A new week may present some fresh focus in the markets.

Friday saw a welcome distraction from the recent Middle East events in the form of US NFP data. Sadly, the numbers were not extreme enough to cause any major volatility but at least it acted as a short-term distraction.

This week will see the signing of the phase 1 trade agreement between the US and China. Hopefully, we will get some clarity on exactly what that entails.

But to get Monday going the markets are focused once again on Iran and their admission that they did indeed shoot down the Ukrainian airliner, having mistaken it for an incoming missile. Maybe not surprising news, but the markets have reacted positively seeing it as further de-escalation of events. Some traders are focusing on the negative reaction of many Iranians to their leadership after the initial denial of bringing the plane down.

So what has this meant for markets to begin the week?

In general a positive start to proceedings with equities in Asia trading higher and USDJPY breaking strong resistance above 109.70 to head to an initial high of 109.92.

GBP would open lower on comments from several MPC members that they would cut rates if data didn’t improve. GBPUSD slipped from 1.3040 down to 1.2961 before finding some support.

Elsewhere EURUSD would be little changed from Friday’s close, starting the US day around 1.1120. AUD, NZD and CAD would all be a couple of spreads stronger.

The US day began with equities opening a little higher, the DJ initially up 30 points.

For FX, it would be a continued but slow appreciation in JPY crosses as USDJPY attempts a break of 110.00 and EURJPY rallies to 122.40. Helping the overall theme of positivity is a headline stating the US will remove the ‘Currency Manipulator’ tag from China before signing phase 1 of the trade deal.

This is a big deal as the US has long accused China of artificially weakening its currency which has been met with much ire from Beijing. While not being the most volatile of days, it’s a case of ‘risk-on’ as US equities close at their highs, the DJ up 83 points and the Nasdaq up over 1%. USDJPY ends the day at 109.93 and EURUSD at 1.1138 with GBP at 1.2990. This puts EURJPY at 122.43, just a couple of spreads off its highs. It’s a good to start the week, but will it last? We shall see.

The real highlight of today was the move higher in JPY crosses, highlighted by the rally in EURJPY. I’m going to take you back to a chart I sent last week, an hourly EURJPY. At that time I pointed out we were in a short-term horizontal channel between 120.17 and 121.45 and that a break either side may see an uptick in momentum.

As you can see this is exactly what we got and today has taken us to a high of 122.49 which coincides with the high from Dec 27th, 2019.

Above there is another high at 122.65 going back to Dec 13th, 2019. So even though we have had a strong rally, a band of resistance lies ahead.

You would have to go back to July 2019 for the last time we traded higher than 122.65. Just something to keep in mind as the week progresses.

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David Hannigan

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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