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Trade concerns continue, US data in focus

Trade tensions have ticked up in light of the announcement from China that it will ask the World Trade Organisation’s permission to impose sanctions on the US next week.  

The Beijing administration are claiming the US didn’t comply with a ruling regarding dumping duties in 2013. It has also been reported that the Chinese government have been putting off accepting licence applications from US companies operating in China, and this is seen as another way of getting back at President Trump. 

Relations between the US and China were strained in advance of this news, and they are likely to deteriorate further.

Mr Trump has hundreds of billions of dollars’ worth of tariffs up his sleeve, and dealers are fearful they will be imposed. The US leader doesn’t want to be seen as weak, and provocations could get a reaction from him. While the two sides hold their ground, dealers will remain cautious. US stocks are holding up better than their Chinese counterparts. Last night Apple shares rose ahead of the firm’s event day today, where the market is expecting to see the launch of a new iPhone and upgrades to other products.

The US-China trade stand-off is dominating the headlines, but it is worth remembering that Washington DC is still in the process of negotiating with Canada and the EU and, even though no major progress has been made on those fronts, traders haven’t forgotten about them. 

The US dollar has been in a relatively small range recently, and while it remains above the August lows, we could see the currency attempt another push higher, especially in light of the Federal Reserve meeting this month. Emerging market (EM) currencies have been fragile lately and a move to the upside in the greenback could trigger a round of selling of EM currencies. 

The US job opening and labour turnover summary (JOLTS) jumped by 117,000 to 6.9 million – a record level. There are 660,000 more job openings than the number of unemployed Americans looking for work. When you combine the JOLTS report with the non-farm payrolls update, it paints a very positive picture of the US labour market. At 1.30pm (UK time), the US will release the latest PPI report, and the consensus estimate is 3.2% on an annual basis, and that would be a slight dip from the 3.3% in July. PPI can often be a leading indicator for CPI, so dealers will be paying close attention to the report. The beige book will be released at 7pm (UK time) and the report will set the scene for the Federal Reserve meeting later this month, where there is a high probability of a rate hike. 

The UK economy is in rude health as the unemployment held steady at 4%, and average earnings excluding bonuses ticked up to 2.9% from 2.7%. The jobs market is so strong that traders will be paying less attention to the unemployment rate and more focus will be on the earnings update. It would seem that companies must pay higher wages in order to entice workers, and this is a sign that the labour market is tightening. Wage growth is outpacing the inflation rate of 2.5%, so employees are getting a lift in real earnings, and that could translate into higher spending.

Mark Carney, the governor of the Bank of England will stay on in his role until 2020, and this is aimed at adding stability to the Brexit situation. Policy makers are keen to project an image of stability, but ultimately traders are concerned about London and Brussels reaching an agreement, and what the future relationship will look like. The question of the Irish border remains front and centre and that is likely to be the focus of dealers’ attention in the near-term. Unfortunately for the pound, the political uncertainty is overshadowing the respectable economic indicators.

Oil rallied last night due to news of Hurricane Florence, a category four storm, which is heading for North and South Carolina. Traders are worried the adverse weather could impact distribution. In times of harsh weather, traders usually don’t like to be short the energy market. The Energy Information Administration report will be released at 3.30pm (UK time) and we could see volatility jump on the back of it.

EUR/USD – despite the decent bounce back between mid and late August, the market remains in the wider downward trend that began in April, and while it stays below the 1.1750 level, its outlook could remain bearish. 1.1510 might act as support and a break below that mark could bring 1.1300 into play. If 1.1750 is cleared, 1.1850 could be targeted.

GBP/USD – has been pushing higher since mid-August, and if it can hold above the 1.3000 mark, it could edge up towards the 1.3200 area. A move to the downside might bring 1.2785 into play, and below that support might be found at 1.2661.

EUR/GBP – the key week and day reversal that we saw in late August could point to further losses and support might come into play at 0.8833 – 200-day moving average. If the wider uptrend continues it could target 0.9100 or 0.9160. 

USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 112.15. Support might be found at 109.79 – the 200-day moving average.

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