USDJPY and EURGBP

The US has decided to ban the Chinese Telecommunications company Huawei operating in the country through a national emergency order signed by President Trump. This extends to companies associated with Huawei and escalates the trade war between the US and China further. The Chinese have yet to respond to the decision but have made it clear that they were against such a move. The US has cited national security as the primary reason for such a move, fearing that the company and its products would be used to gather sensitive intelligence in the US. The decision from the President to delay the process of placing Auto tariffs on imported vehicles by up to 6 months created a risk on swing in markets yesterday. This led to a drive higher in equities and the Euro, with a palpable relief in markets that this part of the trade war was paused for now. In reality this leaves the US free to close out its USMC deal with Mexico and Canada. Progress was made yesterday after the US and Mexico reached an understanding to remove steel and aluminium tariffs, but talks are still in progress with Canada. This helped the relief rally with CAD strengthening. This leaves the US to concentrate on what now may be, as some fear, an extended trade war with China. As such any gains may be short lived. Equity markets have already given up some of their gains from yesterday in the overnight session.

This morning, German Buba President Weidmann will speak from Hamburg. In the afternoon Canadian Manufacturing Sales are expected to strengthen to 1.5% from -0.2%. US Building Permits will be released alongside Philly FED Manufacturing Index which is expected to rise to 10.0 from 8.5. Canada’s Poloz will speak from Ottawa later this evening, followed by FOMC Member Brainard and UK’s MPC Member Haskel.

USDJPY

The USDJPY pair has extended its decline further under the 110.000 level after gapping down under the trend line support at 111.000 two weeks ago. The pair found support at 109.000 on Monday and has settled into a pennant pattern of lower highs and higher lows on the daily chart since. A loss of the 109.000 level may result in a push down towards the previous higher low around 108.500. Further selling through this level might target the 107.550 area, followed by 106.400 and the low at 105.000/104.840.

The 110.000 area may be used as resistance, with the 109.710 level as the previous higher low potentially acting as resistance. A break higher past these levels may engage resistance at 110.245/110.250 with a view to re-engaging the trend line around 111.178. This would indicate a move through the 111.000 area followed by 112.000. The 112.230 area has been use as support and resistance in the past and is followed by the 112.400 high from April. Beyond this, the 113.000 level leads the way to 114.200.

EURGBP

The EURGBP pair has moved higher since early May and benefitted from the decision on Auto tariffs yesterday with a break above 0.8700. A continued move higher targets the 0.8800 level, followed by 0.8841 as the high from February. From there the 0.8900 level comes into play, an area where price has consolidated in the past. The 0.8984/0.9000 area may attract attention from traders as a large round number. Beyond this, the high around 0.9100/0.9109 may be used as a target by buyers and an area of resistance for sellers.

Support at the March high at 0.8723 is being tested as the level was broken from below yesterday. A loss of the 0.8700 level may result in a move under the January low at 0.8617 and reach down to retest the steep falling resistance trend line, now support, around 0.8600. The 0.8529 level may be the upper boundary of a zone of support centred around the 0.8500 level. Price has failed to stay below this zone that potentially extends to the low around 0.8472.

 

Phillip Konchar

Core Spreads

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