• Signs that Asia is already feeling the pinch from a trade conflict between the United States and China triggered some safe haven flows to the US dollar on Tuesday, while higher U.S. Treasury yields made the trade more palatable.
Surprisingly soft economic growth data from Singapore and Thailand have raised worries that major Asian economies will be hurt by global trade tensions.
The dollar hit a 2-1/2 week high against a basket of six major currencies, rising 0.2% to 98.11 in early European trade.
It may have also been helped by higher U.S. Treasury yields, with the 10-year yield rising to a one-week high of 2.428% on the back of some positive comments on the U.S. economy from policymakers.
Yields also rose as the U.S. government temporarily eased trade restrictions imposed last week on China’s Huawei, a move aimed at minimising disruption for its customers.
Conversely, the euro — which makes up a significant chunk of that basket — hit a 2-1/2 week low of $1.1144.
• The USD/JPY pair refreshes the daily tops and heads back towards two-week tops of 110.32 amid an improvement in the risk sentiment, as reflected by the advance in the S&P 500 futures. Markets cheer the recent shift in the US outlook towards China’s Huawei.
Latest highs near 110.30 and 100-day simple moving average (SMA) around 110.50 seem adjacent upside caps for the quote’s rise, a break of which can escalate the recovery towards 50-day SMA level of 111.10.
On the flipside, 109.70 and 109.00 can limit the pair’s downside ahead of highlighting January-end low near 108.50.
Support levels: 109.45 109.10 108.80
Resistance levels: 110.10 110.50 110.85
• EUR/USD continues suffering from downward momentum on the four-hour chart, and also trades below the 50, 100, and 200 Simple Moving Averages. Moreover, the Relative Strength Index is above 30, not indicating oversold conditions. Overall, the outlook is bearish.
Initial support awaits at 1.1150, which was the low point on Monday. The next significant support line is already the 2019 low of 1.1110. Below this level, we are back to prices last seen in 2017, such as 1.1025 and 1.0900.
Looking up, 1.1175 was the high point on Monday. The next significant cap is at 1.1225, which held down the pair twice last week. The next level is 1.1265, that served as resistance three times in May.
• GBP/USD RATE DAILY CHART
Keep in mind, the broader outlook for GBP/USD is no longer bullish as the exchange rate snaps the upward trend from late last year after failing to close above the Fibonacci overlap around 1.3310 (100% expansion) to 1.3370 (78.6% expansion).
In turn, the advance from the 2019-low (1.2373) may continue to unravel as the Relative Strength Index (RSI) highlights a similar dynamic, with the oscillator now tracking the bearish formation carried over from March.
The break/close below the Fibonacci overlap around 1.2760 (38.2% retracement) to 1.2800 (50% expansion) brings the 1.2610 (23.6% retracement) to 1.2640 (38.2% expansion) region on the radar, but will keep a close eye on the RSI as it struggles to push into oversold territory, with failure to hold below 30 raising the risk for a rebound in the exchange rate.
• Fed Philadelphia President Harker says asset bubble risk are concerning to him.
Philadelphia #Fed President Harker says he sees one rate hike this year, echoing his earlier sentiment.
• The US government on Monday (May 20) eased some restrictions imposed last week on China's Huawei, a sign of how the prohibitions on the telecommunications company may have far-reaching and unintended consequences.
The US Commerce Department will allow Huawei Technologies to purchase American-made goods in order to maintain existing networks and provide software updates to existing Huawei handsets.
The roll back, which is in effect for 90 days, suggests changes to Huawei's supply chain may have immediate, far-reaching and unexpected consequences.
• Google — as Qualcomm, Intel, Microsoft, Corning, even companies like Dolby and many others — are US-based companies bound to US law. That means that this company has to stop any business with the Huawei: from selling them the glass for their screen to the OS for their computers and phones, to processors and modems, to apps and services like YouTube and Gmail.
According to Avi Greengart — founder of consumer electronics market analysis firm Techsponential — this effectively puts Huawei out of business outside of China. In an email interview, Greengart told Tom’s Guide that “Huawei cannot sell smartphones outside China without Google’s Android operating system, Google’s PLAY store, and regular software and security updates. Inside China, Huawei can use the portions of Android that are open source and its own app store.”
According to Greengart, Xiaomi and OPPO, two other Chinese companies expanding around the world, should immediately pick up sales. “Samsung could see a small uptick in flagship sales as well, particularly if Huawei is not able to resume sales and support when the Galaxy Fold and the next Note start shipping later this summer,” Greengart says.
But that is “short term”. Perhaps Huawei will get out of its blacklist status as soon as China and the US reach a trade agreement. Or perhaps the blacklist will continue and Xiaomi and Oppo will be added.
Many US companies will feel the impact, not big — like Intel, Microsoft, Qualcomm — and small firms — like Corning glass and Dolby. “Technology companies that count Huawei as a large customer will lose out on revenue and growth,” says Greengart, “Huawei’s device sales have been rising rapidly, which ripples throughout its supply chain.”
There’s more pain ahead for the U.S. and China as their bilateral trade dispute drags on, an expert forecast on Tuesday.
“It’s going to get worse before it gets better,” said Curtis Chin, an Asia fellow at the Milken Institute, a think tank.
• Australia’s central bank will consider cutting interest rates next month, Governor Philip Lowe said on Tuesday as the resource-rich economy looked set to join some of its global counterparts in easing financial conditions to boost growth.
Lowe also urged the country’s newly re-elected government to do its part by slashing income taxes and boosting spending, as inflation and wages growth lagged the central bank’s expectations.
A cut would be the first in almost three years for the Reserve Bank of Australia (RBA), which last eased policy to a record low 1.50% in August 2016.
• Singapore’s annual economic growth slipped to the lowest in nearly a decade in the first quarter as manufacturing contracted in the wake of a protracted Sino-U.S. trade war, prompting a downgrade to the city-state’s full-year growth forecast.
Gross domestic product (GDP) expanded 1.2% year-on-year in the three months ended March 31, final official data showed on Tuesday, down slightly from the 1.3% seen in the government’s advance estimate and the fourth quarter’s revised 1.3% pace.
As broad economic momentum cooled, policymakers downgraded their 2019 growth forecast to 1.5%-2.5%, from 1.5%-3.5% previously.
“Uncertainty from the trade tensions (between U.S. and China) have already affected the sectors Singapore has relied on in the last two years, ” said Jeff Ng said, head of Asia research at Continuum Economics.
“The outlook is quite cloudy at the moment.”
• Iranian President Hassan Rouhani said he favors talks and diplomacy but not under current conditions, state news agency IRNA said late on Monday.
“Today’s situation is not suitable for talks and our choice is resistance only” IRNA quoted Rouhani as saying.
U.S. President Donald Trump said earlier on Monday that Iran would be met with “great force” if it attempted anything against U.S. interests in the Middle East, adding that Tehran has been very hostile toward Washington.
• Oil prices rose on Tuesday on escalating U.S.-Iran tensions and amid expectations that producer club OPEC will continue to withhold supply this year.
But gains were checked by concerns that a prolonged trade war between Washington and Beijing could lead to a global economic slowdown.
Brent crude futures, the international benchmark for oil prices, were at $72.18 per barrel at 0651 GMT, up 21 cents, or 0.3 percent, from their last close.
U.S. West Texas Intermediate (WTI) crude futures were up 31 cents, or 0.5 percent, at $63.41 per barrel.
• CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices remain capped below a dense bloc of overlapping resistance levels in the 63.59-67.03 area. Near-term support is at 60.39, with a daily close below that exposing the 57.24-88 area. Alternatively, a push all the way through resistance targets the $70/bbl figure thereafter.
Reference: Reuters, CNBC, FX Street, The Thaiger
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