A Dollar Slide and That’s Before Trump Makes a Noise

The U.S Dollar slides and takes the equity markets along for the ride as trade war jitters weigh at the start of the week.
Bob Mason
EUR/USD daily chart, July 06, 2018
EurDollar Notes

Earlier in the Day:

There were no material stats released through the Asian session this morning, on what was an unusually quiet day on the data front, leaving the markets with little else to consider other than Trump’s end of week rant and threat of an all-in move against China in the trade war that has to-date seen the U.S face nothing but retaliation.

The Art of the Deal may have worked in the real estate world, but it’s the Art of War that is likely to have more influence as a reference in the world of international relations and trade.

For the Japanese Yen, a morning 0.48% rise to ¥110.88 against the Dollar came off the back of continued market jitters over the ongoing trade war pinning back the Dollar, coupled with news of the BoJ planning to discuss changes to monetary policy, though the news has yet to be commented on by BoJ members, which could see a reversal once denied.

For the Kiwi Dollar and Aussie Dollar, concerns over the trade war failed to pin back the pair, which gained 0.10% and 0.13% respectively, a pullback in the U.S Dollar off the back of falling Treasury yields providing direction early on.

In the equity markets, it was red across the majors, with the Nikkei and ASX200 leading the way, sliding by 1.3% and by 0.83% respectively, while the Hang Seng and CSI300 were down just 0.20% and 0.15% respectively, at the time of writing, the pair giving up gains from early in the day, tracking U.S futures that had also kicked off the day in positive territory.

The Day Ahead:

For the EUR, it’s a particularly quiet day ahead on the data front, with July’s prelim consumer confidence number out of the Eurozone the only distraction for the markets, with trade tariff chatter likely to be heightened ahead of EU President Juncker’s visit to the White House on Wednesday.

Trump may look to get the EU on the defensive ahead of Wednesday’s meeting, which could mean delivering on the threat of tariffs on EU car imports into the U.S, such a move likely to hit the EUR hard.

Consumer confidence figures are forecasted to be negative later today, which suggests further possible weakness in consumer spending down the track, a negative from an inflation perspective and likely to become more relevant, from an economic outlook perspective, should the trade war become extended.

At the time of writing, the EUR was up 0.11% to $1.1737, the Dollar taking a dive over Trump’s comments on FED monetary policy, with demand for U.S Treasuries likely to pressure yields over trade war jitters.

For the Pound, there are no material stats scheduled for release through the day, while BoE MPC member Broadbent, scheduled to speak later in the day, could provide some insight into the BoE’s thought process following last week’s disappointing numbers that saw the Pound slide to sub-$1.30 levels before recovering off the back of Dollar troubles.

At the time of writing, the Pound was up 0.08% to $1.3146 and, with little for the markets to consider through the early morning, Brexit and sentiment towards the UK government’s future possible influences through the day.

Across the Pond, economic data out of the U.S is limited to June existing home sales. Under normal market conditions, numbers in line with or better than forecasted would be a positive for the Dollar, sales expected to rebound in June, following May’s fall, but conditions are far from normal. While the FED is standing by its outlook on rates and the U.S economy, supporting the Dollar, Trump has, not only attacked FED policy, but also continued to up the ante in the trade war with China and Trump is winning the Dollar battle for now.

A prolonged trade war would likely trump FED monetary policy so, while traditionally independent central bank policy is the ultimate driver, Trump has found a way in to deliver on his promise of a weak Dollar. There’s just one issue… Tariffs on U.S goods imported into the EU and China is going to just offset any benefits made on trade terms.

We are facing the prospect of a currency war running alongside a trade war, the combination of which would be particularly dire.

At the time of writing, the Dollar Spot Index was down 0.18% to 93.308, with direction through the day hinged on noise from the Oval Office, with existing home sales to provide limited direction.

For the Loonie, following Friday’s positive retail sales and inflation figures, May wholesale sales figures are due out this afternoon, the figures the only stats scheduled for release out of Canada this week.

While we can expect some direction from the figures, market attention will continue to be on the Oval Office and whether trade tariffs and the lack of progress on NAFTA can bring down the Canadian economy and the hawkish BoC.

At the time of writing, the Loonie was up 0.11% to C$1.3131 against the U.S Dollar.

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