Trade Talks Remain The Only Game In Town | USD/CNH, USD/JPY
Matt Simpson May 10, 2019 6:04 AM
The US pulled the trigger, as promised, and hiked tariffs on Chinese imports, although trade talks are to continue on Friday.
As we noted into today’s handover, the US hiked Tariffs from 10% to 25% on $200bn of Chinese goods. Within minutes, China vowed to retaliate although they stopped short on details.
Looking at data from 2018, the US has imposed tariffs on 47% of all Chinese imports of more than $250bn worth of goods, whilst China has imposed tariffs on 91% of US imports worth over $110bn. The way things are headed, these numbers are only likely to go up.
Still, trade talks are set to resume on Friday so a glimmer of hope remains, although we’d likely expect risk-assets to plummet without a deal. Typically, this means that volatility will spike, stocks, bond and bond yields fall whilst safe havens such as JPY, CHF and gold appreciates. On Thursday the VIX hit a 4-month high and saw it most volatile 4-day range since early October. Whilst it went on to close lower on the session, we’d expect this range to move higher if no deal is struck by the close. Either way, the outcome of trade negotiations will likely be a binary outcome for sentiment.
USDCNH remains a core focus for markets around the US-China trade talks. We noted the Yuan was weakening ahead of the talks and cannot help but wonder if it’s to be used as a bargaining chip (or warning) within the negotiations.
At the time of writing this week’s break is holding above the 6.82 high and momentum remains favourable for further gains, with the MACD pointing defiantly higher. Bullish targets remain the 6.92 and 0.698 highs and, if prices are to retrace, we’d prefer to wait for a base to build above the gap before considering long positions. A break below 6.76 would remove it from our bullish watchlist, and enter the ‘short’ watchlist if it went to break the 6.67 lows.
USD/JPY remains anchored to the 109.71 low as it mulls overt its next move. We had pencilled in a minor technical bounce yesterday, yet this clearly didn’t materialise with the current ‘risk-off’ sentiment. The MACD points firmly lower and it also created a bearish divergence with the prior tops ahead of its decline. And, if no deal is reached there’s a real risk USD/JPY could slide heading into the close as traders won’t want to be short the yen over the weekend. Remembering that the yen broadly gapped higher on Monday thanks to Trump’s late-night Sunday tweet, which could well be repeated in a no-deal scenario.
For now bears would be tempted to fade into rallies on lower timeframes, and a break of yesterday’s low signals further downside as we head into the weekend.
Why the Stakes in This Week’s US-China Trade Talks Couldn’t Be Higher for Markets
US FX Handover: Yen Rallies in Risk-Off Trade
Trade Talks Could Prove Binary For Global Sentiment | AUD/JPY, USD/CNH
Will the S&P 500 Shrug Off US-China Trade Fears?
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.