• Risk appetite boosted by trade deal optimism
• Washington lifts China ‘currency manipulator’ tag
• US inflation data in focus
• Gold slips as risk-on sentiment bites

The mood across financial markets continued to brighten on Tuesday amid signs of further goodwill between the US and China ahead of the “phase one” trade deal signing ceremony.

The US Treasury Department is expected to remove the designation of China as a ‘currency manipulator’ signaling a further easing in tensions, as both sides move one step closer to finding a middle ground on trade. This encouraging news has certainly injected global equity bulls with confidence as shares in Asia rallied on Tuesday morning. The positive sentiment was also reflected on Wall Street which logged record highs overnight, driven by sharp rises in tech stocks. While the signing of the “phase one” trade deal should continue supporting risk sentiment, investors could still be left empty handed if any of the finer details disappoint expectations.

In other news, the corporate earnings season kicks off with some of the biggest US banks including JP Morgan, Wells Fargo and Citigroup under the spotlight, as they report quarterly earnings before the US opening bell. Stocks could extend gains if earnings from these major banks meet or exceed market expectations.

Dollar on standby ahead of US inflation

It could be an eventful trading week for the Dollar with the latest inflation data on Tuesday and retail sales figures on Thursday offering insight into the health of the US economy. The annual core inflation rate during the last month of 2019 is expected to remain broadly in line with the Fed’s 2% target, reinforcing the view that the Federal Reserve is taking a pause on further interest rate moves.

The Dollar’s valuation is likely to remain influenced by trade developments and global sentiment this week. Should the risk-on environment remain the name of the game, appetite towards the Dollar is set to fade as investors turn to riskier assets. Focusing on the technical picture, the Dollar Index may slip towards 97.00 should 97.50 prove to be a stubborn resistance level.

Gold hammered by risk-on sentiment

Gold prices stumbled to their lowest level in nearly two weeks on Tuesday as trade hopes boosted risk sentiment and blunted appetite for safe-haven assets. The precious metal is trading around $1539 as of writing and could extend losses when the United States and China formally sign the “phase one” trade deal. However, the precious metal may rebound if the finer details of the deal underwhelm markets.

Technical traders will continue to closely observe how prices behave around the $1555 level. A daily close below this point should signal a decline towards $1535. However, a move above $1555 may open the doors towards $1570.

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