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Daily Market Analysis By ForexTime ( FXTM )
Daily Fundamental ForexTime ( FXTM )

Trade war fears to dominate market moves this week

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Intense G7 meeting

After imposing tariffs on steel and aluminum imports on its closest allies, the U.S. will be facing enormous criticism at the G7 summit on Friday in Quebec or, as the French Finance Minister Bruno Le Maire likes to call it, “G6 plus one.”

“When you’re almost 800 Billion Dollars a year down on Trade, you can’t lose a Trade War! The U.S. has been ripped off by other countries for years on Trade, time to get smart!” Donald Trump

Whether President Trump is playing a smart strategic game or is seriously considering getting into a trade war remains unknown, but the probability of a full-blown trade war has undoubtedly increased significantly.

The summit is due to take place after the U.S. and China trade negotiations ended on Sunday without any significant progress made. In fact, China warned the U.S. that any move to implement tariffs on Chinese products would ruin the negotiations.

Although markets in Asia are rallying after the U.S employment report released on Friday showed a robust surge in numbers and new elections were avoided in Italy,  this optimism will soon disappear if the Trump administration pulls the trigger on the threatened tariffs on $50bn worth of Chinese exports. So, keep a close eye on Trump’s Twitter account for updates.


Europe’s Politics and data to be in focus

The Euro struggled last week, with Italian and Spanish political turmoil sending the single currency to its lowest level since July 2017. The compromise reached between the Italian President and the populist coalition prevented further losses as a new election seems to be off the cards for now. This relief was reflected in Italian bonds where 2-year yields fell 200 basis points from Tuesday’s high. However, the Euro’s recovery may be short-lived if the new Italian government moves ahead with its proposed massive spending agenda and tax reductions. These actions will not only create conflict with Brussels but will also invite credit rating agencies to cut their debt ratings.

On the data front, the Eurozone Services PMI is likely to confirm that the economy continued to slow down as it entered Q2.  Another round of negative economic releases will lead the ECB to postpone ending QE and thus drag the Euro further. The UK services PMI, Germany’s industrial production and factory orders will also be in focus this week.

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Daily Fundamental ForexTime ( FXTM )

Oil slips further ahead of OPEC meeting

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Oil markets have suffered another blow today as US oil inventories showed an increase of 2.07M barrels (-2.1M exp), while at the same time US gasoline inventories also showed a strong increase to 4.6M (0.5M exp). This has come as a bit of surprise for the market which had been expected drawdown's and probably more so for OPEC and its allies, as they look to ramp up production to find an equilibrium and maximize profits from the high oil price we have at present. Certainly the OPEC meeting due out on the 22nd of June will be very interesting, where it is expected that Saudi Arabia and Russia will continue their ramping up of prices. Many are expecting that with Iran out of the picture this does give the Saudis and Russia the chance to put production up even if the price if oil is not doing well.

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On the charts it has been very bearish for oil as of late. So far we saw a peak for oil at 72.81, followed by oil falling back down to earth in a hurry - not surprising given that oil trending very hard, and it does not always continue. This bullish buy hit resistance at 65.75 when trying to claw back some ground against the bears and it really does look like it may struggle to breakthrough this level in the interim. For bearish traders feasting off the data the next levels of support can be found at 64.17, with the potential to extend even lower to 62.65 in the long run. I would also focus on the long term potential trend line as well, which could propel oil to something further in the long. Looking at the bulls however resistance as mentioned above can be found at 65.75 and 67.45 in the long run, but it may take some cracking to get them through given the OPEC meeting.

One of the other key winners today was the NZD which enjoyed the risk sentiment of the market as it started. So far the despite positive data the US market has enjoyed, it has translated into more foreign investment outside the US in other currencies and the NZD and AUD were no exception today.

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Looking at the charts we can see that the NZD has cracked through the important 70 cent barrier mark and is climbing higher, but has stumbled against resistance at 0.7035. With bullish traders looking to assert themselves it would seem that the NZDUSD could end up taking on the next level of resistance at 0.7171 if the bulls stay in control. On the flip side support still remains at 0.6966 and 0.6819 in the long run.

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Daily Fundamental ForexTime ( FXTM )

Trade war fears ease… but for how long?

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Global stocks have bounced back to life after China’s central bank calmed markets by urging investors to “stay calm and rational”.

While this move by the People’s Bank of China (PBOC) could support risk sentiment and push equity markets higher in the short term, gains are likely to be limited. With trade war fears still a recurrent market theme that continues to weigh on sentiment, investors may start questioning the sustainability of the stock market rally.  Markets are likely to remain cautious with any signs of escalating trade tensions between the United States and China potentially sparking a renewed wave of risk aversion.

Bank of England policy meeting in focus

Today’s main event risk for the British Pound will be the outcome of the Bank of England policy meeting, which is widely expected to conclude with monetary policy left unchanged.

With the BoE expected to keep interest rates on hold, investors will most likely closely scrutinize the policy statement and MPC vote count for insight on rate hike timings beyond June. The Pound could weaken if the central bank expresses concerns over Brexit related uncertainty and political risk negatively impacting growth. Pound weakness may remain a dominant market theme if Brexit uncertainty results in the BoE repeatedly delaying monetary policy normalization.

Taking a look at the technical picture, the GBPUSD is bearish on the daily charts. The solid daily close below 1.3200 could invite a further decline towards 1.3130 and 1.3100, respectively.

Currency spotlight – Dollar

The Dollar has scope to extend gains against a basket of major currencies amid market expectations over the Federal Reserve raising US interest rates at least two more times this year.

Away from the fundamentals, the technical picture remains heavily bullish with prices hovering near an 11-month peak as of writing. There have been consistently higher highs and higher lows, while prices are trading firmly above the 200 daily Simple Moving Average. A firm daily close above the 95.00 level could open a path towards 95.35 and 96.00, respectively.

Commodity spotlight – Oil

There is a growing sense of uncertainty mounting ahead of Friday’s OPEC meeting, with markets now re-evaluating if an output increase could still be on the table.

While Saudi Arabia and Russia are pushing OPEC and its allies to raise production, other members including Iran, Iraq, and Venezuela have opposed such a move.  With Iran already stating that it was likely to reject any agreement that raised output, this could be a fractious meeting between oil producers in Vienna. Whatever the outcome of the OPEC meeting, it could have a lasting impacting on oil prices.

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Daily Fundamental ForexTime ( FXTM )

Pound comes under pressure after Brexit resignations

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The Pound has been in the spotlight today after two cabinet resignations of key Brexit leavers shook the Tory government up. What some were calling a political crisis seems to have subsided so far, and the markets will be looking to see how the new appointments handle the outgoing ministers and if they can bring anything new to the table. However, all the uncertainty drags on the pound and the drop today was mainly on the back of Boris Johnston's resignation, as he has been a key vocal enemy of any soft Brexit. Regardless of the politics the UKs government remains deeply divided over the customs union and the Irish border, and it seems ever likely that they will be forced to potentially ask the EU for an extension if things don't progress much more rapidly. For the Pound this could mean heavy pressure in the coming months, but for now the bulls are doing their best to stave off the bears.

Looking at the GBPUSD in particular and it's clear to see that the bulls are trying to push it away from the bullish trend line and back up, as the USD stalls on its epic run of late. Bullish traders will now be looking to aim for resistance at 1.3432 on the charts, with the potential to go further higher if they can get some positive Brexit news. In the even though that we do see the bears flood back into the market, then I would expect strong pressure on support levels at 1.3171 and the trend line just below that, which will act as dynamic support. For all it's worth though GBPUSD traders are likely to be short term holders though in the current market environment so I would expect plenty of whiplash in the markets as they pivot on news from the media.

Good and bad news out the US today as US consumer credit has lifted to 24 billion (12 billion exp) for this month. This is the largest deviation since 2016 and the markets will be looking to see if it's a pattern that will continue or it's just US consumers enjoying the summer season. Equity markets on the consumer side will be the most affected at this stage I feel as US consumable companies will benefit the most from the tax benefits and also US consumers spending far more.

After support was found at the 100 day moving average the S&P 500 has benefited greatly from a bullish run coming up just short of resistance at 2787, if market conditions continue we could see a further push to 2835. In the event we see some bearish pressure I would expect support at 2741 to be the first candidate followed by the 100 day moving average acting as dynamic support. However, what might be the most curious will be when the 100 day and 200 day moving average cross, and how markets react to this technical signal. For now though the bulls are in charge of the market.

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Daily Fundamental ForexTime ( FXTM )

EM Currencies slide as Dollar appreciates

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Emerging market currencies have been treated without mercy by a broadly stronger Dollar, yet again.

The Dollar Index appreciated to its highest level this year above 95.50 due to heightened expectations over higher US interest rates this year. The Chinese Yuan, Malaysian Ringgit, Indonesian Rupiah, Singapore Dollar and most other major EM currencies have all felt the heat. With Dollar strength likely to remain a dominant market theme and global trade tensions negatively impacting risk sentiment, EM currencies appear destined for further punishment.

In regards to the Chinese Yuan, price action continues to suggest that the local currency remains heavily influenced by external forces. With the Yuan already weakening to a fresh yearly low, further losses could be expected amid an appreciating Dollar. Taking a look at the USDCNY, a decisive daily close above 6.750 could inspire an incline to levels not seen since June 2017 around 6.810

Dollar bulls are back in town

It has certainly been an incredibly positive trading week for the Dollar.

Federal Reserve Chairman Jerome Powell’s bullish testimony could be one of the primary drivers behind the Dollar’s appreciation, especially when considering how he reinforced expectations of higher US rates this year.

Taking a look at the technical picture, the Dollar Index has scope to venture towards 96.00 and 96.40 if bulls are able to secure a daily close above 95.00.

Commodity spotlight – Gold

Gold is poised to conclude this week in heavy losses thanks to an appreciating US Dollar.

The yellow metal remains under intense pressure on the daily charts with prices trading marginally below $1220 as of writing. With the combination of Dollar strength and prospects of higher US interest rates eroding appetite for the zero-yielding metal, Gold is firmly bearish. Sustained weakness below $1200 could inspire a decline towards $1209 and $1200, respectably.

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Daily Fundamental ForexTime ( FXTM )

Bank of Japan unwilling to shift gears yet

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After weeks of speculation that the Bank of Japan may begin to adjust its stimulus program, the central bank once again decided not to join the global trend towards tighter policies.

The BoJ left its overnight interest rates unchanged at -0.1% and reiterated that it would resume buying Japanese Government Bonds to keep the 10-year yields around 0%. The bank may allow for more flexible movement on the 10-year bonds, however this isn’t considered a significant shift in policy.

The BoJ also made tweaks to its ETF purchases, as it increased the composition of TOPIX-linked ETFs while shifting slightly away from the Nikkei 225 Index, but maintained its annual pace of ETF buying.

It seems the Bank of Japan will be the last major central bank to pull the trigger on tightening policy as the Japanese economy continues to struggle with stubbornly low inflation levels. This should allow further widening in spreads between Japan’s bonds and other global bonds towards year-end, suggesting that the Yen is likely to remain under pressure for the near future.

The Federal Reserve is next in line to announce policy on Wednesday. That’s why today’s Core Personal Expenditure figures carry significant importance. If Core PCE came in at 2% or above, it would reinforce expectations for two more rates hikes in 2018. Many traders want to know whether President Donald Trump’s criticism of the Fed will lead to a change in language; I believe there will be no change in guidance and the Fed will continue sending the message that more rate hikes are on the way.

We also have inflation and Q2 GDP numbers from the Eurozone.  Consumer Price Index figures are expected to rise 2.0% y-o-y in July, remaining unchanged from June. Meanwhile, GDP growth is expected to see a 0.3% fall from a year ago, towards 2.2%.

In equity markets, the tech sector continued to weigh on sentiment. Shares of Facebook, Twitter and Netflix plunged further on Monday, as investors started to become more worried about their business models after they announced their latest earnings results.  Amazon and Alphabet were also dumped. Meanwhile, all eyes will shift to Apple earnings today in the hopes of providing some support for FAANG stocks.

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Gold slips ahead of non-farm

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The US labour market has continued to impress as of late as US initial jobless claims came in strong at 218K (220K exp), showcasing the labour market surging ahead. However US durable goods orders continued to be less upbeat than expected coming in at 0.2% m/m (0.5% exp), this is not likely to be a big mover for the USD however as the labour market continues to be the key FOMC focus as well as inflation additionally.  With all this in mind it looks likely that interest rates will continue to rise, and coupled with the USD flight we've seen lately that the USD will continue to be the dominate currency in financial markets at present.

One of the key movers as outlined yesterday has been of course gold, which has been suffering for some time now. So far today we've seen a very strong break through support at 1213 as gold looks to push down to the psychological level at 1200. I feel this is not likely to hold given the current market sentiment and a more realistic target may be support at 1189, which has been a long term support level in the past.  If gold did reverse then resistance levels at 1240 and 1258 would be key targets for traders in this market. However, I feel the 20 day moving average is likely to be the main level of dynamic resistance in this market at present, given how badly gold bugs are feeling at present.

The other big loser at present in the markets has been of course the Australian dollar which finds itself under pressure constantly. The services index was released today and showed a sharp decline to 53.6 - still showing expansion, but not anywhere near the previous reading of 63. Markets when focusing on the AUDUSD will now be clearly focused on non-farm payroll figures due out tomorrow which could add further pressure to the AUDUSD which has been bearish for some time now. I'm apprehensive about any bullish movements in the current market, as the USD continues to strengthen.

On the charts the AUDUSD has continued to be bearish and shows no sign of letting up. We've so far seen sharp falls and support at 0.7310 is looking to be the next major target. On the flip side, if the AUDUSD was to rise it would find strong resistance at 0.7377 and with the 50 day moving average as well - with a potential trend line in play as well, but we've not seen any real tests on this level. All in all though, it feels like the AUDUSD is likely to spiral further lower.

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Daily Fundamental ForexTime ( FXTM )

Is Trump truly winning the trade war?

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Escalating trade tensions between the U.S. and China remain the financial markets’ hottest topic.  President Trump seems to be celebrating winning the first battle of this war, saying that “tariffs are working big time” in a Tweet on Sunday. He believes that they will enable the U.S. to start reducing the large amount of debt accumulated throughout Obama’s administration. Trump also cited that the steep fall in Chinese equities as evidence that tariffs are working. In his opinion, they will make the U.S. much richer than it currently is and that “only fools would disagree”.

The tariffs so far are approximately on $85 billion of imported goods. Assuming a 25% tariff, it would raise $21.25 billion. This number represents 1.33 % of the $1.6 trillion in additional debt President Trump has accumulated since taking office in 2017 and only 0.1% of the current $21 trillion in total debt. So, it doesn’t seem the imposed tariffs would reduce the American debt substantially.

In my opinion, a large portion of the tariffs will be paid by U.S. consumers and I also expect CPI figures to begin reflecting these higher prices, especially if Trump’s administration imposes additional tariffs on $200 billion of Chinese goods. Rising inflation leads to higher U.S. interest rates, translating into higher cost of borrowing and debt servicing. Several U.S. companies have cut their profit forecast as a result of these tariffs, especially car makers; shares of GM, Ford, and Fiat Chrysler fell sharply after announcing their results. Other U.S. companies affected by Trump’s global trade war include Tyson Foods, Harley Davidson, United Technologies, Caterpillar and Coca-Cola, among several others.

This explains why the S&P 500 failed to reach a new record high, despite 81% of companies so far managing to beat their profit forecast in one of the best earning seasons in history. Given that we’re almost at the end of earning season, trade wars will return to dominate the headlines. The next big risk is likely to be the U.S. midterm elections in November. I think there’s a high chance that the Democratic Party will take over the U.S. Congress and end the Republican single-party control. This won’t be good news for equities, and I expect to see rotation to non-cyclical stocks and an increase of cash in investors’ portfolios.

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NZD falls on RBNZ dovish stance

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It's been an exciting morning for the Reserve Bank of New Zealand as they announced that they see rates being held at 1.75% until 2020 in the current market environment . This pails in regards to previous assumptions from economists that we would see a rate rise in early 2019, and with that thrown out of the window the NZD has fallen accordingly. There is hope that the NZ economy will see moderate growth to say the least, and that core inflation will also pick up in the long run, however all things considered and a trade war going on, it may be a hard ask to say the least. One thing is very clear though, and that is the RBNZ has taken a very dovish stance and provided some stern guidance on expectations and as a result markets will be looking to price this in.

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For the NZDUSD it has been a case of free fall at this stage with the NZDUSD crashing through support at 0.6712 and heading down towards support at 0.6600. Certainly this is what the RBNZ is hoping for as a weaker kiwi dollar leads to higher export prices for producers. If the NZDUSD is able to swing things around and actually be bullish then resistance at 0.6755 is likely to be the main focus, with the 20 day moving average hovering around there. Beyond this there is a strong resistance band at 0.6833 and 0.6859 which will likely contain any bullish ambition. All in all though, it's likely the bears that will remain in control on the back of all this news.

The other big mover today has been oil as it shot down the charts on some bearish swings. The catalyst of course was oil inventory data which showed a weaker than expected drawdown of -1.35M barrels (-3M exp) and a surge in gasoline inventories as well to 2.9M (-1.9M exp). All of this has taken the heat of the oil market which had been looking stronger on the back of Iran sanctions.

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Looking at the movements of oil on the charts, it's clear to see that it has shot down lower and hit support around 66.03 in this instance, before seeing a small retreat. If we continue to see bearish pressure here then I would expect a fall to 63.98, but more importantly there is the trend line which could create an even bigger hurdle given it's bullish. If the bulls are able to come back in then resistance at 67.45 and 69.38 are likely to be the key targets, with the market seemingly being a little unsure on oil being over 70 dollars a barrel.

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USD bulls put pressure on Oil and Sterling

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USD bulls have continued their strong run globally, as weakness in overseas market continues, but also strong economic growth continues to be a major factor. US retail sales m/m were very strong today coming in at 0.5% (0.1% exp), showcasing that consumers are not worried about tariffs or the high USD for that matter and currently are out spending. If consumption is a good indicator of economic health it may also bolster inflation expectations as retailers feel they can increase prices slightly during periods of expansion without fear of losing to many customers. So while economic growth is strong so far the markets will be looking to the FED to see if it changes its mind about anything and if more future rate hikes are coming in the long term.

On the markets though today oil was for me one of the more interesting trades as it hit the bullish trend line and beat a retreat shortly after. US oil inventories once again showed much more stronger figures than anyone expected with a surplus of 6.8M (-2.5M exp), with only gasoline registering a drawdown on stockpiles. Oil has also struggled against a robust USD at present which has managed to hold back the oil bulls as well, but with OPEC holding back supply it's likely we could see prices remain elevated.

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Looking at oil on the chart we've hit the sweet spot for bullish support here with the trend line coming into play and also support at 63.98. Technically I would expect the bulls to be stronger here as the market has a chance to push back against the recent trend, however at present it's still looking  a bit weak. With that weakness in mind I would be careful of a push through here to support at 61.93; if we did see that happen then the bears are likely to really take hold of things in the current market climate. If the bulls do however wrestle back control resistance can be found at 66.03 and 67.45.

The pound has continued to come under large pressure from markets as the Brexit debate continues to rage and the prospect of a hard Brexit looks to impact markets. I would expect more impactful debate on Brexit from the UK government after the summer break, nevertheless the major sticking points have no solutions and it looks like it could get drawn out for much longer than anyone expected and markets won't be loving it.

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For the GBPUSD the fall is likely to continue with the uncertainty and support at 1.2652 has so far stopped any further movements lower. If we a see a breakthrough at this level then I would expect to see it fall as low as 1.2461 and even potentially further lower if markets feel a no deal Brexit is coming. On the flip side, if the bulls can push back then resistance can be found at 1.2798 and 1.2958 as well.

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