Don't Get Whipsawed by US-China Trade Rumors

11/07/2019 12:25 pm EST

Focus: FOREX

Adam Button

Co-Owner and Managing Director, ForexLive.com

Be careful out there and do not immediately jump into a position after every headline from the U.S.-China talks, warns Adam Button.

U.S. stock indices pushed to fresh new highs as both sides agreed to roll back tariffs. We have yet to get a confirmation on this from either side. It would not be the first time that the market moved on rumored progress in U.S.-China trade talks.

The Negative

On Wednesday afternoon, reports emerged that the US-China trade deal may be pushed back with sides struggling to agree on a location, and more likely on the contents of an agreement. Some said the agreeing on the location of the US-China trade deal signing could be the canary in the coalmine. The latest reports say China has refused President Trump's proposal to have a ceremony in the United States.

This would have been a relatively easy thing to give up for Beijing but President Xi must be wary of a last-minute surprise by President Trump or by being used as an election prop. Now reports say there are proposals for a meeting in Europe.

Worse is a Reuters report saying that the deal may not get done until December. Until this week, markets were fed a steady diet of politicians saying the deal was virtually done. That goosed risk assets but now it appears there are more than just scheduling and location problems.

China is demanding the removal of the tariffs that went into effect on Sept. 1, and perhaps others in exchange for deal. U.S. representatives have moved to protect intellectual property and on Thursday there was the announcement of a joint prosecution on fentanyl; an issue the U.S. has tied to a deal.

Yet it's tariffs at the heart of the trade deal and the market is beginning to worry. The Aussie/yen currency pair (AUD/JPY) traded at the lows of the week on Thursday after the rally in the trade-sensitive pair stalled well-ahead of the 200-dma.

The Positive

Still, the market remains decidedly optimistic. Pushing back a deal a few weeks isn't itself a problem, but if there are any further signs of a breakdown, the market's patience will be exhausted. Also seeming to help sentiment, is China's announcement of high-profile convictions to cut the illegal flow of fentanyl to the United States.

A good example of how much trade is dominating the market is the Aussie dollar (AUD) this week. The news has been good and that extended to Thursday when the September trade surplus jumped to A$7.18 billion compared to the A$5.05 billion expected. The prior was also revised higher. Lately, trade numbers have been showed falls in both imports and exports but they both rose 3% in September in Australia. Yet a 10-pip rally was wiped out in minutes and it's a laggard again today.

Adam Button is co-owner and managing director of ForexLive.com and a contributor at AshrafLaidi.com. You can see Ashraf’s daily analysis at www.AshrafLaidi.com and sign up for the Premium Insights. Ashraf's Tweet on indices here.

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