US Dollar Pullback Hits Day Four; US-China Trade War Update; Brexit Latest

The US Dollar (via the DXY Index) is experiencing its fourth day of losses as the European currencies continue to make up ground as hopes to avoid to a no deal, “hard Brexit” scenario are building. Gains by equity markets are helping quell the Japanese Yen, which may otherwise be having a better day given the downdraft in US Treasury yields (breaking out of a multi-week triangle to the downside) and the uptick in Gold prices.

US-CHINA TRADE DEAL NEARING?

Risk appetite has been buoyed not just by the latest Brexit developments but by progress in the US-China trade war negotiations as well. US Trade Representative Robert Lighthizer has said that major issues still remain, but that “we are in the final weeks of having an agreement.” Markets have seemed to glob on to that particular piece of commentary, ignoring the foreboding tone otherwise: “There still are major, major issues that have to be resolvedand if those issues are not resolved in a way that’s beneficial to the United States, we will not have an agreement.”

Where does this leave us in the trade war news cycle? As we’ve previously noted, the cycle goes: (1) Trump administration is tough on China; (2) financial markets sell off on trade war concerns; (3) Trump administration hints at US-China trade deal; (4) financial markets rally on trade deal hopes; (5) No deal materializes. So it would appear that we’re now experiencing phase 4 – the rally after hope for a deal. Don’t be surprised if the next few days produce some news that a trade deal is unlikely, before hope springs anew next week (so it goes).

BREXIT LATEST – ANOTHER VOTE IN PARLIAMENT

Yesterday’s defeat of UK Prime Minister Theresa May’s Brexit deal wasn’t much of a surprise; after all, the parameters of the deal didn’t change since she suffered the historic 230 vote loss back in January. If anything, the tighter margin of 149 votes signals that, while unhappy with May’s deal, some MPs are more put-off by the idea of a no deal, “hard Brexit.” That means that the parliamentary vote scheduled for this evening London time – the question being “should the UK leave with no deal?” – has good chances of failing as well.

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