Trump’s turnabout stuns the markets

US President Trump’s shocking post practically constituted a U-turn yesterday in the late American session, as he announced a 90-day pause in a substantial part of the tariffs imposed on products entering the US from several targeted countries. It should be noted that the 10% generic tariff remains in effect. On the flip side the trade war on China intensified further as the US President in the same post, also stated that the US tariffs on Chinese products are to be raised to an aggregated 125%, “effective immediately”. By this tack in international trade policy, room is provided for negotiations to take place but not with China and the rivalry of the superpowers may escalate further. We are still in a very sensitive fundamentally market and extreme market reactions to either side as mentioned in yesterday’s report are still possible. Any easing of market worries for the issue could provide additional support for US stock markets and vice versa and we expect the issue to remain dominant today. It’s characteristic that market reactions were intense with US stock markets recovering the losses of the past three days practically and oil prices got some substantial support as did the Aussie in the FX market.

On a technical level, we note the rally of AUD/USD which broke the 0.5980 (S2) and the 0.6170 (S1) resistance lines, both now turned to support. Also the RSI index has risen, nearing the reading of 50 implying an easing of the bearish sentiment. For the time being we expect the pair’s price action to stabilise somewhat. For a renewal of the bearish outlook we would require the pair to break the 0.6170 (S1) support line and continue to also break the 0.5980 (S2) support level, thus forming a new lower trough and pave the way for the 0.5700 (S3) support hurdle. For a bullish outlook we would require the pair to break the 0.6410 (R1) resistance line which used to be also the upper boundary of the pair’s past sideways motion and start aiming for the 0.6665 (R2) resistance level.

On a macro level, we highlight today in the early American session, the release e of the US CPI rates for March. The rates are expected to slow down marginally both on a headline and core level, which in turn may weigh on the USD somewhat while at the same time could provide some slight support for US stock markets. The easing of inflationary pressures if the actual rates meet their respective forecasts, may also enhance market expectations for the Fed to resume its rate-cutting path. On the other hand, the release of the Fed’s March meeting minutes yesterday, highlighted the upside risks for inflation in the US economy and could enhance the bank’s doubts for cutting extensively its interest rates.

On a technical level, we highlight the rally of the S&P 500 as the wide US equities index rose yesterday, breaking consecutively the 5155 (S2) and the 5345 (S1) resistance lines, now both turned to support. We also note the correction of the RSI indicator which rose nearing the reading of 50 and implying an easing of the bearish sentiment of the market for the index. We expect some stabilisation of the index’s price action, yet a bearish predisposition of the market, may still be present for the index. Should the bears take the lead once again, we may see the index breaking the 5345 (S1) support line and aim for the 5155 (S2) support level. Should the bulls take charge, which is not currently expected, we may see the index’s price action breaking the 5520 (R1) resistance line and start aiming for the 5710 (R2) resistance level.

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Today on a macro level, besides the US CPI rates for March we get Sweden’s February GDP rate, Norway’s and the Czech Republic’s CPI rates for March, the weekly US initial jobless claims figure and Canada’s February building permits. On a monetary level, we note a wide number of policymakers is scheduled to speak, among which, ECB’s Montagner, Tuominen, Buch, Donnery, RBA Governor Bullock, BoE’s Breeden and the Fed’s Barkin, Logan, Schmidt, Goolsbee and Harker speak.