Market sentiment received a solid boost after US President Donald Trump obtained concessions from the European Union to avert a transatlantic trade war. The United States and Europe have reached a deal to work towards “zero tariffs, barriers and subsidies on non-auto industrial goods” in a bid to defuse escalating trade tensions.
The general theme in our recent posts has been about a possible correction or a retracement of some sort in US dollar. The greenback has indeed stopped going up but it hasn’t exactly sold off. Well, at least not yet anyway.
When it comes to the forex market, the New Zealand dollar punches well above its weight. New Zealand famously has a larger population of sheep than people, and the country’s GDP ranked just 70th among individual countries last year (behind powerhouses such as Greece, Uzbekistan and Ecuador).
The Aussie/Japanese yen (AUD/JPY) currency pair’s price action over the last five months provides a picture-perfect case study of rangebound trading opportunities. Like many so-called “risk assets,” the pair peaked in January of this year before trending low through February and March. In March, the pair put in a high around 84.50 and 80.50, keeping the established downtrend intact.
For now, though the USD/JPY is clinging onto an important bullish trend line after the rally came to an abrupt halt around the 113 handle last week. While a couple of important support levels such as 112.05 and 111.35 have broken down, the USD/JPY is yet to break its market structure of higher highs and higher lows.
The dollar resumed its slide on Monday morning as trade jitters seem to have stepped up, further threatening a currency war. President Donald Trump publicly criticized the Federal Reserve’s tightening policy on Friday, stating that “the United States should not be penalized because (they) are doing so well” -- in his opinion, tightening now is hurting his efforts to boost the economy.
The U.S. dollar/Canadian dollar (USD/CAD) slumped on Friday following the release of stronger Canadian data, while the U.S. dollar pulled back across the board amid profit-taking and after President Donald Trump had criticised the Federal Reserve’s interest rate rises the day before. Canada's retail sales rose 2.0% month-over-month in May versus 1.0% expected with core sales climbing 1.4% on the month, also better than expected.
Notwithstanding President Trump’s daily twitter condemnations (trade partners and the Federal Reserve drew his ire this morning), traders have started to look ahead to next week’s trade. The marquee economic events impacting next week’s FX market will likely be Australia’s Q2 CPI reading in Wednesday’s Asian session and Thursday’s ECB meeting.
The U.S. dollar was on course to end sharply higher yesterday until Donald Trump spoke. While the greenback has steadied and could still push higher, market participants are now in no doubt what the President thinks of the currency’s growing value and rising interest rates in the United States. But can he actually do anything to stop them rising?