Monday, June 18, 2018

Renewed Trade Tensions Dampen Risk Appetite, Dollar Trends Higher While Stocks Decline

  • China
  • Dollar
  • A bearish tone is the first thing traders will notice when they sit in front of their screens this morning fueled by the re-escalating trade tensions between the US and China. On Friday, US President Donald Trump announced $50 billion worth of tariffs versus China and, of the course, the Asian nation retaliated with their own levies. This downbeat bias is taking its toll on the price action at the beginning of the week leading the European majors and global equities lower.
  • The Dollar will be in demand this week versus most of its peers as the US-China trade dispute comes front and center again. The US currency got a boost last week when the Fed raised interest rates for the second time this year and announced two more moves by the end of 2018. Following Friday's latest development in the “trade war saga” the Euro, the Pound and the commodity dollars will remain under pressure during the first 48 hours of the week as investors will look to go on the defensive.
  • The Euro was looking poised for a recovery after its 300 pips decline post-ECB as the bearish tone coming out of Draghi shouldn't deter long-term focused investors from buying the Euro ahead of ECB's tapering. However, with the markets on a risk-averse mode this morning any Euro buyers will likely sit on the sidelines for now which means that the shared currency should remain below 1.1650 threatening to penetrate the 1.1550 lows.
  • The Pound will similarly struggle to find any reason to move higher at the start of the week. The Bank of England are meeting on Thursday and the takeaway from the meeting will be crucial in deciding the outlook of the currency for the weeks to come. Unfortunately, the BoE will have little reason to deviate from their bearish tone as the domestic performance has slowed down in the past weeks. As such, the combination of a risk-off bias and a cautious central bank will keep the Pound trading below 1.33 with a view to hit 1.32.
  • The Dollar/Yen however is a different story. In times of geopolitical unrest, the Japanese Yen always attracts investors' attention as they look for safe havens and combined with the technical outlook of the pair we could be looking at a reversal to the downside. Dollar/Yen reached 111.50 in May but was unable to break above this level and now we're looking at a lower top forming just below the 111.00 mark. Further risk-off demand will put pressure on the currency pair and the level to keep an eye is the 110.00 support - a break below this will expose the 109.30 monthly lows.
  • Equities in Asia are trending lower this morning with China, Indonesia and Taiwan off but the bearish tone is clear on the markets that are open. Investors are concerned about the new round of tariffs from the US on China and the Asian nation's response that everything that they had previously agreed on with the US is now off the table. This brings both countries at the cusp of a full-blown trade war and dampens risk appetite. The European and US futures are trending to downside with the DAX expected to open close to 1% lower while the US bourses are expected to open half a percent below water.


  • NAHB Housing Market Index - 6pm

  • ECB's Draghi gives opening remarks at Sintra conference - 9.30pm

All times are GMT +4.