• Uncertainty surrounding OPEC+ output accord, receding geopolitical tension caps the WTI upside.
  • Optimism spread through US-China trade truce pleases buyers.
  • Global manufacturing numbers and political headlines will be the key to follow.

Although market optimism surrounding the US-China trade deal continues to spread over the energy prices, recently mixed headlines from Iraq and Turkey cap WTI around 5-week high of $60.06 before taking rounds to $59.40 during the early Asian session on Monday.

Presidents of the US and China finally agreed on a trade ceasefire between the world’s two largest economies with further talks to restart from July 02. The US promised to refrain from additional tariffs on China and giving some leeway to Huawei (for the time being) while China offered more farm imports from the US.

During the weekend, Russia and Saudi Arabia showed an inclination to extend the global oil production cut accord by 6-9 months.

While trade truce and likely production-cut extension seem positive to the energy benchmark, latest comments from Iraq Oil Minister that it is too early to say about the OPEC+ output deal extension, as conveyed by the Reuters, weigh on prices.

Adding to the price pressure could be Turkish President Erdogan’s statements that the US President Donald Trump supported his decision to import Russian S-400 arms, which in-turn might ease some geopolitical tension off between the US and Turkey that has recently caught market attention.

Doubts surrounding the output cut extension from the Organization of the Petroleum Exporting Countries (OPEC) and its key allies, coupled with receding geopolitical tension, confront the trade positive news.

Traders might look for the monthly manufacturing numbers from key economies in order to get fresh insights.

Technical Analysis

$60.60/70 area comprising multiple lows marked in May month acts as an immediate upside resistance ahead of diverting buyers to $61.00 and April 26 low of $62.26.

On the other hand, a downside break of $56.30 can recall $54.80 on the chart.

  • Silver prices drop drastically on the news of the US/Sine ceasefire.
  • Silver falls to as low as $15.12 on the open, eyes turn to U.S. data this week.

Silver prices ended the U.S. session at $15.3169 on Friday, up 0.37% having travelled between a low of $15.2126 and a high of $15.3414. However, on the open today, prices have crashed following news of a US/Sino ceasefire agreed at the G20 over the weekend. Currently, silver is trading at $15.21 from $15.31 highs and dropped to as low as $15.12 on the open. Meanwhile, the Gold/Silver ratio has made a notable top in the 90s with a weekly candle rejected by supply just below 93.

While Trump and Xi agreed to continue the trade negotiations with no additional tariffs are expected in the coming months, the uncertainty, however, will continue to keep the Federal Reserve on red alert and this will hardly boost prospects of a turnaround in global growth prospects, not until the many obstacles that stand in the way of a permanent end to the trade spat is obvious. The lukewarm result was widely expected in the markets prior to the meeting and from here out, US data will be critical for the week ahead.

US data coming up this week

Market attention will now turn to the US Nonfarm Payrolls and Manufacturing data. For manufacturing, analysts at TD Securities are looking for a new decline in the ISM index to 51.0, as they expect ongoing trade headwinds to have affected business sentiment in June. "Indeed, the average of the ISM-adjusted regional surveys are signalling further declines. In addition, a recent spate of soft growth in core durable goods orders and a weak Markit PMI also boost the odds for a downside surprise, in our view." On nonfarm payrolls, the analysts look for them to bounce to 150k in June, following the below-expectations 75k May print. "Employment in the goods sector should remain soft, while we look for a modest rebound in the services sector. The household survey should show the unemployment rate remained steady at 3.6%, while wages are expected to rise 0.3% (3.2% y/y) on the back of a favourable reference week."

Silver levels

The price of the precious metal is now below the key15.16 support and consolidates, advancing further below the 15.50 upside target, thus the technical outlook has now switched bearish with both the 4hr and 1hr stochastics crossing below 80. Risk is now open towards to 14.75. On the flip side, on a break of 15.50, however, the bulls will look to 15.83 as a target, a 78.06% Fibo level, ahead of 16.00.

  • Negative headlines from Chinese media doubt optimism surrounding the US-China trade deal while challenging issues remain unresolved.
  • Key PMI numbers from top-tier economies to offer intermediate trade opportunities.

Following its gap-down opening to $1387.20 on US-China trade truce, Gold prices recover to $1392.90 as markets evaluate risk concerns amid mixed headlines from Chinese media during the early Asian session on Monday.

Even if a trade ceasefire between the world’s two largest economies garnered risk-on sentiment at the day’s start, recent headlines from China continues to question investor optimism over the likeliness of a trade deal.

In addition to the long road to have a trade deal with the US, statements like Mexico and China can be partners against US pressure are likely showing Chinese media’s lack of appreciation to the recent trade truce.

It should also be noted that global risk barometer, the US 10-year treasury yield seesaws around 2.01% by the press time.

With the underlying issues concerning the technology transfers and intellectual property rights are still unresolved, negative comments from China’s press push global traders towards expecting another round of endless discussions between the two key economies.

Given the month-start week, Purchasing Manager Index (PMI) numbers from the key economies like China, the US, and the UK could offer additional information to determine near-term trade direction.

Technical Analysis

Unless breaking $1,400 support-turned-resistance, the yellow metal can keep signaling $1,370 level comprising 21-day exponential moving average (21-D EMA) to sellers whereas $1,425 and latest high around $1,438.65 can entertain buyers past-$1,400.

  • USD/JPY relieved o the trade war ceasefire, but all eyes turn to US data.
  • Looking ahead, the Federal Reserve this month will be critical for USD/JPY.

USD/JPY is currently trading at 108.35 and has jumped from the closing session's level of 107.91 following the news of the trade war ceasefire between Washington and Beijing. USD/JPY made a high here as Trump and Xi agreed in principle to restart trade negotiations and set aside tariff threats.

"The softer line appears to be in response to US corporate pressure; the headlines will likely be enough to please markets at the opening. However, large stumbling blocks remain. The key issues of intellectual property rights and technology transfer remain."

"Regarding not escalating trade measures, “at least for the time being” was the rider added by Trump in the press conference. Regarding Huawei, there were again no firm promises. Trump said there would be a “meeting” on the subject on 2 July, suggesting a chance for re-assessment. All up, US-China headlines are likely to continue to be a driver of market sentiment for the foreseeable future," analysts at ANZ Bank explained at the open today."

Eyes on Federal Reserve and Nonfarm Payrolls

Looking ahead, the Federal Reserve this month will be a key driver, but not before this week's Nonfarm Payrolls. The Fed has but an emphasis on not only trade but also data and a rate cut in the months ahead are not a done deal. However, July is fully priced in so any huge upside surprises from here on in data could be a catalyst for a correction higher in the greenback as well.

"We look for payrolls to bounce to 150k in June, following the below-expectations 75k May print. Employment in the goods sector should remain soft, while we look for a modest rebound in the services sector. The household survey should show the unemployment rate remained steady at 3.6%, while wages are expected to rise 0.3% (3.2% y/y) on the back of a favorable reference week," analysts at TD Securities explained.

USD/JPY levels

While the upsie has come back into view, analysts at Commerzbank noted that USD/JPY’s correction higher has so far been thwarted by the 20-day ma at 108.05, and the market stays immediately offered below the near term downtrend at 108.23. "We note that the Elliott wave count is implying a deeper retracement into the 108.65/109.25 band ahead of failure and for now will stay sidelined. We continue to look for losses to the 78.6% retracement at 105.87."

  • Weaker than forecast China PMIs question trade sentiment despite US-China trade truce.
  • Aussie housing, TD inflation, and China’s Caixin Manufacturing PMI can offer near-term trade directives.

Having popped to fresh 7-week high, the AUD/USD retraces some of its gains to 0.7030 during early Monday as traders ascertain recently weaker PMIs from China in comparison to the US-China trade truce headlines.

The trade truce between the US and China offered a sigh of relief to market players at the start of the week’s trading session in Asia. However, optimism couldn’t last long as traders also emphasized China’s official Manufacturing and Non-Manufacturing Purchasing Managers’ Index (PMI) numbers.

The US and China agreed to put a halt on the further trade war and restart negotiations to carve out differences on the future trade terms. The US President Donald Trump agreed not to levy fresh tariffs on Chinese goods and considered releasing some pressure off China’s Huawei in return of higher farm imports from China.

Additionally, key differences between the US and China about technology transfer and intellectual property rights are still unresolved and will be discussed starting from July 02.

While a trade truce between the world’s two largest economies, including Australia’s largest customer China, should have pleased the Aussie buyers, weaker than forecast China PMI confined the optimism. China’s June month Manufacturing PMI weakened to 49.4 from 49.5 forecasts whereas Non-Manufacturing PMI flashed 54.2 versus 54.5 expected on Sunday morning.

Looking forward, Australia’s May month HIA New Home Sales, TD Securities Inflation and China’s Caixin Manufacturing PMI could offer fresh directives to near-term trading sentiment. While the Aussie housing market indicator slumped -11.8% during the previous release, the inflation gauge flashed 0.0% mark earlier. Further, China’s manufacturing index could follow official readings while likely flashing 50.0 mark versus 50.2.

Technical Analysis

A 100-day exponential moving average (100-day EMA) at 0.7024 acts as immediate support for the pair ahead of highlighting 0.7000 and 21-day EMA level of 0.6965 whereas April 30 top near 0.7050 could cap near-term upside.

  • Trade ceasefire may not be all that of a game changer for FX markets.
  • AUD/JPY to trade as a proxy to volatility in equities between 200-D MA and 2019 lows.

AUD/JPY and Risk-on currencies higher at the open on Monday in early Asia following a widely expected ceasefire in the trade war between Trump-Xi whereby the export ban on Huawei was lifted, at least partially, to enable negotiations to move forward. AUD/JPY gapped onto the 76 handle from a close of 75.77 last week.

While the ceasefire is good news for markets at the start of this week, it seems all a little bit Deja Vue and all a little too convenient for Trump timing wise considering his forthcoming re-election campaign. There are also going to be large obstacles in the way before Washington and Beijing can find a deal that satisfies both ends.

Eyes on the Federal Reserve

The ceasefire may not be all that of a game changer for FX markets in the immediate future and eyes will quickly move to the Nonfarm Payrolls risk at the end of this week, considering the new easing cycle that the Federal Reserve and other central banks from around the world have embarked upon. The Federal Reserve is widely expected to cut interest rates this month which is priced in, although their take on pending risks from a prolonged trade standoff will be a key focus with regards to future cuts later this year. The Aussie and the yen will continue to trade as a proxy to volatility in the equity space subsequent to sentiment going forward.

AUD/JPY levels

The cross is finding a bid on the relief of the ceasefire but needs to get above the 77.50 to mark any material influence on the downside ahead of the 200 moving average close to the 79 handle and above the Oct and Sep 2018 lows around 78.60. On the downside, 75 the figure guards 73.90.

  • China’s PMI, RBNZ’s Bascand stopped markets to cheer US-China agreement to talk trade issues.
  • China and US PMIs are on the radar for fresh impulse.

Despite popping up at the day-start, mainly based on the US-China trade headlines, the NZD/USD fails to stretch earlier gains as RBNZ’s Deputy Governor (Financial Stability) Geoff Bascand highlights the scope for further easing in LVR if risks decline. Markets took his comments as a cautious statement highlighting risk sentiment.

With this, the Kiwi pair takes the rounds to a fresh 10-week high of 0.6722 amid initial Asian session on Monday.

The US and China finally shook their hands at the end of G20 and agreed to put a halt on further trade war by restarting the negotiations. Notable points were the US President Donald Trump’s likely willingness to release some pressure off China’s Huawei and stop levying further tariffs in return of higher farm imports from the dragon nation.

However, the key details concerning intellectual property rights and technology transfer kept remaining unresolved.

During his comments on macroprudential policy, Reserve Bank of New Zealand’s (RBNZ) Bascand said that “the Reserve Bank’s loan-to-value ratio (LVR) restrictions have been successful in reducing some of the risk associated with high household indebtedness. Our analysis showed that as a result of introducing the LVR policy, the resilience of the banking system has increased, while side effects have been limited, and that’s a good outcome.” He further mentioned that additional easing in LVRs is possible if risks decline, which requires continuing subdued growth in credit and house prices and banks maintaining prudent lending standards.

Markets took it as a cautious sign and held their Kiwi longs back. Adding to the uncertainty could be recently sluggish prints of China’s official Manufacturing and Non-Manufacturing Purchasing Managers’ Index (PMI). The key activity numbers lagged past 49.5 and 54.5 forecasts to 49.4 and 54.2 respective priors.

Looking forward, China’s Caixin Manufacturing PMI and the US ISM Manufacturing PMI will be followed for fresh impulse. While Chinese manufacturing gauge is expected to flash 50.0 mark compared to 50.2 prior, the US index might weaken to 51.0 from 52.1 during June.

Technical Analysis

Despite recently bright fundamentals, overbought levels of 14-day relative strength index (RSI) might trigger the quote’s pullback from 200-day exponential moving average (200-day EMA) level of 0.6720, which in-turn keeps highlighting 0.6686/82 support-zone comprising highs of June and April-end. Alternatively, mid-April tops surrounding 0.6785 could become bulls’ favorite on the sustained break of 0.6720

The European Union (EU) leaders hope to reach an agreement over dinner from 1800 CET (1600 GMT) on deciding the bloc’s top five positions, as cited by Reuters.

However, they have also scheduled a breakfast on Monday should the job selection process extend beyond Sunday’s dinner.

In an interview with the Anglo-American Press Association of Paris on Sunday, France’s European Affairs State Minister Amelie de Montchalin said: “What we’re looking for is a team which has legitimacy, energy, is competent and has the support of the Council and European Parliament. But if we enter into this discussion with our national flags, in a competition of nationalities, we lose the European spirit.

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EU Summit preview: Four EUR/USD scenarios for the selection of the new ECB President

The US President Trump met the North Korean leader Kim Jong Un at the Demilitarised Zone (DMZ) between the two Koreas on Sunday and exchanged pleasantries, Reuters reports.

Trump said: “It’s a great day for the world.”

In response, Kim said: “This is an expression of his willingness” to work towards a new future.

Trump and Kim then held a closed-door meeting for nearly an hour.

Following the meeting, Trump said “The meeting was a very good one, very strong … We agreed to work out details. We’ll see what can happen.”

The US and North Korea have agreed to resume stalled nuclear talks.