FX & Futures Analysis by Earn2Trade July 13, 2018

Peaking Chinese Trade Balance

China’s monthly trade surplus rose to 28.97 billion dollars in June. Their exports grew by 11.3% overall, making this the highest monthly surplus since 2008. The amount of Chinese products imported to the US was 13.6% higher, even though the US government is actively pursuing a trade policy meant to reduce their own trade deficit against China. Analysts claim this record high was the result of US importers trying get ahead of the tariffs by stockpiling large inventories of Chinese goods before they go into effect. Despite these figures, the Shanghai Composite was the only major Asian index to close in the negative. The Nikkei and the KOSPI on the other hand both increased by over 1% each. Meanwhile the commodity market was dominated by the sellers. Brent fell by over $1.5 and WTI is near $70.

No US-UK Trade Deal

Donald Trump did not hold back when asked about his thoughts on the newest version of the Brexit deal before his meeting with Theresa May. In an interview, the President stated he believes Boris Johnson would make a great Prime Minister. This is a rather insensitive remark to make considering Prime Minister May’s delicate position of still trying to negotiate an acceptable deal within her own party. Trump’s approach clearly shows he was hoping for the UK to become the US’s European trade foothold in spite of their current leadership leaning more towards the EU. He expressed his disapproval the deal by saying “I actually told Theresa May how to do it, but she didn’t listen to me.”
Prime Minister May’s cabinet seems willing to side with Brussels in order to keep the established benefits and routines in place. These signs of willingness to cooperate are extremely important for the EU as an indicator that this partnership has merit. The United Kingdom has been a vital part of the European community and the political direction taken by Theresa May makes them sympathetic to remaining Union members. The only question remaining is whether she can push the deal through parliament or if it’ll be blocked by the US-friendly representatives like Johnson and company.

EURGBP

While the global economy seems preoccupied with the US-China trade war, world politics are instead focusing in on the Brexit deal and the United Kingdom’s future. The gravity of the choice Theresa May and the Tories have to make between Washington and Brussels is not to be underestimated. London now faces the possibility of having to completely restructure their economy that was previously embedded in the EU as well as the political freedom that could come with it. On top of the pressure from the US and EU, Britain also has to deal with heavy disagreements within their parliament as well as the Conservative Party itself. Even the general public seems divided on the issue with many people taking to the streets in protest.

These political decisions that will shape the future of the British economy, leaving businesses and investors in the dark as they try to prepare for a deal the terms of which they don’t know yet. One would expect the pound to weaken more than it has, especially against the dollar and the euro. It seems there has been some support from Europe to help keep the GBP stable. This price level is the best UK businesses can currently hope for and will likely only worsen in the future.

Over the course of the year, the pound has weakened considerably against the dollar, making the EURGBP pair’s stability all the more impressive. There has been no official statement about central banks collaborating to keep price under control, however, the charts reveal that its movement has been limited. The pair entered a range between 0.8689 and 0.8976 in September 2017. Over the past 3-4 month this range has narrowed to half. The situation illustrates well how cooperating with Europe promises stability and predictability. Partnering with the US would instead offer more opportunity for free trade. While both choices have their merit, in the wake of the fallout caused by Brexit, London seems to value stability over opportunity.

USDCAD

If you recall our July 10 analysis, we speculated that the USD’s rising trend would continue after the retesting of the 1.3057 line. Our suspicion was confirmed by the movements that followed. The USD came to a halt at the intersection of the trendline and support line, then shot upwards, closing in the positive for the fourth day in a row. This 140 pip strengthening is already midway between the two major lines of support and resistance.

Looking at the daily candles we can already see that the 200 day moving average has started moving upwards, which is an important indicator when trying to determine the long-term trend. Though signs point to a rising trend, it’s still advised to prepare for intra-day corrections of varying size. The chance of these price reversals increases as price moves further away from the trendline and moving average.

Sincerely,
Laszlo | Market Analyst

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