MARKETS ON EDGE AS TRADE WAR KICKS OFF
Global stocks fell as concerns about global trade increased. On Friday, China released the preliminary list of American goods they will put tariffs on. While commodities like soybeans were expected, others like crude oil and natural gas were not expected. If these tariffs come into effect, American energy products will be uncompetitive in the world market. China, on the other hand, will increase its imports from sanctioned countries like Iran and Venezuela, which will lead to more friction between the two largest economies. Meanwhile, Germany’s stocks fell today after the arrest of Audi CEO, Rupert Stadler.
The Japanese Yen slid today against the dollar after the country released the trade numbers for May. The country’s exports rose by an annual rate of 8.1%, which was higher than the expected 7.5%. Imports, on the other hand, increased by an annual rate of 14.0% which was better than the expected 8.2%. However, the country’s trade balance was worse than expected. The adjusted trade balance fell to negative -0.3 trillion yen. Traders were expecting a trade balance of 1.4 trillion yen.
The dollar index rose today to an intraday high of $94.50. The rise today was as a result of the diverging monetary policy decisions. Last week, the ECB pointed to a 2019 summer interest rate hike while BOJ remained vague on its plan to normalize. On the other hand, the Fed pointed to two more rate hikes this year. These moves have supported the strength of the dollar. However, it has been weighed down by the fears of a trade war.
The USD/JPY rally started at the end of May when the pair reached a low of 108.1. Since then, the pair has moved to a high of 110.9. Today, it is trading at 110.4, which is in line with the 14-day moving average. As shown below, in the past few weeks, the pair has formed an asymmetric triangle pattern, which could continue for a while. If the pair continues to move up, it could test the multi-month high of 111.8. If it reverses, it could test the important support of 109.20.
The EUR/USD pair dropped sharply last week after the dovish statement from the European Central Bank. Today, the pair continued trading at the low levels after concerns about the German political coalition. The pair is now trading at 1.1610. As shown below, the bears power indicator shows that the momentum of the bears has lost steam while those of the bulls is increasing. The pair could continue moving sideways. However, if it moves higher, traders should watch out for 1.1690, which is the 100-day moving average.
The DAX index fell sharply today after the arrest of Audi CEO and as traders grew concerned about a trade war. The index is currently trading at 12,800 euros. The decline is also in sync with the trend in the United States where the Dow futures point to a 200-point decline. The current price is below the 100 and 50-day moving average. As these tensions increase, the index could continue the downward momentum and test the important support of 12,640 euros.