FX & Futures Analysis by Earn2Trade September 11, 2018

China-Russia Partnership

Over the past few weeks Russia has been highly active in its foreign policy. The Russian Army is performing the world’s largest military exercise in the country’s Far Eastern reaches, together with China and Mongolia. Meanwhile President Putin attended a summit in Tehran with the heads of Turkey and Iran to discuss the issue of Syria. The conference also touched on the possibility of supplanting the US dollar in their foreign trade deals. The USA, currently present in Syria with 2000 soldiers, was not invited to the summit, although it’s questionable whether the current administration would’ve attended even if they had been. On the other hand China and Russia promised to strengthen their economic ties with the goal of reaching a hundred billion US dollars worth of annual trade volume and mutual projects. This partnership is necessary for both countries as an alternative to their worsening economic relations with the west. The USA may have a difficult time enforcing its sanctions against Iran if Russia, Turkey and China were to oppose it.

Friday Deadline

This Friday is the deadline for the Trump administration’s 200 billion tariff package on Chinese imports. It’s all but certain that trade relations between the two countries will continue to worsen. The USA also has an interest in limiting the transfer of technology, to maintain its lead in the race for the title of the world’s largest economy. In response to these events, Asian markets were trending downwards, with the exception of Japan. The Nikkei started out with a decline, until turning around and closing 1.3% in the positive. The Japanese index’s initial drop could be attributed to Trump’s remarks marking Japan as the next potential target of the trade war. Buyers returned to the Tokyo market after the White House elaborated on the President’s statements.

EURGBP

The pound saw a stunning reversal following an announcement by Michael Barnier, the European Union’s chief negotiator for Brexit. He claimed there has been significant progress in their meetings and an agreement of cooperation after Brexit will likely be signed in November. According to the latest information a special EU Committee meeting to finalize the terms of the agreement could be called as soon as early October. Meanwhile an increasing number of politicians has come out in criticism of former Foreign Minister Boris Johnson for his open opposition to Prime Minister Theresa May. It seems EU supporters are coming out in force as Brexit draws closer.

In response to these events the pound strengthened against the euro, breaking its weakening trend and causing the pair to return to the 50% Fibonacci retracement level in the range between its May 29 low and August 28 high. On its second attempt, price breached the 200-period moving average and fell to 0.8900. This level is considered a powerful line of support and could likely slow down the pair’s further downwards movement. This makes a rise back towards the 38.2% level more likely. Historical data suggests the 0.8690 to 0.8848 range is an acceptable long term exchange rate for both the EU and the UK. The pair spent most of the year within this range and could become defining if the final Brexit agreement could bring some much needed stability to both currencies.

Silver

The resurgence of silver is not on the horizon yet as the precious metals market greatly declined from the USD’s strengthening. Silver was one of the biggest losers of this situation, losing more value than any other precious metal. Silver is now at 14 dollars, a low not seen since the turn of 2015. It’s also unfortunately nowhere near any significant lines of support & resistance, making it necessary to keep a close eye on its price. Of the top 3 silver producing countries, Mexico, Peru and China, the one to suffer most from the price decline was Peru and they could see it affecting their GDP growth.

The precious metal’s downward momentum may have pushed price below 14 dollars for a brief period, however, it could only stay there for a brief period. Price rebounded off 13.955 and immediately surged back above $14, suggesting this may be the lower limit of silver’s price and it’s most persistent support line. Attempts to rise higher were still halted at 14.23, seemingly locking price into a 23 cent range for September. The Moving Average Convergence Divergence indicator is in the negative, although its slight increase may give buyers some hope. Price is currently lacking the momentum needed to break away from its current low. Parties with a stake in the purchase of physical silver may be interested in supporting the $14 price level, potentially leading to weakening the correlation between silver and the USD.

Sincerely,
Laszlo | Market Analyst

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