The US and China implemented 25% tariffs on $16 billion worth of each other’s goods today. But market reaction was rather muted, partly because these steps were expected and priced in before the official announcement. However, investors remain cautious, and stocks in Europe are trading rather steady, with marginal changes only. Autos stocks are the worst-performing after Trump once again threatened 25% on all imports. Meanwhile, Britain’s FTSE 100 gains just 0.03 per cent to 7,576, France’s CAC 40 adds 0.14 per cent to 5,428, while German DAX 30 loses 0.02 per cent to 12,382. US stock index futures little changed as investors digest another portion of US-China tariffs.
The dollar staged a rather robust recovery early in Asia, but has lost the impetus since then and gave up some gains in Europe. The USD’s bullish potential is partly limited amid the political instability in the US as Trump’s former campaign manager was found guilty of fraud while his former lawyer pleading guilty to campaign financing crimes, which fueled impeachment frenzy. But in his manner, the President himself stated that doesn't know how one can impeach somebody who's done a great job. Anyway, this factor is limiting the greenback’s potential at this stage.
EURUSD dropped to 1.1540 in Asian trading, but faced support and trimmed intraday losses, recovering to 1.1570. The local pressure on the single currency has eased somehow due to hawkish comments by ECB’s Weidmann who said it’s time to exit expansionary monetary policy. Moreover, in its account for the July monetary policy meeting, the ECB noted that euro zone growth remains solid and broad-based, coming in line with June projections, expectation remains that 1H slowdown is temporary, while uncertainties around inflation outlook are receding. The general tone by the central bank was rather robust and upbeat, which supported the euro.
On the other hand, the buck doesn’t give up either, and some support for the US currency came from Fed’s George comment that Trump criticism won’t sway the central bank. As such, despite the dollar rebound has lost some steam since the morning trading, the USD index may yet proceed with corrective recovery ahead of Powell’s Jackson Hole speech due tomorrow. Market participants don’t expect that his tone will change on the back of recent Trump’s comments on the tightening, which keeps the buck afloat.
The pound is on the defensive after five days of gains. However, the selling pressure remains limited, despite the rising probability of a no-deal Brexit and the lack of progress in negotiations with the EU. The pair failed to confirm a break above the 1.29 figure and retreated to daily low of 1.2850, from where it has recovered to 1.2880. The 1.29 level remains in focus.
Crude oil prices switched into a consolidation mode after yesterday’s rally. Brent has reached late-July high of $75.30 and retreated below the $75 threshold afterwards, but remains close to it in Europe. Traders have digested the bullish EIA report which showed the US crude oil inventories declined by 5.8 million barrels last week. Now, the dollar behavior comes into focus as the currency could receive a decent boost from the Powell’s speech and fuel the technical correction in Brent. As such, some investors may opt to exit the market ahead of this event, which could translate into profit-taking. In this scenario, Brent could get back below the 50-DMA. Nevertheless, the selling pressure looks rather limited so far.