US Senate move and Trump tariff threat weigh down investor sentiment. US and Canadian macro data and fed meeting minutes in focus.
Summary: Wall Street cues plunge the global market into sharp downward nosedive ending the recent news drive positive price rally. Escalating Sino-U.S. trade tensions caused major indices and key risk stocks in Asian markets to close in red.
US market yesterday saw dovish dive following US Senate pass bill requiring annual certification of Hong Kong’s autonomy and warning Beijing against violently suppressing protestors which caused China to retort with retaliatory threats demanding that USA stop interfering in its internal affairs.
This along with Chinese commerce ministry’s comments stating that the US needs to remove active tariff on Chinese goods for any trade deal to pass through and US President Trump’s threats stating that there will be another hike of tariffs if China doesn’t agree to a trade deal yet made it clear that trade war between two major global economies isn’t going to end anytime soon.
This caused European equities to decline by nearly 0.50% as the market opened for the day and paved way for further declines as the growth outlook for its trade-dependent economy took a hit over the further extension of the trade war.
In the forex market, the latest developments in the trade war and its impact on global economic growth outlook weighed down risk sentiment causing emerging economy and major global currencies to decline against US Greenback while safe-haven currencies saw a spike in bid activity.
Precious Metals: Both Gold and Silver are trading positive in the global market as the latest headlines hint at sharp contrast in geopolitical developments compared to the start of the week. Escalating tensions in Hong Kong, the US Senate’s move and threats of tariff and retaliation from the USA and China caused demand for safe-haven metals to soar regardless of the high exchange rate on account of a spike in USD’s value.
Crude Oil: Crude oil price hit a fresh three week lows as geopolitical tensions weighed down global growth outlook thereby affecting forecast for demand for crude oil consumption. Spike in US API weekly crude oil inventory data added pressure to demand to supply ratio which is already under considerable pressure from Trump’s tariff threats and US Senate’s Hong Kong bill.
AUD/USD: The pair is trading in red as AUD bulls came under pressure over the latest developments in the Sino-U.S. trade war. Further, worse than expected Aussie macro data and USD’s gain led by market-wide risk currency sell-off weighed down pair causing it to test 0.6800 handle. But strong supply found at the 0.6800 mark acted as fundamental support helping influence a rebound price activity.
On The Lookout: Geopolitical events took a turn for worse over the latest developments from the USA. The recent developments such as Trump’s threat and US Senate bill which acts as interference for Chinese internal affairs has undone all the positive work that had taken place recently leading to a clear dovish directional bias for the global market in short term.
Aside from the Sino-U.S. trade war, developments in UK pre-election activity which is seen as a signal for possible Brexit outcomes also took a turn for worse. While opinion polls continue to show PM Johnson in lead, failure from PM to outshine opposing leader Jeremy Corbyn is seen as a dovish sign. The televised debate between Johnson and Corbyn yesterday ended in a draw but it is viewed by many as a favorable development for Corbyn especially given his recent low approval ratings.
Post-debate opinion poll results are yet to hit the market but any sign that Corbyn could take the lead will cause tensions to soar as Corbyn becoming PM of UK would lead to a further extension on Brexit proceedings which will be very messy for both EU & UK. Traders now await the release of US EIA weekly crude oil inventory data, Fed meeting minutes and Canadian CPI data for short term profit opportunities. On earnings calendar front, Wall Street will see quarterly financial data from Target, NetEase, Copart and Lowe’s.
Trading Perspective: Demand for safe-haven assets and broad-based risk-averse investor sentiment will keep major and EM global currencies under pressure while USD and safe-haven currencies gain upper hand. Cues from yesterday’s developments in the US have influenced a state of caution and risk aversion among global investors causing US futures trading in the international market ahead of Wall Street opening to see sharp declines. This combined with dovish cues from Asian and European markets suggests Wall Street is set to see further sharp declines in trading sessions today.
EURUSD: The pair is trading with strong dovish bias but remains range bound near mid-1.10 handle trapped well within familiar price range. Given risk aversion led by geopolitical events and cautious investor sentiment, the pair is on the path to breach the 1.1030 handle in U.S hours unless Fed meeting minutes set to release later today displays a clear dovish tone which could cap USD’s current momentum.
GBP/USD: The latest developments in geopolitical events and market cues post yesterday’s televised debate between UK leaders caused GBP to come under pressure and declined below 1.29 handle. However, caution ahead of the release of post-debate opinion poll results helped cap decline at the 1.2889 handle. Traders await fresh opinion poll results and Fed meeting minutes for short term directional bias.
USD/CAD: The pair scaled fresh 1-months high today as USD’s rally led by broad-based risk currency selling activity underpinned USD bulls. Further, Canadian Loonie’s weakness on the decline in crude oil price and escalating Sino-U.S. trade tensions also added support for USD’s positive price rally. Traders now await US Fed meeting minutes, EIA weekly stockpile data and Canadian CPI data for short term profit opportunities.
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