17th August 2018 - The risk appetite returned, after overreacting to US-Turkey tension

Walid Salah Eldin

Master Trader
Feb 15, 2016
The risk appetite could find its way back to the markets, after overreacting in the beginning of the week to the tension between US and Turkey which is still refraining from releasing the detained American pastor, despite U.S. Treasury Secretary Steven Mnuchin's recent threat to impose more sanctions against it.

While the hopes for reaching a breakthrough deal between US and China to cool the trade war rose up in the recent hours spurring demand for equities, after China said it will hold talks with US later this month,

The Chinese announcement came after earlier reporting from The White House about plans to raise tariffs on China from 10% to 25% to be slapped on no less than $200b worth of Chinese goods.

The 2 countries have exchanged earlier this month imposing 25% tariffs on $16b worth of imports from both sides.

All of the Asian equities indexes rose up and also the US indexes future rates did not stop rising, after relatively strong recovery in the US session could contain all of this week slippage forming a technical reversing sign.

S&P 500 Future rate is now trading near 2840, after holding above 2800 psychological level by bouncing up from 2802 last Tuesday, as the market participants are still believing in the US economic evolving which has been underscored this week by better than expected soaring of US retails sales in July by 0.5% m/m, while the consensus was referring to increasing by only 0.1%.

U.S. initial jobless claims have given also new positive message about the US labor market by falling to 212k in the week ending on Aug. 10, while the median forecast was referring to rising to 215k from 213k a week earlier have been revised up to 214k.

The figure highlighted the US economy ability to withstand higher interest rate, as the number of Americans filing for unemployment benefits is still close to its lowest ever level which has been hit in the week ended July 14 by reaching 208k.

Federal Reserve Chairman Jerome Powell said in his earlier congressional hearing that the U.S. economy may not yet have reached full employment, while the unemployment rate is now standing below 4% level which is lower level than the Fed forecasted earlier by itself.

The greenback could not find more demand to appreciate further versus the major currencies on the trade tension easing signs between US and China. USD used recently to find acceptance to appreciate versus the currencies of the exporting economies in the adverse trade tension times.

Although GBPUSD try this morning to have a place again above 1.2750 failed, as it is still undermined by the Hard Brexit worries which rose up following UK International Trade minister Liam Fox's comment that "No deal Brexit has a 60% chance of happening".

Her comment weighed down on GBPUSD and shared in sending it to 1.2661 which is its lowest level since Jun. 22 of last year.

The fear of Hard Brexit overshadowed the release of UK retail sales figures of July which have shown yesterday monthly rising by 0.7%, while the consensus was referring to increasing by only 0.2% after falling by 0.5% in June.

The figure excluding fuel has shown also surging by 0.9%, while the market was waiting for increasing by only 0.1%, after slippage by 0.6% in June.

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Global Market Strategist of FX-Recommends

Walid Salah El Din