Asia Pacific Market Open – Trade War Fears, Apple Earnings, AUD/USD, US Dollar
- S&P 500, Doe Jones Industrial begin November on strong footing as trade war fears ebbed
- Australian and New Zealand Dollars soared, having best performance in years as USD fell
- Weak Apple earnings may limit scope for Asia follow through, AUD/USD still in downtrend
See our study on the history of trade wars to learn how it might influence financial markets!
After a very pessimistic month, most global benchmark stock indexes began the first day of November on a strong footing. Optimism began in Asia Pacific trade and picked up pace during the US trading session. Both the S&P 500 and Dow Jones Industrial continued outperforming as anticipated. The cause for the improvement in market mood seems to be a reduction in trade war fears.
Since the beginning of the week, US President Donald Trump has been hinting that his summit with Chinese President Xi Jinping later this month will go well. Today, he spoke with him on trade and noted that discussions are going along ‘nicely’. If this ends up being the case, perhaps the markets are betting that the US won’t increase the current 10% levy on roughly $200b in Chinese imports to 25% come 2019.
With that in mind, the ‘risk on’ trading dynamic echoed nicely in foreign exchange markets. The relatively high-yielding Australian and New Zealand Dollars generously outperformed against their major counterparts. AUD/USD had its best gain in a single day since March 2017 while NZD/USD had its best since June 2016.
Meanwhile the British Pound added momentum to its rally after a couple of encouraging Brexit updates over the past 24 hours. The anti-risk Japanese Yen on the other hand edged sharply lower and so too did the US Dollar, which was under pressure by gains in other high-yielding currencies. Also, we did see a slight pullback in Fed rate hike bets ahead of this week’s US jobs report.
With that in mind, we may see APAC shares follow Wall Street higher, but a disappointing earnings report from Apple complicates this picture. In fact, Apple shares were down more than 7 percent in after hours trade. S&P 500 futures are also pointing lower. This may limit the scope for future upside potential in indexes such as the Nikkei 225 or ASX 200. This would also bode well for the Yen.
Australian Dollar Technical Analysis
After its best performance in a single day in more than a year, the Australian Dollar still remains short of reversing its dominant downtrend. Looking at the chart below, the descending trend line from February has yet to be breached or even tested. AUD/USD needs to push above this line with confirmation in order to argue that the dominant downtrend this year is over. In the meantime, prices have closed above my stop at 0.71452 and I am no longer short AUD/USD. You may follow me on twitter @ddubrovskyFX for updates on my views and other currency pairs.
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