias.

Additional key levels

Following trade talks today, President Trump has said that they went very well t and will continue tomorrow.

This follows a risk-on sesisonon Wall Street with US stocks closing in the green on the headlines that Trump will meet China's top negotiator on Friday, raising hopes for progress from two days of talks in Washington. The Dow Jones Industrial Average added 150.66 points, or 0.6%, to 26,496.67 while the S&P 500 index put on 0.6%, or 18.73 points, to 2,938.13. The Nasdaq Composite Index added 47.04 points, or 0.6%, to finish at 7,950.78.

FX implications:

Looking to the currency strength indicators, the Yen was the worst performer on the day and GBP followed bu the Aussie and euro came in as the top three performers. However, the Yen has been moving its way up the leader board in the last hour and 4-hour time frames.