· The dollar edged away from two-year highs on Friday after weak U.S. manufacturing activity data sparked worries that the trade conflict with China may hurt the world’s largest economy and affect the currency’s safe-haven status.
Against a basket of six major currencies, the dollar was down 0.2% at 97.686 in early European trade and 0.7% off a two-year high of 98.371 hit the previous session.
· “Lot of people for good reasons thought trade wars may be U.S. dollar-positive and other countries cannot retaliate,” said Commerzbank FX strategist Ulrich Leuchtmann.
“But in reality, it’s more difficult. This very disappointing PMI data and other factors like the Huawei story are all creating stress for the U.S. economy and derailing sentiment.”
Escalating trade tensions and weak data have fuelled rate cut expectations from the Fed. Money markets broadly expect one rate cut by October followed by another by January 2020.
· The dollar weakness helped sterling recover slightly from a 4-1/2 month low while the euro briefly inched above $1.12 to hit a one-week high.
The euro might have also been helped by the Dutch part of the EU parliamentary elections, in which an exit poll showed the Labour party of European Commissioner Frans Timmermans won a surprise victory over a Eurosceptic challenger who had been topping opinion surveys.
· Against the yen, the dollar edged down to 109.50 yen, extending losses overnight, when it gave up two-thirds of a percent, its steepest drop in a single session in two months.
· At around 03:40 a.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was higher at around 2.3185%, while the yield on the 30-year Treasury bond was also lower at around 2.7534%.
Market focus is largely attuned to global trade developments, with the world’s two largest economies locked in an intensifying dispute.
On the data front, durable goods figures for April will be released at around 8:30 a.m. ET.
· The UK is scheduled to publish its Retail Sales report for April this Friday at 8:30 GMT. According to preliminary estimates, sales are expected to have declined by 0.3% in April, after advancing 1.1% in March. The core monthly reading, which excludes volatile oil prices, is seen decreasing by 0.5%. Yearly basis, retail sales are seen up by 4.6% vs. the previous 6.7% gain.
The UK is not doing good in the data front lately, but as inflation released earlier this week missed the market's expectations. The yearly CPI resulted at 2.1%, better than the previous 1.9%, although below the 2.2% expected. Still, data is the lesser of the concerns for those aiming to buy the Sterling, as Brexit keeps stealing the show.
GBP/USD Technical Outlook
In this scenario, the GBP/USD pair lost roughly 600 pips ever since topping at 1.3176 this month, and despite a modest bounce Thursday, the extreme oversold conditions persist. Even a better-than-expected Retail Sales' outcome, would likely fall short of moving much the Pound to the upside, and the most likely scenario is that any spike would likely attract sellers. The bearish scenario is will likely be exacerbated by a disappointing figure, with the pair then poised to break below 1.2600.
· The overnight recovery in USD/JPY lost legs at 109.75 levels and the sellers returned amid a drop in the Asian equities. The spot now looks to test the midpoint of the 109 handle despite the rebound in the Treasury yields and S&P 500 futures. Focus on US data.
Although 38.2% Fibonacci retracement triggered USD/JPY pullback to 109.55 during early Friday, pair’s weakness can’t be ignored unless clearing near-term important resistance confluence.
As a result, the break of 109.45 can exert fresh selling pressure towards current month low near 109.00 whereas 50% Fibonacci retracement of January to April upside, at 108.60, may flash on seller’s screen then after.
If at all bears dominate prices sentiment past-108.60, 108.00, 107.75 and 107.45 could become their favorites.
Alternatively, 110.00 round-figure may lure buyers in the process of latest U-turn ahead of pushing them to 110.55/60 resistance-confluence comprising 23.6% Fibonacci retracement and 100-day simple moving average (SMA).
It should be noted that an upside beyond 110.60 could validate the pair’s rise to 111.00 and 111.80.
· President Donald Trump’s trade war against China has so far focused on attacking imports. His new front: Weaponizing American exports.
The Trump administration is seeking to choke off Beijing’s access to key technologies by limiting the sale of vital U.S. components to China’s Huawei Technologies Co. The U.S. is considering putting at least five Chinese surveillance companies on the same blacklist.
Some U.S. businesses fear the export controls more than tariffs. Companies like General Electric, Google and Microsoft are worried it could bar them from competing in lucrative markets while reducing America’s capacity to innovate.
· Chinese technology giant Huawei has enough inventory to sustain its smartphone and 5G networking equipment business for most of the rest of the year, investment group CLSA predicts.
Huawei subsidiary HiSilicon, which designs chips for Huawei equipment, has been increasing its capability in the last few years, and is able to supply 80% to 90% of Huawei’s needs, according to Sebastian Hou, investment analyst at CLSA.
But Huawei’s survival is ultimately dependent on Taiwanese chipmaker TSMC, CLSA said.
· The recent ratcheting up of U.S.-China trade tensions is creating uncertainties for businesses and could threaten economic growth, four Federal Reserve policymakers said on Thursday.
“I feel like the data is good, but the mood is teetering, so if we get a relaxation or a reduction in the uncertainty...then I expect the economy’s momentum to be an upside risk to growth,” San Francisco Federal Reserve President Mary Daly said at a Dallas Fed conference. “If the uncertainties persist...then I think that’s a downside to the economy, because the uncertainty has real effects, but it also has effects on confidence, and that confidence feeds back into investment.”
Richmond Fed President Thomas Barkin and Atlanta Fed President Raphael Bostic, who spoke on the same panel, also said that uncertainties around trade could hurt growth, while their resolution could boost it.
“I’m watching very carefully how these trade tensions unfold because I have a concern.. whether that could cause some deceleration in the rate of growth,” Dallas Fed President Robert Kaplan told reporters after the panel. “It’s too soon to say.”
· China on Friday denounced U.S. Secretary of State Mike Pompeo for fabricating rumors after he said the chief executive of China’s Huawei Technologies Co Ltd was lying about his company’s ties to the Beijing government.
· British Prime Minister Theresa May is expected on Friday to announce the date of her departure, triggering a contest that will bring a new leader to power who is likely to push for a more decisive Brexit divorce deal.
The treasurer of the 1922 Committee, Geoffrey Clifton-Brown, said he expected May would stay on as a caretaker prime minister while a successor was chosen.
The leadership election is likely to last about six weeks, starting on June 10, after U.S. President Donald Trump’s state visit to Britain.
May’s departure will deepen the Brexit crisis as a new leader is likely to want a more decisive split, raising the chances of a confrontation with the European Union and a snap parliamentary election.
Boris Johnson, the face of the official Brexit campaign in 2016, is the favorite to succeed May. Betting markets put a 40% implied probability on Johnson winning the top job.
Others tipped by betting markets are Dominic Raab, a Brexit supporter and former Brexit secretary. Betting markets put a 14% implied probability on his chances.
· President Donald Trump said on Thursday he did not think additional U.S. troops are needed in the Middle East to counter Iran, casting doubt on a Pentagon plan to bolster forces in the region.
Reuters reported on Wednesday that the Pentagon was considering a proposal to send about 5,000 troops while other media reported that up to 10,000 could be deployed.
· Oil prices recouped around 1% on Friday but were on track for their biggest weekly loss this year after swelling inventories and jitters over an economic slowdown led to big falls earlier in the week.
Brent crude futures were at $68.48 per barrel at 0654 GMT, up 72 cents, or 1.1%, from their last close, with prices underpinned by OPEC supply cuts and Middle East tensions.
U.S. West Texas Intermediate (WTI) crude futures were up 66 cents, or 1.1%, at $58.57 per barrel.
· CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices sank to support in the 57.24-88 area, setting a three-month low along the way. A daily close below this boundary targets the 55.37-75 zone next. Near-term resistance is in the 60.39-95 region, with a break above that eyeing a dense block of overlapping barriers starting at 63.59 and running to 67.03.
Reference: Reuters, CNBC, FX Street, Bloomberg, Daily FX
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