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Trade War Latest: China Pledges to Retaliate, USD/JPY Drops

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MARKET DEVELOPMENT – Trade War Latest: China Pledges to Retaliate, JPY Rises

DailyFX 2019 FX Trading Forecasts

Risk sentiment has deteriorated as the likelihood of a US-China interim trade deal and a Brexit deal fades. Consequently, safe-haven flows have lifted JPY, CHF and Gold, while GBP is the notable underperformer. On the US-China trade front, optimism regarding constructive talks between the US and China had eased following China’s pledge to retaliate over the US placing 8 tech companies on the US blacklist. Alongside this, reports in SCMP highlighted that Chinese delegates had been planning to cut short their stay in the US, consequently toning down expectations ahead of the October 10-11th talks. Equity markets had taken a further hit on the back of reports that the Trump administration had been moving ahead with discussions around possible restrictions on capital flows in China.

GBP/USD faces a reality check as differences between the UK and EU risk sparking a collapse in Brexit talks with Chancellor Merkel stating that a deal if “overwhelmingly unlikely” if Northern Ireland is not staying in the customs union. As such, GBP has been on the defensive against its major counterparts, most notably the Japanese Yen.

New Zealand Dollar is the top performer despite the pullback in risk sentiment. As we have highlighted in the weekly speculative CFTC report, investor net shorts in the Kiwi are at extreme levels, thus leaving NZD/USD at risk of a snap-back higher. However, equity markets notably weak amid the concerns surrounding US-China trade talks, this may continue to bode well for an AUD/NZD pullback, in which support is seen at 1.0630.

Trade War Latest: China Pledges to Retaliate, USD/JPY Drops - US Market Open

Source: DailyFX, Refinitiv

WHAT’S DRIVING MARKETS TODAY

  1. Gold Price Forecast: Bid Revived on US-China Trade Spat” by Nick Cawley, Market Analyst
  2. Brexit Latest: GBP/USD Drops with Brexit Talks Close to Breaking Down” by Justin McQueen, Market Analyst
  3. USD/CAD, EUR/CAD Price: In Limbo After Failing Nearby Reversal Zone” by Mahmoud Alkudsi, Market Analyst
  4. Using FX To Effectively Trade Global Market Themes at IG” by Tyler Yell, CMT , Forex Trading Instructor

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX



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EUR/GBP May Rise if Brexit Hopes Continue to Fade

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British Pound Outlook, Brexit, GBP/USD Technical Analysis – Talking Points

  • British Pound may reverse recent gains if Brexit perils undermine confidence
  • UK members of Parliament will be voting on Boris Johnson’s new Brexit plan
  • Will DUP derail Johnson’s plan, and if so, will there be yet another extension?

Learn how to use political-risk analysis in your trading strategy!

The Euro may edge higher against the British Pound if hopes for an orderly Brexit continue to dissolve. On October 17, UK Prime Minister Boris Johnson and European Commission President Jean-Claude Junker jointly announced that a Brexit deal had been reached. Sterling rallied on the news, though its upside movement was curtailed by news that the Irish Democratic Unionist Party (DUP) would not support his plan.

Securing their support is essential if Mr. Johnson wants to pass a deal through the House of Commons. If he fails to do so, it could severely derail plans for an orderly Brexit which would likely see the British Pound reverse a significant portion of its recent gains. However, EU Council President Donald Tusk has not ruled out the possibility of an extension if lawmakers failed to agree on a deal on Saturday.

In Parliament there are currently 287 voting conservative lawmakers which Mr. Johnson will need if his proposal is to survive. He may also have to lean on over 20 former Tory MEPs who switched over to become independents. However, that may not be enough votes which may compel the PM to ask for help across the political aisle.

Market Analysis of the Day: Will the British Pound Reverse its Recent Gains?

Chart showing EUR/GBP

GBP Index chart created using TradingView

FX TRADING RESOURCES

— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter



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Australian Dollar Firm After China GDP Miss But Trend Aims Lower

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CHINA, GDP, TRADE WAR, AUSTRALIAN DOLLAR – TALKING POINTS:

  • 3Q Chinese GDP registers narrowly worse than expected at 6.0% y/y
  • Industrial production data, US trade talks may have offset the headline
  • Australian Dollar little-changed but overall trend still pointing lower

Where will markets end 2019? See our Q4 forecasts for currencies, commodities and stock indexes!

The Australian Dollar found little of interest in mildly disappointing Chinese GDP data. The figures put the on-year growth rate at 6 percent, a hair lower than the 6.1 percent expected by economists. Nevertheless, this marks the slowest pace of expansion in at least 27 years.

Upbeat industrial production readings might have helped offset a soggy headline figure. The rate of on-year growth unexpectedly jumped to a three-month high of 5.8 percent. Early signs of stabilization in retail sales figures may have helped as well.

The report’s limited implications for larger macro themes dominating investors’ attention may likewise explain the tepid response. Extrapolating a view on future Chinese growth seems nearly impossible without greater clarity on trade negotiations with the US, making today’s release appear somewhat moot.

Australian Dollar vs US Dollar price chart - 1 minute

1-minute AUD/USD chart created with TradingView

Assessing the broader landscape, choppy AUD/USD consolidation since early August leaves firmly intact a well-defined downtrend established from late December 2018. Prevailing monetary policy trends suggest it is likely to continue, with longer-term charts setting the stage for deep losses in the months ahead.

Australian Dollar Firm After China GDP Miss But Trend Aims Lower

Daily AUD/USD chart created with TradingView

AUD/USD TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter



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USD/JPY Rate Faces Bearish Reversal Pattern Amid Brexit Deal Hopes

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Asia Pacific Market Open Talking Points

Find out what the #1 mistake that traders make is and how you can fix it!

AUD/USD, NZD/USD Climb as Japanese Yen and US Dollar Sink

The sentiment-linked Australian Dollar and similarly-behaving New Zealand Dollar soared against their major counterparts on Thursday. This was at the expense of the anti-risk Japanese Yen and haven-linked US Dollar. A rosy mood in stock markets, fueled by hopes of a Brexit deal, could have been the source of optimism from investors as the S&P 500 closed 0.28 percent to the upside.

During European trading hours, European Commission President Jean-Claude Juncker and UK Prime Minister Boris Johnson announced that a Brexit deal has been reached. However, optimism receded after officials from the Democratic Unionist Party (DUP) saying that they would not support Johnson’s agreement. Their support is crucial for Mr Johnson to pass his deal in Parliament perhaps on Saturday.

Still, the British Pound and Euro aimed nervously higher despite giving up some losses. Disappointing economic data out of the United States also likely fueled their gains against the US Dollar. Local industrial production unexpectedly declined 0.4 percent m/m in September versus -0.2% anticipated. US front-end government bond yields traded lower as markets kept their hopes up for further Fed easing.

Friday’s Asia Pacific Trading Session

Ahead, the Australian Dollar will be closely watching incoming third quarter Chinese GDP data after rosy local jobs data offered AUD/USD a boost. Data out of China has been tending to underperform relative to economists’ expectations, opening the door to a continuation of the trend. As a China-liquid proxy, the Aussie could reverse recent gains should weakness in growth from a close trading partner spread slowdown fears.

Join me later today at 1:45 GMT for LIVE coverage of China GDP where I will be going over the reaction in the Australian Dollar!

Meanwhile, the Japanese Yen will likely look past a set of local CPI data due to its limited implications for near-term BoJ policy action. Rather, it may focus more on China GDP and the mood in regional stock exchanges. S&P 500 futures are little changed with a slight downside bias heading into Friday’s APAC session. A bittersweet mood from investors may boost the Yen.

Japanese Yen Technical Analysis

The USD/JPY could be in the process of carving out a rising wedge candlestick formation. This is typically a reversal pattern and if so, may down the road open the door to downtrend resumption – as outlined in my Q4 USD/JPY forecast. As such, the latest test of the ceiling of the Rising Wedge may pave the way for a test of the floor which goes back to the end of August – red area on the chart below.

Chart of the Day – USD/JPY

USD/JPY Rate Faces Bearish Reversal Pattern Amid Brexit Deal Hopes

Chart Created Using TradingView

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— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter



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