The pound fell to a seven-month low awaiting the voting on Wednesday
The risk of the European market was certainly geared to the offsetting as equity markets plummeted to new lows as the trade tariffs from the U.S. alongside the retaliation remarks of the EU and China are putting a damper on the positive attitude that was certainly the case a few weeks ago.
Haven currencies such as the JPY and CHF, as well as U.S. Treasuries, rallied after Donald Trump’s threat to impose more tariffs on Chinese goods drew a stinging rebuttal from the Asian nation; risk-sensitive currencies slid the most.
The euro also felt the heat amid another dovish message from ECB President Mario Draghi; London traders stepped in and reversed its Asia-session gains, with the common currency falling as much as 0.8% to a three-week low of 1.1531 after earlier advancing to 1.1645.
The pound dropped to a seven-month low against the dollar as U.K. Prime Minister Theresa May faces a knife-edge vote on her Brexit legislation in Parliament on Wednesday. The Crude Oil has managed to rally quite the bit before the OPEC meeting tomorrow as Gold plummets on a stronger dollar.
In the key headlines for the European session:
- Chinese shares plunged after Trump ordered the identification of up to $200 billion in imports from the country for additional tariffs of 10% – with another $200 billion after that if Beijing retaliates. China vowed to respond “forcefully” to any such moves
- The ECB will remain patient in determining the timing of the first-rate rise and will take a gradual approach to adjust policy thereafter, Draghi said in a speech in Sintra, Portugal
- The EU’s 27 remaining leaders may warn the U.K. that it faces crashing out of the bloc without a deal and call for contingency preparations, as an update due from the Brexit negotiators is set to highlight the limited progress made since March
- Anti-Brexit U.K. lawmakers pushing for more power over the divorce process will meet government officials on Tuesday for talks, as the government tries to head off a potentially humiliating defeat in Parliament. After the House of Lords defeated the government on Monday, May won’t be offering more concessions, a person familiar with her position said
The European session is taken over by the U.S. market as it promises another low-key session with Housing Starts and another set of Bills being sold by the U.S. The U.S. is gearing up to sell four and 52-week bills.
In terms of central bankers, there are ECB’s Peter Praet chains a panel featuring Saint Louis Fed’s Bullard.
The U.S.-China trade war escalation sent the greenback lower during Asia hours, which London traders saw as an opportunity to add longs. The Bloomberg Dollar Spot Index reversed losses even as the yen stayed near its day high as Antipodean, Scandinavian and emerging-market currencies traded deeply in the red. Treasuries and euro-area bonds gained, with stocks slipping another day.
EUR/USD – A higher close Monday suggests 21-DMA test is a plausible scenario, even as a ‘hanging man’ pattern is formed; bears in control on closes below 1.1859; trendline support since early January 2017 holds and could boost sentiment for opportunistic longs.
GBP/USD – Stays bearish with 21-DMA setting the tone; at bar 7 on daily DeMark buy setup; Bollinger width near year-to-date lows.
USD/JPY – Retains slight bullish bias even as DeMark buy setup formation is no more; trendline since December at ~111.20 sets the tone given that, as long as it caps, a lower highs pattern stays in place.
AUD/USD – Mixed signals as it hits one-year low; at bar 8 on daily DeMark buy setup and may complete Tuesday a sell countdown series.
EUR/CHF – Price action Friday forms bullish harami; 21-DMA resistance remains a strong hurdle for bulls.
USD/ZAR – The rand came under “massive pressure” on Tuesday morning, having weakened from R13.63 to R13.90, following news that US President Donald Trump is threatening new tariffs on Chinese imports.
TreasuryONE's lead dealer Wichard Cilliers said in a snap note that all eyes would now be on the trade spat.
By 09:14 the local currency was trading 1.92% weaker at R13.90 against the US dollar after breaching this level for the first time since November 27 last year when the rand traded at R14.00/$.
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