Sentiments Stabilized after Trump Toned Down Trade Tension, Dollar Firmer

Market overviews

Sentiments stabilized a lot after US President Donald Trump toned down his rhetoric on trade war with China. There appears to be some conversations going on for resolutions. But recovery in stock markets is so far refrained, as tensions could intensify again suddenly. In the currency markets, major pairs and crosses are back into Friday’s range. Yen and Swiss Franc turned softer, followed by Sterling. Australian Dollar is the strongest for today so far followed by Dollar.

Technically, further declines are expected in USD/JPY and EUR/JPY as long as 106.73 and 118.33 resistance levels hold. Also, with 0.6822 resistance intact, further fall is expected in AUD/USD through 0.6677 low sooner or later. USD/CAD could be a focus today to seen when 1.3345 resistance would be taken out to resume rebound from 1.3016.

In US, currently, DOW future is up 0.87%. In Europe, DAX is up 0.4%. CAC is up 0.56%. FTSE is on holiday. German 10-year JGB yield is up 0.0082 at -0.664. Earlier in Asia, Nikkei dropped -2.17%. Hong Kong HSI dropped -1.91%. China Shanghai SSE dropped -1.17%. Japan 10-year JGB yield dropped -0.393 to -0.275.

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US durable goods orders rose 2.1%, ex-transport orders dropped -0.4%

US durable goods orders rose 2.1% in July well above expectations of 1.0%. total new orders for manufactured durable goods rose USD 5B to USD 250.4B. However, ex-transport orders dropped -0.4%, below expectation of 0.0%. Ex-defense orders, though, rose 1.4%. Transport equipment rose 7.0%.

Trump: Xi is a great leader who understand how life works

Market sentiments stabilized after US President Donald Trump toned down his rhetoric on trade war with China. He reiterated that “China called last night our top trade people and said ‘Let’s get back to the table’”. Hence, we’ll be getting back to the table, and I think they want to do something. Trump also said: “They want calm, and that’s a great thing, frankly. And one of the reasons that he’s a great leader, President Xi, and one of the reasons that China’s a great country is they understand how life works.”

However, Chinese tabloid Global Times Hu Xijin denied there was phone call between the two sides. He tweeted that “Based on what I know, Chinese and U.S. top negotiators didn’t hold phone talks in recent days. The two sides have been keeping contact at technical level, it doesn’t have significance that President Trump suggested. China didn’t change its position. China won’t cave to US pressure”.

German Merkel wants EU-US trade deal asap

Trump indicated that he and German Chancellor Angela Merkel discussed a trade deal with the EU. Also at G7, Merkel said she wants EU to reach a trade agreement with US as quickly as possible,

Merkel said, “we want to talk now about the EU and the United States having deeper talks as quickly as possible… We have a great interest in our trade being intensified. I think we can find solutions… Germany, within the framework of the EU, is working hard on this.”

German Ifo dropped to 94.3, even more indications of a recession

German ifo Business Climate dropped to 94.3 in August, down from 95.7 and missed expectation of 95.0. That’s also the lowest level since November 2012. Expectations Index dropped to 91.3, down from 92.2 and missed expectation of 91.8. Current Assessment Index dropped to 97.3, down from 99.4 and missed expectation of 98.8.

Clemens Fuest, President of the ifo Institute, said: “Companies were once again much less satisfied with their current business situation. Pessimism regarding the coming months also increased. There are ever more indications of a recession in Germany.””There will be a stagnation in the third quarter at best,” Ifo economist Klaus Wohlrabe said. “We are facing a recession.”

Looking at some details, Manufacturing Index dropped from -4.3 to -6.1. And “the last time that industrial companies demonstrated such pessimism was in the crisis year of 2009. Not a single ray of light was to be seen in any of Germany’s key industries.” Service Sector Index dropped from 18.0 to 13.0. Trade Index dropped from 1.4 to -2.4. Construction Index dropped from 23.1 to 21.4.

US and Japan agreed in principle on trade deal, for signing next month

Trump and Japan Prime Minister Shinzo Abe announced to have agreed in principle on trade deal, at a joint press conference at G7 in France. The teams are now working on finalizing the agreement for signing next month.

Trump said “It’s a very big transaction, and we’ve agreed in principle. It’s billions and billions of dollars. Tremendous for the farmers”. US Trade representative Robert Lighthizer said the agreement “will lead to substantial reductions in tariffs and non-tariff barriers across the board.”

Abe also noted “we still have some remaining work that has to be done at the working level, namely finalizing the wording of the trade agreement and also finalizing the content of the agreement itself… But we would like to make sure that our teams … accelerate the remaining work for us to achieve this goal of realizing the signing of the agreement on the margins of the U.N. General Assembly at the end of September.”

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 104.88; (P) 105.80; (R1) 106.35; More…

USD/JPY recovers strongly after hitting 104.45 and intraday bias is turned neutral again. Some sideway trading could be seen. But outlook remains bearish as long as 106.73 resistance holds. On the downside, break of 104.45 will resume recent down trend to 100% projection of 112.40 to 106.78 from 109.31 at 103.69. However, firm break of 106.73 will indicate short term bottoming and bring stronger rebound back to 55 day EMA (now at 107.49).

In the bigger picture, decline from 118.65 (Dec 2016) is still in progress and the pair is staying well inside long term falling channel. Firm break of 104.62 will target 100% projection of 118.65 to 104.62 from 114.54 at 100.51. For now, we’d expect strong support above 98.97 (2016 low) to contain downside to bring rebound. In any case, break of 112.40 is needed to the first serious sign of medium term bullishness. Otherwise, further decline will remain in favor in case of rebound.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
22:45 NZD Trade Balance (NZD) Jul -685M -250M 365M 331M
08:00 EUR German IFO Business Climate Aug 94.3 95 95.7
08:00 EUR German IFO Expectations Aug 91.3 91.8 92.2
08:00 EUR German IFO Current Assessment Aug 97.3 98.8 99.4
12:30 USD Durable Goods Orders Jul P 2.10% 1.00% 1.90%
12:30 USD Durables Ex Transportation Jul P -0.40% 0.00% 1.00%

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