Risk Rebounds on Limited Trade Deal News- But Will the Rally Last?

Market Drivers October 9, 2019
Pound flips on contradictory Brexit headlines
China still committed to a limited trade deal
Nikkei -0.61% Dax +0.96%
UST 10Y 1.55%
Oil $53/bbl
Gold $1502/oz
BTCUSD $8245

North America 
USD FOMC Minutes 14:00

Its been a seesaw night of trade in the currency market with contradictory geopolitical headlines driving price action back and forth as markets tried to asses the state of play amidst confusion and lack of any meaningful data on the eco calendar.

USDJPY and yen crosses saw a rally as risk recovered on headlines that China was still committed to a limited trade deal focusing primarily on agriculture. Although the move appears to be a concession on the part of China it is actually full of self-interest. Swine flu has wiped out more than 50% of the Chinese pig population and the country is facing much higher prices as a result wreaking havoc amongst the common population where pork is major staple food.

Therefore, China is more than willing to engage in argi-trade while still maintaining a barrier to technology and intellectual property issues.

The latest furor over the China-NBA relationship should keep investors clearly cognizant that the country respects contract law only when it suits its purposes. So despite the near term uptick in risk flows, it remains to be seen whether the US and China could come to terms that both sides would accept and USDJPY remains capped below the 107.50 for now as markets try to ascertain the true state of negotiations.

In the UK meanwhile, another jolt in the Brexit drama as pound first shot up on news that the EU would be willing to make a major concession on NI border only to tumble just as quickly when those rumors were denied. The DUP meanwhile chimed in that even in case of a compromise they would vote down the deal, therefore, dampening sentiment regarding any last-minute solution.

It appears that the EU at this point may be steeling itself for a no-deal outcome – hoping that the Benn act would force PM Johnson to ask for an extension and thus avoid an instant crash out of the customs union. Cable continues to hold the 1.2200 figure on prospects of a deal or delay but the asymmetric risk is skewed to the downside now as both sides remain entrenched in their positions.