Weekly Review & Preview: All Eyes on US - China Trade Negotiations
Market Analysis - AxiTrader Team | 10 May 2019
- Top U.S. and Chinese trade negotiators concluded the first day of talks on Thursday
- Investors still hopeful of a breakthrough in Friday’s negotiation
- Australia employment data to be released next week
- Keep an eye out for EU’s GDP and CPI data next week
Skip to: USD | GBP | EUR | JPY | AUD | NZD | CAD
FUNDAMENTAL ANALYSIS ON USD
The US dollar is lower against major pairs on Thursday after US President Donald Trump showed some hope a deal with China is still possible ahead of its meeting with the Chinese negotiators. The dollar was sold across the board as US inflation indicators showed no immediate pressure giving the Fed no reason to raise interest rates.
Moving forward, the USD could be traded sideways during Asian hours as the negotiation will continue on Friday (US time). The market still holds hope that the trade talks could yield better than previous hard-line rhetorics from both sides. The tariffs are set to be effective at Friday noon (GMT 8+), which has mostly been priced in by the market. Any good news from the trade front could boost the risk currencies as well as USD since funds have fled away from USD to hedge against the trade risks.
Next Wednesday is to see the release of US core retail sales, which is expected to show robust growth in U.S. household consumption, which could add on to USD strength.
FUNDAMENTAL ANALYSIS ON GBP
This week, the pound started higher following the substantial defeat suffered by the Conservative and Labour party in the local elections, which triggered expectations that the government will hasten efforts to secure a cross-party Brexit deal over coming days, causing the currency to rally. However, throughout the week, the currency slipped on escalating trade tensions between US and China as Trump confirms that tariffs on $200 billion worth of Chinese goods will increase after a pivotal round of trade talks failed to produce an agreement, adding on to the risk aversion as investors shift towards safe haven such as JPY and Gold.
The decline was further fueled when hopes of cross-party compromise on Brexit deal fades as Jerome Corbyn called on Theresa May to move her red lines for a breakthrough in the Parliament. Meanwhile, May is also faced with growing calls for her resignation as Brexit supporters were unsatisfied with her failure to deliver Brexit.
Next week, the release of a slew of Economic data including the Manufacturing Production, Industrial production and GDP results could provide some support for the currency though the rally is likely to be short lived if Trump and China are not able to resolve their differences in the trade negotiations.
KEY TECHNICAL LEVELS ON GBPUSD
This week we’re seeing price right on the 1st support area (1.2983 to 1.3006) and is similarly testing a horizontal overlap support. Along with that, price is right on the Ichimoku cloud support. Stochastic is correspondingly right above major support at 4.48%.
PRICE JOURNEY ON GBPUSD
Based on PsyQuation, GBPUSD started the day on a mixed note, hovering above and below the 0% level before shooting up strongly to a gain of around 0.05% before plummeting down to a loss of -0.05%. Since then it has rallied strongly to a gain of 0.066%. Wish to accurately monitor the price journey of each currency? Head over to the PsyQuation website to find out more.
AxiTrader allows you to trade the Pound against the US Dollar (GBPUSD) as a CFD. Open an account here.
FUNDAMENTAL ANALYSIS ON EUR
The EUR rallied at the start of the week as investors' confidence in the Eurozone rose in May for the third month in a row to hit its highest level at 5.3 since November 2018, surpassing the estimates of 1.4, while PMI numbers shows a shift from a contraction to an expansion in the economy. However, as the week progresses, the currency was not able to sustain its rally as the European Commission cut GDP forecast for all members of the bloc with the notable exception of Greece, causing Italy's leaders to attack the new deficit forecasts.
Meanwhile, the dimming global outlook as trade tensions escalated between US and China and recent confirmation that Tariffs $200 billion worth of Chinese goods will proceed further sour the markets' risk sentiment. Elsewhere, new US sanctions imposed on Iran's industrial metals sector is also adding bearish pressure to the currency as Trump warns Europe to stop doing business with Iran and vowed to squeeze Tehran further until it fundamentally alters its conduct. On the other hand, Iran threatened to enrich their uranium again beyond agreed limits unless Europe throws them a lifeline, putting Europe in a spot.
Next week, keeping the above events in mind, we tilt towards a bearish stance for the currency and anticipate a slew of economic data with EU's GDP and CPI in focus which could provide some support for the currency though it is likely to be short lived.
KEY TECHNICAL LEVELS ON EURUSD
EURUSD is seeing strong bearish momentum in the form of a bearish channel and a bearish descending line. 1st resistance level at 1.1324 has seen price react off strongly recently. There’s intermediate support at 1.1135 which is a swing low support and a Fibonacci extension.
FUNDAMENTAL ANALYSIS ON JPY
JPY has benefited from growing risk aversion as U.S. and China have kept the rhetoric hard-line. President Trump said China “broke the deal” and China also warned that it would retaliate should the tariffs happen on Friday.
The China tariffs are still set to be effective on Friday noon (GMT8+) and JPY could be traded sideways today since there’s still hope that the trade talks could progress well in tomorrow’s negotiation. The upside could be limited given the market has almost priced in the China tariffs in the past few days and any good news could lead the funds away from the safe haven.
KEY TECHNICAL LEVELS ON USDJPY
USDJPY is now right on the 1st support at 109.68 which is a fibonacci extension, fibonacci retracement and a horizontal swing low level. Stochastic is correspondingly right above major support at 1.56% too. The 1st resistance we’re seeing is at 111.02 which is where the price gap occurred from the weekend along with a 100% and 61.8% Fibonacci extension.
PRICE JOURNEY ON USDJPY
Based on PsyQuation, USDJPY started the day strongly, rallying to a gain of 0.3% before losing some steam and dropping back down to a gain of 0.146%. The majority overall journey of USDJPY since the day opened has been bullish. Wish to accurately monitor the price journey of each currency? Head over to the PsyQuation website to find out more.
AxiTrader allows you to trade the US Dollar against the Japanese Yen (USDJPY) as a CFD. Open an account here.
FUNDAMENTAL ANALYSIS ON AUD
This week has been a tumultuous week for the AUD. It began with Trump's threat to increase tariffs on $200b of China's exports from 10% to 25%(that were set to place 10th May Friday 12am) and impost new import taxes on of 25% on $325b in the near future, stating that trade talks were taking too long. Shortly after, the AUD was strengthened when the RBA surprised markets by opting to leave the OCR at 1.5%.
This morning, Australia's central bank slashed its near term growth outlook and is relying on persistent jobs market strength to cushion a property-driven downturn in household spending. The economy is expected to expand 1.7% in the year through June vs 2.5% seen three months earlier. The expected CPI was cut to 2% from 2.25%. However, the AUD didn't move much following a monetary policy statement as investors re focus on trade talk progress.
AUD strengthened starting from last night as Trump said they have an "excellent alternative", however a recent article this morning mentions tariffs that are due to set in at noon will still go on, at least until more negotiations that will take place later today (Friday US time). Hope of re-negotiations could help lift the NZD till then.
Next week, employment data for Australia will be released and it will be interesting to see if the labor market has held its strong performance. A strong labor market was one of the leading reasons why the RBA thought a rate cut was unnecessary yet.
FUNDAMENTAL ANALYSIS ON NZD
This week for NZD, RBNZ cuts key rate to 1.5% from 1.75%, "The monetary policy committee decided a lower OCR is necessary to support the outlook for employment and inflation consistent with its policy remit", the central bank said in a statement. It was also stated that employment is near maximum sustainable level. However, the outlook for employment growth is more subdued and capacity pressure is expected to ease slightly in 2019.
The RBNZ's statement was not too dovish and left little impression that successive interest rate cuts are in store, as such the NZD pared most of its losses. Through the week NZD was traded lowly as investors look to cues from the US-China talks. The currency was later lifted and weakened as with other commodity currencies, in tandem with trade talk progress. Hope of re-negotiations that will take place tomorrow could help lift the NZD till then.
Next week seems to be a rather quiet week in terms of data release for New Zealand.
KEY TECHNICAL LEVELS ON NZDUSD
NZDUSD has dropped strongly to the 1st support level we identified last week. It is bouncing strongly above that level and we can see support from 0.6552 to 0.6585. Stochastic is bouncing above major support at 3.3% whilst displaying bullish divergence versus price. It is worth noting that while there is strong support, NZDUSD is also seeing strong bearish momentum from its bearish channel.
PRICE JOURNEY ON NZDUSD
Based on PsyQuation, NZDUSD started the day dropping slightly before rallying up to a gain of 0.3% for the day. Since then, it has dropped back down to its opening level of the day. Wish to accurately monitor the price journey of each currency? Head over to the PsyQuation website to find out more.
AxiTrader allows you to trade the New Zealand Dollar against the US Dollar (NZDUSD) as a CFD. Open an account here.
FUNDAMENTAL ANALYSIS ON CAD
The BoC's recent business outlook showed worsening conditions in the economy with a slowdown not only limited to Canada. Also, the US-China trade talks have limited the strengthening of the CAD as risk aversion has also weighed on the price of oil. Trade balance data also came in lesser than expected at -3.2b instead of -2.4b.
Today, employment data for Canada will be released. After a loss in jobs in March, minimal changes are projected for April. The unemployment rate is forecast to remain unchanged at 5.8%. Employment tends to lag economic growth, and Canada could be the first to witness a cool down in hiring. A modest increase in positions, as forecast, or a second consecutive month of losses may weight on the loonie that is already in a very vulnerable position.
Next week, CPI data will be released and along with today's employment data can give investors a better picture of whether a potential rate cut may arise.
KEY TECHNICAL LEVELS ON USDCAD
USDCAD is right below 1st resistance at 1.3525 which is a 61.8% Fibonacci extension and a 76.4% Fibonacci retracement. Stochastic is correspondingly right below major resistance at 97%. The 1st support we’re looking at is 1.3362 which is a 100% Fibonacci extension, 61.8% Fibonacci retracement and a horizontal swing low support level.
PRICE JOURNEY ON USDCAD
Based on PsyQuation, USDCAD was hit hard at the start of the day, dropping by almost 0.25% before posing a recovery. It is now down 0.062% for the day. The majority overall journey of USDCAD since the day opened has been bearish. Wish to accurately monitor the price journey of each currency? Head over to the PsyQuation website to find out more.
AxiTrader allows you to trade the US Dollar against the Canadian Dollar (USDCAD) as a CFD. Open an account here.
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