Markets went through a swing amid global political uncertainties and various economic data. One of the closely followed events in the week will be the Fed annual Jackson Hole Policy Symposium scheduled August 23. The Fed Chair Powell will provide remarks on the future monetary policy.
On the Sino-US trade front, US President Trump delayed 10% tariffs on part of the Chinese imports by December 15. However, China called WTO to confirm the US violating the last agreement they made at G20 meeting in Osaka. Two countries resumed talks on the phone, for which Trump said Thursday they were very productive adding China wants a deal. The next in-person talks are expected in September in Washington.
Trump administration is working on a fast US-UK free trade agreement while the talks with Japan are scheduled in Washington on Aug. 21-22.
Markets plunged amid fears sparked after Treasury yield curve inverted which has historically preceded several past US recessions. The 2-10 yield curved inverted Wednesday for the first time since 2007. Through Thursday, US 30-year Treasury yields fell to a historic low below 2%. It sharply weighed on equity markets, and rising expectations of a hefty Fed fund rate cut in September weighed on the greenback.
The Canadian yield curve also inverted by the most in nearly two decades putting the Bank of Canada under pressure towards looser monetary policy.
To political concerns added two missile probes by North Korea. Earlier, Pyongyang warned on South Korean and US joint military exercises, saying later South Korea’s president is “impudent” and that inter-Korean talks are over.
Diplomatic and economic spat escalated between the Japan and South Korea over World War Two laborers. Earlier, after Japan removed South Korea from its “white list” of countries with minimum trade restrictions, South Korea retaliates with removing Japan from its own. Tokyo called Seoul to justify such a move.
Back to Europe, the leader of the UK Labour Party Corbin, tries to gather with ruling Conservatives MPs who are opposed to disorderly exit to help to block a no-deal Brexit. He called for General elections, suggesting leading the temporary government to delay the Brexit.
After a string of mixed data from China, US, UK and Eurozone during this week markets will closely eye on Japanese Trade data, Eurozone’s inflation and PMI data, US PMI and Home Sales data, Canadian inflation and retail sales data.
The pair recorded losses four out of five sessions last week, falling Friday to two weeks low. RSI dipped as pair touched a lower band of a descending channel, moving far away from the 50 MA. The dollar boosted after better-than-expected July retail sales data. However, US manufacturing dipped after a two month of growth. Production shrank 0.4% last month, while a drop of 0.1% was expected. Eurozone trade balance came positive at 20.6 billion but failed to support the common currency. In the US Building permits soared to 1.336 million supporting greenbacks by easing fears over the recession. Investors will closely follow Eurozone CPI data with expectations of no change in inflating from the previous month. PMI data for both the US and the Euro area are expected later in the week. The price will test new lows, with first support to set at 1.1020 testing next at 1.0950. On the other side, we may expect an advance to 1.1100 resistance and later at 1.1150.
Sterling benefited from a better-than-expected set of data ending a four-week long losing stroll against the dollar. Positive data on retail sales and consumer prices showed the British economy is holding better than some hoped. Retail sales rose 0.2% in July from month earlier, while a decline of 0.2% was expected. Year-on-year sales advanced by 3.3%. In the latest Brexit developments, Labour leader Corbyn seeks for support of no-confidence vote in the current government. Some media reported that a few senior Conservative MPs may join him to stop the UK leaving the EU without a deal. The saga is likely to last until the October 31 deadline, further weighing on the currency. No data to be followed form the UK side but the markets will eye on the Fed symposium due later in the week, looking for a clue on future monetary stance. The dollar could see a more downside whether Chair Powell sounds more dovish than anticipated. The pair could go up to 1.2200 resistance before aiming for 1.2250. In the event of a fall, we will be following 1.2100 and 1.2050 before testing 1.2000.
The currency pair recouped almost 38.2% Fibonacci of the value of the fall since the beginning of the month. The dollar was supported by the strong retail sales which surged in July by 0.7% easing the fears over the recession. However, the bond yields inversion and with 30-year Treasury yields dipping to a record low below 2% did not ease the expectations of the next Fed Fund rate cuts in September. On the Japanese side, the next week export’s data are likely to show a slowdown for an eighth straight month in July, analyst predicts. The nation’s core consumer inflation is also expected to stay at 2-year lows for the month. Political uncertainties in North Korea supports yen, while trade optimism could benefit greenback. The pair struggles to reach 106.50 thresholds. A more downside is possible, to the 105.50 support. The next in sight are 105.00 and 104.50. On the contrary, resistance is held at 107.00 and 107.50 levels.
The US dollar appreciated against the loonie reaching almost 61.8% Fibonacci of the fall recorded since early June. A better than expected US data supported greenback while loonie suffered from falling oil prices. Commodity-linked currency is affected by the oil prices which are posting very limited gains in the last few sessions. Rising US crude inventories and fears over recessing weighted on the oil price. It was struggling to rebound to previous highs the efforts of OPEC+ supply cuts were overshadowed. The Canadian yield curve also inverted and by most in two decades sparking expectations of BoE easing monetary policy. On the data side, Canadian July CPI and Retail Sales will be eyed later in the week. Should oil prices continue to fall the pair will see new highs, aiming for 1.3350 resistance. Next to watch on is at 1.3400. Support is held at 1.3200 and 1.3150.