US Dollar Rally Takes Breather, Equities Mixed on Subdued Risk Appetite

D TRUMPU.S. President Trump’s speech triggered fresh wave of risk averse trading but also hurt dollar’s rally in broad market leading to mixed outcome in forex and equity markets.

Summary: Global markets today opened on positive note, however U.S. President Donald Trump’s state of union speech caused investor sentiment to turn dovish in both Asian and European markets. President Trump blamed China for their unfair trading practices and for theft of intellectual property from U.S.A. He also accused Chinese of taking away jobs and profit from U.S. Citizens. He also re-affirmed his commitment to building a border wall. This caused market to turn cautious as President Trump has previously mentioned that government was only opened temporarily for three weeks and investors believe U.S. government could be shut down once again. This inspired a fresh wave of risk averse trading in early Asian hours which has continued well into European market hours. While equities are trading in red, forex continues to trade range bound as US Dollar remains firm in broad market for fifth consecutive trading session today despite Trump’s speech hampering Dollar’s progress.

Precious Metals: Precious metals traded in red today, but decline was limited and price action was mostly in range bound pattern as risk averse trading in market resulted in steady demand for safe haven assets. Following U.S. President Donald Trump’s speech Sino-U.S. trade war woes and concerns on possible government shutdown, demand for gold and silver went high in broad market preventing dollar’s positive price rally resulting in range bound action.

AUD/USD: The pair fell sharply in early Asian market hours as news of Comments from RBA governor Philip Lowe which hinted at possibility of rate cuts hit market. This resulting in pair moving near to 2-week lows. However USD’s weakness over President Trump’s state of union speech helped limit loss resulting in consolidative action near intra-day lows for majority of Asian and European market hours.

USD/JPY: Dovish Fed stance continued to limit US Dollar’s growth in broad market. However Dollar had managed to find some strength and trade positive for four consecutive session and was on path to fifth day of positive closing today. But U.S. President Trump’s speech inspired a wave of risk averse trading activity in broad market which underpinned demand for safe haven assets resulting in Japanese Yen retaining upper hand and dragging the pair from $110 handle to $109 handle where it has maintained consolidative action.

Theresa MayOn The Lookout: UK Prime Minister Theresa May is set to visit E.U. for Brexit negotiations scheduled to occur tomorrow. PM May is firm in her stance that UK will leave E.U. on March 29 deadline with or without a deal however she hopes that E.U. will agree to make some changes to Irish backstop during tomorrow’s talks even if they are not ready to replace the backstop agreement. Aside from Brexit proceedings investors are focused on tonight’s U.S. macro data update for meaningful trading opportunities. U.S. macro calendar today sees the release of Crude oil inventory data and building permits, core durable goods orders, core retail sales, and Preliminary GDP (QoQ) data which have mixed forecast. A positive outcome will help USD reclaim positive market action and close positive for 5th consecutive trading session while disappointing outcome will have no impact on price rally.

Trading Perspective: Given subdued risk appetite in broad market, most major forex pairs are likely to continue range bound action with chance for bearish breakout. Meanwhile US equities could trade in red likely due to renewed fears of partial U.S. government shutdown.

EUR/USD: Having declined below 1.14 handle during Pacific-Asia market hours, the pair has gained a bearish edge in price action. However US Dollar is yet to cross critical support at $1.1390 handle which opens path towards sharp slide to mid-1.12 handle as Dollar took a hit following President Trump’s state of union speech post which the pair has remained in consolidative action above 1.1390 handle. Investors now await U.S. macro data updates for directional cues.

GBP/USD: Unlike EURUSD which has yet another critical support, this pair has already achieved bearish breakout. But Dollar suffered following President Trump’s speech earlier today which has resulted in consolidative action near mid-1.29 handle which is expected to continue for rest of the day as investors now await updates from tomorrow’s E.U.-U.K. meet for further clues on Brexit deal negotiation proceedings.

USD/CAD: Weaker oil prices undermine Loonie and remained supportive of the positive move, however gains were limited as dollar still suffers from influence of dovish fed and comments of US President Trump which renewed fears of Sino-U.S. trade war and concerns of partial U.S. government shutdown. The pair needs to breach and establish steady really above 1.32 handle for USD to establish steady recovery price action.