Trump’s back and forth tariff game

The USD retreated against its counterparts yesterday as the Trump administration, postponed at the last minute, imposing tariffs on US imports of Mexican and Canadian products. The postponement is to last for 30 days and tended to ease market worries somewhat. Yet that was not the case with the additional 10% tariffs across all Chinese imports in the US, which are now in effect. The Chinese replied practically immediately, by imposing tariffs of 15% tariffs on U.S. coal and LNG and 10% for crude oil, farm equipment and some autos. Also, China is now reported starting that it will start an antimonopoly investigation in Alphabet’s Google, which could weigh on its share price and at the same time, included in its “unreliable entities list” some US companies. China is also imposing export controls over some rare earths and metals that are critical for hi-tech gadgets and the clean energy transition. The issue is expected to be maintained and on a fundamental level, should the frictions in the US-Sino relationships be enhanced, we may see them providing support for the USD and weighing on riskier assets. On a macroeconomic level, the rise of the ISM manufacturing PMI figure for January, beyond the reading of 50, showing an expansion of economic activity was a positive and today we note the release of the US factory orders for December while the release of the JOLTS job openings figure for the same month may gain some attention, given the release of the US employment report for January on Friday. On the monetary front, we note that San Francisco Fed President Daly is scheduled to speak, and should she express some hawkish remarks, given the resilience of inflation as reported by the release of December’s PCE rates on Friday, we may see the USD gaining some ground.

In the FX market, USD/JPY moved against the norm as it remained rather stable, supported by the 154.65 (S1) support line. We switch our bearish outlook in for the pair in favour of a sideways motion bias, as USD/JPY’s price action seems to have broken the downward trendline guiding it since the 10th of January. Furthermore we note that the RSI indicator is just below the reading of 50 implying a relative indecisiveness on behalf of the market for the pair’s direction, which could allow the sideways motion to be maintained. For a renewal of the bearish outlook for the pair we would require a clear break of the 154.65 (S1) support line and for the pair to start aiming for the 151.35 (S2) support level. Should the bulls take over, we may see USD/JPY aiming if not breaking the 158.45 (R1) resistance line.

Other highlights for the day:

Today we note in the American session, on the monetary front San Francisco Fed President Daly speaks. Later on, we get for oil traders the weekly API crude oil inventories figure, while in tomorrow’s Asian session, we note that Fed Vice Chair Jefferson speaks and from China we get the Caixin Services PMI for January. We also note the release of New Zealand’s employment data for Q4 and should the data show an easing employment market beyond expectations, we may see the Kiwi relenting some ground as it could enhance the dovishness of RBNZ. Also on a more fundamental level, we see the case for an intensification of the US-Sino trade war weighing on the Kiwi, given the close economic ties between New Zealand and China. 

On a technical level, we note that NZD/USD regained its losses yesterday, yet edged lower in today’s Asian session. We note the bearish tendencies of the pair, given also that the RSI indicator is below the reading of 50 and sliding slowly lower, yet for the time being remain unconvinced. For the adoption of a bearish outlook we would require the pair to break the 0.5540 (S1) line which provided support for the pair on the 10^th of January and start aiming for the 0.5455 (S2) support level which hasn’t seen  any price action since 2009. Should the bulls take over, we m ay see the pair reversing course and breaking the 0.5720 (R1) resistance line with the next possible target for the bulls being the 0.5820 (R2) resistance level. 

USD/JPY Daily Chart

• Support: 154.65 (S1), 151.35 (S2), 148.65 (S3)
• Resistance: 158.45 (R1), 161.90 (R2), 164.50 (R3)

NZD/USD Daily Chart

• Support: 0.5540 (S1), 0.5455 (S2), 0.5315 (S3)
• Resistance: 0.5725 (R1), 0.5820 (R2), 0.5930 (R3)

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