The dollar is falling because of the US-China trade war
Growing fears of a US-China trade war saw the Dollar slump to its lowest close in just over a month. Risk aversion lifted the Yen to 16-month highs while Wall Street stocks extended their drop on Friday. The Dollar Index (USD/DXY) a measure of the Greenback against six other Major currencies slid 0.37% to 89.48 (89.84 Friday).
On Friday the market’s attention was on China’s response to Donald Trump’s trade tariffs. The world’s two largest economies were increasingly closer to a trade war. China announced tariffs of US$ 3 billion on US imports in retaliation to Trump’s tax on US$ 50 billion of Chinese goods. In a Bloomberg report, China’s ambassador to the US said that they would not rule out scaling back purchases of US Treasuries as a response.
Amidst all the focus on the US-China risk play, US economic data continued to beat forecasts. Both Headline and Core US Durable Goods Orders beat expectations. Canada’s Core CPI bettered forecasts rising to a 6-year high.
On Friday, Minneapolis Fed President Neil Kashkari (a noted dove) said that he had supported the rate increase and did not see the economy overheating.
FOMC members Dudley, Mester, and Quarles are scheduled to speak following last week’s Fed rate hike.
The yield on the US Ten Year bond closed two basis points lower at 2.81%. Germany’s Ten Year Bund yield was flat at 0.52%. The yield on Japan’s Ten Year JGB was lower, to 0.01% from Friday’s 0.03%.
Thin trading conditions in the current environment will make for further volatility. Market positioning will have a huge impact this week. The latest CFTC/Reuters report (week ended 20 March) reveals some notable changes in speculative market positioning.
The Dollar Index (USD/DXY) – reversed Friday’s gains and fell to 89.48 from 89.85 Friday. The Dollar Index traded to an overnight low of 89.397. Immediate support lies at 89.40 and then 89.20. Immediate resistance can be found at 89.65 and 89.85 with 90.00 now a formidable barrier. Looks like consolidation today between 89.40-89.80
USD/JPY – The Dollar dropped as the risk-off sentiment weighed on the USD/JPY pair. The Yen is often used as a safe-haven play in times of heightened global tension partly because Japan’s current account surplus provides resilience. USD/JPY traded to an overnight low of 104.64 before a rallying mildly to close at 104.75. Immediate support lies at 104.60, followed by 104.40 and 104.10. Immediate resistance can be found at 105.00 and 105.30. The fall in the US Ten year yield was matched by a fall in Japan’s ten-year rate. Likely trading range today 104.60-105.60. Prefer to buy dips.
EUR/USD – rallied on the back of the generally weaker US Dollar and overall risk-off market stance. The Euro traded to an overnight high of 1.2373, closing at 1.2355 in New York. EUR/USD has immediate resistance at 1.2370 and then 1.2400. Immediate support can be found at 1.2330 and then 1.2300. Euro Zone data continue to underperform while that of the US keep improving. Given this important dynamic the Euro cannot continue to climb. Today should see a likely range of 1.2300-1.2380. Look to sell rallies.
AUD/USD – risk-aversion kept the Aussie on the defensive and the Battler closed mildly lower at 0.7700 from 0.7710 on Friday. While we are close to 3-month lows, the Aussie remains a touch heavy. Immediate support lies at 0.7700 and then 0.7680. The 0.7650/80 support zone is strong and should hold if the US Dollar stays weak. Metal prices were a touch mixed with precious metals up while base metals remained weak. The yield in the Australian Ten Year bond fell 5 basis points to 2.65%. Likely range today 0.7680-0.7750. Prefer to sell rallies given the market’s currency positioning.
GBP/USD – pretty-much sidelined, Sterling managed to gain some ground closing at 1.4135 (1.4110 Friday). While many expect the BOE to hike rates in May, the recent Brexit transition deal between the UK and the European Union has supported the Pound against the weaker US Dollar. Which was reflected in the market’s positioning. GBP/USD traded to an overnight high of 1.4172 before edging lower at the close. Immediate support lies at 1.4120 and then 1.4090. Immediate resistance can be found at 1.4160 and then 1.4180. The Brexit transition deal is not likely to be a game changer. Much more difficult negotiations like ahead. Likely range today 1.4100-1.4180. Look to sell rallies..
USD/ZAR – The rand took Moody's decision to keep South Africa's sovereign credit rating at one notch above junk status in its stride, according to Bianca Botes, the corporate treasury manager at Peregrine Treasury Solutions.
The rating agency made this announcement close to midnight on Friday night and even upgraded the country's outlook to stable.
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***Information contained in this newsletter are gathered from third parties and should not be regarded in any way as trade advice or recommendations by CM Trading. CM Trading does not recommend or advise traders or investors in their decision making but merely provides information from the market for its clients as additional information is made available as per the events occurring in the financial markets.
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