Market Drivers June 26, 2019
Mnuchin says 90% of US-China deal done
Risk Pops
Nikkei -0.51% Dax 0.62%
UST 10Y 2.002%
Oil $59/bbl
Gold $1406/oz.

Europe and Asia:
NZD RBNZ stays on hold

North America:
USD Durable Goods 8:30

Treasury Secretary Mnuchin said that 90% of US-China trade deal was done helping stop spur a pop in risk FX on what was otherwise a very quiet Asian and early European session.

USDJPY immediately raced to 107.70 on the news while both Aussie and kiwi also strengthened with the former approaching the key .7000 resistance level for the first time in weeks.

Although some analysts have pointed out that Mr. Mnuchin’s comments were not new, that 90% of the negotiation was already done and that despite that progress the chance of an actual deal has not risen, the markets took the comments as a positive sign for G-20 summit later this week.

The Trump Administration is clearly keen to generate positive optics off the G-20 summit, with Mr. Trump no doubt eager to produce a deal that he can take to the voters next year. That’s why US rhetoric has turned far more friendly and markets are beginning to respond in kind.

USDJPY, which has been relentlessly sold for the past few weeks, is especially vulnerable to massive short squeeze if Osaka produces any positive news on the trade front. For now, the pair remains capped by the 108.00 level but if Trump and Xi announced a cessation of hostilities most likely in the form of no further tariff increases for a period of six months or more, capital markets may breathe a sigh of relief and pull risk FX higher as a result.

Certainly, today’s action has raised expectations for a positive result from G-20 with markets now positioning for some sort of rapprochement announcement from Trump and Xi, so if the meeting ends with a dud, the disappointment could send USDJPY right back to a test of yearly lows below 107.00 but for now optimism reigns in FX and bulls are control of the trade.