US AM Digest: Trade Wars Potentially Spilling Into Currency Wars as China Mulls Yuan Devaluation

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JPY: The Japanese Yen trading in a somewhat tight 40pip range with USD/JPY remaining magnetized at the 107.00 level. Slight outflows from the traditionally safe-haven Yen amid the modestly improved risk sentiment. This largely stemming from the United States shift towards negotiations with China as opposed to an all-out trade war with President Trump stating that a deal will be made on intellectual property. Aside from Trade Wars, North Korea have confirmed that they are willing to talk on denuclearization, consequently giving a further boost to risk sentiment.

EUR: A series of disappointing economic data points from Germany continues, providing another insight that growth in Europe’s largest economy is potentially levelling off, which has subsequently kept the pressure on the Euro. German trade balance showed a surplus at EUR 18.4bln, falling short of expectations of EUR 20bln. This had been largely attributed to the surprise 3.2% decline in exports (Exp. +0.2%), which marked the largest fall since August 2015. Elsewhere, Eurozone Sentix noted that the economy is indeed cooling off as the confidence measure fell to 19.6 from 24, while Euro-Area expectations were negative for the first time since July 2016 with a -1.5 reading compared to 4.3 in March and 22.8 six months ago. Although, the release does not typically provide volatility for Euro, it does however follow the narrative that downside risks are increasing for Euro-Area economic growth.

AUD: No respite for the Australian Dollar which is among the worst performing G10 currencies today, given its exposure to China. Consequently, the continued tit-for-tat between the US and China continues to guide price action, with the latest reports out of China stated that China could evaluate gradual CNY devaluation. Much of the softness in AUD has been seen through the AUD/NZD cross which continues to hover at its lowest level since July 2017 and is now eying the 1.0500 handle to the downside.

DailyFX Economic Calendar: Monday, April 09, 2018 – North American Releases

Today will see the release of the Bank of Canada’s Business Outlook Survey which is the last of the major indicators ahead of the next weeks rate decision on Wednesday. As it stand, market pricing for a 25bps rate hike is just shy of 15% with a hike fully priced in for the September meeting. Risks to the BoC Business Outlook Survey are to the downside amid the rising uncertainty over NAFTA and trade wars, while domestic data points, in particular GDP, has gotten off to a slow start for 2018, with the most recent figure contracting by 0.1% for January from an increase of 0.2% in the prior month. Elsewhere, the economic calendar gets off to a slow start in the US with investors looking out for key risk events later in the week, in the form of US CPI and FOMC minutes release.

DailyFX analysts Christopher Vecchio, CFA will be covering the CPI release on Wednesday from 12:15 GMT

DailyFX Webinar Calendar: Monday, April 09, 2018

IG Client Sentiment Index Chart of the Day: EURGBP

EURGBP: Indications of Euro-Area growth cooling off, while GBP remains supported on expectations that the Bank of England will hike the bank rate next month keeps the pressure on EUR/GBP with the cross continuing to test 0.8700, with a firm break, potentially setting up a test of the 2018 low at 0.8667.

IG Client Sentiment data shows 53.8% of traders are net-long with the ratio of traders long to short at 1.16 to 1. In fact, traders have remained net-long since March 20 when EURGBP traded near 0.88072; price has moved 1.1% lower since then. The number of traders net-long is 2.3% higher than yesterday and 8.1% higher from last week, while the number of traders net-short is 7.3% higher than yesterday and 0.7% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EURGBP prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EURGBP trading bias.

Learn more about the IG Client Sentiment Index on the DailyFX Sentiment page

Five Things Traders are Reading

  1. Euro’s Biggest Risk May Be Itself as Data Momentum Tanks” by Christopher Vecchio, Senior Currency Strategist

  2. Price of Brent Crude Oil Steadies Ahead of Major Support Zone
    by Martin Essex, MSTA, Analyst and Editor
  3. Euro Remains Heavy as Leading Indicators and German Data Point Towards Soft Growth Prospects” by Justin McQueen, Market Analyst
  4. Bitcoin (BTC) Price Nears Bear Trend Breakout” by Nick Cawley, Market Analyst
  5. USDJPY Holds Its Ground as US, China Trade Spat Dominates Marketsby Martin Essex, MSTA, Analyst and Editor

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