31st August 2018 - USD rose again by the trade tension and the interest rate outlook

Walid Salah Eldin

Active member
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The trade tension could find its way back to the market, after Trump accused China of undermining American efforts to pressure North Korea into giving up its nuclear weapons.
The markets read in his comments paving for further escalating to come between US and China over the Trade War which is still looking without a clear end.
The 2 countries have exchanged earlier this month imposing 25% tariffs on $16b worth of imports from both sides.
The hopes for reaching a breakthrough deal between US and China to cool the trade war rose up earlier this month, after China said it will hold talks with US later this month but the month is now ending with no signs of reaching a deal.
Trump preceded that failed talking between US and China by saying that "there will be no concessions to China" and the White House reported about the preparation to raise tariffs on China from 10% to 25% to be slapped on no less than $200b worth of Chinese goods.
So now and after this new talking failure which came campaigned with political conflict over N. Korea, Most of the markets participants are getting ready to watch this tariff raising enact.
Boeing and Caterpillar shares tumbled on their sensitivity to the Trade tension between these 2 big economies and the demand for oil eased down capping WTI from holding a place above $70 per barrel.
The trade tension worries weighed generally on investors' risk appetite to load more equities on the current unprecedented levels of prices, while the Greenback became again well-buoyed and accepted to appreciate versus the currencies of the major exporting economies to overcome the US tariffs adverse influences on their exports.
From another side, The odds of raising the Fed Fund rate twice more this year are still supporting USD, after the Fed Governors looked unfazed of Trump's criticizing of the current pace of tightening the monetary policy in US, as he sees this pace is eroding his efforts to boost the economy.
Trump said earlier this month that he was expecting Powell to be "cheap money man".
But it looks that the pace of US economic evolving caps Powell and the other Fed monetary policy makers from lowering the pace of tightening or halting it and also the current inflation upside risks give no let to The FOMC members to think about Trump's political criticism meanwhile.
The Federal Reserve Chairman Jerome Powell's comments in Jackson Hole were all referring to the current upbeating economic performance which support the current gradual pace of tightening
While Kansas Fed Governor Esther George's comments from Jackson Hole were more clearly saying that she is still favoring hiking the interest rate twice more this year on the current economic evolving in US.
And the Data came this week in line with this economic improving saying that US GDP has grown annually in the second quarter by 4.2%, while the consensus was referring to only 4% growth after the first reading has shown growth by 4.1% following expansion in the first quarter by 2%. Thanks to adopting $1.5 trillion in tax cuts to take effect starting from this year.

The PCE deflator which is the Fed’s preferred gauge of inflation has underscored also continued pressure on the Fed to raise rates, after showing yesterday yearly increasing in July by 2.3% to be the highest since Feb 2012, while the median forecast was referring to rising by only 2.2% as the same as June.
The core PCE Figure of July which excludes food and energy has shown also yearly rising by 2% as expected which is the Fed's yearly goal and the highest reached level since April 2012, after increasing by 1.9% in June.

While EURUSD edged lower this morning to be traded again close to 1.1665 following the release of EU CPI flash reading of August which has referred to increasing by only 2%, while the consensus was pointing to rising by 2.1% as the same as July. The core figure also retreated to only 1% yearly rising and the consensus was 1.1% to be as the same as July.

After bouncing up from 1.13 level, EURUSD could step on 1.1529 forming intermediate supporting level but it failed to have a path above 1.1750 key resistance level to step down again to be traded at this current level.
EURUSD is now in its ninth consecutive day of being above its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading today 1.1474.
The pair is still trading above its daily SMA50 but it is still undermined over longer range by continued existence below its daily SMA100 and also its daily SMA200.
EURUSD daily RSI-14 is referring now to existence inside the neutral region reading 56.894
While EURUSD daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is having now its main line at 70.916 inside its neutral area leading to the downside its signal line which is higher in the same area at 78.679, after negative crossover inside the overbought area directed it to this downward.

Important levels: Daily SMA50 @ 1.1616, Daily SMA100 @ 1.1740 and Daily SMA200 @ 1.1958
S1: 1.1529
S2: 1.1300
S3: 1.1109
R1: 1.1750
R2: 1.1851
R3: 1.1996

Kind Regards
Global Market Strategist of FX-Recommends
Walid Salah El Din


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