All of the major currencies benefitted from the post-Christmas / Boxing Day rally. No major economic reports were released today but in this otherwise quiet day, risk appetite benefitted from a slightly stronger US jobless claims report. The main catalyst, however, were reports from China that they are in the process of organizing a Phase 1 trade deal signing ceremony. Throughout these discussions, China has been lukewarm about the trade agreement, expressing less enthusiasm than the US but today’s comments is the strongest confirmation to date that there will be no reneging on the deal. The Chinese also said they are examining ways to stimulate the economy by lowering financing costs and investors were relieved that reports of a North Korea missile test was unfounded.

So while the outlook for the global economy remains grim with US data falling short of expectations throughout the month of December, the continual de-escalation of risks that plagued the markets throughout 2019 has helped extend the risk rally. USD/JPY rose to its strongest level in May while EUR/USD hit 1.11. The best performing currencies, however, were sterling and the New Zealand dollar. Investors liked the European Commission’s Vice President Timmerman’s “love letter” to the UK, welcoming them back into the EU whenever they desire.

The rest of the major currencies including the New Zealand dollar benefitted from the China news. Asian markets reopen on Friday but with no major economic reports scheduled for release, risk appetite will continue to drive FX flows. Higher highs and higher lows in EUR/USD signal a potential move to 1.1150. However, the rallies in the Australian and New Zealand dollars are becoming overextended. According to recent data, USD/CAD should be trading higher and not lower.

Looking ahead, next year will be one where relative growth plays a much bigger role in currency trade. The recovery in the US economy is losing momentum but if other central banks like the Reserve Bank of Australia or the Bank of Canada lower interest rates before the Fed, their currencies could pull back more quickly.