Markets sigh relief on Korea and Trump

Risk on, risk off. That has been the dominant theme across the markets in recent weeks and at the start of this week traders have switched it back on. Stocks rallied sharply yesterday and the bullish exuberance has followed-through to the start of today’s session with the EU markets higher and US index futures increasing their gains further. The appetite for risk has weighed on safe haven Japanese yen, although gold has been able to climb higher along with other metal prices, thanks in part to the strength of the EUR/USD, which was has kept the Dollar Index under pressure.

North and South Korea leaders in landmark summit

Risk appetite has improved on headlines North Korea has expressed a willingness to talk about denuclearization, according to South Korea. The North is apparently willing to discuss surrendering its nuclear weapons and freeze nuclear and missile programmes if it begins direct talks with the US. This is a dramatic easing of tensions. It follows a visit by senior South Korean politicians. Now it has emerged that Kim Jong-un will be meeting South Korean president Moon Jae-in in late April. Meanwhile fears over Donald Trump's imposition of tariffs on imports of steel and aluminium have also eased after top Republicans advised against the plan.

Dollar eases back while Loonie stages relief rally as threats of steel tariffs recede

The dollar has again lost a big chunk of the gains it had made in previous weeks ahead of key data this week. On Monday, the ISM Non-Manufacturing PMI beat expectations, although the employment component of it was weaker than expected and this has raised the possibility that Friday’s jobs report may disappoint expectations. As far as today is concerned, there won’t have any important data to look forward to, so the focus will remain on geopolitics. If tensions over US protectionist policies ease further then this could help relief the pressure on the Canadian dollar and Mexican Peso, in particular. 

USD/CAD may have formed a bearish pattern ahead of BOC

The USD/CAD’s break above recent highs in the 1.2920 area has seemingly failed to sustain itself ahead of the Bank of Canada’s rate decision tomorrow. The BOC is expected to drop its hawkish stance, but this outcome may be priced in. Given the sizeable sell-off in the CAD recently, the risks are that the beleaguered currency may actually rise as the shorts cover their bets. Indeed, if the USD/CAD fails to hold above the noted 1.2920 on a daily closing basis, then we will have a false breakout reversal pattern at our disposal. However a daily close back above 1.2920 would reinstate the bullish bias.