· The dollar headed toward a four-week low against its rivals on Wednesday on concerns that elevated trade tensions between Washington and Beijing will continue to weigh on the global growth outlook.
U.S.-China ties came into focus again as the yuan fell after Beijing criticized new U.S. legislation seen as supportive of pro-democracy protests in Hong Kong.
“The cost of taking this dispute to its next stage of escalation has exponentially increased,” Morgan Stanley strategists said in a daily note adding that U.S. and China might adopt a more nuanced approach on the trade conflict in the coming days.
But on Wednesday, those tensions showed no signs of ebbing with the greenback .DXY fragile at 98.16, its lowest level since Sept. 20.
The Chinese currency also weakened.
In the onshore market, the yuan CNY=CFXS fell around 0.22% to 7.0973 per dollar. In the offshore market, the yuan CNH=D3 was off more than 0.2% to 7.1028 versus the dollar.
The yen JPY=EBS rose slightly to 108.66 per dollar, pulling away from a two-month low.
· EUR/USD technical analysis: Lack of momentum between 21/50-day SMA
With its another failure to rise past-50-day Simple Moving Average (SMA), EUR/USD declines to 1.1030 during early Wednesday.
The quote now aims to revisit an upward sloping support line since the month’s start, at 1.1010. Though, the pair’s further downside could be limited by 21-day SMA level of 1.0985.
In a case where bears refrain from respecting short-term moving average, 1.0930/25 and monthly bottom surrounding 1.0880 could flash on their radars.
Alternatively, the pair’s successful run-up beyond 50-day SMA level of 1.1040 can escalate the recovery towards 38.2% Fibonacci retracement of June-September downside, at 1.1080.
However, 1.1140/45 region encompassing 100-day SMA and 50% Fibonacci retracement could keep buyers troubled during the quote’s rise above 1.1080.
It should also be noted that 14-bar Relative Strength Index (RSI) stays inside normal territory between 70 and 30 levels, which in turn signals continuation of the present trading pattern.
· China will take countermeasures against the U.S. in response to a bill that favors the Hong Kong protesters, the Chinese Foreign Ministry said Wednesday.
On Tuesday in Washington, the U.S. House of Representatives passed the “Hong Kong Human Rights and Democracy Act.” The bill requests that various government departments consider whether recent political developments in Hong Kong require the U.S. to change the region’s special trading status. Hong Kong is a special administrative region of China, and exports from the mainland traveling through Hong Kong can potentially evade U.S. export controls and sanctions.
“If the relevant bill is finally passed into law, not only will it hurt Chinese interests and China-U.S. relations, but also seriously damage U.S. interests,” Geng Shuang, Ministry of Foreign Affairs spokesperson, said in a Chinese-language statement translated by CNBC.
“Regarding the wrong decision of the U.S., the Chinese side will have to enact effective countermeasures, firmly safeguard Chinese sovereignty, security and development interests,” he said.
· There’s an “uncomfortably high” chance that a recession could hit the global economy in the next 12-18 months — and policymakers may not be able to reverse that course, an economist said on Wednesday.
“I think risks are awfully high that if something doesn’t stick to script then we do have a recession,” said Mark Zandi, chief economist of Moody’s Analytics. “I’ll say this also: Even if we don’t have a recession over the next 12-18 months, I think it’s pretty clear that we’re going to have a much weaker economy.”
Avoiding a slowdown in economic activity requires many factors to “stick to script” at the same time, he said. That includes U.S. President Donald Trump not escalating the tariff war with China, the U.K. finding a resolution to Brexit and central banks continuing their monetary stimulus, Zandi explained.
· On Tuesday, the International Monetary Fund made a downward revision to global growth.
In its World Economic Outlook report, the IMF forecast that the global economy will grow 3% this year and 3.4% in 2020. That’s lower than the 3.2% and 3.5% — for 2019 and 2020, respectively — that the fund projected in July.
The fund blamed the “subdued growth” partly on rising trade barriers and heightened geopolitical tensions, and called for a “balanced” way to fend off those risks.
“Monetary policy cannot be the only game in town and should be coupled with fiscal support where fiscal space is available and where policy is not already too expansionary,” the IMF said.
· Negotiators from the U.K. and EU are entering their final day of talks Wednesday with hopes that a deal can be reached before a crucial EU summit.
A deal needs to be reached today if it stands any chance of being approved by the EU, and then by the U.K. at the weekend.
If a deal is not approved by October 19, U.K. Prime Minister Boris Johnson is legally obliged to ask the EU for an extension to the current departure date of October 31.
· China’s central bank extended loans through its medium-term lending facility (MLF) on Wednesday while keeping the lending rate unchanged.
The People’s Bank of China (PBOC) said on its website the interest rate on one-year MLF loans remained at 3.3%, the same as the previous operations.
The PBOC also said it has injected 200 billion yuan ($28 billion) into financial institutions via the liquidity tool.
· The Bank of Japan is laying the groundwork for deepening negative interest rates, analysts polled by Reuters said, with two-thirds of respondents expecting the central bank to loosen monetary policy this month.
· Bank of Japan Governor Haruhiko Kuroda said on Wednesday that the central bank would continue with large-scale monetary easing to achieve its 2% inflation target, and that it would adjust its increased balance sheet when the price goal is met.
· There is a “glimmer of hope” that a Brexit deal can be reached before Britain’s departure due on Oct. 31, French Finance Minister Bruno Le Maire said on Wednesday.
· China’s economic growth is expected to slow to a near 30-year low of 6.2% this year and cool further to 5.9% in 2020, a Reuters poll showed, underlining the stiff challenge faced by Beijing even as it steps up stimulus amid a bruising Sino-U.S. trade war.
The median forecast for 2019 growth is near the lower end of the government’s target range of 6-6.5%, and would be the weakest expansion for the world’s second-biggest economy since 1990.
The poll of 83 analysts also forecast third-quarter growth at 6.1% year-on-year, lower from 6.2% in the last survey done in July and a touch below the 6.2% pace in the second quarter.
· President Tayyip Erdogan told U.S. President Donald Trump that Turkey will never declare a ceasefire in northeastern Syria and that it will not negotiate with Kurdish forces it is fighting in its offensive into the region.
On Monday, Trump announced sanctions on Turkey to punish it for the offensive. On Tuesday, a senior U.S. official said Washington would threaten more sanctions to persuade Turkey to reach a ceasefire and halt its offensive.
· Leaders of the U.S. Senate and House of Representatives, as well as the congressional foreign affairs and armed services committees are to meet with President Donald Trump at the White House on Wednesday to discuss the situation in Syria, congressional aides and an administration official said.
The meeting coincides with growing unease among members of the U.S. Congress, including some of Trump’s fellow Republicans, about Trump’s decision to withdraw U.S. forces from northeastern Syria, creating an opening for a Turkish offensive against U.S.-allied Kurdish militia who were fighting Islamic State alongside the Americans.
· Oil prices rose on Wednesday, tracking gains in equities, as investors pinned hopes on a potential Brexit deal between Britain and the European Union and on signals from OPEC and its allies that further supply curbs could be possible.
But gains were limited due to lingering concerns of a global economic slowdown.
Global benchmark Brent crude oil futures had risen 21 cents to $58.95 by 0310 GMT, up about 0.3% from the previous day’s close. U.S. West Texas Intermediate (WTI) crude had gained 16 cents or 0.3% to $52.97 a barrel.
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