Weekly Preview: U.S.- China trade war not likely to end in this year

  • USD: USD slumped as the market is betting on at least one more rate cut this year
  • GBP: Brexit uncertainty continues to weigh on currency
  • EUR: PMI data for Eurozone in focus
  • AUD: AUD, NZD and CAD remain affected by refueled US-China trade tension that is causing bearish market sentiment
  • CAD: Loonie says afloat with better than expected domestic data however remains vulnerable to the ever changing oil prices

 

CURRENCY: USD

FUNDAMENTAL ANALYSIS ON USD

The DXY remained under selling pressure Friday, with an attempt to regain the upside post-NFP meeting sellers at 107.27. The US economy added 164,000 new workers, 16,000 in manufacturing and annual wage compensation rose 3.2% in July, reported the Labor Department on Friday. The unemployment rate was stable at 3.7% and labor force participation rose to 63.0%.The better than expected increase in wages in July, 0.3% against a 0.2% forecast and the revision to the June figure, also from 0.2% to 0.3% and the rise in the annual wage gain to 3.2%  from 3.1% in June answers the Fed’s logic of an insurance cut. 

 

On Friday, US government bond yields held near multi-year lows, while Wall Street plunged, with the three major indexes closing in the red and at their lowest since last June. The risk-off scenario was triggered by US President Trump late Thursday, as his decision to escalate the trade war fueled concerns about a steeper global economic slowdown, while, at the same time, lifted speculation that the US Federal Reserve will have to cut rates at least one more time before year-end.  Aside from trade, investors will keep an eye on a number of speeches from Federal Reserve policy makers this week, which can provide new impetus for USD.

 

CURRENCY: GBP

FUNDAMENTAL ANALYSIS ON GBP

Pound held steady last week as BOE kept interest rates unchanged at 0.75%. The bank published updated forecasts that acknowledged the economy could follow a "wide range of paths" in coming years though the forecasts exclude the possibility of a no-deal Brexit, while adopting a wait-and-see mode even as world central banks turn dovish. Meanwhile, BOE said that "there are limits" to possible response and it is unlikely that the bank would intervene to support the Sterling in an event UK crashes out of the EU without a deal. Looking ahead, we lean towards a bearish view as Brexit uncertainty continues to weigh on the Sterling, and with Johnson refusing to start negotiations unless the EU agrees to reopen the previously agreed divorce deal, it increases the risks of a no-deal Brexit as the deadline of 31 Oct looms. On the data front, next week will see the release of its GDP which could put the currency under renewed pressure. 

 

KEY TECHNICAL LEVELS ON GBPUSD 

 Source: TradingView

GBPUSD is trading between our first support level which is a 100% Fibonacci extension and our first resistance level at 1.2392 which is a horizontal pullback resistance, 100% Fibonacci extension and 38.2% Fibonacci retracement.

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CURRENCY: EUR

FUNDAMENTAL ANALYSIS ON EUR

Last week, EUR edged lower amid rising global trade tensions before paring gains against the greenback on broad dollar weakness as bets for a Fed rate cut in September rose with Trump abruptly slapping a 10% tariff on $300bn worth of Chinese goods. Meanwhile, Fed also delivered a 25bps rate cut in July, citing it as an insurance cut to bolster inflation pressures and boost growth while ECB took a dovish stance and signaled readiness to adopt additional stimulus to boost sustainable growth. Looking at the current landscape, investors might have to price in additional easing by the ECB, be it in terms of potentially larger or more rate cuts or in terms of bonds purchases. Elsewhere, EU is still struggling to find a way to convince Iran to stick with the previous nuclear agreement limits as Iran demands an economic lifeline from the Eurozone after the US imposed sanctions. On the data front, investors will be seeing a slew of PMI data from the Eurozone which could provide a clearer direction for the currency.

 

KEY TECHNICAL LEVELS ON EURUSD (H4) 

Source: TradingView

EURUSD is approaching its strong resistance level which is a horizontal overlap resistance, 61.8% Fibonacci extension and 38.2% Fibonacci retracement.

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CURRENCY: JPY

FUNDAMENTAL ANALYSIS ON JPY

The Japanese Markit Services PMI for July will be out at the beginning of the day, foreseen at 52.3 vs. The previous 51.9.  Meanwhile, Asian stocks fell Monday as investors fretted over President Donald Trump’s escalation of the U.S.-China trade war. China’s yuan tumbled past 7 per dollar to a record low in offshore trading. Shares slumped over 2% in many markets across the region and S&P 500 Index futures dipped. Hong Kong stocks led losses as protesters disrupted the city’s transportation system with a call for a general strike.  Ten-year Treasury yields dropped to their lowest since November 2016. The US President Trump on Thursday said that the US will impose an additional 10% levy on $300 billion worth of Chinese goods, ending the month-long trade truce. China has vowed to retaliate if the tariff hike takes effect on Sept. 1 as planned. Safe haven currency JPY rose 0.7% to 105.85 per USD after gaining 0.7% Friday. JPY is likely to edge up as the trade tensions steepen.

 

KEY TECHNICAL LEVELS ON USDJPY (H4)

Source: TradingView

USDJPY is trading between intermediate support at 105.778 which is a horizontal swing low support and 1st resistance at 107.19 which is a horizontal pullback resistance, 61.8% Fibonacci extension and 38.2% Fibonacci retracement.

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CURRENCY: AUD

FUNDAMENTAL ANALYSIS ON AUD

The AUD fell to a fresh seven-month low as the proxy for China, came under pressure, possibly due to the sell-off in China’s Yuan. Notably, the offshore Yuan fell beyond the psychological level of 7.00 per US Dollar earlier today on escalating Sino-US trade tensions. The US President Trump on Thursday said that the US will impose an additional 10% levy on $300 billion worth of Chinese goods, ending the month-long trade truce. China has vowed to retaliate if the tariff hike takes effect on Sept. 1 as planned. China’s Caixin Services PMI came in at 51.6, missing the expected print of 52.9 and down from the preceding month’s reading of 52.00. The data was released at 01:45 GMT today. The below-forecast China data could only add to the bearish tone around the Yuan and the Aussie Dollar.

 

KEY TECHNICAL LEVELS ON AUDUSD

Source: TradingView

 

AUDUSD is approaching its support at 0.6711 which is a long term 100% Fibonacci extension. 

 

CURRENCY: NZD

FUNDAMENTAL ANALYSIS ON NZD

NZD remains on the back foot around two-month low at the start of the week’s Asian trading on Monday. The not-so-dovish Fed rate cut followed the US President Donald Trump’s fresh tariffs on China, which pushed markets off the Antipodeans. Adding to the greenback strength could be mostly upbeat US employment statistics for July. During late-week, the US President opened a window of opportunity for China to avoid witnessing harsh tariffs if it can promise to act between now and the next trade meeting in September. However, the news was also making rounds that the White House isn’t ready to delay tariffs despite China’s threats to retaliate. While trade fears are here to stay, its quarterly employment data followed by the monetary policy meeting by the Reserve Bank of New Zealand will be released this week.

 

KEY TECHNICAL LEVELS ON NZDUSD

Source: TradingView

NZDUSD is approaching its major support at 0.6485, 61.8% Fibonacci extension.

 

CURRENCY: CAD

FUNDAMENTAL ANALYSIS ON CAD

Canada’s economy grew for a third successive month, but it wasn’t enough for the Canadian dollar, which lost ground against the greenback last week. GDP gained 0.2% in May, above the estimate of 0.1%. The positive direction of the economy will ease pressure on the Bank of Canada to lower rates, and not follow the Federal Reserve. As well, Canada posted a second successive trade surplus in June, with a small surplus of C$0.1 billion. This week for CAD we look to see its Ivey PMI, NHPI, Housing Starts and Employment Data.

 

KEY TECHNICAL LEVELS ON USDCAD

Source: TradingView

USDCAD is seeing resistance at 1.3255 which is a 61.8% Fibonacci retracement, 100% Fibonacci extension.

 

 

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