Prolonged trade war woes on tariff going live, failure in scheduling date for Sino-U.S. trade talks and Brexit Jitters weigh market while USD grows stronger.
Summary: Global equities today saw a sharp slump across all key markets, be it Asian or European. The dovish influence in the market stems mostly from escalating caution surrounding Sino-U.S. trade war progress. While both nations have promised to schedule a face to face meeting to push forward with trade talks, they still continue to struggle to agree upon and schedule a date for meeting while fresh tariffs on goods of both nations became live this month.
As new tariffs came live, global economy crashed on direct and indirect cues. Further, cues from the UK as PM Boris Johnson goes full throttle on crush his foes and moves forward with his no-deal Brexit plans also add caution to global investors as a no-deal outcome would result in another great meltdown in the global economy. Fresh geo-political cues all of which point to proceedings heading south resulting in European market seeing its key indices and risk assets decline post four consecutive sessions of positive price action. In forex markets, bears have become unstoppable as they grow stronger supported by cues from multiple fronts. Geo-Political woes drag down major global currencies which is boosting USD shifting price dynamics away from the recent bullish surge.
Precious Metals: Precious metals are trading positive on dovish geo-political cues. Brexit jitters and trade war woes act as a major driving force but the upside is limited as USD’s growth cut the supply of funds from emerging markets which contribute considerably to rare metal fund flow and gains. A costly USD makes it costlier for traders from EM Markets to invest owing to increased exchange rates.
Crude Oil: Crude oil declined sharply in the global market today as tariffs came live on both US and Chinese markets. Meanwhile, South Korea revised its second-quarter growth lower than previously expected on account of lower export hinting at decreasing demand for crude oil import and consumption. This skews demand to supply ratio in favor of Crude oil bears.
AUD/USD: The pair is trading positive in the global market today as AUD bulls are strongly supported fundamentally owing to RBA keeping interest rate unchanged while on the release front, albeit mixed outcome data hinted at increased net export contributions. However, USD’s rebound, Sino-U.S. trade war woes influenced caution in the market and dovish retail sales caps AUD’s gains.
On The Lookout: Global market is heating up as headlines from all key/major global markets are coming live and causing back to back short term price fluctuations impacting price momentum resulting in a highly volatile environment. On Sino-U.S. trade war front, tariffs come live on both ends while both nations have failed to come to an agreement on a date for face to face meeting which is highly in contrast to recent updates released last week and hints at a prolonged trade war.
On Brexit front, opposing party MP’s and rebels who are against no-deal Brexit scenario submit an application to prevent a no-deal outcome. In a move to crush all opposing members and stop them from messing with his plans further, has proposed general elections which will prevent MP’s from ousting him and passing a resolution to prevent a no-deal outcome.
While, Europe had previously stated that it has prepared for no-deal outcome, in reality neither UK nor Europe could afford the economic fallout that could result from no-deal outcome which will also cause another great economic depression in global market visible in form of collateral damage as was seen during height of Sino-U.S. trade war influenced economic slowdown. Aside from these two events, traders expect ECB to come up with aggressive policy easing measures in upcoming meeting and expect a speech from Draghi’s successor Lagarde who is also expected to follow Draghi’s footsteps which combined with Brexit proceedings are likely to crush Euro, British Pound and influenced dovish activity in the European market. Aside from macro data updates, traders are on the lookout for headlines on changes in the geopolitical scenario as even the smallest change could act as short term profit opportunity.
Trading Perspective: On economic calendar front, traders await the release of Canadian RBC Manufacturing PMI and US ISM Manufacturing PMI in early North American market hours for short term directional cues. US earnings calendar is silent today. Later in the day, during Pacific-Asian market hours, traders await the release of Japan’s Services PMI and Australia’s Q2 GDP update. US equity and index futures trading in the international market were trading with dovish bias ahead of Wall Street opening on trade war cues which have influenced a cautions investor sentiment across the global market. This suggests that the US market is likely to follow Asian and European markets and trade with a dovish bias.
EUR/USD: The pair has been trading rangebound in the global market with prevalent dovish bias as Euro bulls are under pressure from dovish ECB expectations and disappointing German manufacturing data which was released yesterday causing pair to decline to 28-week lows. Further, rebound in USD is also weighing down the pair causing it to remain in bears territory. Traders now await US macro data for short term profit opportunities.
GBP/USD: The British Pound is under considerable pressure as Brexit Jitters weighs down GBP bulls considerably. Further protests against UK PM Boris Johnson’s relentless pursuit in favor of no-deal Brexit unless EU submits to his demands also weigh down GBP. Brexit Jitters impact on the UK economy and USD’s rebound also have a considerable dovish impact on GBP in medium to long term outlook. Traders now await US macro data for short term profit opportunities.
USD/CAD: The pair is trading positive in the global market today with price steady above the mid-1.33 handle. The pair is currently trading near 2½ month tops as USD’s rebound influenced by market-wide major currencies sell-off on account of Sino-U.S. trade war woes add support to USD bulls. Meanwhile, the decline in crude oil price weighs down commodity-linked currency Canadian Loonie considerably. Traders now await US & Canadian macro data for short term directional cues and trading opportunities.
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