The US-China trade war seems to escalate as some advisers in Trump’s administration are discussing applying 25% tariffs on $200 billion of Chinese goods, up the originally proposed 10%. However, global markets responded quite modestly to a deepening conflict between the two countries and showed only a marginal risk aversion. It looks like that investors take this Washington’s attempt to pressure Beijing into making trade concessions as a rising chance that the increasing pressure will finally bring Beijing to the negotiating table. So after a mixed dynamics in Asia, European stock markets show a rather limited negative reaction, except for the Britain’s FTSE 100, which sunk 1.3per cent on mixed corporate results. Meanwhile, France’s CAC 40 sheds just 0.14 per cent to 5,503, while German DAX 30 loses 0.35 per cent to 12,760.
The dollar is trading largely unchanged ahead of the Fed’s monetary policy decision due later today. The buck has appreciated overnight decently, and now the bulls seem shift to a wait-and-see mode, refraining from trading actions ahead of the key event. The Fed is expected to confirm its commitment to further tightening, citing solid economic fundamentals. As this has been price in already, the dollar won’t be able to benefit from such a statement much. At that, should Powell give even a slight hint at a potential pause in hiking rates in the longer term, the greenback will come under selling pressure across the board. Nevertheless, even in this scenario, the currency will have a chance for a weekly rise if the key NFP employment data due on Friday surprise to the upside.
Sterling is trading little changed though managed to recoup its intraday losses despite a disappointing manufacturing PMI. The pound have also looked past the NIESR highlights that in three months’ time, the August rate increase could look like a mistake. In its opinion, the Institute sited Brexit negotiations, trade wars and other reasons. Technically, the GBPUSD pair looks neutral, but downside risks prevail as long as the price remains below the 1.3150 area, where the 20-DMA lies. On the downside, the pair needs to confirm a recovery above the 1.31 level to avoid a deeper correction down the road. Generally, the sentiment around the greenback continues to set the tone for the pound.
USDJPY has shrugged of rising of US-China trade tensions, though the bullish momentum has slowed down recently. The pair struggles to stay above the 112.00 threshold after yesterday’s rally amid yen weakness after a dovish Bank of Japan meeting. The mentioned level is now the key on the upside, as failed attempts to make a clear break above could trigger a bearish correction especially against the backdrop of trade war escalation. So far, the downside pressure on the dollar is being limited by the key moving averages in the daily charts.
Crude oil prices remain under pressure on Wednesday after a massive sell-off yesterday. Brent has been trading at one-week lows below the $73 figure. Traders rushed to take profit after a decent rise over the last week took the prices above the $75 handle. A bearish API report added to the downside pressure ahead of the official EIA data as the release pointed to an unexpected dramatic rise in the US crude oil inventories. Market participants refrain from buying on dips so far, suggesting the ongoing retreat could continue in the short term. A negative EIA report could serve as the additional bearish catalyst and push Brent even lower. Should the $72.60 region withstand the potential further sell-off, the downside pressure will partially ease.
Nathan Lambert, Head of Global FX Analytical Department