Trade War Threat Returns, Keeping USD Supported

USD Dollar Higher on Safe Haven Flows

The US dollar traded a little higher over the European morning on Monday. This came following a sharp sell-off on Friday, as safe haven inflows returned in light of news of fresh tariff threats from President Trump. Trump announced on Twitter that he will be raising tariffs on a raft of $200 billion worth of Chinese goods from 10% to 25% on Friday. Concerns that this threat will derail the current US/China trade negotiations has weighed on risk sentiment as concerns over global growth return. The USD index has traded back up to 97.37.

EUR Stronger Following Better Data

EURUSD is also trading a little higher this morning despite the stronger US dollar. Better than expected GDP and CPI data from the eurozone last week have been welcomed by EUR bulls. This is especially true given the ongoing concern for the eurozone economy over recent months. For now, EURUSD remains above the 1.1119 support but capped by resistance at the 1.1217 level.

Pound Retreats Following Elections Rally

GBPUSD has been a little weaker today as the market retraces over the UK bank holiday. This comes following an explosive rally on Friday in response to the dramatic shift in UK local elections. The elections saw the Conservative party widely defeated. GBPUSD trades 1.3115, in the middle of the 1.30–1.33 range.

Equities Tank on Trade War Fears

SPX500 is down sharply over the European morning today as traders digest news of the planned increase in US trade tariffs on Chinese goods. SPX500 had rallied up to fresh all-time highs last week but has now reversed down as low as 2891.43. The UK100 is also down sharply with price gapping down below the 7368.3 level at the start of the week to trade 7276.4 last.

Safe Havens Rise on Risk Retreat

Safe havens have had a mixed start to the week. Both JPY and gold were initially far higher against the dollar although these moves have reversed somewhat over the European morning. XAUUSD is now trading just above the 1280.58 level which continues to be a key pivot in gold price action. USDJPY has broken down sharply below the rising trend line from last year’s low as well as structural support at the 110.81 level though rate is now reversing higher to trade 110.75 last.

Crude Down

The prospect of an escalation in the trade war between the US and China, alongside a stronger US dollar and fresh record-high US crude production, has weighed on oil prices at the start of the week. Following a test above 64.38 recently, crude has now traded down to retest the broken 60.47 level which was the March high.

Commodity Currencies Mixed

The sell-off in oil prices, along with a recovery in the US dollar, has put pressure on CAD today. USDCAD has traded back up to test the 1.3469 level again over the European morning today. Price has been testing the level frequently over recent months and could soon see a full breakout above the level.

AUDUSD has also had a volatile morning today with price gapping down below the .6983 level (2018 closing low) only to then reverse and trade back above the level. Traders are now waiting on the RBA rates meeting due in the early hours of Tuesday morning. However, the bank’s message is likely to be the same as last time, citing low household incomes and high household debts, alongside subdued wage growth, as reasons for keeping rates on hold.