Trade Negotiations
President Trump has now actively gotten involved in a series of trade talks. Following yesterday’s meeting with Canada concerning NAFTA, today he negotiated trade matters with India. The President stated tariffs are an important and powerful tool in his country’s arsenal that he only wishes to use as a last resort. He went on to say he is confident that in the case of India it will not be necessary to do so. Washington’s attention is still primarily focused on China and little progress has been made on that end. The issue no longer limited to trade as even military cooperation between the two countries is becoming increasingly difficult. During a military exercise in Southeast Asia, US heavy bombers flew over the South China Sea and China interpreted this move as an attempt to provoke them.
Not Imminent
In a press release yesterday Larry Kudlow, the Director of the National Economic Council, asserted that a trade deal with China is currently not imminent. This message did not inspire confidence in Chinese stocks. Although they could only be traded on the Hong Kong exchange today, the Hang Seng’s 2.5% decline clearly indicates investors are worried about this conflict dragging on. Nikkei closed with no changes, making it the best performing Asian index of the trading session. The KOSPI and ASX 200 both declined by 1.25% and 0.75% respectively. Meanwhile there are also large movements on the oil market, where WTI rose above 75 dollars and Brent is attempting to move above 85 dollars.
EURGBP
There’s only half a year left until Britain leaves the European Union, however, there are still no specifics on the terms of their departure. Prime Minister Theresa May being snubbed and by EU officials at the European Committee’s Salzburg meeting left UK politicians embarassed and frustrated at the current state of affairs. A new deal is currently being drafted in London, although the possibility of a hard Brexit rises with each passing day. Meanhwile the uncertain domestic situation of many European countries, especially Italy, Spain and Greece, has put the euro under immense pressure.
The chart clearly illustrates how the pound strengthened against the euro along a downwards trendline all the way to the 0.8855 support line. Apparently investors still find the United Kingdom’s uncertain future more promising the fundamentals behind the euro that’s still struggling with Italy’s budget crisis. Fortunately the market does not seem to be in a panic as the two currencies are moving within a very narrow price range. Instead of major trends, the pair is defined by a sideways ranging movement.
USDCAD
After the smoke cleared around the new NAFTA agreement, traders became more enthusiastic about buying Canadian dollars. It’s a testament to the United States’ influence that countries who finalized their deal with the US almost immediately saw a surge of capital flowing back in. The rising interest in Canada’s economy naturally also led to an increase in demand for the Canadian dollar.
The USDCAD dropped from 1.3077 to 1.2787, meaning the Canadian dollar strengthened by almost 300 pips against the US dollar. Today in the aftermath of this extraordinary price movement, the pair entered a period of relative calm. The downward trend channel’s lower limit halted any further decline before price could reach the 1.2745 support line. Meanwhile the nearest resistance line is 1.2890 which appears powerful enough for the 1.2745 to 1.2890 area to potentially become the defining price range for the pair for now.
Sincerely,
Laszlo | Market Analyst
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