New Tax Has Investors Nervous
Risk reduction and profit-taking were the themes throughout the overnight trading sessions as amplified investor anxiety has crept in. Equity markets are down across the board due to a new tariff directed towards China by U.S. President Obama. The toll in question calls for a 35% duty on imported Chinese tires, sparking speculation that the Chinese government could retaliate with their own actions. Threats from the Asian superpower have surfaced, citing that Chinese officials could begin looking into imposing fresh duties on U.S. automobiles and chicken imports. With both sides at odds, the upcoming G-10 summit in Pittsburgh could keep this story in the headlines for some time. If this turns out to be the case, the recent drubbing of the USD could quickly come to an end as the clash between two of the world’s biggest economies could force an escape into safe haven outlets. Nonetheless, this piece of news will have to compete with the rest of the economic figures slated for release throughout the rest of the trading month. Better-than-expected data results may overshadow the potential headline news (such as the “U.S.- China Trade War”) and bring on another bout of risk appetite, causing the Greenback to get hit once again.
European FX Pairs
Riding the coattails of the negative overnight equity marts, the USD was able to trade with an overall buoyant feel against all the major currencies. EURUSD was on its heels early, but losses were capped north of the 1.4500 figure, maintaining its tight trading range that has been in place for the previous four trading sessions. On the fundamental data front, eurozone industrial production slipped slightly to 0.3% m/m, but did little to force any further downside pressure on the euro. A gathering of hourly simple moving averages (100-, 55-, and 21-hour) loom around the 1.4550/80 area, and could work in unison as a pivot point. Trading above this zone may lead the EURUSD higher, but while below, a downside bias could be in the cards to take the pair south of the psychological 1.45 handle.
With a bare economic calendar, the British pound continued to trade heavy versus the Greenback, maintaining its short-term downtrend against its American counterpart. Since GBPUSD achieved its highest level in over a month last Friday, the pound is off about 200 pips, inching closer toward the 1.65 figure. While the GBP was a high-flyer for the better part of last week (excluding Friday) off the back of better-than-expected industrial production data, the British currency continues to be marred with uncertainty. Theories that the UK economic resurrection is lagging others have forced increased pessimism surrounding Britain’s recovery efforts. Looking at the charts, 1.6550 looks to be an important area of support over the short term. Much like the aforementioned zone in EURUSD, trading above 1.6550 might bring about an immediate drive back up around 1.6600. On the flip side, price action south of 1.6550 could see an abrupt push down around 1.65. As the American data calendar is empty in today’s trading, look for U.S. equities to dictate direction in the major pairings.
Crude Oil Update
Crude oil is in the red for the second straight day as increased stockpiles have led to traders questioning economic growth. Crude futures are down close to 1% on the session, continuing the plunge after falling 3.7% on Friday. According to data from the Energy Department, distillate inventories have ascended to their highest levels since 1983, prompting black gold to sit just north of $68. Since climbing over 50% this year alone, crude oil seems to be encountering significant heat when trading above $70, leading traders to question whether or not these hot commodities are poised to take a bit of a breather.
Have a great day.
By Jamie Heighway, Market Analyst
