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Market Outlook

Trump’s Trade War and Dollar pain

Last week Fed’s Powell in his maiden testifying session send markets into a spin as he rather astonishingly sounded rather hawkish raising hopes of quite the presently expected 3 rate hikes next year. He plumbed optimistic regarding inflation too expecting it to succeed in the targeted 2% shortly. Markets that were expecting a continuance to the cautious approach championed by Yellen was jolted by a rather hawkish sounding Powell.

Dollar went strong latterly, USDJPY traded up but was hit by resistance at 108.00 the previous support that was broken earlier. Follow up economic data from the US wasn’t promising as bears took power again to drop USDJPY to 105.70.

Gold remained to be under strain initially from a hawkish Fed and then by weak liquidation as 1351 demonstrated yet again to be a robust resistance. Gold found support at 1305 to later rally to conclude the week at 1322, just wary of resistance at 1326.

While the Fed took the hawkish route, ECB was in a dovish attitude. As on Monday while addressing the European parliament Draghi resounded dovish, joined by a slacking inflation numbers. Followed by the speech the German economic data released was weak that put up the pressure on EURUSD for the week. EURUSD shortly broke the 1.22 handle to quickly regain and to wind up the week at 1.2310

GBPUSD was puzzled by new about disagreement in May’s camp and no improvement in Brexit negotiation.

USDCAD was hit by trade war rhetoric from Trump. He exclaimed NAFTA to be the ‘worst deal ever’, condensing the already lean chance of NAFTA endurance to near zero. Canadian dollar depleted with USDCAD hitting resistance at 1.2900.

With dollar taking all the spotlight and Fed sounding hawkish, coming week’s jobs figures set to be released on Friday would take lot of attention. With economy near full employment the headline figure would be ignored with Most of the focus will likely be on average hourly earnings figures which would act as a principal indicator to inflation expectation.

Gold is alarmingly positioned at 1322. In spite of USDJPY weakening to 105.50 in the previous week Gold still managed to close in red highlighting the inherent weakness. A test again of 1305 shouldn’t be dismissed coming week, especially with USDJPY expected to make a minor recovery. However 1305 should be held as the common risk off sentiment and edgy equity market should support Gold.

USDJPY is in a downturn and is at the previous bottom of 105.50, a break of which opens up a move to 100.00. Resistance comes in at 106.20 and 108.00

EURUSD managed to regain 1.2200 support but is required to break above 1.2500 for the bulls to reclaim control. Prompt resistance for EURUSD comes in at 1.2350. On the civic front two major event risks mount on EURO as Italy goes to poll with a busted mandate widely expected and in Germany the government formation discussions are in the final stages. If Merkel isn’t part of the new government EURO would take a thrashing bringing 1.22 again under focus.

USDCAD has resistance at 1.2900 which was tested three times earlier. If Trump continues his Trade War Rhetoric, 1.2900 won’t hold a chance.