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Trade War Fears Will Keep FX on Edge

The US dollar was on the defensive as last week ended.  A weaker than expected US employment report and the threat of more tariffs against China spooked traders.

Friday started with traders on edge after President Trump threatened new tariffs on another $100 billion of China imports.  Traders got spooked when nonfarm payrolls data did not live up to their advance billing.  Instead of adding 190,000 new jobs, only 103,000 were created.

The US dollar sank on the news.  EURUSD spiked to 1.2288 from 1.2220 and closed near the top.  The rally stalled on the downtrend line from March 29.  If broken, another probe of the 1.2360 area is likely. 

Wall Street bled red ink.  The Dow Jones Industrial Average lost 2.34%, S&P 500 down 2.19% and the NASDAQ 2 shed .38%.

President Trump appears to be dialling back on his China trade threats. On Sunday he tweeted that  “President Xi and I will always be friends no matter what happens with our dispute on trade. China will take down it’s Trade Barriers because it’s the right thing to do.  Taxes will become Reciprocal & a deal will be made on Intellectual Property.  Great future for both countries!”

China and the US may have a great future, but the same cannot be said about Syria.  Syria reportedly used chemical weapons on an attack on a rebel base.  President Trump blamed Russia, and Iran for backing “Animal Assad” and said, “Big Price to pay.”  First a trade war threats and now shooting war threats.

North Korea is prepared to discuss the denuclearization of the Korean Peninsula, according to Reuters.  The news may help to offset concerns about and escalation of US/Syria tensions.

Conflicting sentiment between US/North Korea and UK/Syria may keep USDJPY in a 106.50-107.50 range, although the underlying sentiment is bullish.

Sterling rallied hard on Friday after the weaker than expected US employment data.  The GBPUSD outlook is for further gains due to the risk of higher UK rates, positive economic data and the UK/EU Brexit transition agreement.  A break above 1.4110 would lead to a test of 1.4150 and then 1.4200

EURUSD tried and failed to break below support at 1.220 on Friday.  The subsequent bounce stalled at 1.2290, the downtrend line from March 28.  A break above this level suggests further gains to 1.2450

Chart: EURUSD 4 hour

Source: Mocaz Charts

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