· The yen gained slightly and the yuan slipped on Monday as investors nervously awaited U.S.-China talks this week for signs of whether the two sides can de-escalate or end their punishing trade war.
Risk appetite soured noticeably after Bloomberg reported that Chinese officials are signalling they are increasingly reluctant to agree to a broad deal pursued by U.S. President Donald Trump.
The Japanese yen, regarded as a safe haven by virtue of Japan’s status as the world’s biggest creditor, edged up 0.1% to 106.79 per dollar.
The Chinese yuan, the currency most exposed to trade-war tensions, fell more than 0.3% to 7.1356 per dollar in offshore trade. There was no onshore trading as Monday is the last day of China’s long holiday break for its national day.
· Other trade-exposed currencies such as the Australian dollar and the Korean won also fell on doubts that much will be achieved at the trade negotiations.
Deputy-level meetings will be held on Monday and Tuesday, with top-level talks scheduled for Thursday and Friday, when Chinese Vice Premier Liu He meets U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in Washington.
Global markets have been on a roller coaster ride this year as hopes for a deal have waxed and waned, while weak economic data in Europe, the United States and China have added to evidence that the tensions are dragging on global trade and growth.
The jitters knocked the dollar from a two-year high last week, and it remained subdued on Monday. Against a basket of major currencies it was steady at 98.818 — almost a percentage point below its week-ago peak.
Signals from both sides in the lead-up to the trade talks have been mixed.
Trump last month delayed hiking levies on $250 billion worth of Chinese imports from Oct. 1 to Oct. 15, “as a gesture of good will,” while China has again begun purchasing U.S agricultural goods.
As the dollar has lost momentum, the euro stood at $1.0979, up 0.03% in Asia, recovering little by little after having hit a near 2-1/2-year low of $1.0879 last Tuesday.
Sterling was little changed at $1.2325, with uncertainties over Brexit keeping many investors on the sideline.
With only a few weeks until UK’s scheduled exit from the European Union on Oct. 31, British Prime Minister Boris Johnson is seeking significant changes to how the contentious issue of the Irish border is dealt with.
· US Dollar Technical Forecast for Q4: Reversal Potential Remains
For Q4, the DailyFX Technical Forecast looked at the short-side of the Greenback, anticipating a reversal after the build of a rising wedge formation over the past couple of years. While timing reversals is generally a difficult task, the fact that USD-bulls have continually shied away from fresh highs, similar to what was seen in early-August, early-September and now early-October; the onus remains on bulls to further drive to fresh highs before this formation is invalidated. This technical backdrop appears to mesh well with the fundamental outlook for the currency as the Federal Reserve simply has more room to loosen policy and, as reiterated numerous times already, the FOMC will do whatever they need to do to keep the current expansion in-place.
· U.S. President Donald Trump, under pressure as Democrats pursue an impeachment inquiry against him, lashed out at the top Democrat in Congress on Sunday, saying House Speaker Nancy Pelosi could be guilty of treason.
· German industrial orders fell slightly more than expected in August on weaker domestic demand, data showed on Monday, adding to evidence that manufacturers in Europe’s largest economy are experiencing a tough third quarter.
Contracts for ‘Made in Germany’ goods fell 0.6% from the previous month, with demand for capital goods down 1.6%, the Economy Ministry said. The overall monthly fall compared with a Reuters consensus forecast for a drop of 0.3%.
· A key Japanese economic index fell in August and the government on Monday downgraded its view to “worsening”, indicating the export-reliant economy might face slipping into recession.
Concerns have risen as the U.S.-China trade dispute and slowing external demand dent Japan’s economic recovery.
The index of coincident economic indicators, which consists of a range of data including factory output, employment and retail sales data, slipped a preliminary 0.4 point in August from the previous month, the Cabinet Office said on Monday.
The separate index for leading economic indicators, a gauge of the economy a few months ahead that’s compiled using data such as job offers and consumer sentiment, dropped 2.0 points from July, the Cabinet Office said.
· U.S. President Donald Trump has called his new trade deal with Japan a “phenomenal” victory for U.S. farmers.
The deal’s full text has not been released and remains classified, but congressional aides, trade experts and industry groups briefed on it say that it offers worse access to Japan for some U.S. agricultural goods than the Trans-Pacific Partnership (TPP), a now 11-country trade deal that Trump quit on his third day in office in 2017.
· Hong Kong’s anti-mask law incited another weekend of mass protests.
Despite the face mask ban, which took effect on Saturday, anti-government protesters came out in force on the weekend, many donning masks. Protesters often wear gas masks and other face coverings to protect themselves from tear gas fired by police, as well as from being identified.
Hong Kong struggled to recover on Monday, with the metro only partially functioning and infrastructure extensively damaged, after scores of protesters were arrested in violent clashes overnight that drew the first warning from the Chinese military.
· Oil prices were mixed on Monday with traders pegging cautious hopes for a rebound from last week’s losses on progress in talks on ending the U.S.-China trade war, against a backdrop of global economic slowdown weighing on future oil demand.
Brent crude futures LCOc1 edged down 1 cent to $58.36 a barrel by 0656 GMT, while U.S. West Texas Intermediate (WTI) crude CLc1 was at $52.85, up 4 cents.
Both contracts ended last week with a more-than-5% decline after dismal manufacturing data from the United States and China, as the lingering row between the world’s top economies hurts global growth and raises the risk of recession.
On the supply side, a faster-than-expected resumption in Saudi Arabia’s production after a Sept. 14 attack on key production facilities also exerted downward pressure on oil prices, although the Middle East remained tense.
Reference: Reuters, CNBC, FX Street, Daily FX
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