Daily Commentary | 14/05/2019
China responds to US tariffs
JPY strengthened yesterday as the US-Sino negotiations escalated further, increasing the risk averse climate in the markets. China announced tariffs on US products applicable from 1st of June, despite US president Trump warning them not to escalate the situation further, in a tweet earlier. The Chinese tariffs are to hit around $60 billion of US imports, according to media reports, with agricultural and energy products seeing tariffs of 25% among other products. The US seems to be preparing an additional round of tariffs, covering around $300 billion worth of Chinese imports, however these are not to be levied until late June probably. Until then US president Trump may meet Chinese President XI, at the G20 meeting in Japan. Currently we expect a risk off sentiment to be maintained and safe havens could find further support. USDJPY dropped yesterday finally breaking the 109.75 (R1) support line (now turned to resistance) and continued to test the 109.15 (S1) support level, yet bounced on it and corrected higher during the Asian session today. We maintain a bearish outlook for the pair as the downward trendline incepted since the 6th of May remains intact. Should the pair remain under the selling interest once again, we could see it breaking the 109.15 (S1) support line and aim for lower grounds. Should the pair’s long positions be favoured by the market, we could see the pair breaking the prementioned downward trendline, 109.75 (R1) resistance line and aim for the 110.30 (R2) resistance hurdle.
US tariffs on EU cars as well...
The US is planning to impose tariffs on EU cars as well, mainly targeting European cars. The US president is expected to meet a decision by Saturday May 18th and tensions are running high there as well. EU trade-chief Cecilia Malmstrom stated that in such a case the EU response could “happen quite rapidly”. The EU seems to be preparing a list of US products, worth around $22.5 billion. Should the two economies enter a trade war we could see the EUR initially weakening. EUR/USD showed high volatility yesterday testing just before the American session the 1.1260 (R1) resistance line and during the Asian session the 1.1220 (S1) support line, finally landing at the same levels. We could see the pair maintaining a sideways movement today, yet bullish tendencies may exist. The pair could prove sensitive to headlines regarding US tariffs on EU and/or Chinese products, as well as today’s financial releases. Should the bulls take over, we could see the pair breaking the 1.1260 (R1) resistance line and aim for the 1.1300 (R2) resistance level. Should the bears take over, we could see the pair breaking the 1.1220 (S1) support line and aim for the 1.1175 (S2) support barrier.
Other economic highlights, today and early tomorrow
During today’s European session, we get from Germany the final HICP rate for April and the ZEW economic sentiment indicator for May, from Sweden the CPI rate for April, from the UK the employment data for March and from the Eurozone the industrial output growth rate for March. In the late American session we get the API weekly crude oil inventories figure. In tomorrow’s Asian session, Australia’s wage price index for Q1 is due out, while from China we get the industrial output growth rate and retail sales for April. Also please be advised that Kansas Fed President Esther George will be speaking today.
• Support: 1.1220 (S1), 1.1175 (S2), 1.1125 (S3)
•Resistance: 1.1260 (R1), 1.1300 (R2), 1.1335 (R3)
• Support: 109.15 (S1), 108.50 (S2), 107.90 (S3)
•Resistance: 109.75 (R1), 110.30 (R2), 110.90 (R3)