Wall Street storms higher, NAFTA deal moves forward

Summary:

• US indices closed with fresh highs on Monday with Dow Jones (US30) smashing its crucial resistance

• US and Mexico agree upon one of the most contentious points in NAFTA talks

• EM currencies move back as the US dollar marches slightly higher

Another day, another high - in the absence of investors in the United Kingdom major US indices managed to add up to its Friday’s gains benefiting from upbeat revelations concerning US-Mexico trade negotiations. The Dow Jones (US30) made the most impressive gain increasing as much as 1% and thereby cracking its crucial resistance placed nearby 25800 points. Other indices saw decent rises as well - the SP500 (US500) went up almost 0.8% while the NASDAQ (US100) rose 0.9%. It is worth noting that the technological index crossed 8000 points for the first time. Looking into some specific stocks one may spot that those being vulnerable to tariffs were among leaders yesterday when it comes to the industrial sector - both Boeing and Caterpillar ended the day higher adding 1.2% and 2.8% respectively. Overall, the best stocks on Monday were among others General Motors (4.8%), Twitter (4.7%) or Morgan Stanley (3.6%). Technically the Dow Jones is looking interestingly after it broke through 25800 points hence one could expect the index could take a stab at moving toward its all-time high in the vicinity of 26650 points made at the beginning of this year. Technicians may look at 25800 points as their first noteworthy support line below which bears may have difficulties to go.

The Dow Jones (US30) moved through its critical resistance line on Monday opening the way for subsequent gains. Source: xStation5

On the currency front we may notice that the US dollar is slightly recouping its recent moderate losses. The dollar index is trading 0.1% as of 6:48 am BST while all major currencies are taking a step back at the same time. The stronger greenback is also weighing on EM currencies - ZAR, MXN and TRY are down this morning with the Turkish lira slumping over 0.8% at the time of writing. Note that the Mexican peso has given back a lot of gains made in the aftermath of NAFTA-related revelations. What have the two sides agreed upon? First of all let’s notice that the US President Donald Trump praised a deal agreed on with Mexico on Monday saying the new agreement will be “tremendous” for US farmer and workers. According to the US the revamped agreement (or the new one if Canada remains out of negotiations - without Canada no changes to NAFTA might be ratified) will include a sunset clause meaning that the accord will last for 16 years, and will be reviewed every six years. On top of that, the new deal will require that 75% of the parts in any car sold in North America be produced in the US or Mexico compared to 62% currently - note that this was one of the most contentious points in NAFTA talks. In addition to that, the new deal will require that 40-45% of auto parts in cars sold be made by workers earning at least $16 per hour. The important point to note is the fact that without Canada any changes into the deal can be implemented. Therefore, either Canada gets back to the table or the free trade agreement needs to be renamed. As per a statement released after the preliminary accord announcement Donald Trump and Justin Trudeau had spoken about NAFTA talks, and Canadian PM reportedly welcomed the progress made in the discussions.

From a technical viewpoint the USDCAD seems to be in a position to continue moving down. The pair managed to stay below 1.3075 as well as its medium-term bearish trend line bolstering bears’ odds. Reaching 1.2750 over the next days or weeks appears to be doable. Source: xStation5