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Dollar Pops, China Is Ready To Deal: Is The Rally Durable?

By Kathy LienForex15 hours ago (Oct 07, 2019 04:26PM ET)
www.investing.com/analysis/dollar-pops-china-is-ready-to-deal-is-the-rally-durable-200471277
Dollar Pops, China Is Ready To Deal: Is The Rally Durable?
By Kathy Lien ??|??15 hours ago (Oct 07, 2019 04:26PM ET)
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Kathy Lien, Managing Director Of FX Strategy For BK Asset Management

Daily FX Market Roundup October 7, 2019

There are 3 events that could trigger a major rally for the US dollar this week. US-China trade talks, the FOMC minutes and comments from Federal Reserve Chairman Jay Powell. This morning, investors were skeptical about trade because Vice Premier He suggested that China would not relent on their industrial policy and state subsidies. While that remains the case, by the end of the day, the Chinese Commerce Ministry said they are ready for a partial deal on points agreed upon already such as purchases of US agricultural products. They will also set out a timeline for working on a broader deal next year. Changes to intellectual property laws or government subsidies however are completely off the table.

The Trump Administration has not indicated whether this offer is acceptable but USD/JPY traded sharply higher on the belief that President Trump will take the win to distract from the impeachment inquiry and drive stocks higher. The big question is what that really means – will the US reward the agreement with a gradual reduction in tariffs. If they do, the rally in USD/JPY and all other Japanese yen crosses could be durable especially as rate-cut expectations fall. But if the US rejects the olive branch and presses for bigger commitments from the Chinese or refuses to reduce tariffs, the dollar will reverse its gains quickly. As we await the US’ response, China trade headlines will continue to dominate dollar flows.

Meanwhile we don’t expect much from Fed Chairman Powell’s comments – on Friday he cast doubt on the need for additional easing by describing the underlying economy as strong but in the context of positive trade headlines, less dovish comments could trigger a larger rally for the dollar. Traders are pricing in a 70% chance of a rate cut later this month and if the Fed minutes cut those expectations further, we could see USD/JPY hit 108. Considering that 2 members voted against lowering rates at their last meeting, the minutes should be less dovish. Tomorrow’s inflation report will take a back seat to these bigger stories because price pressures are generally subdued.

The prospect of a partial trade agreement should have also driven the Australian and New Zealand dollars higher but we did not see much reaction in either currency. Instead, both currencies were the weakest performers today, ending the NY session near the day’s lows. This along with the lackluster moves in the Dow reflects skepticism as investors don’t see President Trump taking steps to reduce tariffs readily.

The other big story today is the setback to a smooth Brexit. Lord Pentland ruled that Prime Minister Johnson would not be forced to request a Brexit extension from the EU. He claimed that the PM had agreed to abide by the law and there was no need for “coercive orders” to force the government to do so. Investors were disappointed because a decision to push the Prime Minister’s hand would have ruled out a chaotic exit on October 31. Now we’ll have to see whether Johnson stays true to his word. He says the ball is in the EU’s court, since he’s submitted his proposals. Without being forced to ask for delay, the chance of a no-deal Brexit is 60% or more.

The euro came within a few pips of 1.10 despite weaker German factory orders. Industrial production numbers are scheduled for release tomorrow and ar likely to be weak. While EUR/USD is a risk currency, the prospect of back-to-back disappointments in German data means any rally should be capped at 1.10.

Dollar Pops, China Is Ready To Deal: Is The Rally Durable?
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Dollar Pops, China Is Ready To Deal: Is The Rally Durable?

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Chris Black
ChrisBlackforex 4 hours ago
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Thank you Kathy? you're work is readable.. I can Understand your work
Ashwin Sh
Ashwin Sh 9 hours ago
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Adter a long, an article worth forgetting! Sorry Kathy
prasanna kumar oruganti
prasanna kumar oruganti 9 hours ago
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Hi Kathy! what are the possible implications on Indian market considering the existing scenario of US- China trade talks?
matt doray
matt doray 9 hours ago
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thank you Kathy!
Hansol Lee
Hansol Lee 10 hours ago
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thank you Kathy
Satish Kumar
Satish Kumar 10 hours ago
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thank you Kathy
Michael Kleinert
Michael Kleinert 11 hours ago
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He wants lower interest rated and a weaker dollar. If he makes a deal those 2 things dont happen, do they. case closed
Kapila Hemantha
Kapila Hemantha 11 hours ago
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Good news
Ya Lee
Ya Lee 12 hours ago
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There ain't gonna be a deal. Same fluff news every time.
Mark Manley
Mark Manley 12 hours ago
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If a neighbor said "I'm not gonna stop stealing your stuff", you'd have them arrested, but the whole world gives China a pass
Steven Ownz
Turtle_Steven 12 hours ago
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well if US wants to pollute its air and water, and get rid of labor laws so ppl can work in unsafe condition and child labors, no 401k, then go ahead, don't talk to the neighbor. lmao
Luqman Firdaus
Luqman Firdaus 13 hours ago
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ok that money $ 654.000
Anton Nesinyu
Anton Nesinyu 13 hours ago
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Thank you.
Ez McSquare
Ez McSquare 14 hours ago
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I like your whole week view articles .
sam woyke
sam woyke 14 hours ago
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who cares about agriculture; its intellectual property that they need to deal with.
Bron Harper
Bron Harper 14 hours ago
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Facts
Martin Cubas
Martin Cubas 14 hours ago
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I assure you, there 0% chance China and the US will reach a partial deal.
brad merck
brad merck 13 hours ago
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you are funny
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