Investors are focussing on high level trade talks in China this week where Washington is expected to keep pressing Beijing on long-standing demands that it make sweeping structural reforms to protect American companies’ intellectual property, to end policies aimed at forcing the transfer of technology to Chinese companies, and curb industrial subsidies.
· “The dollar is benefiting from the investor nervousness around the trade talks,” said Sim Moh Siong, currency strategist at Bank of Singapore.
“Beyond its safe haven appeal, the dollar is still the highest-yielding currency in the developed world and with all major central banks turning dovish, the greenback seems relatively attractive.”
· The dollar index was steady at 97.04, after advancing 0.45 percent in the previous session, its largest percentage gain since Jan.24. The index has risen for eight straight sessions, mainly thanks to a tumbling euro, which has the largest weighting in the index.
· The single currency was relatively unchanged at $1.1278 in Asian trade, having lost nearly half a percent on Monday. The euro has weakened for six consecutive sessions, and traders expect further losses now that the crucial psychological support of $1.13 has been broken.
“The next level of support for EUR/USD is the November low of 1.1215 which should be tested quickly,” said Kathy Lien, managing director of currency strategy at BK Asset Management.
· EUR/USD in Focus as EU Finance Ministers Discuss Trade, Budget
Finance Ministers and other key officials from each of the 27 EU member states are in Brussels for the Economic and Financial Affairs Council meeting to discuss policies from trade to budgets. One of the more heavily covered points of discussion has been the bloc’s trading relationship with Iran against the backdrop of US sanctions.
IMPACT ON EURO
While any direct impact on the Euro's price movement may not be noticeable, the effect could be of a subtler nature. Against the backdrop of slower growth and political fragmentation, negative news from the talks may further weigh on bullish sentiment.
Since January 31 EUR/USD has shaved off almost two percent after breaking through several key support levels. Right now the pair is struggling to keep above 1.1269 after closing lower for six consecutive days. Short-term price movement may be between 1.1269-1.1279. If the pair break below the lower bound, the next possible support stands at 1.1216.
· AUD/USD Technical Analysis: Sellers continue to lurk ahead of 0.7095 trend-line resistance
While upbeat Australian business survey data propelled the Aussie during early Tuesday, the AUD/USD managed to post a day’s high near 0.7090 on the US President Donald Trump’s comments favoring a likely trade deal between the US and China.
However, the sellers continue to lurk ahead of the short-term descending trend-line resistance, at 0.7095, that connects highs marked since last Wednesday.
Should the pair cross 0.7095 barrier, its rise to 0.7140 horizontal-line can be expected whereas 0.7170 and a downward sloping resistance-line at 0.7205 may confine additional upside.
Alternatively, the 0.7065 and the recent low around 0.7050 seem to be the immediate supports for the pair, a break below which can drag the quote to 61.8% Fibonacci Expansion level of its latest pullback, at 0.7030.
In case, the bears manage to conquer 0.7030, 0.7000 and 0.6980 could become their next favorites.
· U.S. congressional negotiators on Monday reached a tentative deal to try to avert another partial government shutdown on Saturday, but congressional aides said it did not contain the $5.7 billion President Donald Trump wants for a border wall.
“We reached an agreement in principle” on funding border security programs through Sept. 30, Republican Senator Richard Shelby told reporters.
“Our staffs are going to be working feverishly to put all the particulars together,” Shelby said. Neither he nor three other senior lawmakers flanking him provided any details of the tentative pact.
But it was far from clear if the Republican president would embrace the agreement. His December demand for $5.7 billion this year to help pay for a wall on the U.S.-Mexico border - rejected by congressional Democrats - triggered a 35-day partial government shutdown that ended last month without him getting wall funding.
· Former Federal Reserve Chairman Paul Volcker warned the Trump administration’s handling of domestic issues as well as trade talks with China is hurting the United States’ long-term prosperity.
Volcker, widely credited with ending the high levels of inflation seen in the United States during the 1970s and early 1980s, said Trump’s big tax cuts and spending increases underscore the lack of transparency of the president’s administration.
· Analysts at Danske Bank note that the White House Adviser Kellyanne Conway told Fox News yesterday that it 'absolutely' looked like a deal to end the trade war was close and that Trump 'wants to meet with Xi Jinping very soon'.
Key Quotes
“In another sign that Trump is eager to close a deal, she said that 'this president wants a deal'. Chinese stocks rose further overnight and are now trading at the highest level since October.”
“More US-China trade talks were initiated yesterday in Beijing at a lower level before high level talks resume on Thursday and Friday. With regard to the question on whether the 1 March ceasefire deadline would be extended, US trade negotiator David Malpass answered 'no'. However, our view is still that if more time is needed to finalise a detailed trade document, the deadline will be extended.”
· Consumption growth in China is "very likely" to slow further this year as the economy cools, the commerce ministry said on Tuesday, underlining the rising risks facing the Asian giant as it navigates a trade war with the United States.
Chinese authorities have already rolled out a flurry of support measures to temper the effects of the trade dispute on businesses and investment, and are counting on the nation's vast consumer base to cushion a broader economic slowdown.
· Oil prices rose on Tuesday amid OPEC-led supply cuts and U.S. sanctions against Iran and Venezuela, although analysts expect surging U.S. output and concerns over economic growth to keep markets in check.
U.S. West Texas Intermediate (WTI) crude oil futures were at $52.69 per barrel at 0751 GMT, up 28 cents, or 0.5 percent, from their last close.
International Brent crude futures were up 38 cents, or 0.6 percent, at $61.89 per barrel.
Reference: Reuters, CNBC, FXStreet
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