Donald Trump Increases Tariffs on Steel and Aluminum Imports, Traders are anxiously awaiting the Non-Farm Payrolls report today
President Donald Trump imposed a 25% steel and 10% aluminum tariff on imports from Canada, Mexico and the European Union. Canada retaliated with their own tariffs while Mexico and the EU were preparing their own. Italy moved closer to forming a functioning coalition government. Treasuries rose, stocks and yields fell. The Dollar ended mixed, up against Loonie and Mexican Peso, down versus the Euro.
The Trump tariff move reignited fears of a global trade war although the outcome was less than the overaction over the Italian political drama. An all-out trade war would seriously affect relationships and endanger global economic growth.
The effects of a global trade war on the US Dollar are hard to predict. In the past trade protectionism from the US went together with their preference of a weaker currency. Which is not exactly the case today. Geopolitics is every changing. Global central banks are trying to normalize from years of easy monetary policy. Inflation, while starting to rise, is erratic. Global economic progress, which accelerated last year has slowed. The past five eventful months of this year have taught us that the global trading order we’ve had since the 1970’s is being tested. As we start a new month, the times ahead could certainly stir markets further.
Economic data released yesterday was generally upbeat. Annualized Inflation in the EU easily beat forecasts. Claims for unemployment benefits in the US fell while the Chicago PMI beat forecasts. Today’s US May Payrolls gain is expected to be higher than the previous month (186k vs 164k). The focus will be on the growth in wages forecast to rise above the Aprils number.
Events and economic data releases today: China Caixin Manufacturing PMI (May), Italian, French, German and Euro-Zone Manufacturing PMIs, UK Manufacturing PMI, US Non-Farm Payrolls, Unemployment Rate, Average Weekly Earnings and ISM Manufacturing PMI.
The Dollar Index (USD/DXY) slipped 0.1% as the Euro’s rebound extended. EUR/USD climbed to 1.1697 (1.1667). The Dollar gained 0.5% against both the Loonie and Mexican Peso. Chances for a North American Free Trade Agreement appear slim.
The Australian Dollar was little-changed (0.7568) while the Kiwi finished 0.22% higher (0.7000).
The Dollar Index (USD/DXY) – closed marginally lower at 93.974 (94.087 yesterday). The drop in the USD/DXY was mainly from the Euro’s bounce. Overnight low traded was 93.717. Immediate support lies at the 93.70/80 level. Immediate resistance can be found at 94.25 (overnight high) and then 94.50. The Dollar Index appears to have hit a short-term top at 95.00 and maybe in corrective mode. A move lower to the 92.50/93.00 area is possible. Likely range today 93.70-94.20.
EUR/USD – While the Italians move closer to gain a functioning coalition government, Spain’s Prime Minister Mariano Rajoy appears headed for a defeat in a no-confidence vote in Parliament. On the trade front, the European Union issued a list of hundreds of US products that will be subject to trade tariffs. EUR/USD rose to 1.17244 overnight high before settling at 1.1695 in New York. Overnight low traded for the Euro was 1.1641. Expect immediate support at that 1.1640/50 level. Further support lies at 1.1600. Immediate resistance can be found at 1.1720 and then 1.1780. Euro area PMI data are released later today. Likely range 1.1660-1.1710. Look to sell rallies.
USD/JPY – finished flat at 108.84 (108.87 yesterday). The Dollar rose to a high 109.00 overnight. Immediate resistance lies at 109.00 and then 109.30. Immediate support can be found at 108.40 (overnight low 108.39). Yesterday Japanese Housing Starts bettered forecasts. The yield on the US Ten Year bond was up one basis point to 2.86%. Trade issues and the market’s risk appetite will determine where USD/JPY heads in the short term. Likely range today 108.30-109.30. Prefer to sell rallies.
AUD/USD – closed modestly lower at 0.7568 (0.7580 yesterday). The Aussie traded to 0.75932 highs overnight. The resistance at 0.7600 remains strong and it’s difficult to see a sustained break above that level given the current market environment. AUD/USD low overnight traded was 0.75526. Immediate support can be found at 0.7550 and then 0.7520. The US trade agreement with Australia (exempt from tariffs) remains intact for now. However, a global trade war would imperil growth which will limit any Aussie gains. Today sees the release of Chinese Caixin Manufacturing PMI data for May. Likely range 0.7540-0.7590. Just trade this range shag.
USD/CAD – reversed losses following the Trump administrations move to impose trade tariffs on Canadian steel and aluminum exports to the US. While NAFTA negotiations have been ongoing, any real chances of survival appear slim. In spite of a more hawkish outlook from the BOC yesterday, trade war fears weighed on the Loonie. USD/CAD traded to an overnight high 1.2991 from 1.2818 lows. USD/CAD settled at 1.2955 this morning. USD/CAD has immediate resistance at 1.2980 and then 1.3010. Immediate support is found at 1.2920 and then 1.2880. Likely range 1.2900-1.3000. Look to sell rallies, net speculative CAD short bets are at their highest since July 2017.
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