Good morning traders.
Yesterday saw the first shots fired back at Trumps trade talks tweet broadside. The editor of the (Chinese) Global Times tweeted (we must assume at the behest of the PRC Administration in tit for tat crossfire) that China was to retaliate with its own tariffs on US goods and mentioned Boing specifically in an attempt I suppose to twist the knife in an already open wound.
US Stock futures responded swiftly with a down move particularly in the Dow re the Boing listing. The tweet also mentioned that Chinese ´scholars´were looking at how to “dump” US treasuries. Unusually strong language from the Chinese and I guess that’s what you get for the strident tone always explicit in Trumps tweets.
As a slight aside I´m continually amazed at how global economic (and foreign and domestic policy when it comes to it) is being conducted by the US President. Not only are his tweets inflammatory but seem to be based on either a lack of understanding of economics (re economic policy) or a deliberate attempt to oversimplify for self serving domestic concerns.
Take his tweets that the US stands to benefit greatly from tariffs, that the Chinese will pay them and that the recent GDP figures were “greatly helped” by tariffs.
The chinese don´t pay tariffs, importers pay and are usually passed directly onto consumers fuelling inflation (I understand there are other knock on effects but needn’t get into this here); GDP is generally impacted negatively by tariffs (SocGen predicts that the latest round of US tariffs will cut US GDP by 0.25% and China by 0.70%) and whether the US will benefit greatly is not how these things usually play out in economic history, theory or practice.
That’s not to say I don´t understand where Trump is going with such language – he is using the bully pulpit to play to his base who are not that immersed in the intricacies of economic transmission mechanisms. Nor is anyone else in the general population for that matter so this is neither a slight on them nor triggered liberal ´sensitivity´(to coin a phrase from the current zeitgeist) . I just find it poor form (to say the least) that someone in such power should be indulging in such ´disingenuity´.
Should not anyone in such power be trying to educate, inform and generally improve rather than hoodwink and disinform? I´m not naive to the black arts of politics (neither its merits nor demerits) but I am getting tired of the constant misdirection of the general public not just in the US but here in the UK (think all things Brexit ) and EU (think federalist and populist misinformation) aswell. Anyway I´ll get off my soapbox for now (and who cares anyway) but I am sure I am not alone in thinking we should all expect better, regardless of political hue.
OK back to trading…..at least the charts don´t lie …. er… well, ok, occasionally when brokers start ripping spreads to catch stops, but not all the time :).
From our point of view its not a clear picture as to how the USD and thereby the eurusd, might be affected.
Risk off seems the most obvious initial response with equities taking a hit. If this continues the USD could strengthen as a safe haven shelter. Similarly if inflation is triggered via the knock on effects of import tariffs this could also see the USD strengthen as rate increases come four square back into the picture.
On the other hand if the Chinese do start to dump treasuries the USD could weaken – such are some of the above mentioned intricacies of global macro economics. Moreover if the Chinese are looking at dumping US paper then maybe they might start to look at Euro denominated fixed income (Bunds ?). If they do, this would help the euros cause in rising against the USD.
Considering this cursory look at the impacts of the current state of the trade war you can see its not a clear cut outcome and difficult to predict (when is it not) what could happen next to the eurusd!
So, we will stick to our levels and do our job.
The Daily Chart
We got an initial spike in the pair on the announcement of retaliatory Chinese tariffs yesterday but again the 1.1260s cap held its ground. The USDx came down to test the 97.00 level (a prediction that worked lol) but then paired losses and is now back up above the level.
For today I don´t know which way we will go but I doubt we will get a break out either side. 1.1265 needs to be cleared at the top and 1.1175 at the bottom.
The Hour Chart
Levels as per.
S1 and R1 remain the same as yesterday.
Good luck amigos.