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By Trend

Markets opened the week yesterday in a rather positive mood as the US and China are now busy at the negotiating table rather than trading tariff threats, Head of FX Strategy at Saxo Bank John Hardy told Trend on May 23.

According to him, China’s promise to buy more US goods and services is likely the chief factor in easing the trade war-linked anxieties.

Still,Hardy added, the trade issue remain capable of producing uncomfortable headlines on multiple fronts at any time.

"One of the key benefactors has been the China-sensitive Aussie, which got a strong boost yesterday and is two weeks removed from its low versus the USD. The AUDUSD pair is working into pivotal levels as the important resistance zone has come into view in the 0.7600-50 area, " he said.

He emphasized that emerging markets saw some relief on May 21 as risk appetite improved, USD strength eased, and US long rates did likewise.

"The latter three developments are the critical ones for EM trades and the pivotal level for the US 10-year yield benchmark remains close by in the 3.00-3.05% region, " he noted.

Despite the euro’s woes, sterling managed to underperform even the euro on May 21 as the market judges the Brexit uncertainty as sufficiently sustained to cast a long shadow over the currency, according to Hardy.

"GBPUSD has suffered a notable technical breakdown (see chart below) and could be attracting flows even as EURGBP is bottled up in a range. The data calendar is heavy this week for the UK, with the latest CPI and other inflation measures for April up tomorrow, Retail Sales on Thursday and a Q1 GDP estimate set for Friday. BoE officials are out speaking today, including Carney himself, as the market has shifted rate hike expectations back to August, and after pricing May hike odds as high as 90% in recent months, the August hike odds are only a bit above 50/50, " he said.

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