Another Sell-off in the Equity Markets Drives Demand for the USD and JPY

Earlier in the Day:

There were no material stats released through the Asian session this morning to provide direction for the markets, leaving the markets to consider the continued chatter and rising prospects of a trade war between the U.S and China and even the EU.

The risk off sentiment through the session saw the Japanese Yen rise by 0.49% to ¥109.43 at the time of writing, with the Aussie Dollar down 0.2% to $0.7425 and the Kiwi Dollar down 0.1% to $0.6901, the pair expected to be hit hard should both the U.S and China fail to find common ground before 6^th July, when the next wave of tariffs are due to be introduced.

In the equity markets, it was a sea of red with the Nikkei and ASX200 ending the day down 0.79% and by 0.24% respectively, while the CSI300 and Hang Seng were down 1.34% and by 1.18% respectively at the time of writing, the CSI300 giving gains from the early part of the session, which had come off the back of the PBoC cutting the reserve requirement ratio, effective 5^th July that is estimated to give the banking system an additional $108bn to support what appears to be a slowing economy.

The Day Ahead:

For the EUR, it’s a quiet start to the week, with economic data limited to this morning’s June IFO Business Climate figures out of Germany, which are forecasted to be EUR negative.

The numbers may well reflect the rising risk of a global trade war and the likely impact on the global and German economy, with Trump also floating the idea of tariffs on EU car imports into the U.S.

At the time of writing, the EUR was down 0.10% to $1.1639, with the Dollar and the Japanese Yen the favoured pairings in the current risk off environment.

For the Pound, there are no material stats scheduled for release, leaving the direction of the Pound in the hands of Brexit chatter, which has yet to instil confidence, in-party fighting, calls for a new referendum and the EU’s general handling of Britain having been negatives of late.

Adding fuel to the fire has been multinationals talking of a possible relocation of factories out of the UK should the British government be unable to provide some clarity on the post-Brexit business landscape.

At the time of writing, the Pound was down 0.15% to $1.3241, with the negative sentiment towards Brexit likely to also temper any hawkish sentiment towards BoE monetary policy near-term.

Across the Pond, across the Pond, key stats through the day are limited to May’s new home sales out of the U.S, which will provide the Dollar with some direction, though any moves will be temporary as the markets continue to focus on trade war chatter and the imminent roll out of new trade tariffs.

Following last week’s disappointing manufacturing PMI number, things could get worse for the U.S economy should China and the EU refuse to back down on tariffs, neither economy having any incentive to bow to the U.S President’s demands from the weekend to remove all tariffs on U.S goods.

At the time of writing, the Dollar Spot Index was up 0.11% to $94.625, with the Oval Office and today’s stats the key drivers through the day.

Across the border, there are no material stats scheduled for release out of Canada to provide direction for the Loonie, which was down 0.13% to C$1.3286 against the U.S Dollar at the time of writing, trade war noise certainly not a positive influence on the Loonie as NAFTA talks continue to lack direction.

With the European equity markets opening in the red and U.S futures pointing to a sell-off through the day, the markets are in for a choppy week, with economic data ultimately taking a back seat should the U.S and China fail to compromise.