Monday, June 25, 2018

Trade wars and tariff threats keep the Dollar under pressure while Yen rallies

  • Dollar
  • Yen
  • Euro

Markets start the week on a risk-off tone after President Trump threatened to impose tariffs on imported cars from Europe and he is now planning to curb Chinese investments in “sensitive” US industries. The Yen is gaining the most from the change in sentiment breaking below last week's lows en route to the 109 base of support. At the same time, the Dollar remains under pressure following last week's losses with Treasury yields declining as investors are turning to the safe haven US debt.

The Euro is at the top of our watchlist this morning as the currency is hovering around the 1.1650 area halting its rally on Friday after the news about US tariffs on European cars hit the wires. Today, the German IFO report will present the Single currency with the opportunity to hit 1.17 as long as the business sentiment data prints positive. However, given that expectations are set for a steady printing there's room for a surprise on both sides: a robust reading will propel the Euro to 1.17 while a softer report will force speculators to close their longs sending the Euro to 1.16.

Oil is trading just shy of the $69 level this morning after OPEC's agreement to boost production. The agreement however was unclear around the exact number of added barrels per day, with some ministers mentioning 1 million b/d of added supply while others indicated that the supply hike will be around 700,000 b/d. Following the announcement, Oil rallied suggesting that a bottom has been reached. The $67-68 area now becomes key and if Oil manages to remain above these levels then a further move towards $70.50 should be expected.

The EU Summit will also make headlines this week but there's little to be expected in terms of support to the Euro and the Pound. The main items on the agenda are around the structure of the European Union, immigration and the Brexit process and without any meaningful developments on any front the two major European currencies will struggle to find a reason to rally. In terms of the Pound though, BoE Carney's speech on Wednesday will be interesting to follow looking for any reaction to the slightly more bullish BoE bias seen last week.

Equities in Asia are slightly below water this morning while the European and US futures are mostly mixed. Trump's threats to curb Chinese investments in the US are casting doubts on the prospects of the US economy and investors are starting the week with limited appetite. Nevertheless, after a few days in the red global stocks are hoping for a reason to rally and even though nothing can be seen on the horizon at this time we should remain vigilant and be ready to jump into the market again when momentum picks up.


  • German IFO Expectations - 12pm
  • German IFO Current Assessment - 12pm
  • US New Home Sales - 6pm

All times are GMT +4.