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In 2018, we have seen a growing interest in the Emerging Markets (EM) as a lot of advisers or asset allocators have been upbeat about these markets. The emerging countries are improving on different factors such as stability of employment, growth in money or opportunity for innovation which make the overall outlook for EM promising. However, the enthusiasm might have faltered over a broad rally in the US dollar and the strength in the US economy.

Along with the resurgence of the US dollar which have caught investors off-guard, the EM are currently being underpinned by trade tensions and policy uncertainties. As the monetary tightening takes hold in the US, stocks in many emerging markets plunged and the dollar appreciated against major emerging currencies. The sudden shift in the second quarter in 2018 compared to 2017 Q4 shows that the US dollar has made an impressive comeback and appreciated against major EM and G0 currencies.

Quarter 4, 2017 Quarter 2, 2018 Even though the markets are navigating through various challenges: trade tensions, geopolitical upheaval and US sanctions, monetary policy remains the major factor for investors to monitor when looking for opportunities in the EM economies. The policy divergence between US and other central banks are the catalyst behind the strength of the US Dollar. A more aggressive Fed could have a magnifying effect on the EM economies and their respective currencies.

The Chinese Yuan and Turkish Lira continue to slide over the ongoing tensions with the US and a hawkish Fed. The Mexican Peso has also been under pressure but has recently found some relief over the renewed optimism around NAFTA. USDCNH, USDTRY, USDZAR and USDMXN (Daily chart) Source: GO Markets MT4 Similarly, in the equity markets, the slump in Chinese equities over trade concerns are weighing on the EM indices.

Trade tensions are indeed a matter of concern but it might not necessarily be bad for growth as global supply chains might eventually adjust. In the short-term, the Emerging Markets might remain volatile but the question is that investors need to ponder on whether the current situation is an opportunity. Does this situation represent a good entry point for long-term traders??

Despite the fact that many EM are trapped by political instability, they have potential to grow even faster than the developed countries and has wealth in the form of oil or other commodities. Moreover, some emerging countries are engaged in key structural reforms that will likely boost business confidence and encourage stronger investment and consumption.

All three pairs had a volatile year. Trade and geopolitical tensions have put significant bearish pressures on those pairs. EURUSD, GBPUSD and AUDUSD have seen new lows in 2018, and if the negative environment persists, we might see fresh lows.

EURUSD Fundamental Analysis The EURUSD pair was able to find some support on Brexit news and some positive data last week. This week, eyes will move to the ECB interest rate decision. The ECB failed to provide a bullish picture for the EUR pairs over the months, and it will be interesting to see if there is any upgrade or downgrade to the level of dovishness.

Policy divergence between US and ECB will remain a significant driver for the pair. Technical Analysis We can see that the pair has formed a head and shoulders pattern. A substantial break below the neckline level could bring in sellers.

The take profit level will probably be set above the support level. Overall, a crisis in the emerging markets, a dovish ECB compared to a hawkish Fed, subdued data, trade uncertainties, Brexit jitters and political issues within the Eurozone area is painting a bearish outlook for the pair. GBPUSD Fundamental Analysis Sterling traders found renewed confidence over the positive Brexit news.

Now that the main downside risk appears to take a back seat at least in the short-term, investors might begin to concentrate on the fundamentals. Notable data releases – GDP, Manufacturing & Industrial Production, Jobs Report and Rate decision, might help the pair to test the 1.30 level. However, any gains might be short-lived due to the strength of the US dollar.

Technical Analysis The pair is currently trading in a descending trend line and has potential to slide further. Any upbeat data might face some resistance at the 1.30 level. There are still no concrete Brexit negotiations, and until there are important agreements, the pair will likely stay gripped by Brexit headlines.

Adding to this uncertainty is the trade worries that are clouding the pair as the greenback isbeing favoured. AUDUSD Fundamental Analysis This pair appeared to be the victim of the US-Sino trade war. The pair has been in a bearish channel since the beginning of the year and plummeted to more than a 2- year low.

Upbeat data managed to provide momentary support to the pair last week. Amid a few data releases this week, the employment reports will be the highlight of the week. Even if there is an uptick in the data, any upside lift will likely be temporary.

Technical Analysis Key support levels were broken, and the pair dropped to multiple months low. Since the beginning of the year, the pair encountered 1000 pips fall. Using the Ichimoku, we can see that the pair is trading below the cloud.

The thin cloud indicates indecision and potentially, a weakening downtrend. However, the RSI is also bearishly configured suggesting more downward pressure for the pair. It is unlikely that the trade situation will change by the US mid-term elections in November.

A dovish RBA coupled with other negative pressures will likely continue to weigh on the pair.

If you’re familiar with the US dollar Index, you might have noticed it has moved in a repetitive pattern for the past few years. You need to treat every six months as a cycle, at the end of this cycle (June, December), the Fed will generally raise interest rates. Here’s a look at how this pattern may look: The Cycle Jan-Feb and July-Aug is the adjustment period, and since there is still a half year to go before the end of the cycle, it is unlikely to hold this high position all the time, so investors tend to take the profit and close positions causing the DXY to drop.

The media suggesting that the dollar would fall to 85, I remember this vividly because at the time I spent three or four articles on debating with those who challenged my belief that the USD will go up, not down. In May and November, the price will often soar brutally, not even giving the herd a chance to catch up. June Dec, Fed announces the rate hike, causing the momentum to fizzle and all those previous excuses to maintain the price turn to dust.

This final process completes the end of the cycle. Eight weeks and falling? For the past eight weeks, the USD has held below 95 levels.

Similarly, the US 10-year bond returns cannot break the 3% ceiling. it is it likely that they will fall? At present, there are two reasons why this may occur: There is only one country in the world to raise interest rates which is the USA. All other major countries within the EU, China, and Japan have no plans to raise interest rates.

Although this strategy has the potential to harm the US's opponents in some ways (for example, the Chinese stock market recently dropped dramatically), it doesn't make themselves better off. If the US 10-Year yield does breach upwards of 3%, it may harm all US companies and its domestic economy. Therefore, keeping the return around 3%, but not breaking it, seems a better option.

The recent decline in CNY seems like a deliberate attempt by China to employ counteractive measures against the US's trade war. The devaluation of CNY has numerous benefits. For example, it can offset the domestic exceeded hot money, create inflation to dilute debts, make export goods cheaper, offset the tariffs brought by trade wars, and so on.

US vs. China Ultimately, the manipulation of monetary policies has both positive and negative effects and deciding who may win a trade war between the US and China is too hard to call. We will wait and see.

This article is written by a GO Markets Analyst and is based on their independent analysis. They remain fully responsible for the views expressed as well as any remaining error or omissions. Trading Forex and Derivatives carries a high level of risk.

Lanson Chen GO Markets Analyst

Deal or No Deal Brexit negotiations have been ongoing for some months now, and even while officials state that ‘sufficient progress’ in the talks has been made, the public are still unaware of what the details of said progress are. This week Theresa May was in Brussels and it was expected that here a deal would be agreed upon, with key issues worked out before talks would then move to trade and transition. However, a deal was not settled, as the Democratic Unionist Party did not agree with the proposed deal after discovering it would prevent Northern Ireland from leaving the European Union on the same terms as the rest of the United Kingdom.

What happens next? As a deal was not agreed, time is running out before the European Council meeting, which is to be held on December 14 th -15 th. Theresa May will be hoping a deal can be made before the meeting and will be returning to Brussels at some point this week to push a deal through.

It looks like the main issue is the Irish border between Ireland and Northern Ireland; no one wants a hard border between the two nations, as it would undermine the 1998 peace accord that ended 30 years of violence in the region, making it vital a deal is agreed on the matter. If not, it will hard to see Brexit talks moving to the next phase. A transition deal should be made by October 2018; if not, the United Kingdom may crash out of the European Union without a deal – a disastrous scenario.

Financial Markets It was highly anticipated a deal would be agreed between the two sides this week and we saw the Pound leaping higher against the major currencies. However, as the news of a no deal broke out, we saw the Pound drop against the US Dollar and the Euro. However, the Pound is up at around 10% against the US Dollar since beginning of 2017 but further development will certainly influence the Cable.

GBPUSD: Source: GO Markets MT4 The Euro strengthened against the Pound when the news came out, which has caused more uncertainty around the matter. The Euro is up by around 21% against the Pound since January and we could see more gains for the Euro as the UK economy keeps outperforming in the coming months. EURGBP Source: GO Markets MT4 As the Pound fell, we saw the FTSE100 jump higher as a weak Pound boosts the earnings for London listed companies with international profits.

The Index is up 3% since the start of the year. FTSE100 Source: GO Markets MT4

City of London Feeling the Brexit Effect Not a day goes by without Brexit being mentioned and we can expect more of this to continue for some time, even after Britain leaves the European Union next year. With the International Monetary Fund (IMF) cutting its economic growth forecast for Britain for the coming years, are we also starting to see the impact of it on the City of London – the biggest financial centre in the world? Morgan McKinley has shown that the number of jobs available in December 2017 fell by around 52% month-to-month, a much bigger decline compared to the 30% drop seen over the same periods in 2015 and 2016. “In December, the city is abuzz with holiday parties, not hiring, so a drop is to be expected, but for it to be such a seismic drop is alarming” said Hakan Enver, the operations director for financial services for Morgan McKinley.

Year-on-year we have seen 37% fall in vacancies which is a completely different picture to when we look at figures in 2015 and 2016 when we saw a 16% increase in job openings. A recent survey by account firm Binder Dijker Otte (BDO) has shown that the United Kingdom has dropped out of the ranking for top six countries for potential migrants from the European Union. Paul Eagland, managing partner at BDO said the government must act to secure the UK’s access to talent: “UK businesses are already struggling with a skills shortage.

The impact of the EU referendum and uncertainty around a new trade deal is likely to make this worse.” “It’s absolutely imperative that the Government makes it clear to the world that the UK is still a great place to do business and that we continue to attract the world’s brightest and best to our country”. UK’s former immigration minister, Brandon Lewis, said that the issue of skilled worker visas was up by 38% but that is unlikely to make up the difference. Mr Enver said: “On the one hand, it’s great that the UK is still being considered an attractive destination from countries outside of the EU.” “However, on the other hand, there are signs that European employees are becoming less captivated by the draw of working in this country.” “2017 was the year we were told we’d have an exit strategy and a transition plan.

We have neither. “As new rounds of talks kick off, let’s hope 2018 brings the much-needed clarity and stability everyone’s waiting for.” A challenging time for the financial sector in Britain.

The US official trade deficit number with China is $375.2bn in 2017. But According to China Customs General Administration, this number should be $275.8bn. Notice there is a vast gap between the versions from two sides.

So, which version is closer to the facts? Firstly, let’s start this debate by looking at the US perspective. Previously in the 1990s and early 2000s, most of the imports from China were low-value, labor-intensive products such as toys, clothes, footwear, etc.

And even now, China are still producing these kinds of products. However, over the past decade, an increasing proportion of US imports from China are more technologically advanced products (US calls it ATP). From the table below, we can see that, among the top 5 categories of import products, three of them are ATP by the US’s definition.

According to the U.S. Census Bureau, U.S. imports of ATP from China in 2017 totaled $171.1 billion. Information and communications products (i.e., Phones and Pads) were by far the most significant U.S.

ATP import from China, accounting for 91% of U.S. ATP imports from China and 60% of U.S. global imports of this category (see table below). This would generally go against common sense, right?

Let me explain. As we all know, Apple is the largest company in the world to produce mobile phones and IPads, and the second largest is Samsung, which is a Korean company. Although Huawei is the third largest mobile phones producer, the US government entirely banned Huawei from entering the US market due to “national security” reasons.

So how did phones and pads become the largest category that the US imported from the Chinese? An explanation from China's point of view helps reveal this mystery. Firstly, there are two terms that we learned in Economics 101, Finished Product and Intermediate goods.

An intermediate good is a product used to produce a finished product. For example, in the case of producing an iPhone, Chinese factories contribute only 6% of the components (which is Assembly). All the other significant parts such as Hardware, Touchscreen& Glass, Battery, etc. these typically come from other countries such as South Korea and Japan.

If we take all those parts which come from Korea & Japan out of the US/China Trade Balance, the trade deficit will decrease one-third straight away. Below is a breakdown of the costs for various components of an average iPhone. Moreover, when an iPhone finished assembly and shipped and sold to US customers, it was Apple, a US company, who earned most of the profits, not Chinese assembly factories.

However, just because the assembly is the last step of the manufacturing process, and the phones did “shipped from China to the US,” the US government defined this as “imports from China.” Based on this knowledge, it appears the US might be deliberately twisting the terminology to fool the general public, helping to fuel the current dispute against China. There are hundreds more similar examples like this. These include iPhone, Dell who assembles their laptops in Shanghai, Boeing who assembles their planes in Tianjin, and most recently, Elon Musk who announced that he wants to open an assembly factory in Shanghai.

In conclusion, the US government seems to be exaggerating the trade deficit figures to help justify starting a trade war with China. This idea may sound like a conspiracy, but when you consider the many influential world powers throughout history who have leveraged their strength and resources to suppress their competitors, it makes more sense. Particularly those deemed to be in second place.

Think about the cold war between the US and Soviet Union; it just passed not too long ago. Lanson Chen GO Markets Analyst This article is written by a GO Markets Analyst and is based on their independent analysis. They remain fully responsible for the views expressed as well as any remaining error or omissions.

Trading Forex and Derivatives carries a high level of risk. Sources: USCITC DataWeb, US Census Bureau, Teardown.com