Asia has flown out of the blocks, shorts have covered, and the buyers have wrestled back control, although, I am not getting too excited as this feels like we will be talking about trade and tariffs for some time to come. 
Asia has helped lift S&P 500 and FTSE 100 futures 1.8%, while in fixed income we can see US Treasuries up around five basis points across the curve, and fed funds future pricing in an additional three basis points for 2019 to 45bp. 
Clearly, the barrier for the G20 leaders to promote a risk move in markets was sufficiently low enough, and markets have been enthused by what they’ve seen as a step in the right direction. Who knows, President Xi and the Chinese authorities may pull a rabbit out of the hat through this new negotiating period and promote enough believe that the US trade representatives permanently leave the tariffs on the $200b at 10%, but that is a big if. However, for now, the world is taking a sigh of relief, and we can look around the traps and see positive, upbeat moves, but whether this is sustainable will now be down to the economic data due through the week and whether OPEC now deliver the goods. 
(Source: Bloomberg)
We have seen good two-way flow in FX markets today, although the AUD has received the bulk of the attention. The high of $0.7380 took AUDUSD over two standard deviations from the 20-day MA, which we shall use as our mean, and statistically, this suggests rallies should be limited in the immediate term. We have seen implied volatility (vol) in AUDUSD come off sharply through the day and on current vols the market is expecting a move no greater than 77-points over the coming seven trading sessions. Positioning wise, leveraged traders have reduced its net short position in AUD futures to 21,000 (from 24,000), so there is plenty of scope to further reduce shorts, but we are not staring as extremes any longer. In the options market, one-week risk reversals (this measures the skew of put vol over call vol) sit at -0.28, showing the skew in demand for put optionality is favoured, but as a sentiment guide, this skew is fairly neutral. 
On the daily chart, it will be interesting if the pair can stage a re-test of the breakout highs into 0.7340, where any rejection and subsequent rally would be wholly bullish and suggest a move into $0.7447 (the 38.2% retracement of the January to October sell-off). AUDJPY has been the bigger move today though behind NOKJPY, although traders are now better sellers here and this morning’s gap is closing. We can see the top of the trading range (in place since March) coming in at 84.50 and should the AUD progress further this is another chart to keep on the radar. 
Much of the AUDs near-term direction will be correlated to the CNH (Chinese yuan), so this is well worth keeping on the radar too. 
(Source: Bloomberg)
GBPAUD looks interesting, with the buyers stepping in and pushing the pair off the earlier low of 1.7251 and also looking like it may close today’s gap into 1.7436. We know the AUD will take its cues from a post-G20 world, while the economic data on the calendar in Australia is action-packed this week, as it is in the US. However, the news flow towards Brexit has turned up a notch, and it is negative after negative, and yet GBP absorbs so much being thrown at it today. It is now the full consensus that the vote on Theresa May’s recently agreed ‘deal’ with the EU will fail next week, but what happens after is fascinating viewing and the possible scenarios make this too hard to call. The momentum is for a second referendum, but its hard to see how that happens with Theresa May as PM, while a no-confidence vote is a clear risk again, and while May is expected to win a challenge one questions how this situation changes if she remains at the helm. A new mandate on the direction of Brexit is needed. 
The DUP party detailing they may pull support for May if the vote is not passed through the Commons is another consideration, and the prospect of a general election has come a step forward. 
I really want to buy the GBP, but timing, as always, in trading is key, and we need to see what the chosen path is after next weeks vote. To most in the institutional space, this is all too hard, they have hedged exposures and running minimal speculative positions. In terms of pronounced moves, we can’t go past energy, with US and Brent crude gaining 5.2% and 4.8% respectively, with the move in US crude the best one-day gain since November 2016. US crude has smashed and should close above the 5-day EMA, which has contained all rallies since early October. The market has not heard much from the Putin/MBS meeting, but it seems they’ve heard enough to ramp up their expectations for bold action from OPEC this week and a firm commitment to rebalance the market. As a trade, the higher the crude price goes, the greater the risk OPEC fail to impress, and we get a buy the rumour, sell the fact scenario play out, but one thing is clear the devil has to be in the detail.

Published by Chris Weston, Head of Research, Pepperstone