The U.S, and China are set to meet tomorrow in order to see if they can come to an agreement in regard to the current tariff climate. Ironically, the Trump administration plans to slap tariffs on $16 billion of goods on the same day and China is poised to retaliate. At the same time, investors await clues on monetary policy as central bankers gather in Jackson Hole Friday. US President Donald Trump accused China and the European Union of manipulating their currencies as he tries to wrestle concessions from two of the US’s largest trade partners. The president’s accusation, which he has previously made repeatedly, and which was presented without explanation or substantiation in the report, conflicts with the findings of his own administration. The US hasn’t officially accused another country of currency manipulation since 1994. That country was also China when it was accused of devaluing the yuan.
30-day simple moving average 1.3095
USDCAD 1.3045, 1.3040, 1.3029 1.3075, 1.3090, 1.3100
USD-CAD has descended to a 12-day low at 1.3020 amid a sell-off in the U.S. Dollar and associated dip in U.S. Treasury yields after Trump complained about Fed rate hikes. This comes with Friday’s release of hotter-than-expected CPI data out of Canada still in fresh memory. The breach of recent daily lows at 1.3050-52 mark a bearish development for the pairing. There still remains a built-in discount to the Canadian Dollar, relating to the NAFTA renegotiation, so USD-CAD will remain directionally sensitive to developments on this front. For now, directional bias looks to remain to the downside. The August-7 low at 1.2962 provides a downside waypoint.
EUR-USD has settled to a narrow oscillation below the 12-day peak that was printed during the Asian session at 1.1543. At bid of 1.1519 (as of the early European PM session) the pair remained up by 0.7% on the week so far, buoyed by President Trump’s latest show of displeasure at Fed tightening and call for a less hawkish policy stance, which knocked both U.S. Treasury yields and the Dollar lower. EUR-USD is now comfortably above last week’s 14-month low at 1.1301. Despite the gains, we still retain a bearish view of the currency pairing, which has been lower since mid April. Our view assumes that Fed Chairman Powell make a stance of logical argument against Trump and will stick to his hawkish guns at a speech scheduled for Friday at the Jackson Holetrending gathering of policymakers. The relative strength of the U.S. economy has been, and should continue to be, showcased by incoming data, and show price pressures to be picking up, which has been accompanied by a 10-year high in core CPI, and this should girder the Fed’s course to further tightening. We expect two more 25 bp hikes in the Fed funds rate this year, one in September and another in December. In Europe, concerns about Italy’s Eurosceptic populist government have come back to the fore, and a palpable risk of a no-deal Brexit is an added potentially-bearish cloud hanging over the Euro. EUR-USD has resistance at 1.1587-90.