President Trump raised the ante in the China/US trade spat. He threatened to bump tariffs on the next $200 billion worth of Chinese imports to 25% from the from previously announced 10%. China said that blackmail won’t work but didn’t say what would. The new taxes wouldn’t come into effect until the end of August or September, if at all, USDCNY was fixed higher at 6.8293 from 6.8165 yesterday, suggesting to some that China will devalue its currency to counter US tariffs.
EURUSD traded lower, albeit in a narrow 1.1673-93 range. This morning’s Eurozone Markit PMI Manufacturing report was as 55.1, as expected and unchanged from June. This afternoon’s FOMC statement, with its small risk of a hawkish bias, may have undermined the currency pair.
GBPUSD traded in a tight 1.3096-1.3124 range and is trading in New York at 1.3117. July Manufacturing PMI at 54.0 was a tad lower than the 54.2 forecast, but analysts do not think that the report will deter the Bank of England from raising interest rates on Thursday.
USDJPY is bid. The dovish Bank of Japan policy meeting result and the outlook for a somewhat hawkish FOMC statement today has underpinned the currency pair. The increase in US 10 year Treasury yields to just below 3.0% helped to drive USDJPY above 112.00 in Asia. Prices have dipped down to 111.90 in New York trading.
Weaker than expected July AiG Performance of Manufacturing data (Actual 52.0 vs June 57.4) knocked AUDUSD from 0.7432 to 0.7402 in Asia. Prices recovered during the European session, and the currency pair is trading at 0.7412 in New York. The apparent escalation in the China/US trade spat undermined didn’t help. NZDUSD had its own issues. The Q2 unemployment rate rose to 4.5% from 4.4%. NZDUSD dropped from 0.6818 to 0.6788 on the news.
Oil prices dropped overnight after the American Petroleum Institute reported US crude inventories rose 5.59 million barrels last week. WTI oil fell from $68.77 at yesterday’s close to $67.91 in Asia. Prices are currently hovering around the $68.00/b area.
USDCAD has been remarkably stable in the face of dire Nafta headlines. Bloomberg reports that the US and Mexico are in the final stages of a deal on autos, leaving Canada outside, looking in. Yesterday, Canada posted better than expected June GDP numbers (Actual 0.5% vs forecast 0.4%) but couldn’t hang on to the gains. Nafta concerns may limit USDCAD losses, but strong domestic will cap USDCAD gains.
The US dollar may get another boost if this morning US data is better than expected. July ISM Manufacturing data is expected to be 59.5%. (June 60.2) However, traders may be content to sit and wait for this afternoons FOMC policy statement.
USDCAD Technical Outlook
The intraday and short term USDCAD techncials are bearish. The move below 1.3140 snapped an uptrend line that had been intact since April. The subsequent drop below the 38.2% Fibonacci retracement level of the April-June range (1.3060) targets the 50% level at 1.2955 and the 61.8% level of 1.2855.. The intraday technicals are bearish while prices are below 1.3050, looking for a break of 1.2990 to lead to a test of 1.2950. For today, USDCAD support is at 1.2990 and 1.2950. Resistance is at 1.3050 and 1.3080.
Today’s Range 1.2990-1.3040