impact of trade war

Yen attracts Bids as Trade War Intensifies

Asian indices started the week lower as President Trump vowed to impose a 5% tariff on Mexican imports and China blames the U.S. for the breakdown in trade talks and said it won’t back down. The Nikkei225 finished 0.92 percent lower to 20,410 below its 100-day moving average; the Hang Seng benchmark in Hong Kong finished 0.16 percent lower at 26,854. The Shanghai Composite finished 0.30 percent lower to 2,890 also below the 100-day MA, while in Singapore, the FTSE Straits Times index finished 0.08 percent higher to 3,120. Australian equities closed down 76 points or 1.2% to 6,320 — the worst one-day fall in five months.

XAUUSD Hourly (H1) Chart

European session also started the week lower as trade war intensifies across the globe and the news that the EU is preparing to launch EDP against Italy in June. DAX30 is giving up 0.84 percent to 11,628, CAC40 is 1.04 percent lower at 5,153, while the FTSE MIB in Milan is trading 0.89 percent lower at 19,626. The London Stock Exchange is down 1.10 percent to 7,082 as traders are increasingly concerned over the impact that the ongoing trade dispute is having on the global economy.

In commodities markets, crude oil continues its south trip down to 53.11. Oil is down almost 20% from the high in late April, wiping out about half of its rally earlier this year, due to increasing trade worries. Brent oil also trades lower giving up 3 dollars to $61,23 per barrel as major oil producers have yet to agree on adjustments on output. Gold continues to attract investors as safe-haven assets and trades at the 1310 zone, the highest level since mid-March after President Trump slapped 5% tariffs against all imports from Mexico. The precious metal broke above all major daily moving averages turning the technical picture to bullish. Gold will find support at the 1300 round figure and then at 1295, the 100-day moving average, while more bids will emerge at the 50-day moving average at 1287. On the upside, resistance stands at 1310.67, the high from the Asian session.   

In cryptocurrencies market, bitcoin (BTCUSD) rebounds from Friday’s selloff and regained the 200-hour moving average to 8,416, the daily low for BTC was at 8,275 and the daily high at 8,752. Immediate support for BTC stands now at the $8,000 round figure, and on the upside, strong resistance stands at 8,845, the recent high. Ethereum (ETHUSD) also rebounds to 259. On the upside, the immediate resistance stands at 287, the recent high, while the support stands at 200 round figure, Litecoin (LTCUSD) also trades higher at 110. The crypto market cap holds above $174.0B.

On the Lookout: On Friday, the Trump administration eliminated India’s ability to export products to the US duty-free. The Bank Of Japan’s Kuroda noted that BOJ would continue easing to support the economy while in Japan, the Nikkei Manufacturing PMI registered at 49.8 above economist’s expectations (49.6) in May.

China’s May Caixin manufacturing PMI came in at 50.2 vs. 50.0 expected and 50.2 last, as operating conditions improved for the first time in four months.

In the America economic calendar, we await the US data on vehicle sales, construction, and the ISM manufacturing survey.

Trading Perspective: In fx markets risk off tones is the story today. The US dollar trades lower at 97.63 while the Aussie dollar adds 20 cents to 0.6944 as traders are betting that the Reserve Bank of Australia will start its first-rate cutting cycle on Tuesday reducing the cash rate by 25 basis points to 1.25%. Kiwi also trades higher to 0.6552 level as New Zealand has cut its budget surplus forecast for 2019/20 to NZD1.3bn.

GBPUSD continues the rebound which started from Friday low to 1.2644, but the bearish momentum for Cable is still intact amid growing concerns over Brexit. The pair hit the daily low at 1.2618 and the daily high at 1.2654. Major support now stands at 1.26 recent low. On the upside, immediate resistance now stands at 1.27, the high from Friday, while more sellers will emerge at the 200-hour moving average at 1.2713. Sterling shows persistent weakness amid UK political uncertainty and also on the back of global risk aversion.

In Pound futures markets, the open interest shrunk by just 237 contracts on Friday, reversing a positive streak prevailing since May 13. Volume extended the choppy activity and increased by around 48.1K contracts.

EURUSD started higher the week at 1.1173 amid early USD weakness. The pair is adding to bullish momentum build last Friday and now an attempt to 1.12 looks possible. On the upside, the immediate resistance stands at 1.12, the high from Tuesday, while more offers will emerge at 1.1245, the 50-day moving average. Support stands at the 1.1159 Asian session low, while more bids will emerge at the YTD low at 1.1105. We are following news from Italy as their budget deficit dispute with the European Commission continues, and the political turmoil in Austria and Greece.

In euro futures markets, the open interest shrunk for the second session in a row on Friday, by around 11.8K contracts. Volume rose by around 151.6K contracts, the largest build since April 23.

USDJPY fell to fresh 4.5 month lows and tested the 108 figure as traders are looking for safe-haven assets. Today the pair hit the low at 108.06 and the high at 108.37. The pair will find support at 108.06 recent low. On the upside, immediate resistance for the pair now stands at 108.96, the 50-hour moving average and then at the 109 round figure.

In Yen futures markets, open interest rose by nearly 8.6K contracts on Friday, clinching the second consecutive build. The volume went up by almost 122.5K contracts, the largest single-day build so far this year.

Trade War Intensifies
USDJPY Hourly (H1) Chart

USDCAD holds the 1.35 level as the retreat in crude oil prices, Canada’s main export item, seems to have added further weakness in the Canadian Dollar (CAD). The pair will find immediate support at the 50-day moving average around 1.3392 while extra support stands at 1.3300 round figure. On the upside, immediate resistance stands at the 1.36 zone before an attempt to YTD high.