One minute, we're not done with tariffs yet

US Session Forex Brief, May 6 – Trade Tensions Increase Again, the Sentiment Turns Negative

Posted Monday, May 6, 2019 by
Skerdian Meta • 4 min read

In the recent months, the sentiment has improved somewhat in financial markets and risk assets such as stock markets have benefited from the shift in the sentiment. Although, in the last few weeks markets were sort of skeptical and we have seen USD/JPY trade sideways mostly. But Donald Trump never lets markets get too boring. In fact, he loves messing with them. Yesterday, Trump tweeted that he is going to go full steam ahead on trade tariffs on China and increase them from 10% to 25% on $200 billion worth of Chinese goods. Below is the tweet if you missed it:

That hurt the sentiment and sent safe havens higher when markets opened in the Asian session. China replied as Wall Street Journal posted early in the morning. They are now considering cancelling this week’s trade talks with the US. Everything was going smooth with the trade negotiations until Trump went and ruined everything once again and now we are in no man’s land as markets are trying to weigh the impact of the new tariffs and figure out what to do in the meantime. We also heard rumours for more sanctions on Iran, so expect things to get worse before getting better.

European Session

  • Spanish Services PMI – The services sector has been holding up well in Spain despite the global slowdown and in March the services PMI indicator jumped higher to 56.8 points from 54.5 previously. Today’s report which was for April was expected to show a cool off and decline to 54.9 points. But, it missed expectations falling to 53.1 points which puts the strength of this sector in question now.
  • Italian Services PMI – The services sector has been holding on just above contraction in Italy during the last several months and it did dip into contraction a couple of times since last Autumn. But in March it also posted a nice jump to 53.1 points as the PMI indicator showed. Today’s report was expected to show another increase to 54.4 points for April, but we saw a turnaround and the actual number came at 50.4 points which is close to contraction once again.
  • French Final Services PMI The services sector fell in deep contraction in France at the beginning of this year and it has been the weakest in the Eurozone. Yellow vests protests had an impact on it as well. But it started to improve as the new year went by and last month it came out of contraction. This report was expected to remain the same in April as well and the actual number came as expected at 50.5 points.
  • German Final Services PMI Services have been holding up in Germany as well, apart from January when they edged closer to contraction. But the trouble in Germany remains in the manufacturing sector. The services PMI indicator came at 55.6 points last month and its was expected to tick higher today to 55.7 points for April, which it did. So, this sector remains in good shape in Germany.
  • Eurozone Final Services PMI – This sector also edged closer to contraction in December and January for the whole of the Eurozone but it has been improving since then. In March, the PMI indicator stood at 52.5 points and in April it was expected to increase to 52.8 points. It came as expected, so the decline in Italian and Spanish services didn’t have much impact on the Eurozone services.
  • Eurozone Sentix Investor Confidence – The investor confidence turned negative in December last year and it remained negative until last month. It was expected to turn positive today and this indicator was expected to come at 1.1 points. But, it beat expectations and jumped to 5.3 points which is a nice reversal.
  • Eurozone Retail Sales – Retail sales posted a massive decline in December last year as January’s report showed. But, they turned positive again in January and February, but were expected to turn negative again in March and post a 0.1% decline. But today’s report showed that sales fell flat in March. At least sales didn’t decline as expected. The previous month was revised higher as well to 0.5% from 0.4%. Retail sales YoY also came higher at +1.9% vs +1.8%. Prior YoY sales were also revised higher to +3.0% from +2.8% previously. But this is a lagging data point and Q1 is already behind us, so the Euro is ignoring the report.

US Session

  • FOMC Member Williams Speaks – Federal Reserve Bank of New York President John Williams is due  to speak at the Annual Bronx Bankers Breakfast in New York. Audience questions are expected so it will have some interest for traders to follow, but don’t expect any big change in the rhetoric.
  • BOC Gov Poloz Speaks – Bank Of Canada Governor Stephen Poloz is due to speak about the future of Canada’s mortgage market at an event co-hosted by the Canadian Credit Union Association and Winnipeg Chamber of Commerce in Winnipeg. Audience questions are expected. The text of the speech is due to be released at 17:45 GMT but the speech is scheduled for delivery 15 minutes later.

Bearish AUD/USD

  1. The main trend is bearish
  2. The pullback higher is over
  3. The 20 SMA is now pushing the price lower
  4. Fundamentals keep going against the Aussie

The trend is strong if the 20 SMA is pushing the price down

Last week we had a sell signal in AUD/USD. This pair was retracing higher when we opened the signal but the main trend has been bearish for quite some time. We booked profit on that signal at the end of last week but I’m thinking of opening another one today. The fundamentals have turned even more bearish after the additional tariffs that Trump is threatening to add on China, hence the gap last night.

In Conclusion

The services data from the Eurozone was sort of mixed again and it has left traders with no clues as tp where this sector will head next. But, the markets are already on a bearish mode as the sentiment turns negative once again after Donald Trump’s tweet on more tariffs on China. This comes when everyone was thinking that a trade agreement would be struck soon between the two giants. So we are back to square one with the trade war.

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