Market News & Analysis
US Stirs Tensions With China With Pro-Democracy Bill | CNH, E-Mini, AUD
Matt Simpson October 16, 2019 10:34 AM
The US House of Representatives passed a human rights bill which effectively provides support to pro-democracy protesters in Hong Kong. The bill includes an annual review over whether Hong Kong is sufficiently autonomous from Beijing. Moreover, the bill will allow the US to implement sanctions against officials who are seen to be responsible for “undermining fundamental freedoms and autonomy in Hong Kong. Naturally, China have vowed to retaliate although details of their timing and method are typically scarce.
Still, it has to pass the senate and this is where it becomes interesting and, well… political; the timing of this bill could be catastrophic for Trump’s much touted phase 1 trade deal. So, on that front it’s hard to see why the Republican owned senate would officially sign off on this and stick one to China. Especially when it could be several more weeks until a trade deal is reached, and China’s lukewarm media coverage and casual stance over “the greatest and biggest deal ever” post-talks suggests Trump has exaggerated their progress.
From here we’ll keep a close eye on the Yuan as it could dictate risk appetite. The USDCNH fix is higher today and allowed USDCNH to hit a 3-day high around 7.1000, and we’ll see if developing headlines allow the Yuan to weaken further. S&P E-mini futures came off form their high and USD/JPY has shed around 30 pips for the session. Yet moves are relatively minor and not in panic mode just yet; for that, we’d need to see the senate pass this bill which is probably just a thorn in their side which undermines the yet-to-be-signed, phase 1 trade deal.
USD/CNH has touched a 3-day high and found resistance at the 20-day eMA (for now). We’d likely need to see the bill pass the senate and trade talks completely break down for USD/CNH to break to new highs, so whilst there are upside pressures near-term, this could fall lower if Trump sends assurances the bill won’t be passed or of course if the senate block it. Either way, USD/CNH is our guide for risk sentiment.
S&P E-Mini futures have retreated from their high yet holding up quite well, and the daily range remains relatively small. Cleary the trend is bullish on the 15-minute chart and has found support at the daily pivot point, with support nearby at 2982.50 and the 100-bar average at 2986. Perhaps a Trump tweet would help this one rally a little, with 3000 and the highs being the obvious targets fore intraday traders. That said, if he remains surprisingly quiet and it appears the bill could gain traction, then we’d expect risk off to ensure and take stocks lower.
AUD/USD has made a minor attempt to break its bullish channel on the 1-hour chart, although a bullish hammer has formed and closed back above the lower trendline. In similar vein to E-mini’s, it appears traders are waiting for further headlines to roll in from either side of the debate for further direction. From a technical standpoint, the daily S1 is acting as a pivotal level with the bullish trendline, so risk-on could see prices rebound from this key level and head for the pivot point around 0.6770, or head towards the 0.6706 low. Note that the daily S2 is right on the 0.6668 low (2019 low) although a test of this key level today is not favoured, unless we go all-out risk-off.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.