USD: Trade deals are good news for risk assets – ING

Equity markets are trading higher around the world on news that President Trump has announced a trade deal between the US and Japan, ING's FX analyst Chris Turner notes.

Price action has been poor

"The deal is being pitched as a 'win-win' in that US tariffs on Japanese goods – including autos – are 'only' 15% compared to the 25%+ previously threatened, while Japan is said to have committed to purchasing US planes and rice, and rather unbelievably, to establishing a $550bn sovereign wealth fund that would invest in the US under the direction of President Trump. Let's see how far that idea progresses."

"Elsewhere, we note industrial metals continuing to rally and the terms of trade rising for currencies like the Australian dollar, Brazilian real and South African rand. These currencies also act as a hedge should Fed Chair Powell be ousted and the commodity sector be viewed as an inflation hedge in the event of premature Fed easing. This trend may have legs."

"In terms of the big dollar, price action has been poor. This week's losses could somehow represent a catch-up with some lower US yields seen last week or merely represent some investor re-allocation out of the US and into say Europe or Emerging Markets on a global growth play. For today, the US focus will be on the June existing home sales release. Some are thinking that the housing sector will be the next shoe to drop in the US slowdown. However, our team sees some slight upside risk to today's data based on the recent bounce in mortgage applications. If so – and given the more mixed USD/JPY environment today – DXY could see a retracement to 98."