The FX Market is Unimpressed After the Trump Administration Applies Tariffs Drip by Drip

. 3 min read

Overview:

  • Gold consolidates near its highest level since April 2013 over a global economic slowdown.
  • USD/CAD is toying with the upper range of 1.32-1.33 over weak oil prices.
  • WTI Crude oil lost 3.3% to fall to $55.25 a barrel with soft global economic growth.

Highlight:

The Euro continues to trade around the 1.12 handle despite various reports pointing to a slowdown in the eurozone economy. The German ZEW Index recorded a massive drop to minus 44.1. Consumer sentiment is running at its lowest level in 8 years. Today, there is further confirmation of growth contracting in the biggest economy of the bloc. The ECB could be pushed to act sooner than expected with an injection of a stimulus package.

US DOLLAR

We expect Santa Claus to hoard more game consoles, computers and other toys in the attic before Christmas this year after the Trump Administration signalled its intention to postpone some of the trade taxes to until December. The currency market showed a muted reaction, trade tensions are still live and global economies are feeling the bite. Chinese data, to be taken with a pinch of salt, saw its industrial output growth weakening the most since 2002 and retail sales slowed from 7.6% year over year from 9.8% in June. Commodity-linked currencies come under pressure, again, over renewed signs of a global economic slowdown. Gold is staying above a six-year high.

BRITISH POUND

In the UK, inflation surprised to the upside with the consumer prices index up 2.1% in July. The largest contributors were games, toys and hobbies. The incoming data is unlikely to challenge the current stand from the Bank of England. Brexit, and more specifically the growing threat of a no-deal separation or a snap election are the focus of the market. We expect any gains to be still capped around the 1.21 regions.

EURO

EUR/USD is trading stubbornly around the 1.12 handle despite a new report showed Europe’s biggest economic contributor shrank by 0.1% in Q2. Investment in the construction sector declined and global trade tensions led to a slowdown in the export-driven manufacturing industry. While for many this new dataset adds no new surprise, it is, however, a further confirmation that the euro-bloc requires a rather quick injection of a stimulus package. The Euro remains immune, for now, and is looking at broader, global factors but is vulnerable to hitting lower lows.

CANADIAN DOLLAR

USD/CAD soared to its highest level in a week in light trading and after crude oil tanked 3% on the day. There are no major economic data releases on the slate for today. The pair is expected to trade along with the global market sentiment and stay within the medium term 1.32-1.33 ranges.

AUSTRALIAN DOLLAR

Our APAC desk wrote about how AUD USD had a good day yesterday, so we were a little let down by the fact that the pair now sits at 0.6740. Yet currency investors are in a risk-off mode and despite positive news about US-China trade talks, and the fact that Consumer Confidence improved from -4.1% in July to 3.6% in August.

FEATURED CURRENCY

USD/JPY is trading inside yesterday’s range despite an apparent de-escalation of tension between the US and China. The officials are on course for September trade talks. However, poor economic data and further confirmation that the German economy is slipping into a technical recession is keeping investors sentiment on the side of caution.

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