Risk aversion dominates the markets as US-China trade war escalates again with Trump’s new tariffs. In particular, 10-year yield dived through 2% handle with ease and determination, to close at 1.894, lowest since November 2016. In the currency markets, Yen and Swiss Franc overtake Dollar’s position as the strongest and second for the week. Sterling remains the worst performing one for its own no-deal Brexit dear. Australian Dollar is mixed for today, but second worst for the week.

Technically, EUR/JPY breaks 118.62 key support to resume down trend from 137.49 (2018 high). GBP/JPY is extending the fall from 156.59 (2018 high) towards 122.36 (2016 low). USD/JPY is back pressing 106.78 low and break will resume the fall from 112.40 towards 104.69 low.

In Asia, currently, Nikkei is down -2.45%. Hong Kong HSI is down -2.21%. China Shanghai SSE is down -1.78%. Singapore Strait Times is down -0.76%. Japan 10-year JGB yield is down -0.0362 at -0.167. Overnight, DOW dropped -1.05%. S&P 500 dropped -0.90%. NASDAQ dropped -0.79%. 10-year yield dropped -0.127 to 1.894.

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Trump announces new tariffs on China, effective Sep 1

Just days after US trade team concluded a meeting with China in Shanghai, Trump suddenly announced to start imposing 10% tariffs on USD 300B of Chinese imports. That’s effectively the rest of all untaxed Chinese goods. New tariffs are expected to take effective on September 1.

Trump complained that Chinese President Xi Jinping was “not going fast enough” with his promises even Xi wanted to make a deal. And he threatened to raise tariffs further if China fails to more move quickly onwards. That could include moving beyond 25% tariffs already imposed on another USD 250B of Chinese imports.

Japan Aso: US-China relation developing into not just trade war

Japan Finance Minister Taro Aso warned on Yen’s recent gains today and emphasized importance of exchange rate stability. He spoke as Yen surges through key levels on risk aversion, after Trump announced new tariffs on China. Aso said Yen’s fluctuation “will have various impacts”. And “at least, current stability is extremely important. We need to pay close attention to the markets”.

On Trump’s new tariffs on China, Aso said “this will surely affect China’s economy, which I think will have various impacts on the global economy”. And, “there’s already a movie among companies to shift factories out of China. It’s developing into not just trade war but various other things, so it warrants careful attention.”

Australia retail sales rose 0.4%, growth in five of six industries

Australia retail sales rose 0.40% mom in June, above expectation of 0.3%. This followed 0.1% rise back in May. Ben James, Director of Quarterly Economy Wide Surveys said “there were rises in five of the six industries this month, although overall the retail environment remains subdued”.

In seasonally adjusted terms, there were rises in New South Wales (0.3%), Western Australia (0.8%), Queensland (0.4%), Victoria (0.3%), Tasmania (1.5%), and the Australian Capital Territory (0.3%). South Australia (-0.3%) and the Northern Territory (-0.2%) fell.

Also from Australia, PPI rose 0.4% qoq, 2.0% yoy in Q2, above expectation of 0.2% qoq, 1.9% yoy.

Looking ahead

Swiss will release CPI and PMI manufacturing. UK will release construction PMI. Eurozone will release PPI and retail sales. Later in the day, US non-farm payroll will be the major focus. Trade balance and factory orders will also be released. Canada will release trade balance too.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 118.36; (P) 119.54; (R1) 120.15; More…

EUR/JPY’s decline accelerates to as low as 118.42 so far. Break of 118.62 low suggests larger down trend resumption. Intraday bias is staying on the downside. Next near term target is 100% projection of 123.35 to 120.05 from 121.37 at 118.07 and then 161.8% projection at 116.03. On the upside, break of 120.05 support turned resistance is needed to be the first sign of short term bottoming. Otherwise, outlook will remain bearish in case of recovery.

In the bigger picture, down trend from 137.49 is still in progress with the cross staying well inside long term falling channel, and below falling 55 week EMA. Sustained break of 118.62 will extend the fall to 109.48 (2016 low). On the upside, break of 127.50 resistance is needed to be the confirm medium term reversal. Otherwise, outlook will remain bearish in case of strong rebound.

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
23:50 JPY BoJ Minutes Jun
23:50 JPY Monetary Base Y/Y Jul 3.70% 3.80% 4.00%
1:30 AUD PPI Q/Q Q2 0.40% 0.20% 0.40%
1:30 AUD PPI Y/Y Q2 2.00% 1.90% 1.90%
1:30 AUD Retail Sales M/M Jun 0.40% 0.30% 0.10%
1:30 AUD Retail Sales Ex Inflation Q/Q Q2 0.20% 0.30% -0.10%
6:30 CHF CPI M/M Jul -0.40% 0.00%
6:30 CHF CPI Y/Y Jul 0.50% 0.60%
7:30 CHF PMI Manufacturing Jul 47.5 47.7
8:30 GBP Construction PMI Jul 46 43.1
9:00 EUR Eurozone PPI M/M Jun -0.40% -0.10%
9:00 EUR Eurozone PPI Y/Y Jun 0.80% 1.60%
9:00 EUR Eurozone Retail Sales M/M Jun 0.20% -0.30%
9:00 EUR Eurozone Retail Sales Y/Y Jun 1.30% 1.30%
12:30 CAD International Merchandise Trade (CAD) Jun -0.3B 0.8B
12:30 USD Change in Non-farm Payrolls Jul 169K 224K
12:30 USD Unemployment Rate Jul 3.70% 3.70%
12:30 USD Average Hourly Earnings M/M Jul 0.20% 0.20%
12:30 USD Trade Balance (USD) Jun -54.2B -55.5B
14:00 USD Factory Orders Jun 0.70% -0.70%
14:00 USD U. of Mich. Sentiment Jul F 98.5 98.4

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