Weaker-than-expected Japan machinery orders and fear of an emerging trade war between US and the EU points to a soft opening in Asian markets on Wednesday morning.

The Nikkei 225 index fell 180 points or 0.83%, and the Australia 200 index lost over 0.2%. US equities closed broadly lower, weighed by industrials (-1.4%), energy (-1.29%), consumer discretionary (0.9%) and financials (-0.88%). Defensive sectors such as utilities (+0.26%) and communication services (+0.02%) outperformed the benchmark, suggesting sentiment is turning cautious.

Gold prices climbed for a second day to the US$ 1,303 area, largely due to a weakening US dollar and falling treasury yields. Escalating trade tensions between the US and EU, following the Trump administration’s proposal to impose new tariffs on $11 billion of EU products spooked investors’ nerves, fuelling demand for safety. This latest update reignited fear of another trade war targeting the EU as the US has likely struck a good deal with China.

The US dollar index remained flat at 96.6, and the EUR/USD is hovering at a tight range around the 1.126 area. Traders are probably waiting for the ECB interest rate meeting this afternoon for trading opportunities. Technically, 1.128 remains at an immediate resistance while strong support is found at 1.120 area. 

Kiwi dollar is among the best performing currency in the majors, advancing 0.1% against the greenback to 0.675 this morning. Technically, the NZD/USD has tested a 78.6% Fibonacci Extension level at 0.671 and has since bounced back. Its immediate resistance level can be found at around 0.676 (50% Fibonacci extension).

Today’s calendar is packed by macroeconomic events, with China’s M2 reading and new yuan loans due at 10am, followed by UK GDP and manufacturing output data at 16:30. Later in the day, the ECB will announce its interest rate decision, which is widely expected to remain unchanged amid tepid growth and trade uncertainties. In the US session, CPI readings and DoE crude oil inventory numbers will likely trigger some volatility in dollar pairs and crude oil prices.

NZD/USD – 4 hours chart