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US-China trade worries continue, Trump and dollar in focus

Despite the eventful day yesterday in terms of news flow, the US markets had an uneventful finish. 

Despite the eventful day yesterday in terms of news flow, the US markets had an uneventful finish. The Dow Jones lost a little ground, while the S&P 500 closed fractionally lower, and the NASDAQ 100 made a small bit of headway.

The US-China trade spat continues as representatives from both countries engage in low level talks in the US. The tit-for-tat tariffs conflict continues as both sides will impose tariffs on $16 billion worth of each other’s goods today. The monetary size is small but the gesture is big, and traders will be eyeing developments. The Hang Seng and the CSI 300 are both in the red. 

The Australian dollar came under pressure overnight due to a number of resignations from key cabinet supporters of Prime Minister Turnbull, and there is speculation this will end his leadership. 

The Fed minutes revealed a big hint that they are likely to hike interest rates next month. The US central bank essentially said it would soon be ‘appropriative’ to tighten the monetary policy as there is ‘strong’ economic growth. The Fed are very aware that their relatively low interest rates in recent years has brought about ‘elevated’ asset prices, but broadly speaking, corporations have ‘easy’ access to credit. The protectionist policies of Donald Trump could bring about higher inflation on account of increased import costs. Policy makers expressed concern that a prolonged trade spat with China could curtail business investment and spending. Overall, the Fed were optimistic in their outlook and seem as if they are content to remain in their hiking cycle.

The US dollar index experienced a jump in volatility during the Fed release, but finished off the lows of the session. Trump’s attack on the Fed for hiking is starting to feel less relevant in light of the suggestion that another rate hike could be delivered next month.

The greenback might be caught up in Trumps political storm. The president’s opponents have been quick to smear him given the goings on of Michael Cohen, and Paul Manafort. There has been the odd mention of impeachment, but in reality, the chance of that happening is low. The US-Mexico component of the NAFTA talks are going well, and this is the sort of story that Trump would prefer on the front page of newspapers. The Jackson Hole Symposium will begin today, and traders will be listening out for any statements from central bankers.

Oil finished the session on a positive note after the Energy Information Administration released the latest US inventory data, which showed a much bigger-than-expected fall in stockpiles. Inventories fell by 5.8 million barrels, while the consensus was for a decline of 1.5 million barrels. The relatively weak greenback and worries about sanctions being reintroduced on Iran also helped the oil market.  

The flash manufacturing and services PMI reports from major eurozone countries will be in focus today. At 8.15am (UK time) France will release their numbers, and economists are expecting the manufacturing report to come in at 53.4, a slight improvement on July’s 53.3. The consensus estimate for the services report is 55.1, up from 54.9 last month. Germany will announce their figures at 8.30am (UK time) and traders are expecting a slight cooling in the manufacturing sector from 56.9 in July to 56.5. Economists are expecting the services report to be 54.3, and the July reading was 54.1.  

The US will also announce their manufacturing and services PMI reports today, and they will be revealed at 2.45pm (UK time). The manufacturing report is anticipated to be 55, down from 55.3 in July, while services update is expected to be 55.9, which would be a slight decline on July’s 56. US new homes sales will be announced at 3pm (UK time), and economists are expecting 645,000, and that would be an improvement on June’s 631,000.

EUR/USD – now that it has broken above the 1.1500 region, we could see further gains, and resistance might be found at 1.1615 – 50-day moving average. If the wider negative trend continues, support might be found at 1.1287 or 1.1156.

GBP/USD – has been in a downtrend since April, and if the bearish move continues it could target 1.2590. Pullbacks might run into resistance in the 1.2957 to 1.3000 region.       

EUR/GBP – has been pushing higher since April and if the bullish run continues it could target 0.9050. A move lower might find support at 0.8900 or 0.8844. 

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 109.86 – the 200-day moving average.

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