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New Trade War Begins Between US and China

A guest post written by DAR Wong

Currency Market Observations – 18 June 2018

Fundamental Outlook

The US Federal Reserve raises interest rate and signal 2 more hike. New trade wars begins after US and China slaps each other with new import tariff. European Central Bank plans to exit tapering plan over year-end but will stay at record low rates till next summer. Japan will stay unchanged in monetary policy and lag behind the 2 peers.

The US consumer prices rose 0.2 percent in May and matched forecast. Core prices also grew 0.2 percent but above expectation. Producer prices climbed 0.5 percent in May, above consensus and highest in more than 1 year’s record. Excluding food and energies, core prices also grew 0.3 percent and above forecast.

The US retail sales rose 0.8 percent while core sales grew 0.9 percent, both above the median forecast. On Thursday, President Trump announced the tariff on Chinese imported goods worth USD50 billion.

The US FED policymakers raise 25 basis points in FED fund rates and signal there could another 2 rate hike before year-end.

China’s fixed asset investment grew 6.1 percent in May on annual basis. Industrial production expanded 6.8 percent from last year. Both are slowing down in growing pace.

Before the weekend. Chinese Government retaliated by imposing a 25 percent tariff on US automobiles and agriculture goods worth USD34 billion and will take effect on 6 July.

The Bank of Japan keeps its short-term interest rate target at minus 0.1 percent and pledge to guide 10-year government bond yields around zero percent. Inflation will stay from 0.5 to 1.0 percent though the target remains at reaching 2.0 percent. Policymakers admit they will lag behind the US and European peers in tapering the stimulus.

Mario Draghi of European central Bank says the tapering of financial stimulus will end in December, after the monthly asset purchase will be shaved to EUR15 billion from September. Record low interest rate will stay until summer 2019.

UK manufacturing production slipped 1.4 percent in April and worst since January 2013. Trade deficits widened to GBP14 billion and worst in 8 months’ record.

British average earnings for a quarter seasons ended April rose 2.5 percent and matched expectation. Claimants for jobless benefits dropped 7700 in May while unemployment rate at 4.2 percent. British consumer prices advanced 2.4 percent in May from a year ago. Producer prices rose 2.8 percent on monthly comparison.

Technical Forecast

USD/JPY stays on high note after Dollar index has firmed up. The trend hovered around 110.50 before weekend but demand has slowed down. This week, we foresee the market might attempt 111.00 high then fall. Range is expected to move from 109.50 – 111.00 region.

EUR/USD fell after Draghi mentioned rate to stay at record low through next summer. Before the weekend, market hovered around 1.1600 area and probably will thread sideways for few more days. We forecast the range will move from 1.1500 – 1.1800 region.

GBP/USD is currently standing on 1.3200 support and tend to recover this week. Market could be trading range bound from 1.3200 – 1.3450 for time being. Beware that falling beneath 1.3200 support may drive down to 1.3050 as our next target.

Dar Wong

This post is contributed by OPF Guest Blogger, DAR Wong.

DAR Wong is a registered fund manager in Singapore with 26 years of global trading experiences. You may reach him at dar@pwforex.com

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DISCLAIMER: This post is written for general information only. The author, publisher and/or any third party involved in the distribution of this work assume no legal responsibilities and shall have no liability whatsoever for any direct or consequential losses, costs or expenses arising from the use of the information contained herein.

 












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