Controlled by Russia?
President Trump made headlines at yesterday’s NATO summit with his harsh criticism of Germany concerning their plans to build a natural gas pipeline connected directly to Russia. The President called it unacceptable for Europe to heighten their energy dependence on Moscow. The summit’s agenda will include matters of Afghanistan and Ukraine as well as the issue of member states failing to meet their 2% military spending quotas. Despite Trump’s firm censure of Russia and Germany, NATO Secretary General Jens Stoltenberg claims Russia poses no imminent threat.
The worsening economic relations between the EU and US have clearly affected the NATO summit, as attendees seemed more willing than usual to take a provocative tone with one another. Europe’s patronage of Russia’s energy sector makes them the country’s greatest sponsors and the US President expressed a clear desire to change that. This move could potentially both strengthen NATO’s unity as well as open up a new market for US oil.
Markets Recovering
Despite the continuing tension of the trade war, Asian indices successfully recovered from yesterday’s losses during today’s trading session. The Shanghai Composite’s 2.2% increase is approximately equal to yesterday’s losses, however, it’s worth noting that a price change of over 2% far exceeds the average daily movement. This high volatility and polar movement pattern shows that investors still can’t decide which direction the market will go and as a result are becoming increasingly nervous and impatient. Commodity traders seem to largely share these sentiments as WTI fell $4 yesterday while copper dropped from 2.86 to 2.72.
GBPUSD
Trump’s visit to London presents Prime Minister Theresa May with a new challenge. Two key figures have recently left her cabinet on grounds of objecting to the terms of the current Brexit deal. Both officials were well known for their US-friendly attitude, however, the recently proposed Chequers plan would forge strong ties to Europe instead. Trump will likely prove himself a tough negotiator willing to use any means necessary to convince Prime Minister May that Washington would make a better ally than Brussels. One of President Trump’s objectives could be a free trade agreement between the UK and US, which would strengthen the Republican party’s domestic support before the upcoming elections, as well as potentially ease the tensions caused by their aggressive trade policy. For now it’s still difficult to say what effect such an agreement would have on Great Britain’s economy. According to economic data published earlier this week, the UK has seen a decline in manufacturing and trade balance.
Last week the cable showed signs of the pound strengthening, until trends reversed on July 9. The dollar’s price grew enough for the pair to target the 1.3189 support line while a potential downwards trendline emerged. This phenomenon indicates a continued declining trend for the GBPUSD. The breaking of the 1.3189 support line would open up the 1.31 to 1.3050 area as an additional range of movement. Price is currently confined in a narrow space between the trendline and the support line, meaning one or the other has to break in the next few days. The trendline breaking could open up the possibility of price retracing the 1.3350 resistance line. For this to happen, the UK would need to settle on a good trade deal framework, whether it’s with the US or the EU.
USDJPY
The US dollar regained some of its earlier vigor, most notably against the Japanese yen. On the currency market a daily price movement of 1% is considered rare and intensive. The yen has already lost almost 1.2% in value against the dollar just today. The breakout point was around 111.32. After an initial rebound, price broke the line on the second attempt with enough momentum to rise 85 pips in the span of only 3 hours. This movement was halted at 112.16, causing a small correction wave.
After the correction in response the initial breakout, price slowed down slightly and formed a steep upwards trend channel. The 112.16 line switched from resistance to support and prevented price from falling back below it. Price is approaching its yearly high, so we have to go back all the way to January to find its next target. The highest recorded price this year was 113.40 in early January, which is only 100 pips away from the current price. Putting this dynamic movement in the context of the USDJPY’s usual behavior suggests it could go above 113 in a matter of days. It’s worth noting that price has strayed far from its moving average, as far as 70 pips from the 50 candle average. It’s very likely that price will remain close to its current support line for a consolidation period before the next upwards movement targeting the 113 level.
Sincerely,
Laszlo | Market Analyst
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