Currencies and equities raced higher after President Trump said he would delay tariffs on Chinese imports. He said "We're doing this for the Christmas season. Just in case some of the tariffs would have an impact on U.S. customers." Based on these comments, this overture is not a result of progress in US-China trade talks but instead pressure from US businesses. Regardless investors saw this as the perfect excuse to cover their shorts. The Dow Jones Industrial Average rose more than 400 points and USD/JPY soared above 106 in response.
 
AUD and NZD also turned higher, leading investors to wonder they've hit a bottom.Unfortunately while we expect a further recovery in risk currencies, not only is this the first time that the President acknowledged that the tariffs could harm the economy but the fact that he didn't mention China's action as reason for today's announcement is bad news. He may have given China a reprieve until the end of the year and bought them time to further negotiations but at the end of the day, Trump is caving to pressure from US businesses and not his trade partners so the tariffs could be back.
 
We're also watching the protests in Hong Kong. China has been ratcheting up its response and according to Trump, they are moving troops to the HK border. The protests are having a significant affect on HK's economy, especially with the airport shutdown but there could be global ramifications if China uses their troops to stop the protests. Trump has made the US' hands off position clear - he's said that China has the capacity to resolve the situation themselves. However if we have another Tiananmen Square in one of Asia's most important financial hubs, the global markets won't be spared. Risk aversion could return, driving USD/JPY and other currencies even lower.  
 
The dollar also received a boost from US consumer prices. US CPI rose 0.3% in the month of July as the year over year rate hit 1.8%, up from 1.6%. CPI is getting back towards the Fed's inflation target and when combined with delayed tariffs, it creates the perfect backdrop for a bigger recovery for the US dollar versus the Japanese Yen, Swiss Franc and euro. In fact, EUR/USD should be trading much lower after the sharp drop in the German ZEW survey. Investor sentiment hit its lowest level since 2010 with the expectations component falling to its weakest since 2011. Eurozone Q2 GDP numbers are scheduled for release tomorrow and growth is expected to slow based on the deterioration in sentiment and slowdown in spending. Meanwhile earlier gains in sterling were short-lived. Wage growth was stronger than expected but tomorrow's CPI report could fall short of expectations.

Past performance is not indicative of future results. Trading forex carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent financial advisor if you have any doubts.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD drops below 1.11 amid upbeat US data, trade concerns

EUR/USD is trading below 1.11 after robust US housing figures and solid consumer sentiment figures were published. Earlier, the common currency suffered from the concerns of new US tariffs on the EU.

EUR/USD News

GBP/USD down 100 pips after UK retail sales badly disappoint, amid USD strength

GBP/USD has plunged below 1.3050 after UK retail sales badly disappointed with a fall of 0.6% in December, on top of downward revisions. Odds of a BOE cut have risen.

GBP/USD News

Crypto market hyperspace mode On

The secondary actors of the crypto-sphere awaken and rally hard. Leading coins battle with greater resistance at the gates of a full bullish market. The only risk is an over-shoot, but that sentiment remains neutral.

Read more

Gold looks to close week flat below $1560

The XAU/USD pair climbed to a fresh daily high of $1560 in the early trading hours of the American session but struggled to preserve its momentum.

Gold News

USD/JPY: Losing bullish momentum but retaining gains

Chinese encouraging data kept markets in risk-on mode at the beginning of the day. The US January Michigan Consumer Sentiment Index is seen at 99.3, matching December figure. USD/JPY holding at the upper end of its weekly range could correct lower.

USD/JPY News

Forex Majors

Cryptocurrencies

Signatures