London Forex Report: Trade Salvos Send Stocks Tumbling

London Forex Report: Trade Salvos Send Stocks Tumbling

London Forex Report: It’s back to risk-off as US and China sling trade salvos at each other, with USTR claiming that China’s IP practices have inflicted damages of US$450b pa on the US economy and targets at least US$50b of Chinese imports with 25% duties, while China is planning reciprocal tariffs on US$3b of US imports including pork, steel, aluminium, fruit and wine and plans to take legal action against the US under the WTO framework. US president Trump also directed Treasury Secretary Mnuchin to propose new investment restrictions on Chinese companies within 60 days to safeguard strategic technologies, and also replaced White House National Security Adviser H.R.McMaster with John Bolton (a former ambassador to the UN known for his hawkish views). Meanwhile, Commerce Secretary Ross opined that China will have a “measured response” to the latest US move and also suggested that China buy more natural gas from the US to narrow its bilateral trade gap. The kneejerk market reactions were Wall Street lower and UST bonds higher.

NORTH AMERICA In the US, the number of Americans filing for unemployment benefit increased marginally last week. Initial jobless claims went up by 3,000 to 229k for the week ended 16-March (previous: 226k). Both manufacturing and services sectors expanded as well. Manufacturing PMI registered a higher reading of 55.7 in March (Feb: 55.3) while manufacturing activities in Kansas City held steady at 17.0 in March. Services PMI reported a slower reading of 54.1 in March (Feb: 55.9) but remained expansionary nonetheless. Leading index posted a smaller increase of 0.6% in February (Jan: 1.0%) but was slightly better than the expected moderation to +0.5%. Contrary to weaknesses seen in recent housing market indicators, FHFA showed house prices increased at a faster pace of 0.8% MOM in January (Dec: +0.4% revised).

EUROPE The European Central Bank published its economic bulletin which is consistent with its overall economic assessment in the March meeting earlier, citing that the labour market continues to exhibit strong dynamic and growth momentum in the Eurozone to be robust. Preliminary reports show that both manufacturing and services sectors in the Eurozone are expanding at a softer mode. Manufacturing and services PMI registered readings of 56.6 and 55.0 respectively in March (Feb: 58.6 and 56.2). Current account balance on the other hand stood at €37.6b in January, a significant improvement compared to the last 3 months (Dec: €31.0b).The Bank of England held its benchmark interest rates steady at 0.5% as widely expected. The central bank also announced that it will maintain its asset purchase target at £435b as part of its monetary policy. BOE stated that wage growth is firming up in response to a tightening labour market. Inflation is expected to moderate but remain above its 2% target. BOE maintained that tightening will be at a “gradual pace and to a limited extend”. Markets are pricing in a probability of 72% chance of rate hike in coming May meeting. In a separate release, retail sales rebounded to improve 0.8% MoM in Feby (Jan: -0.2% revised).

ASIA Inflation crept higher in Japan for the month of February. Headline CPI quickened to 1.5% YOY (Jan: +1.4%) as a jump in food prices in January persisted for the second month. Core CPI inched higher as well to increase 1.0% YoY (Jan: +0.9%) on the back of higher prices in transport and communication. Sales in supermarket recorded its highest growth in 2 years at 1.3% YoY (Jan: +0.6%). However department store sales fell 0.9% YoY in February albeit slowly compared to the previous month’s 1.2% decline. Manufacturing activities slowed in March as a preliminary Nikkei report showed PMI registered a reading of 53.2 (Feb: 54.1). Adding on to concerns over softening growth outlook was all industry activities index, that witnessed a 1.8% decline in Jan (Dec: +0.6% revised), although this was within expectations.

EURUSD
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Neutral

Technical: 1-3 Day View – Range continues contracting frustrating both sides, closes below 1.2250 opens 1.2150, however, closes above 1.2360 sets 1.2570 in bullish sites

1-3 Week View – As 1.2130 now acts as support expect a test of 1.2635 as the next upside objective. Weekly close below 1.19 neutralises bullish objectives opening a test of 1.14.
Retail Sentiment: Neutral
Trading Take-away: Neutral

GBPUSD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – 1.4145 achieved, profit taking pullback playing out as 1.4060 supports 1.4340 is the next upside objective. Only a close below 1.3990 concerns near term bullish bias

1-3 Week View – As 1.3650 supports 1.45 becomes the next upside objective, only a close back below 1.34 would jeopardise the bullish advance.
Retail Sentiment: Neutral
Trading Take-away: Neutral

USDJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – As 108.44 acts as resistance 103.22 is the next downside objective, near term resistance is sited at 105.50

1-3 Week View – The close below 108 negates the broader bullish theme and opens the psychological 100 magnet as the next downside objective, only a close above 108.50 stabilises the pair, opening 112.50
Retail Sentiment: Bullish
Trading Take-away: Short

EURJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – Breach of 131 sets a top to target 128.25 as 131 acts as resistance. A close over 133 stabilises the pair opening a retest of 135

1-3 Week View – The closing breach of 131 concerns the bullish consolidation bias opening a test of 128.50 while this area supports there is a window to retest and breach cycle highs above 137
Retail Sentiment: Bullish
Trading Take-away: Short