Trade tensions are back on the fore today as Chinese officials are “shocked” by the list of $200 billion in proposed tariffs by the US administration and say that they have no other choice but retaliate. The currency markets have taken this news in their stride with the Dollar only slightly higher this morning but equities are trading deeply in the red on the back of these headlines. The important question of the day is whether this sell-off seen in equities will spill over into the FX market as soon as Europe comes online.
The greenback moved higher yesterday and even though the US session was significantly weaker for the US currency this morning the uptrend seems to be back in place. The Dollar Index is trending higher at this time even though US Treasury yields declined yesterday and today's price action should be dictated by the trade-related headlines as the calendar is empty of US data. Dollar/Yen is trading around 111.00 and a potential risk-off tilt today will put the pair under pressure. A move below yesterday's 110.80 lows will draw attention on the 110.40 base of support.
The Euro was in the red yesterday testing the 1.17 level on the back of softer than expected ZEW data where analysts cited political uncertainty in Europe as the primary concern behind the weaker figures. Today Mario Draghi will be speaking in Frankfurt and the odds of reiterating his bullish remarks on inflation are high; the shared currency will need his support but in case investors disregard his comments and look to the downside a break of the 1.17 support exposes the 1.1650 area.
The Pound is treading water around the 1.3250 level this morning unfazed by the weaker Production data released yesterday. The focus here is clearly on PM May's administration and whether she will survive the recent revolt in her cabinet. BoE Governor Carney will be speaking in public in the evening so Cable's price action in the morning will depend on Dollar's momentum; if the risk-off bias intensifies then it's likely that Pound will come under pressure again. The key support is placed at the 1.32 mark and a potential decline lower could trigger a drop of 80 pips over the next 24-48 hours.
Commodities are in the red this morning with Gold just above the $1,250 level and Oil moving towards the $73 area. The yellow metal bounced from its lows yesterday but its erratic price action over the past few days makes it hard to call a direction. A move below the $1,247 low will clear the path towards $1,240 otherwise the key level to the upside stands around the $1,260 mark. Oil came under some pressure to test the $73 level but the upside still remains our base scenario; rumors that India, the largest importer of Iranian oil, will participate in the US-led embargo is the new catalyst that could drive prices higher - $77 is still our first target.
Equities in Asia are trading in the red following China's remarks on the proposed US tariffs and investors are back on a risk-off bias. This new $200 billion salvo would be a considerable step up in the trade spat between the world's strongest economies and the odds of this dispute taking a toll on global growth are now mounting. The European and US futures are reflecting investors' nervousness and the gains seen this week are now under threat. The Dow Jones closed just shy of the 25,000 points' mark yesterday but with futures pointing towards a 200-point lower opening the 24,500 points' area comes back into focus.
MARKET EVENTS TO WATCH
- ECB President Draghi Speaks in Frankfurt - 11am
- Bank of Canada Rate Decision - 6pm
- BOE Governor Mark Carney Speaks in Boston, Massachusetts - 7.35pm
All times are GMT +4.