The uptick in the US stocks on Tuesday put a bid under the US dollar, but the optimism could be short-lived on escalating trade tensions.
On Tuesday, the US revealed plans for a 25 percent tariff on 1,333 Chinese products ranging from industrial robots to locomotives. The total value of the goods subject to the tariffs is approximately $50 billion. In response, the China Commerce Ministry strongly condemned the new penalties and vowed to retaliate on the same scale and strength.
Clearly, two of the biggest economies in the world are cruising towards a full-fledged trade war and the markets are unimpressed. For instance, the S&P 500 futures dropped 0.25 percent in Asia. Also, equities in South Korea, Australia and Singapore fell, however, stocks in China turned in a positive performance, despite trade concerns.
Nevertheless, the USD/JPY pair dipped slightly to 106.41 in Asia, tracking the decline in the S&P 500 futures and Asian indices. Meanwhile, the Aussie dollar ran into bids despite trade fears, courtesy of a solid retail sales print.
The FX markets will likely take cues from the equity markets in Europe. Risk aversion will likely hurt GBP, USD and bode well for the anti-risk currencies. Meanwhile, the common currency could take a hit if the Eurozone preliminary CPI estimate prints well below estimates.
What's brewing in the majors?
EUR/USD: Having breached the key ascending trendline, the common currency looked primed for a downside break of the 11-week trading range. Jim Langlands believes the EUR could be in for another choppy day of trading as the daily chart real hint in either direction, although the 4-hour charts still look a bit heavy. The immediate support is lined up at 1.2240 (March 20 low) and the resistance is seen at 1.2345 (April 2 high).
GBP/USD: The currency pair found bids in Asia and moved to 1.4097 - the highest level since March 28, despite trade war fears. The UK construction PMI release (due at 08:30 GMT) could move the pair, but gains will be transient if stocks report losses. Jim Langlands expects the pair to trade in a range of 1.40/1.41.
USD/JPY: The pair may drop in Europe if the major European indices drop. It appears the currency pair is creating an inverse head-and-shoulders pattern with a neckline resistance around 107.00. However, an upside break would require a blowout US wage growth figure and risk-on action in stocks.
Major news
- Australia February retail sales blow past expectations
- China Commerce Ministry: Will adjust anti-dumping tariffs
- China's Caixin services PMI drops unexpectedly in March
- US Special council Mueller: Trump not a 'criminal target' in investigation - Washington Post
- Impact of Pound's depreciation is beginning to fizzle out - BRC
- US list of China tariffs violates international trade rules - China Press
- Fed's Brainard: gradual increases in rates are appropriate
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