China’s Arms Deal
Relations between the USA, China and Russia are once again being strained. The latest cause for friction is China’s purchase of military jets and anti-air missiles from Russian companies subject to US sanctions. In response, he US government announced they’ll be placing sanctions on China’s Equipment Development Department if the arms deal is finalized. The Russian supplier seems confident this deal will be successful despite US threats. Rosoboronexport, the largest Russian exporter of armaments and military tech, has been blacklisted by the US due to alleged election interference by Russia. The USA taking such a hard line stance in this matter can be interpreted as a warning that if necessary, they’re willing to enforce their sanctions against anyone.
Global Uptrend
In the wake of yesterday’s brief lapse, Asian markets are once again on the rise today following the trend set by the Dow during the North American trading session. China’s retaliation against the US tariffs was not as harsh as expected and gave the market cause for optimism. The improving outlook also increased demand for Chinese stocks. As a result the Shanghai Composite and the Hang Seng rose by 2.5% and 1.5% respectively by the end of the day. Meanwhile the US Dollar Index continues to fall, giving the currencies of emerging markets a little room to breathe and easing concerns in their respective countries.
GBPUSD
The outlook of both the British economy and the pound are heavily dependent on the outcome of Brexit. Good news on that front was scarce this week, as the European Union rejected Theresa May’s latest agreement proposal. On the other hand recent UK retail sales data exceeded expectations. These figures combined with the USD’s overall weakening gave the pound a little boost.
September was a breath of fresh air for the GBP. It finally managed to successfully break out of the downwards trend against the USD it has been on since April 2018 and formed into the yellow upwards trend channel. As a result the pound is now the highest it’s been since mid July. Applying the Fibonacci retracement tool we can see price is now back at the 38.2% retracement level. The chart also shows 1.3335 acting as a powerful resistance line in the first two months of summer. The most probable scenario is the area between the 25% and 38.2% retracement levels becoming the defining price range for the pair over the next few days. If price falls below the 1.3113 lower limit, then it could potentially decline to approximately 1.27. On the other hand if the upper limit’s the one to break, then the pair’s next target would be the 1.3530 line.
Corn
The words ‘corn’ and ‘increase’ are rarely mentioned in the same breath these days. The oversupply of US corn combined with shrinking global demand made bearish traders the driving force behind price. Following the World Agricultural Supply and Demand Estimates for September, there was a considerable chance of corn falling below $3.40 and hitting a yearly low. There have been no major changes in demand over the past few weeks, however, the markets seem increasingly optimistic, mainly due to the easing of China-US tensions.
Traders used to foreign exchange charts may find it unusual how the futures market, especially in the case of agricultural commodities, often lacks the steady long term trends seen in the currency market. This type of asset is characterized by sudden shifts in direction due to the relative rarity of price affecting events. When they do happen, the entire market tends to react near instantly. Price has been running amok over the past few months, jumping back and forth between the 3.40 and 3.68. Within this range there’s a second, much narrower one between 3.52 and 3.55. This second range is too limited to restrict price, however, it does act as a persistent zone of support & resistance by either reversing or confirming trends within the larger range. Price is currently within this central zone, making it worth keeping an eye on to see which end of the range it’ll move towards in the next couple of days. Only then will one have enough information to potentially place a trade.
Sincerely,
Laszlo | Market Analyst
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