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·       EUR/USD rallied for a for a fourth consecutive session on Tuesday as the greenback weakened against most of its major counterparts. The weaker dollar in the early week has been attributed to remarks from U.S. president Trump that the Fed's path of monetary policy tightening is hindering fiscal stimulus efforts to boost the economy. Trump also accused China and Europe of currency manipulation.

EUR/USD touched a 13-month low last week prior to sharply reversing from support at the 1.1300 handle. The inversely correlated U.S. dollar index (DXY), in a similar fashion, traded at 13-month highs prior to turning lower. On a weekly chart, DXY posted a bearish shooting star candlestick last week, and if it holds near current levels by the end of the week, it will print a bearish evening star reversal candlestick pattern. The same patterns are seen for EUR/USD on an inverted basis. In addition to the potential reversal candlestick pattern for DXY, this week's closing print will also be important in relation to the 100- and 200-period moving averages, which have converged near 95.50.

·       U.S. and Chinese officials are set to resume contentious trade talks on Wednesday under the cloud of a prediction by U.S. President Donald Trump that there would be no real progress.

The discussions among mid-level officials could set a framework for further negotiations as each country prepares to hit the other with new tariffs on Thursday in a deepening dispute over China’s economic policies.

·       News that China and the U.S. will resume trade talks this week swiftly lifted markets. This follows the first meetings at the annual summer retreat of the Chinese Communist Party leadership at the beachside resort of Beidaihe. As might be expected, the main topic this summer has been the U.S.-China trade war, where it might lead and what could conceivably be done to avert it without an unacceptable loss of political face.

While we won’t have any real indication as to the tenor of the Chinese discussions or their conclusions for awhile yet, it’s worth thinking through where this trade war could take us all in the absence of effective diplomatic intervention. History tells us trade wars are easy to start and hard to stop, just like real ones. There’s a reason for that. The material stakes become greater as hostilities continue. And the domestic political cost of backing down gets higher and higher.

Let’s start with trade. The traded sector represents some 38 percent of Chinese GDP and 27 percent of U.S. GDP. If the current, small-scale dispute escalates to cover the entire $650 billion in bilateral trade, the world will have an objective economic problem on its hands, not just one of general market sentiment. Once growth numbers start declining, however marginally, it won’t take all that much for sentiment, and then the real economy, to head south. Falling sentiment and economic numbers will contribute to a mutually reinforcing spiral.

·       FEDERAL RESERVE: Minutes from the Federal Reserve’s last policy meeting are due out Wednesday and could provide insights into the latest thinking on rate hikes at a time when President Donald Trump has been stepping up criticism of tightening by the U.S. central bank. The minutes will be followed by Fed chairman Jerome Powell’s comments Friday to the annual conference of central bankers in Jackson Hole, Wyoming.

·       ANALYST’S VIEWPOINT: “Equities were broadly up supported by hopes on U.S.-China trade talks even though Trump expressed a conservative view overnight by saying that he does not anticipate much progress and he has no time frame for ending the trade dispute,” Mizuho Bank said in a commentary.

·       Donald Trump suffered through perhaps the worst day of his presidency Tuesday as his personal lawyer implicated him in a crime at almost the same moment his former campaign chairman became a convicted felon.

·       U.S. President Donald Trump’s former personal lawyer Michael Cohen testified on Tuesday that Trump had directed him to commit a crime by arranging payments ahead of the 2016 presidential election to silence two women who said they had affairs with Trump.

·       Sanctions that the United States reimposed on Iran have been more effective than expected, President Donald Trump’s national security adviser said, although he noted the continuation of regional activity by Tehran opposed by Washington.

·       Japan’s healthy economic growth should allow its central bank to whittle down its massive stimulus program, even before inflation hits its 2 percent target, Koji Ishida, a former Bank of Japan board member, said.

·       Oil prices rose on Wednesday, supported by a drop in U.S. crude inventories and a weaker dollar, along with concerns about a potential shortfall of Iranian oil from November due to U.S. sanctions.

Brent crude oil futures LCOc1 were at $72.83 per barrel at 0234 GMT, up 20 cents, or 0.3 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were up 28 cents, or 0.4 percent, at $66.12 per barrel.

Reference: Bloomberg, Reuters