Trump’s trade wars intensify

The USD firmed against its counterparts yesterday as Trump’s trade wars intensify. In a latest salvo U.S. President Donald Trump threatened to hit Europe with a 200% tariff on wine, cognac and other alcohol imports. The move weakened the EUR decisively, while on the flip side the USD was allowed to strengthen. We expect the trade wars to continue to tantalise the markets and further escalations of the tensions in the US trade relationships with other countries may create safe haven inflows for the USD, yet at the same time may enhance uncertainty for the US economic outlook. At the same time, in the internal US political scene, the US Government is threatened with a possible shutdown increasing the pressure on the Trump administration and at the same time highlighting an uncertainty at an internal political level. It’s characteristic of the market uncertainty, that despite an easing of the PPI rates for February, which aligned with the easing CPI rates and employment data for the same month, exercising pressure on the Fed to ease its monetary policy, US stock markets fell instead of rising while at the same time gold’s price was pushed to new record high levels.

EUR/USD continued to correct lower yesterday, from its peak at the 1.0940 (R1) resistance line. As the downward trendline guiding it has broken we initially switch our bullish outlook in favour of a sideways motion bias. Yet the RSI indicator despite correcting just below the reading of 70, is still at high levels, implying a bullish predisposition of the market for the pair. Should the bulls regain control over the pair, we may see EUR/USD breaking the 1.0940 (R1) resistance line with the next possible target for the bulls being the 1.1210 (R2) resistance hurdle. Should the bears take over, we may see the pair breaking the 1.0760 (S1) support line and start aiming for the 1.0600 (S2) support level.

Gold’s price rose yesterday breaking the 2955 (S1) resistance line, now turned to support. As the precious metal’s price was able to breach the upper boundary of its past sideways motion we maintain a bullish bias for its movement while the RSI indicator rose reaching the reading of 70 implying a bullish sentiment of the market for gold, which in turn may push its price even higher. A small word of caution though, as the price also has reached/breached the upper Bollinger band which may slow down the bulls or even cause a correction lower. Should the bulls maintain control over gold’s price, we set the 3100 as the next possible target for the bulls. For the adoption of a bearish outlook we would require the precious metal’s price to retreat breaking the 2955 (S1) support line but also continue lower to break the 2790 (S2) support level, with the next possible target for the bears being set at the 2585 (S3) support barrier.

In the FX market we highlight the unexpected contraction of the UK economy for January as reported by the GDP Rate while at the same time the manufacturing output growth rate also widely contracted for the same month, underscoring the impasses hit by the UK economy, which understandably weighed on the pound and is increasing pressure on BoE to continue cutting rates in its meeting next week.

In Monday’s Asian session, we get from China the Urban investment, the industrial output and we view the release as potentially market-moving. Should the Chinese economy show signs of easing economic activity and demand, we may see market worries intensifying as China’s growth rate could be set at risk, slowing growth on a global level.

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Today in the European session, we note the release of Germany’s and France’s final HICP rates for February as well as UK’s January GDP and manufacturing output growth rates. In the American session, we get Canada’s manufacturing sales for January and from the US the preliminary University of Michigan consumer sentiment for March.