· The dollar struggled near seven-week lows on Wednesday after U.S. central bank officials hinted at the possibility of an interest rate cut in the face of rising risks to trade and global growth.
The dollar index against a basket of six peers was last flat at 97.077, within reach of a recent low of 96.995 brushed overnight - its lowest since April 18. It has now fallen 1.3% from a more than two-year high of 98.371 touched on May 23.
Australia’s central bank on Tuesday slashed benchmark cash rates to a record low of 1.25% and signalled willingness to go further if the worsening outlook persists.
Last month, New Zealand’s central bank cut its benchmark interest rate for the first time in two-and-a-half years as it moved to support a cooling economy and counter global uncertainties.
In South Korea, its central bank last week kept policy settings unchanged but adopted a more accommodative tone while India is expected to cut rates at its policy meeting on Thursday.
· The USD/JPY pair manages to defend the 108 handle amid risk-on action in the Asian equities and US equity futures, fuelled by Fed Chair Powell’s readiness to the cut rates if needed.
Disrespecting its bounce from nearly one-month-old support-line and a pullback from 38.2% Fibonacci retracement, the USD/JPY pair is taking the rounds near 108.10 during early Wednesday.
While a break of 107.70 trend-line support can be followed by the January 04 lows around 107.50, an upside clearance of 108.35, comprising 38.2% Fibonacci retracement of November to January downturn, can aim for mid-May month low surrounding 109.00.
Considering the oversold levels of 14-day relative strength index (RSI), chances of the pair’s upside are much brighter than alternatively. In that case, pair’s rally past-109.00 may be challenged by the immediate resistance-line near 109.60.
Additionally, pair’s capacity to clear 109.60 resistance-line might not hesitate to target 100-day SMA and 61.8% Fibonacci retracement confluence around 110.60.
On the contrary, pair’s slump under 107.50 can please sellers by April 2018 bottom near 106.60 whereas 105.30 and the year 2019 low of 104.75 may entertain them afterward.
· U.S. government debt prices traded mostly higher on Wednesday as investors digested comments from Federal Reserve Chair Jerome Powell.
The yield on the benchmark 10-year Treasury note was down at 2.1140%, while the yield on the 30-year Treasury bond was trading flat at 2.6062%. Bond yields move inversely to prices.
· More than one year since the start of a trade war between Washington and Beijing, economists from Japanese investment bank Nomura found evidence that the U.S. and China — in order to avoid elevated tariffs — have cut down importing certain goods from each other.
Instead, importers in the two countries have been sourcing for the same products from alternative locations not targeted by tariffs, the economists said in a report outlining their findings. Vietnam has so far emerged as the largest beneficiary of that diversion in trade flows, gaining an estimated 7.9% of its gross domestic product from those new business, according to Nomura.
That tariff fight has resulted in the U.S. and China importing fewer goods from each other, especially products subject to higher levies, said Nomura. In addition to Vietnam, the other major beneficiaries from the trade war are Taiwan, Chile, Malaysia and Argentina, the bank said.
· Automatic Data Processing the private payroll company will issue its National Employment Report on Wednesday June 5th at 8:15 am EDT, 12:15 pm GMT.
Forecast
The US clients of ADP are predicted to increase their payrolls by 183,000 in May following April's addition of 275,000 new employees.
The ADP report on the payrolls of its clients is seen as an accurate if partial map to the government job report issued two days later.
The performance of the US labor market in creating employment over the past two and a half years shows no indication of faltering. If there is a modest drop in job creation as predicted for ADP and NFP in May it will only slide to levels that in other times would be considered excellent.
· Raging global trade tensions are likely to force some finance leaders from Group of 20 nations meeting in Japan this weekend to issue stark warnings about risks to the world economy, challenging the forum’s more upbeat outlook on global growth.
In a communique set for release after the meeting, the G20 finance ministers and central bank heads are expected to maintain a view that global economy will pick up through next year, said two officials from G20 member countries.
The two-day G20 meeting kicking off on Saturday in Fukuoka, southern Japan, will lay the groundwork for a leaders’ summit in Osaka on June 28-29.
Trump has said he expects to meet Chinese President Xi Jinping at the summit, though China has declined to confirm this.
U.S. Treasury Secretary Steven Mnuchin will meet People’s Bank of China Governor Yi Gang in Fukuoka, which will be the first face-to-face discussion between key members of the two countries’ trade negotiation teams since talks broke down a month ago.
· Defying increasing criticism from within his own party, U.S. President Donald Trump said on Tuesday he would likely go ahead with new tariffs on imports from Mexico to pressure it to clamp down on rising numbers of migrants entering the United States.
Trump told a news conference in London he expected to impose 5% tariffs on Mexican imports from Monday, citing the high number of mostly Central American immigrants crossing the U.S. southern border with Mexico.
Trump has threatened to increase the tariffs on Mexico to as high as 25% later this year if the Mexican government does not do more to stop the migrants.
· The International Monetary Fund (IMF) on Wednesday cut its 2019 economic growth forecast for China to 6.2% on heightened uncertainty around trade frictions, saying that more monetary policy easing would be warranted if the Sino-U.S. trade war escalates.
The downgrade came just two months after the IMF raised its China growth forecast to 6.3% from 6.2%, underlining the expected drag on the world’s second-biggest economy from higher U.S. tariffs on billions of dollars of Chinese goods.
“Growth is expected to moderate to 6.2% and 6.0% in 2019 and 2020, respectively,” said the IMF’s Deputy Managing Director David Lipton in a statement. “The near-term outlook remains particularly uncertain given the potential for further escalation of trade tensions.”
· David Malpass, the new president of the World Bank who was tapped for the job by Donald Trump, has lamented a “deepening slowdown in global trade” but refrained from rebuking the White House with a more pointed call for de-escalation.
Mr Malpass’s comments on Tuesday came as the multilateral lender downgraded its global growth forecasts to 2.6 per cent for 2019, from a projection of 2.9 per cent in January — the latest in a series of gloomy economic projections by international economic institutions.
· The European Central Bank meets on Thursday, with investors looking to see how concerned policymakers are about signs of a downturn in growth.
Speculation that the ECB will match Fed dovishness and possibly even announce looser terms for a new cheap lending scheme sent German 10-year government bond yields to a record low of minus 0.2250%.
The euro was up 0.1% at $1.1260, extending gains to a fourth session.
Recession fears are sweeping across the world and central banks have in recent weeks cut rates in what could signal the start of a global monetary easing cycle.
· China’s determination to resist U.S. bullying in two years of negotiations to end the Korean War is a reason not to bow to Washington in bitter trade talks, a top Chinese newspaper suggested on Wednesday.
· Chinese importers are preparing applications for waivers on import tariffs levied on more than 700 U.S. goods in the Sino-U.S trade war, after the Ministry of Finance said it would start taking submissions.
A list of goods on which waivers may be granted includes meats such as beef and pork, soybeans, coal and copper scrap, according to a ministry website.
The waivers are for tariffs imposed in July last year on $50 billion worth of U.S. goods in retaliation for similar measures taken by Washington. Beijing has since imposed additional tariffs on thousands of goods as a bitter trade war has escalated.
Other goods on the list include tractors, motorbikes, mountain bikes and some pieces of medical equipment.
The ministry did not say when waivers would be granted
· North Korea warned the United States that agreements made between the two countries’ leaders in Singapore last year could be at risk, blaming the United States for undue pressure to denuclearize, state news agency KCNA said on Tuesday.
North Korea warned that if the United States does not come up with something new “before it is too late”, the joint statement would just turn out to be a “mere blank sheet of paper”.
· President Donald Trump said there is “always a chance” the U.S. could take military action against Iran, but he would much rather hold talks with President Hassan Rouhani.
Speaking to British television station ITV in an interview published on Wednesday, the U.S. president said: “Iran is a place that was extremely hostile when I first came into office... They were a terrorist nation, number one in the world at that time and probably maybe are today.”
· Oil prices resumed their slide on Wednesday, dragged down by a surprise gain in U.S. inventories and comments from the head of Russian state oil producer Rosneft questioning the point of a deal with OPEC to withhold supplies.
Brent futures were down 27 cents, or 0.4%, at $61.70 a barrel by 0152 GMT. They rose 1.1% on Tuesday after a near 13 percent fall in the previous four sessions.
U.S. West Texas Intermediate (WTI) crude was down by 32 cents, or 0.6%, at $53.16 a barrel. The U.S. benchmark closed 0.4% higher on Tuesday.
Oil prices have fallen sharply on fears about slowing global demand, but won a respite on Tuesday after a global stock market rally on hopes of a cut in U.S. interest rates.
U.S. crude stocks rose unexpectedly last week, while gasoline and distillate inventories built more than expected, industry group the American Petroleum Institute said on Tuesday.
Crude inventories rose by 3.5 million barrels in the week to May 31 to 478 million, compared with analysts’ expectations for a decrease of 849,000 barrels.
Official numbers from the U.S. Energy Information Administration (EIA) are due out later on Wednesday.
· CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices are idling above support in the 50.31-51.33 area. A break below it confirmed on a daily closing basis opens the door for a challenge of support set from September 2016 in the 42.05-43.00 zone. Alternatively, a rebound back above 55.75 targets the 57.24-88 region next.
Reference: Reuters, CNBC, FX Street
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