The U.S. Dollar Is Falling After Trade Talks Fall Apart
The U.S. Dollar is moving lower. This is just week’s after it broke out of its trading range in what looked like a major move to the upside. The problem is trade, or the lack of consensus on trade talks, and the reescalation of the trade war. While the talks were ongoing, even without a deal in sight, there was hope that there would be a deal. Better, there were real signs within the economy that both sides, China and the U.S., could not only survive under the new tariffs regime they could both still grow.
Now, with tariffs on both sides upped to 25% and the possibility there will be even more tariffs has rocked the status quo. This may disrupt trade enough to send the world into recession, just like the market feared a short time ago. With that in mind forex traders are fleeing the dollar and the yuan in favor of safe-haven assets and those least affected by global trade.
The DXY is now back within its trading range and indicated lower. The $97.50 level has reemerged as strong resistance and likely to remain in place as resistance without some change to fundamentals. The next targets for support at $96.50, $96.00, and $95.50 in the near-term. Later this week there is some economic data that may affect this outlook including retail sales, Empire manufacturing, and Housing Starts/Building Permits.
The EURO Is Above Support, But…
The EUR/USD is back above support but it is still below a key resistance. Support is at the previous broken low of 1.1900, resistance is at the bottom of last years trading range near 1.2200. The indicators are bullish so a test of the resistance is likely, a break above that level would be bullish. If 1.2200 is broken a move up to 1.2400 is the least you should expect. EU data this week includes CPI, Employment and GDP so there is a chance the EUR/USD could see additional catalyst.
Pound, Not Sure Where It Wants To Go
The British pound was able to gain against the dollar following the trade talk breakdown but the move wasn’t strong. The candle is green but met resistance at the short-term moving average that could easily cap gains. The indicators are mixed, rolling over in confirmation of support, but not showing a clear buy or sell signal at this time. With trade in doubt, and the Brexit in more doubt, there is only one thing for certain about this pair; sideways range bound trading is likely to occur without some clear sign of economic trajectory for one of the currencies or other.
Yen, Back In Favor
The Japanese yen may be the true winner in the trade talk breakdown. The safe-haven currency gained 0.80% against the dollar in the wake of the latest news and looks like it could shed another 3-7%. The indicators are bearish and momentum is gaining strength so a continuation of the downtrend should be expected. The support target of 108.00 may halt the decline but that is not guaranteed, a fall below 108.00 could take the USD/JPY down to 106.00 or lower.