Heading South

Equities Under Pressure on China–US Trade War Escalation

Asian markets finished mostly lower Monday as China-USA trade talks failed to make any progress, and the Chinese government released a statement, saying it “deeply regrets that it will have to take necessary countermeasures.”

The Nikkei225 lost 0.86 percent to 21,163, and the Hang Seng benchmark in Hong Kong finished 0.84 percent higher at 28,550. The Shanghai Composite lost more than 1 percent to 2,905 while in Singapore, the FTSE Straits Times index finished 1.20 percent lower at 3,234. Australian stocks slipped 13 points or 0.2% to 6,297, snapping a two-session winning streak.

European session also started lower mirroring Asian indices and US futures, the DAX30 is 0.79 percent lower to 11,965 and CAC40 is 0.54 percent lower at 5,300 while the FTSE MIB in Milan is trading 0.76 percent lower at 20,715. The London Stock Exchange is flat to 7,198 as investors are waiting to see what counter-measures China will announce in retaliation for the increase in tariffs on $200bn of Chinese goods implemented by the US on Friday.

In commodities markets, crude oil started the week soft at 61.86 as investors eyes turn to geopolitical tensions. Brent oil on the other hand trades higher at $71.24 per barrel. Gold started higher at 1283 but looks trapped in the 1280 – 1286 zone. XAUUSD’s technical picture starts to improve, and now the support stands at the 200-day moving average down to $1251, which if broken can accelerate the downward move to 1200 as sellers will take full control. Strong resistance stands at 1293 and the 100-day moving average, and then the $1300 round figure.

BTCUSD Hourly (H1) Chart
BTCUSD Hourly (H1) Chart

In cryptocurrencies market, it was the weekend of bitcoin (BTCUSD) which managed to break above the 7,000 resistance and traded higher for the fifth straight day at 7,050 as bulls are in the driver’s seat. The daily low for BTC was at 6,846 and the daily high at 7,153. BTCUSD’s immediate support stands at the 50-hour moving average at 6,359 while the next strong support stands at the $6,115 level, the 100-hour moving average, and then at the 6,000 round figure. On the upside, strong resistance stands at 7,153, the high from the Asian session. Ethereum (ETHUSD) mirrors BTC higher and adds 15 dollars to 187, and the technical picture turns bullish as ETH breaks above the 200-day moving average. On the upside, the immediate resistance stands at 195, while Litecoin (LTCUSD) trades higher at 84.10. The crypto market cap holds above $174.0B.

On the Lookout: In economic news, the number of Australian home-loan approvals fell by a seasonally adjusted 2.5% in March (consensus -0.5%). While the number of owner-occupier home loans, excluding refinancing, fell by 2.8%. European Union Trade Commissioner Cecilia Malmstrom said that the EU would retaliate immediately to the US tariffs. They will be meeting with the US Trade Representative Robert Lighthizer next week and hope for the best regarding possible auto tariffs, Malmstrom added further.

China has vowed to retaliate after the US administration lifted tariffs on Chinese goods to 25% from 10%. China said it “deeply regrets” the move and will have to take “necessary counter-measures.”

In the North Atlantic economic calendar, the US data on consumer inflation expectations has been released.

Trading Perspective: In forex markets, the US dollar consolidates at 97,16 as traders digest the developments in US-Sino trade war. A stronger US dollar will likely increase the US trade deficit, adding risk that Trump administration continues to target those nations with a significant trade surplus with the US (China – Germany – Europe). The Aussie dollar trades lower at 0.6972 as the bears are in full control and the present decline can extend towards the 61.8% Fibonacci expansion level of moves since April 23, at 0.6940. A break of that level can force prices lower to 2016 lows at 0.6920. Kiwi also trades lower to 0.6584 as it continues its corrective bounce.

GBPUSD consolidates and holds the 1.30 in 22 pips trading range amid Brexit uncertainty hitting the daily low at 1.2990, a figure that also tested on Friday. On the downside, major support will be found at 1.2960 and then at 1.2830, the support line from February. On the upside, immediate resistance stands at 1.3096 the 50-day moving average.

In Pound futures markets, the open interest dropped by 667 contracts on Friday. In the same line, volume shrunk for the third session in a row, this time by around 12.1K contracts.

EURUSD started and trades at the daily high around 1.1230. The pair made the Asian high at 1.1240 and the low at 1.1222. Immediate support can be found at 1.1180, the 200 hours moving average while more solid support can be found at the yearly low at 1.1115. On the upside, the immediate resistance stands at 1.1236, the bottom of the horizontal resistance line from the three-month trading range, while more offers will emerge at 1.1268 at the 50-day moving average.

In the euro futures market, open interest shrunk by almost 3.4K contracts on Friday from Thursday’s final 515,785 contracts. Volume was down by nearly 74.8K contracts.

EURUSD Hourly (H1) Chart

USDJPY is trading below the 110 level for the third day as traders turn their eyes to safe assets amid renewed China-USA trade. Today the pair hit the low at 109.58 and the high at 109.83. The pair will find support at 109.58, the Asian session low. On the upside, immediate resistance for the pair stands at the 110 round figure and then at 110.61, the 100-day moving average, and then at 111.33, the 50-day moving average.

In Yen futures, the open interest shrunk for the second consecutive day, this time by more than 6.1K contracts; while volume increased for yet another session, now by more than 2K contracts.

USDCAD is trading lower today at 1.3422 as buyers look exhausted above 1.35 zone and stronger prices in crude oil, Canada’s main export item, seems to have added further weakness in the Canadian Dollar (CAD). The pair will find immediate support at the 100-day moving average around 1.3335 while extra support stands at the 1.3300 round figure. On the upside, immediate resistance stands at 1.3447, the Asian session high while a break above can escalate the rebound towards 1.35 round figure.