Fundamental Analysis

Dollar Steady After US Tariffs Took Effect, Jobs Report in Focus

July 6, 2018
The United States fired the first shots to start the trade war between the world’s two biggest economies. Tariffs on $34 billion worth of Chinese imports took effect today. As a result, the Chinese commerce ministry said that they had to respond immediately, $34 billion of US imports will face 25 percent tariffs. These imports include auto and agricultural products. The Chinese economy could suffer more than the US economy from this trade war, as the size of Chinese Imports exceeded $500 billion last year, whereas China only imported around $130 billion of U.S. goods. If this war continues with retaliation from both sides, we will be close to a new financial crisis.
The greenback held steady earlier during the Asian session as the tariffs took effect. The dollar index which measures the dollar strength against a basket of six currencies traded at a three-week low of 94.18. However, a strong ISM non-Manufacturing PMI and a slightly hawkish FOMC meeting minutes provided support to the index to bounce-off the lows and settle at 94.40. The FOMC minutes highlighted the risks to the economic outlook that are arising from the trade policies. Investors will turn their attention to the jobs data today, where the market expects that the US economy added around two hundred thousand jobs in June and the Unemployment rate stood at a historical low of 3.8%. However, the main focus will be on the average hourly earnings as a strong reading will favor the monetary policy stance of the Federal Reserve. The Average Hourly Earnings YoY is expected to tick up to 2.8% from 2.7% prior. The jobs report could increase the volatility in FX pairs and threaten support and resistance zones. The USDJPY traded in a tight range of 200 pips in the past trading month.
The British Pound erased gains yesterday after trading at a seven-day high against the United States dollar. The Sterling strengthened since the beginning of the week as the Manufacturing, Construction, and Services PMI came out better than expected. However, the outlook of the pound remains shaky as the UK and EU couldn’t reach an exit deal. Theresa May asked for a cabinet meeting today where she seeks a Brexit deal that will allow for global trade and is supported by the public and the parliament.
The Canadian Dollar traded in a tight range against the United States dollar ahead of the jobs data from both countries. USDCAD consolidated in a 50 pips range between 1.3112 and 1.3162. The pair is expected to break out of this zone as the data could enhance more volatility in the market.
Gold prices were almost steady yesterday as investors await key data. The gold bullion traded at a low of $1251 but was able to close higher at $1257.On the other hand, the Silver ounce traded in a tight range between a low of $15.93 and a high of $16.13.
Oil prices fell yesterday after the weekly U.S. crude oil inventory data from the Energy Information Administration. The EIA reported yesterday that the inventories rose by 1.245 million barrels versus an expectation of a drop by 5.2 million barrels. On the other hand, the European Union is trying to save the nuclear deal as Europe is one of the largest importers of Iranian oil. The West Texas Intermediate fell more than one percent and settled at $73.13, the lowest close in a week. The Brent oil retreated from a high of $78.45 yesterday and traded at a low of $77.08 during today’s Asian session. Oil prices could come under pressure as the trade war between China and the United States started. This trade war could affect the global economy negatively and lead to a new economic slowdown where Oil charts show that oil was vulnerable to the drawback of the global economy. On the other hand, the U.S. energy firm Baker Hughes will report the US oil rig count later today.

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