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Yen and Dollar Not in Reversal Yet, Low Expectation on US-China Trade Talks

The forex markets are clearly in consolidation mode today. Yen and Dollar trades broadly lower as they digest recent gains. But Canadian Dollar is, at the time of writing, the weakest one. Australian Dollar and New Zealand Dollar are the strongest one on receding risk aversion. While sentiments could have been lifted by news that US and China are resuming trade talks, the reactions in the markets have already said that investors are not convinced.

Admittedly, Chinese Yuan stages a notable rebound. USD/CNH is now at 6.8780, comparing to yesterday’s high at 6.9586. But there is no clear sign of near term reversal before 6.8 support is taken out. In other markets, major Asian indices closed in red earlier today. Nikkei closed slightly down by -0.05%, Hong Hong HSI dropped -0.82%, Singapore Strait Times lost -0.69%. China Shanghai SSE also fell -0.66% to 2705.19, barely defended 2700 handle.

In Europe, FTSE is up 0.69% at 7549.37, DAX is up 0.35% at 12205.60, CAC is up 0.55% at 5334.96. However, all are kept below yesterday’s high at 7632, 12428.56 and 5417.18 respectively. Today’s recoveries are merely seen as a corrective move only.

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Technically, EUR/USD is held below 1.1430 minor resistance, GBP/USD below 1.2826 minor resistance. EUR/JPY is held below 126.98 minor resistance, GBP/JPY below 142.46 minor resistance. There is no indication of short term bottoming yet. Recent decline just “slowed”. More is needed to confirm a reversal in the down trend of these pairs.

Low expectation on US-China trade talks because it’s low-level, and it’s Mnuchin

The biggest news today is the resumption of trade talks between US and China. Other than a notable rebound in the Chinese Yuan and Australian Dollar, reactions from the financial markets are actually rather refrained. Both Hong Kong HSI and Shanghai SSE closed in red. And rebound in European stocks are nothing close to being strong.

China’s Ministry of Commerce said in a statement that they accepted invitation by the US to resume trade discussions. Chinese Vice Commerce Minister Wang Shouwen will meet with US Secretary for International Affairs David Malpass in late August. While this is nonetheless a positive development, expectations are rather low for two reasons.

Firstly, the meeting is between rather low-level officials from both sides. Neither Wang nor Malpass could make a decision, nor are they close to the circle. And it’s highly doubtful if any one of them know exactly what their leaders want. So, it’s mostly a fruitless meeting even on a technical level.

Secondly, and more importantly, Malpass is from Steven Mnuchin’s Treasury. He’s neither from Secretary of Commerce Wilbur Ross, nor from Trade Representative Robert Lighthizer. It’s unknown how much influence Malpass on trade policies. And, Steven is well known to be isolated from the hawks on trade war with China.

Just remember back in May, Mnuchin told the press that “we’re putting the trade war on hold”. And soon after, Trump slapped tariffs on USD 50B in Chinese goods. Then, there were reports that Mnuchin and Chinese Vice Premier Liu He were working on bring back everyone to the table. Then the same week, Trump raised the stake by increase tariffs on USD 200B in Chinese goods from 10% to 25%. China condemned US for playing “two-handed strategy”.

So, is it just Mnuchin’s wishing thinking for trade negotiation? Or it’s Trump’s two-handed strategy?

US initial jobless claims dropped to 212k, Philly Fed business outlook hit 21-month low

US initial jobless claims dropped -2k to 212k in the week ended August 11, slightly below expectation of 215k. Four-week moving average of initial claims rose 1k to 215.5k. Continuing claims dropped -38k to 1.721m in the week ended August 4. Four-week moving average dropped -8k to 1.7385m.

Philadelphia Fed Business Outlook Current Activity indicator dropped sharply to 11.9 in August, down from 25.7 and missed expectation of 22.3. It’s also the lowest reading in 21 months. Nonetheless, the Six-Month Forecast indicator rose to 38.8, up from 29.0.

Also from the US, housing starts rose to 1.17m in July, building permits rose to 1.29m.

From Canada, manufacturing sales rose 1.0% mom in June.

UK retail sales rose strongly by 0.7% in July, but Pound shows no reaction

July is a rather strong month in UK retail sales, thanks to World Cup and good whether. Headline retail sales including fuel rose 0.7% mom, 3.5% yoy, well above expectation of 0.2% mom, 2.9% yoy. Ex-auto and fuel sales jumped 0.9% mom, 3.7% yoy, also well above expectation of 0.0% mom, 2.7% yoy. But just like employment and inflation data released earlier