The trading week kicked off with a completely opposite mood for all of the assets. The headline story was in the U.S-China relations, as leaders of two world’s largest economies managed to agree on a ceasefire of the trade war. The escalation eased after Donald Trump and Xi Jingpin met during the G20 summit to discuss conditions of a potential deal. White House promised to implement a period of 90 days to freeze import tariffs, while the Chinese government promised to open the local market for U.S. imports in a wide variety of sectors. Optimistic news forced traders to buy call options across all types of financial instruments. Stock indices were surging more than 2% in four hours after the market opened. High-risk currencies soared with commodity and emerging markets assets leading the gains. Even WTI Crude Oil was trading in a call-options mode, jumping for more than 5% undeviatingly during the Asian trading session, without waiting for the largest market to open. The U.S. dollar was under a heavy selling pressure as well. Literally, nobody was even looking at the economic calendar initially, trying to jump into the optimistic rally. Nevertheless, the macroeconomic data was about to confirm the overall risk appetite with a more positive bias than it was predicted. The Australian Construction sector, Chinese Caixing Manufacturing PMI, Spanish, German, Eurozone and even British Manufacturing PMI - all in green! What a fairy tale for the bulls! ISM Institute published its PMI survey during New York opening - it was mixed. A first bird hopped out of the reversal scenario backpack.
The Aussie bulls were trying to push AUD/USD further towards 0.7400 round-figure static resistance, however, the Reserve Bank of Australia had its own plans for the currency. Although RBA left interest rates unchanged, according to the market’s expectations, the following statement had a more dovish rhetoric. The regulator underlined the data-dependence of the subsequent monetary policy decisions. As a result, traders started to buy put-options with a heavy volume which pushed AUD/USD not only to a rebound from highs but also into the negative territory throughout the whole day. The British Pound was surprisingly supported by the economic reports published on Tuesday. The improvement in Construction PMI in November (53.4 versus 53.2 predicted) forced traders to buy call-options for all of the sterling pairs. Bank Of England Governor Carney was also hawkish during his speech. Unfortunately, the bullish run was not long-lived for GBP/USD and the pair reversed on Brexit negative rumours. South Africa reported GDP in the third quarter and it was surprisingly strong (+2.2% quarter-on-quarter versus 1.6% forecasted and 1.1% on yearly basis compared to 0.5% anticipated). USD/ZAR put-options were in demand, weighing on the pair to keep sliding below 13.6000. Although, a U-turn scenario was relevant to the emerging markets as well. Labour productivity slowed down in Canada, forcing traders to buy put-options for USD/CAD with a lower volatility due to the upcoming meeting of the Bank of Canada the next day.
Wednesday started with a brutal sell-off in the Aussie, as traders were purchasing put-options for AUD/USD amid lower-than-expected Australian Gross Domestic Product report. USD/JPY partially pared the previous day’s losses on a more optimistic data from China. Caixin Services PMI improved in November, raising doubts about the bad shape of the second largest world’s economy. European Services Purchase Managers Index showed that things aren’t so bad in EU as well. Chinese yuan and Euro were gaining strength versus the greenback on that news. In contrast, the British non-manufacturing PMI slowed down in November, nearing the level which divides growth from decline (50.4). GBP/USD extended losses on heavy-volume demand for put options. But the key event for currency traders was the rate decision by the Bank of Canada. The regulator left the monetary policy unchanged with interest rates at the same level of 1.75%. What was the most interesting during Poloz’s press conference, was that he turned dove, being a hawk just four weeks ago! BoC Governor expressed concerns regarding the recent disappointing macroeconomic data and an unknown effect from oil prices’ decline for the Canadian economy. The regulator cannot predict how the exports revenue cut influenced the GDP and overall economic growth, so the current level of interest rates is appropriate for the time being. No hikes from BoC means further weakness for the Loonie and USD/CAD climbed above 1.3400 resistance as traders were buying call options for the pair.
Australian trade balance widened the negative surplus while retail sales did not improve in November. RBA Assitant Governor Debelle’s speech did not hold the Aussie bears from buying more AUD/USD put-options. The pair plunged to 0.7200 level as the weekly result, erasing most of the recent gains. The European calendar was empty on Thursday and EUR/USD was mostly influenced by events which were happening on the other side of the Atlantic. It was not boring. Equity markets have gone crazy after the shocking news that Canadian authorities arrested Huawei’s CFO and the company’s founder daughter on U.S. extradition request. Huawei is the Chinese tech giant, selling its telecommunications equipment around the globe. China reacted with anger and surprise, requiring an immediate release. Traders were worried about the trade deal perspective. Dow Jones Industrial Average was down 750 pips intraday, while the demand jumped for call-options in safe-haven assets such as Treasuries and gold. OPEC was unable to agree on oil output cut, and oil prices plunged, losing almost all of the previous gains. Thursay was also ugly for the U.S. dollar as jobless claimes raised, predicting further slide in Non-Farm Payrolls.
Friday continued the sell-off in high-risk assets. Housing data from the UK and pessimistic view on the Brexit vote in British Parliament next week sent the pound lower versus its peers. Euro was climbing North on more positive French Industrial production. However, the bullish achievements were limited due to weaker-than-expected GDP report in Eurozone. Traders were also especting for the NFP report as the main weekly macroeconomic data from the United States. The figures released with a dissapointing bias. Non-Farm Payrolls were at the level of 155K jobs added in November, while a figure of 200K was widely anticipated. Morevoer, the latest report was revised down to 237K from 250K payrolls in October. Average weekly earnings failed to meet the market consensus, lowering chances for the Federal Reserve to keep the tightening cycle in 2019. Stock indices extended the losses, coming into the negative territory from the yearly perspective. USD/CAD pulled back to 1.3300 support on stronger-than-expected employment data in Canada. Bonds and gold finished the trading week near highs.