Daily Analysis - 12/07/2018
Trade war headlines were in full effect on Wednesday and weighed on commodities as well as stocks. The dollar is benefiting though. There is some calm in today’s markets and some of Wednesday’s worst FX performers such as the Aussie are making a steady recovery. It remains to be seen what will be the main developments especially for the primary players in this trade war – US, China, EU, Mexico and Canada. How will China retaliate to the $200 billion threat of new tariffs the Trump administration announced earlier this week?
The greenback has broadly gained as a result of trade war concerns and is expected to appreciate further if tensions escalate. The dollar strengthened even against the safe haven yen, with USDJPY rising above 112-yen. If the Trump administration puts auto tariffs into practice then this could lead to further yen depreciation as these would impact Japan as well.
WTI oil plunged more than 6% on Wednesday on fears of a slowdown in global growth and renewed angst that trade war will damp demand for commodities. Crude oil dipped to test the $70 a barrel level.
US data will be closely watched today and will determine the dollar’s direction. Aside from the weekly initial jobless claims, the most important data point will be the June inflation report. Both core and headline CPI are expected at 0.2%.
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