USA and China agree to drop tariffs and Dollar continues its upward trend

News on trade talks between China and the US have grabbed the market's attention this morning

USA and China agree to drop tariffs and Dollar continues its upward trend

Dollar continue upward

The Dollar Index (USD/DXY) ended up on Friday, mainly on a weaker Euro and Pound. The Aussie held its ground while the Swiss Franc and Kiwi outperformed. Treasury prices rose, yields fell, stocks were mixed. The yield on the US Ten Year Bond slipped 5 basis points to 3.06%.

Outlook: News on trade talks between China and the US have grabbed the market’s attention this morning. US Treasury Secretary Donald Mnuchin declared Sunday that both countries have agreed to drop their tariffs while they “try to execute a framework” to reduce China’s US$ 375 billion trade surplus with the US. While the two sides agreed not to launch a trade war, no specific numerical amounts on reducing the gap were mentioned. The ongoing trade negotiations between the world’s two largest economies take center stage this morning. Japan and the European Union have their own trade issues with the US and will be closely monitoring these developments.

Trading View: We could be in for an interesting Monday start with risk currencies (Aussie, Kiwi) outperforming.

While Friday’s trade saw a higher Dollar Index, it’s performance was mixed overall.
The latest CFTC/Reuters report for the week ended May 15 saw total net speculative US Dollar short bets reduced to their lowest in 12 weeks. The breakdown 
of the individual currencies is what is of interest to traders.

While global yields were all lower, the US Ten Year yield fell 5 basis points from 3.11% to 3.06% Friday. We may have seen a temporary top depending on further US data ahead.
France 
Germany,

and Switzerland celebrate their Whit Monday holiday today while Canada has it’s Victoria Day holiday. Markets will be closed in these centers with no major economic data out today.

The Dollar Index (USD/DXY) closed at 93.664 (93.483 Friday), up 0.21%. The rise was mostly due to a lower Euro and Sterling (totaled combined weight 69.5%). Overall the Dollar put in a mixed performance with a lower US Ten Year bond yield. Trade issues as well as the market’s current positioning cloud the picture and we don’t have a one-way trade (higher) anymore. Immediate resistance lies at 93.80 (overnight high 93.83) and then 94.00, which is strong. Immediate support can be found at 93.40, 93.20 and then 93.00. Likely trading range today 93.30-93.80. Prefer to sell rallies today.

EUR/USD – continues to drift lower given the market's jitters on Italian political developments. A few months ago, these were shrugged away. The yield on Germany’s Ten-Year Bund fell 6 basis points to 0.57%. This put a cap on the Euro at 1.1822 (overnight high). EUR/USD closed at 1.1770 from 1.1795 Friday. The big mover on Friday was the EUR/CHF cross which slumped to 1.1745 from 1.1815 on Friday. Classic flight-to-quality stuff. The Italian M5S/League Coalition agreement poses uncertainty on Italy’s current relationship with the EU Immediate resistance lies at 1.1800 and then 1.1820. Immediate support can be found at 1.1750 (overnight low 1.17498) and then 1.1720. A break of 1.1700 could see the Euro back to the 1.14/1.15 area. Likely range today 1.17555-1.1815. Prefer to sell rallies to 1.1820. Watch the EUR/CHF. This may dictate the Euro’s moves from here on.

EUR/USD

GBP/USD – Sterling underperformed on Friday despite the euphoria from the Royal Wedding over the weekend. Growing pessimism on Brexit talks weighed on the British currency. Much of the latest conflict centers on the UK’s Customs Union with the European Union. Last week, PM Theresa May said that the UK would leave the Customs Union with the EU after Brexit. The overall stronger US Dollar eventually weighed on the Pound. GBP/USD closed 0.41% down at 1.3473 (1.3513 Friday). Speculative market positioning, while trimmed, remains long Sterling, which is remarkable considering Sterling’s recent drop. Immediate resistance lies at 1.3500 and 1.3530. Immediate support can be found at 1.3470 and 1.3450. Likely range today 1.3450-1.3530. Look to sell rallies.

GBP/USD

USD/JPY – slipped off its highs to end at 110.77, off 0.08% from 110.83 Friday. USD/JPY traded to a high of 111.08 before slipping on the back of the lower US Ten-year yield. Japan has its own trade issues with the US and the current China-US negotiations are keenly watched by Japan Inc. Immediate resistance at 111.00 remains strong and it’s difficult to see a clean break higher without US yield support. Immediate support can be found at 110.50/60 (overnight low 110.611). Likely range today 110.60-111.20. Just trade the range on this one shag.

USD/JPY

AUD/USD – you can’t keep a good thing down as the Aussie has once again demonstrated its resilience at the low end of a range. AUD/USD held that 0.7490 level well, bouncing to an overnight high 0.7528. AUD/USD closed at 0.7510 (0.7510 Friday). This morning, AUD/USD opens slightly higher at 0.7522 on the latest China-US trade news and increased risk appetite. Current market positioning will also be Aussie support. AUD/USD has immediate resistance at 0.7535 and then 0.7565 today. Immediate support can be found at 0.7490 and then 0.7470. The 0.7450 level is now formidable support. Likely range today 0.7500/60. Prefer to buy dips.

AUD/USD

USD/ZAR  A boost in US Treasury yields saw the capital move away from emerging markets, with the rand taking a knock, losing ground from gains made earlier in the week.

By 11:44, the local currency was trading 0.83% weaker at R12.71 to the US dollar.

“The South African currency weakened as emerging market sentiment soured again due to rising US bond yields and an uptick in geopolitical risk in the Middle East,” NKC Africa Economics said in a note on Friday.

USD/ZAR

New Zealand’s Q1 Retail Sales rose less than expected, released an hour ago. There are no major economic data releases today. NZD/USD slipped 10 pips on the report.

 

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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.

 

HIGH-RISK WARNING:

Trading Forex (Foreign Exchange) and Contracts for Differences (CFD’s) is highly speculative, carries a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.

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