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Asia Pacific Market Wrap – Trade Wars, Donald Trump, Nikkei 225, Euro, S&P 500

  • Despite the drop on Wall Street, Asia Pacific stocks traded higher as sentiment improved
  • After US China trade war fears were revived, Donald Trump cooled them in an interview
  • Nikkei 225 still short of reversing dominant downtrend, Europe could trade higher next

We released our 4Q forecasts for equities in the DailyFX Trading Guides page

Despite a pullback on Wall Street which was triggered by a revival in US China trade war fears, Asia Pacific benchmark stock indexes traded higher. This time, it was for the exact opposite reason. During an interview with Fox News, US President Donald Trump said that he sees a ‘great deal’ with China. This helped cool some of those earlier worries and market mood materially improved.

After gapping lower, Japan’s Nikkei 225 soared as much as two percent heading into Tuesday’s close. This placed the index on pace for its best performance in a day since October 16th which was about two weeks ago. There were similar behaviors in other bourses with China’s Shanghai Composite rallying about 0.72%. We also saw the ASX 200 climb about 1.12%.

The lack in key economic data during this session, even though we have a generally busy week, allowed risk trends to be the primary driver of markets. Not surprisingly, we thus got a similar behavior in FX where the anti-risk Japanese Yen fell flat on its face as the pro-risk Australian and New Zealand Dollars soared. Given that earlier the US Dollar gained amidst a flight to safety, it relinquished some of its upside progress.

Over the remainder of the day, a slew of key German and Eurozone statistics such as unemployment and GDP data will be released. But given that they may not materially alter the ECB’s path for interest rates in the near-term, the Euro may focus on updates out of Italy in regards to stray government budget headlines. With S&P 500 futures now pointing optimistically higher, we may see stocks recovering as forecasted.

Nikkei 225 Technical Analysis

The corrective gains in the Nikkei 225 still leave it short of breaking above a descending resistance line from September. For a bullish reversal, I would not only like to see a push above that but also with confirmation. As such, resistance appears to be around 21,851 which is around the August low. Meanwhile resumption of the dominant downtrend has 20,950 lined up as support before exposing the current 2018 low at 20,347.

Nikkei 225 Daily Chart

Nikkei 225 Still Far From True Recovery as Trump Revives Sentiment

Chart created in TradingView

Forecasts:

Japanese Yen Fundamental Outlook

Australian Dollar Technical Outlook

FX Trading Resources

--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter