Donald Trump upped the ante on the trade war dispute with China, he unexpectedly threatened to set a 10% tariff on a further $200 billion of Chinese products, to which China said it would retaliate. Trump’s decision was in response to China’s response on Trump’s decision last week to impose tariffs on $50 billion of Chinese goods, and China responded accordingly. The spiral continues.
Global equity markets are down, along with most major currencies, as are commodities. Oil is down 1.76% on the day, trading at $64.70 USD a barrel for West Texas Intermediate.
The Canadian dollar is weaker and will likely stay at these levels till there some sort of agreement on either global tariffs or the signing of a new NAFTA accord.
USDCAD 1.3213, 1.3198, 1.3118 1.3290, 1.3300, 1.3325
USD-CAD is up for a fourth consecutive session, printing today a fresh one-year high at 1.3240. The new high comes with trade tensions ratcheting up another gear with Trump threatening to levy a further tariffs on $200 bln worth of Chinese imports. This has hit the dollar bloc currencies, and follows the unexpectedly hawkish Fed guidance last week. We retain a bullish view of USD-CAD, partly on the Fed versus BoC policy outlook, and on the view that trade tensions are likely to drag for the foreseeable. Support is at 1.3159-60.
EUR-USD has tipped back to the 1.1550 area, almost a big figure below the intraday high that was seen during pre-European open trading in Asia. The euro has underperformed generally, and only the Australian dollar out of the other main currencies is weaker on the day. The common currency is showing a 0.6% decline versus the dollar, and a 1.2% loss to the outperforming yen. The euro has been helped on its way lower by circumspect remarks by ECB President Draghi and his colleague Liikanen, the former saying “we will be patient will the timing of the first and will take a gradual approach… thereafter” and the latter saying interest rates could be kept on hold until after the summer of 2019 if needed. The Ifo institute also trimmed its German growth forecast. We had been advocating fading EUR-USD gains in the wake of the ECB’s dovish-tilting guidance of last week, which put emphasis on the Fed’s tightening path. After a two-week hiatus, the sharp declines since last Thursday have reaffirmed a down trend that’s been in evolution since mid April. The weekly close on Friday below the previous weekly close at 1.1659 is consistent with Dow Theory’s definition of a bear trend. EUR-USD has resistance is at 1.1597-1.1600.